The Rise of HMRC Enforcement: What Directors of Distressed Businesses Need to Know

HMRC Is No Longer a Passive Creditor

For many business owners, HMRC was once viewed as a creditor willing to negotiate when cash flow pressures arose. That perception is changing rapidly. In recent years, HMRC has adopted a far more assertive approach to debt recovery, making greater use of enforcement powers ranging from winding-up petitions and security requirements to, in certain cases, personal liability notices.

For directors already navigating rising costs, economic uncertainty and tightening margins, understanding these powers has never been more important.

HMRC remains one of the most active petitioning creditors in England and Wales. According to an Insolvency Service Freedom of Information response, HMRC's solicitors presented 7,034 winding-up petitions in England and Wales during 2024, of which 2,614 had resulted in winding-up orders by 7 January 2025.

While complete annual figures for 2025 are not yet available, recent data indicates that HMRC's use of winding-up petitions remains at historically elevated levels. In the nine weeks to 19 August 2026, HMRC issued 806 winding-up petitions, highlighting the continued intensity of its enforcement activity.

Although HMRC will often seek engagement and pursue debt collection measures before taking formal action, it has demonstrated an increasing willingness to escalate matters where liabilities remain unpaid or communication breaks down.

Unlike many commercial creditors, HMRC does not always follow the same pre-action processes directors may be familiar with. As a result, enforcement action can arrive more quickly and with less warning than expected.

The message is clear: businesses that fall behind on their tax obligations must engage early and present a credible plan for addressing arrears.

Enforcement Agents and Taking Control of Goods

Before a winding-up petition, HMRC may instruct enforcement agents to seize business assets.

This can include:

• Vehicles
• Machinery
• Equipment
• Stock (subject to restrictions)

The process can seriously disrupt trading and is often a sign that HMRC has lost confidence in the company's ability or willingness to resolve arrears.

Winding-Up Petitions: The Ultimate Enforcement Tool

The most serious step HMRC can take against a company is the presentation of a winding-up petition.

A winding-up petition is a court application seeking to place a company into compulsory liquidation on the basis that it cannot pay its debts. Once a petition is presented, the company's position can deteriorate rapidly. Banks often freeze accounts after a petition is advertised, suppliers may withdraw credit, and customers can lose confidence.

Common triggers include:

• Significant VAT arrears
• Outstanding PAYE and National Insurance liabilities
• Unpaid Corporation Tax
• Failed or breached Time to Pay arrangements

Many directors mistakenly assume HMRC will continue to negotiate indefinitely. In reality, once a petition has been issued, the range of available options narrows considerably, making swift professional advice essential.

Security Requirements: A Warning Sign Directors Should Not Ignore

Where HMRC believes there is a heightened risk of future non-payment, it can require a business to provide security against future tax liabilities.

Security requirements are commonly imposed where there is a history of non-compliance, repeated tax defaults, insolvency concerns, or evidence suggesting future liabilities may not be paid. They may apply to VAT, PAYE and National Insurance obligations.

The practical consequences can be significant. Businesses may be required to provide substantial sums upfront before continuing to trade, placing further strain on already stretched cash flow.

For many companies, the receipt of a security notice is a clear indication that HMRC's confidence has diminished and that increased scrutiny is likely to follow.

Personal Liability Notices: When Tax Debts Become Personal

Perhaps the greatest concern for directors is the possibility of HMRC pursuing them personally.

Personal Liability Notices (PLNs) allow HMRC, in certain circumstances, to transfer specific tax liabilities from a company to an individual director or other responsible person. They are most commonly associated with unpaid PAYE and National Insurance liabilities where HMRC can demonstrate fraud, neglect or serious misconduct.

While PLNs are relatively uncommon, they serve as a powerful reminder that limited liability is not an absolute shield. Directors who repeatedly fail to account for employee deductions, ignore their tax obligations or allow arrears to accumulate through poor governance may face increased scrutiny.

Where HMRC concludes that a director's conduct has directly contributed to unpaid liabilities, it may seek to recover those debts from the individual concerned. The financial consequences can be significant and may continue long after the company has ceased trading.

Joint and Several Liability Notices: Tackling Repeated Insolvency and Tax Abuse

Joint and Several Liability Notices (JSLNs) are a separate and broader power available to HMRC. Introduced under Schedule 13 of the Finance Act 2020, they enable HMRC to make directors and certain connected persons personally liable for company tax debts in circumstances involving tax avoidance, tax evasion, repeated insolvencies or the misuse of insolvency procedures to avoid paying tax.

Unlike a PLN, which focuses on misconduct relating to particular tax liabilities, a JSLN is designed to address situations where HMRC believes individuals are using company structures or repeated business failures to leave tax debts behind.

A director may be at risk of receiving a JSLN where there is evidence of:

• Repeated company insolvencies leaving unpaid tax liabilities;
• "Phoenix" activity involving substantially the same business continuing through a new entity;
• Tax avoidance or tax evasion; or
• Facilitating tax avoidance or evasion by others.

For directors, the key distinction is that a PLN is generally concerned with misconduct relating to specific tax debts, whereas a JSLN is aimed at preventing individuals from escaping tax liabilities through insolvency or abusive corporate structures. Both can result in personal liability, but they address different forms of behaviour.

Director Disqualification: A Further Risk

The consequences of tax arrears are not always financial.

Where a company enters insolvency, the conduct of its directors will be reviewed. Significant unpaid tax liabilities, particularly where there has been a pattern of non-compliance, poor record-keeping or persistent failure to engage with creditors, may form part of that assessment.

If the Insolvency Service concludes that a director's conduct makes them unfit to act in the management of a company, disqualification proceedings may follow. A disqualification order can prevent an individual from acting as a director, or being involved in the promotion, formation or management of a company, for up to 15 years.

For directors of distressed businesses, HMRC enforcement should not be viewed solely as a debt collection issue. In certain circumstances, it can give rise to personal financial exposure, regulatory scrutiny and long-term restrictions on future business activities.

What Directors Should Be Doing Now

Businesses most at risk are not usually those experiencing short-term financial pressure. More often, enforcement action follows prolonged periods of missed payments, poor engagement, or unrealistic repayment proposals.

Directors should:

1. Monitor tax liabilities closely and in real time.
2. Engage with HMRC at the earliest sign of financial difficulty.
3. Seek professional advice before arrears become unmanageable.
4. Ensure any Time to Pay proposals are realistic and supported by evidence.
5. Maintain clear records that demonstrate responsible decision-making.

The Key Takeaway

HMRC's approach to debt recovery has become increasingly robust. Enforcement agents, winding-up petitions, security requirements, Personal Liability Notices and Joint and Several Liability Notices now form part of a broader strategy aimed at improving tax collection and addressing persistent non-compliance.

For directors, the lesson is simple: early engagement is almost always less costly than late intervention. Businesses experiencing financial distress should seek advice at the earliest opportunity and engage constructively with HMRC before arrears become entrenched.

Once HMRC moves from collection to enforcement, the risks to both the business and, in certain circumstances, the directors themselves can increase dramatically.