Can I Get a Business Loan With HMRC Arrears?
Yes, it is possible to obtain a business loan when your company has outstanding tax liabilities with HM Revenue & Customs (HMRC).
However, HMRC arrears are an important consideration for business lenders because they can indicate that a company has experienced financial pressure or has been unable to meet its obligations when they fall due.
Some lenders will automatically decline businesses with overdue tax liabilities. Others may consider the application depending on the amount owed, why the arrears arose, whether a repayment arrangement is in place and the company's current financial position.
The important distinction is often between a temporary tax liability that the business has a credible plan to repay and a company that is continually accumulating unpaid taxes because its underlying cash flow is insufficient.
What are HMRC arrears?
HMRC arrears arise when a business fails to pay a tax liability by its required payment deadline.
For UK businesses, this could include:
Value Added Tax (VAT);
Corporation Tax;
PAYE Income Tax deductions;
employer or employee National Insurance contributions; and
other taxes or duties administered by HMRC.
Tax liabilities are a normal part of operating a business.
The concern for a lender arises when those liabilities become overdue and the company is unable or unwilling to settle them.
An overdue VAT payment can present a very different risk from a business that has accumulated substantial arrears across several tax periods.
Do HMRC arrears automatically prevent a business loan?
No.
There isn't a universal lending rule that prevents businesses with HMRC arrears from borrowing.
Individual lenders have their own credit policies.
Some may require all tax liabilities to be fully up to date before offering finance.
Others may consider applications where the arrears are relatively modest, have a credible explanation or are being managed under a formal repayment arrangement.
A lender will generally want to understand:
how much is owed to HMRC;
which taxes are involved;
how long the arrears have been outstanding;
why the business couldn't pay;
whether the debt is increasing;
whether HMRC has agreed a payment arrangement;
whether that arrangement is being maintained; and
whether the company can afford the proposed loan repayments.
The existence of tax arrears is therefore only part of the assessment.
Why do business lenders worry about HMRC arrears?
Tax arrears can reveal important information about a company's financial position.
For example, a business might generate substantial turnover but use cash intended for its VAT or PAYE liabilities to cover operating expenses.
That can provide temporary relief, but the tax liability remains payable.
If the company repeatedly uses money intended for tax payments to meet other commitments, it may indicate that the business is operating with insufficient working capital.
A lender may therefore question whether the business can afford additional debt without creating further financial pressure.
There is also the risk of enforcement action by HMRC if outstanding liabilities remain unresolved.
Does the amount owed to HMRC matter?
Yes.
The size of the arrears can be important, particularly relative to the scale and financial strength of the business.
For example, consider two companies with £20,000 of overdue tax liabilities.
Business A generates £3 million in annual revenue, has substantial cash reserves and experienced a temporary administrative or cash-flow issue.
Business B generates £250,000 annually, regularly operates close to zero cash and has several existing loans.
Although both companies owe HMRC the same amount, their ability to resolve the liability may be very different.
A lender will therefore consider the amount owed in the context of turnover, cash flow, liquidity and existing borrowing.
Does it matter how long the tax has been overdue?
Usually.
A payment that became overdue recently may be easier to explain than tax liabilities that have remained unpaid for several months or years.
The lender may want to understand whether the arrears represent:
a one-off cash-flow problem;
an unexpected liability;
a temporary disruption to trading;
a disputed tax assessment;
poor working-capital management; or
an ongoing inability to generate enough cash.
The longer the debt remains unpaid, the more important it becomes to demonstrate that there is a realistic plan to resolve it.
Is an HMRC payment plan better than having unpaid arrears?
Generally, an agreed and maintained repayment arrangement can provide a lender with greater comfort than an overdue tax liability with no clear repayment plan.
HMRC may agree to a Time to Pay arrangement, allowing qualifying businesses to pay overdue tax in instalments.
From a lending perspective, an arrangement can demonstrate that the company is actively addressing its liability.
However, the lender will still need to consider the repayments.
For example, a company making £3,000 per month in HMRC Time to Pay payments has an additional financial commitment that reduces the cash available to service a new business loan.
The arrangement therefore needs to be considered alongside existing borrowing and normal operating expenditure.
Can I get a business loan while on an HMRC Time to Pay arrangement?
Potentially.
Some lenders will consider businesses with formal HMRC payment arrangements, particularly where payments are being maintained and the underlying business remains financially sound.
Others may exclude them under their lending policies.
A lender may want to understand:
original tax liability;
current outstanding balance;
agreed monthly payment;
remaining duration;
whether all payments are up to date; and
whether new tax liabilities are being paid when due.
A maintained arrangement can be positive, but it doesn't automatically establish that the company can afford additional borrowing.
What if my HMRC arrears are increasing?
Increasing arrears are likely to be more concerning.
For example, a business might fail to pay one quarterly VAT bill and subsequently be unable to pay the next.
This can indicate that the company's cash-flow problem is continuing rather than being resolved.
A prospective lender may question how another loan will help if the company is unable to generate enough cash to cover its ongoing tax obligations.
The direction of the arrears balance can therefore be just as important as the amount outstanding.
A company steadily reducing an historic liability presents a different picture from one accumulating additional unpaid tax each quarter.
Can I borrow money to repay HMRC arrears?
Potentially, but this requires careful consideration.
Some lenders may finance tax liabilities, while others restrict or exclude borrowing intended primarily to repay overdue creditors.
The commercial question is whether the proposed loan genuinely improves the company's financial position.
For example, borrowing to settle a tax liability might be appropriate where there is a temporary cash-flow mismatch and a credible source of repayment.
However, if the business is continually unable to meet its normal tax obligations, using a new loan to clear the existing arrears may simply replace one liability with another.
That can be particularly problematic where the new borrowing carries high regular repayments.
Before borrowing to settle HMRC, consider whether the business can afford the new loan while also meeting its future tax liabilities.
How do lenders identify HMRC arrears?
Lenders can become aware of outstanding tax liabilities through several sources.
These may include:
information provided in the application;
management accounts;
details of creditors;
bank statements;
existing HMRC repayment arrangements;
relevant public records; and
further financial due diligence.
Bank statements can be particularly useful.
For example, a lender may notice that a business which previously made regular HMRC payments has stopped doing so.
That doesn't necessarily establish that tax arrears exist, but it may prompt further questions.
Likewise, regular payments to HMRC under an instalment arrangement may lead the lender to ask about the outstanding liability.
Do HMRC arrears affect my business credit score?
Not necessarily directly.
An unpaid tax liability doesn't automatically become a County Court Judgment or appear as a conventional credit default.
However, tax arrears can eventually lead to more serious consequences, including recovery or insolvency proceedings, which may affect a company's creditworthiness and the information available to lenders.
Even where the arrears aren't reflected in a headline business credit score, they can still influence a lender's decision.
A lender carrying out manual underwriting may consider the underlying tax liability alongside other information about the business.
What happens if my business doesn't pay HMRC?
HMRC has powers to recover unpaid tax liabilities.
Depending on the circumstances, the action taken can include debt collection activity, enforcement against assets and ultimately insolvency proceedings.
For a limited company, serious unresolved tax arrears can potentially result in a winding-up petition.
HMRC generally seeks to engage with taxpayers about resolving outstanding liabilities, but businesses shouldn't assume that enforcement action can be postponed indefinitely.
If your company is struggling to pay tax, it is generally better to engage with HMRC promptly rather than ignore the problem.
Can I get an unsecured business loan with HMRC arrears?
Potentially.
Because unsecured lending doesn't involve taking specific asset security, lenders are likely to place considerable weight on the company's financial position and capacity to repay.
The lender may look particularly closely at:
current turnover;
cash generation;
average bank balances;
existing debt repayments;
amount of HMRC arrears;
any Time to Pay arrangement;
recent bank conduct; and
overall financial stability.
Where HMRC arrears are relatively modest, historic or subject to a maintained repayment plan, some lenders may be willing to consider the application.
However, significant unresolved arrears combined with weak cash flow can make unsecured borrowing considerably more difficult.
Would providing security make a difference?
It can.
Providing suitable security may reduce a lender's potential loss if the business defaults.
That may make some lenders more willing to consider a company with outstanding tax liabilities.
However, security doesn't replace affordability.
The business still needs sufficient cash flow to meet its new loan repayments, existing borrowing and tax obligations.
If it cannot do so, providing property security doesn't solve the underlying problem.
Will HMRC arrears mean a higher interest rate?
Possibly.
Where tax arrears materially increase a lender's assessment of risk, this may affect:
interest rate;
maximum loan amount;
repayment term;
security requirements;
personal guarantee requirements; or
whether the application is accepted at all.
However, an isolated or well-managed historic liability may be treated differently from substantial unpaid taxes that continue to increase.
There isn't a universal pricing rule for businesses with HMRC arrears.
What if I have an HMRC payment arrangement and existing business loans?
The combined repayment burden becomes particularly important.
Suppose a business has:
£5,000 of existing monthly loan repayments;
£2,000 of monthly HMRC Time to Pay payments; and
a proposed new business loan requiring £3,000 per month.
The company would need to support £10,000 of combined monthly repayments before considering its other operating expenses and future tax liabilities.
A lender needs to assess whether that level of commitment is sustainable.
This is why strong turnover alone doesn't necessarily mean a business can obtain additional borrowing.
Can strong recent trading overcome HMRC arrears?
Sometimes.
A company might have experienced a difficult period but subsequently recovered.
For example, it may have:
replaced a lost customer;
increased revenue;
returned to profitability;
rebuilt cash reserves;
reduced outstanding tax liabilities; and
maintained all agreed repayments.
A lender using manual underwriting may be able to consider this subsequent improvement.
However, strong current trading doesn't automatically remove concerns about substantial unresolved arrears.
The lender will normally want evidence that the company has both recovered financially and established a credible plan for dealing with its liabilities.
What should I do before applying for a business loan?
If your business has HMRC arrears, preparation can help.
Establish exactly what is owed.Identify the tax type, amount and period involved.
Understand why the arrears arose.Was it a temporary issue or part of a continuing cash-flow problem?
Engage with HMRC.Where appropriate, discuss whether a formal repayment arrangement is available.
Know your existing commitments.Calculate the company's current finance repayments and any agreed HMRC instalments.
Consider future tax liabilities.Make sure the business can meet new tax payments rather than simply dealing with historic arrears.
Be transparent with the lender.Explain the arrears, any repayment arrangement and what has changed since the problem arose.
A clear explanation supported by current financial information can make the application easier to assess.
When might another business loan be inappropriate?
Borrowing may not be the right solution where:
HMRC arrears are increasing each quarter;
existing loans are already unaffordable;
the business repeatedly misses payments;
there is no credible plan to meet future taxes;
cash flow remains persistently negative; or
new borrowing would simply postpone an unavoidable financial problem.
In those circumstances, the company may need to review its working capital, costs, creditor arrangements or broader financial position before taking on additional debt.
If the business cannot pay its debts as they fall due or faces threatened insolvency proceedings, directors should consider obtaining professional insolvency advice promptly.
Applying for business finance with HMRC arrears through Adelpha Capital
Adelpha Capital provides business finance to established UK SMEs.
HMRC arrears don't necessarily mean that an application cannot be considered. Depending on the circumstances and lending product, we can assess the nature and amount of the outstanding tax liability, any repayment arrangements and the wider financial position of the business.
Our underwriting also considers turnover, cash flow, recent bank conduct, trading history and existing borrowing.
The key consideration is whether the business can sustainably support the proposed loan alongside its existing commitments and tax obligations.
If your business has HMRC arrears and you're looking for finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.