Can you get business funding if you owe HMRC money?
You may still be able to get business funding if you owe HMRC money, but it will be harder. HMRC arrears are a serious warning sign for lenders because they suggest cash pressure, weak forecasting or a business that has used tax money to fund trading.
The worst thing to do is hide it. A lender is likely to find out through bank statements, accounts, Companies House information, creditor pressure or due diligence. Openness gives the business a chance to explain the problem and show a credible plan.
Quick summary
- HMRC arrears do not automatically mean no funding.
- Lenders will want to understand why the arrears happened.
- A Time to Pay arrangement can help if it is affordable and being maintained.
- Funding is more likely where the business is otherwise viable and records are clear.
- Using new borrowing simply to delay tax pressure can be dangerous.
The business problem
Tax arrears usually mean the business has already crossed a line. VAT, PAYE, corporation tax or self assessment liabilities have become due, but the cash is not available to pay them.
Sometimes this is caused by a short term timing issue: late customer payments, a large order, seasonal pressure or unexpected cost increases. Sometimes it points to a deeper problem: weak margins, overdrawn directors loan accounts, poor controls, unprofitable trading or a business that is not setting aside tax as it trades.
What HMRC may expect
GOV.UK says businesses that cannot pay tax on time may be able to set up a payment plan in monthly instalments. HMRC will ask questions to check whether the proposal is realistic and affordable. For company tax debt, HMRC may ask directors how the tax will be paid as quickly as possible and may expect debt to be reduced as far as possible before agreeing a plan.
How lenders look at HMRC arrears
Lenders do not view all HMRC arrears in the same way. A small, explained arrear with a maintained Time to Pay arrangement is different from repeated missed tax payments, enforcement action or a business that cannot explain where the cash has gone.
| Position | How a lender may view it | What helps |
|---|---|---|
| Small arrear, recent and explained | Potentially manageable if the business is otherwise healthy. | Evidence, cash forecast and repayment plan. |
| Time to Pay agreed and maintained | More positive than unmanaged arrears. | Proof of agreement and payment history. |
| Repeated arrears | Suggests structural cash weakness. | Clear turnaround plan and better controls. |
| Unfiled returns | High concern because the true liability may be unknown. | File returns and provide up to date records. |
| Enforcement action or winding up threat | Serious credit risk. | Immediate professional advice and credible rescue plan. |
| Hidden arrears discovered in due diligence | Trust issue as well as credit issue. | Hard to recover credibility once concealed. |
Funding options that may be considered
The right answer depends on whether the HMRC arrears are a temporary pressure point or evidence that the business is not generating enough cash.
| Option | When it may help | Watch out |
|---|---|---|
| Time to Pay with HMRC | The business can afford regular payments and current tax going forward. | Missing payments can make the position worse. |
| Invoice finance | Cash is tied up in unpaid invoices from good customers. | Availability depends on invoice quality and customer payment. |
| Asset finance refinance | The business owns equipment or vehicles with refinance value. | Adds debt and may put key assets at risk. |
| Short term business loan | There is a clear one off gap and a reliable repayment source. | Can create pressure if used to fund recurring tax arrears. |
| Equity or shareholder funds | The business needs patient capital rather than more debt. | Existing owners may be diluted or need to inject personal funds. |
| Professional restructuring advice | The business may be insolvent or close to it. | Directors need to understand duties and options quickly. |
When funding can work
- The arrears are understood, quantified and disclosed.
- The business is viable after normal tax and repayment costs.
- There is an agreed or realistic plan with HMRC.
- The funding solves a specific cash timing problem.
- The business has up to date accounts, bank statements and forecasts.
- The directors can explain what has changed so arrears do not rebuild.
Where it can go wrong
- The business borrows to pay old tax but cannot afford new tax.
- Funding hides a loss making model.
- The company takes on secured debt while unsecured creditors remain under pressure.
- Directors sign personal guarantees without understanding enforcement risk.
- The business misses a Time to Pay arrangement and loses credibility.
- The lender discovers undisclosed HMRC arrears after approval.
Costs, risks and watch outs
Funding a tax arrears problem is higher risk than funding a normal trading cycle. The lender may charge more, ask for more security, reduce advance rates, require tighter reporting or decline the deal altogether.
A personal guarantee may be requested. Security may also include a debenture over the company, asset security, invoice assignment or other charges. If trading deteriorates, the lender may reduce availability, demand repayment, enforce security or call on guarantees, depending on the documents signed.
Questions to ask before signing
- Is the funding paying HMRC, supporting trading, or both?
- Will the business be able to pay future tax on time?
- What is the total cost, including all fees?
- What security is required?
- Is a personal guarantee required?
- What happens if the HMRC position worsens?
- Does the lender require evidence of a Time to Pay arrangement?
- Can the lender reduce availability?
- What information must be provided each month?
- What could put the facility into default?
What lenders will check and why
A lender will want to understand whether the arrears are a symptom of temporary pressure or a sign that the business is not viable.
- HMRC statements and any Time to Pay agreement.
- Bank statements to see tax payments, returned items and cash pressure.
- VAT, PAYE and corporation tax position.
- Management accounts and recent trading performance.
- Cash flow forecast including current and future tax.
- Aged debtors and creditor lists.
- Companies House filings, charges and director history.
- Existing borrowing, guarantees and security.
Final practical summary
HMRC arrears do not always close the door to funding, but they change the conversation. The business must show what happened, what has changed and how the funding will improve the position rather than simply buy time. Honest disclosure and good records matter. Hiding tax debt is one of the quickest ways to lose lender confidence.
Sources and further reading
- GOV.UK, If you cannot pay your tax bill on time
- GOV.UK, Setting up a payment plan with HMRC
- GOV.UK, Late payment consultation government response
- British Business Bank, Small Business Finance Markets Report 2026
- The Insolvency Service, Company insolvency statistics
This article is general guidance only. It is not financial advice, legal advice or tax advice. Businesses should take professional advice before signing funding documents or agreeing tax arrangements.