The first creditor to lose patience isn’t in your ledger

A company can pay its suppliers on time while accumulating tax arrears. Your ledger records how the customer pays you; it cannot show missed VAT, PAYE or Corporation Tax building elsewhere. By the time an HMRC winding-up petition becomes public, the underlying cash pressure may have existed for months.

We wrote recently that a struggling business rarely stops paying everyone at once — it decides who can wait. This piece is about the limit of that observation. Your ledger shows your own position in the customer’s payment queue. It cannot show you the whole queue — and the creditor most often missing from view is the state.

Can a customer have tax arrears while paying suppliers?

Yes — and the incentives make it common rather than exceptional. A supplier who stops being paid stops supplying, so the trade account has a consequence the business feels tomorrow morning. Tax works differently. VAT, PAYE and Corporation Tax fall due in large, periodic amounts, to a creditor that delivers nothing the business needs this week. When cash is tight, deferring the tax bill can seem like the least damaging option available — for a while.

Survey evidence suggests how much of this pressure is currently in the system. Premium Credit — a commercial premium-finance provider, so read this as a market survey rather than official statistics — found in July that 52% of SMEs say they are struggling to meet tax liabilities: 22% with Corporation Tax, 12% with VAT and 20% with both. One in five said they intend to borrow to pay tax bills. The detail worth pausing on: 81% of the same businesses described their finances as very or quite healthy. A business can be under real tax pressure and still look — and feel — fine.

None of that pressure appears anywhere a supplier normally looks. Tax arrears are not published. They do not appear in your aged-debtors report, and they rarely reach a credit file before enforcement begins. Current with you is not current everywhere.

What an HMRC winding-up petition tells creditors

When the state’s patience runs out, the signal it produces is public — and severe. Winding-up petitions reached a three-year high in the first quarter: 1,885 petitions, up 5% on a year earlier and 66% above the same period in 2023. Market reporting suggests HMRC is understood to be behind the majority of them.

That is happening while headline insolvency counts fall — June’s figure was around 5% lower than a year earlier, and the second quarter came in well below the first. Both things are true at once: fewer companies are formally failing, and the state is pursuing more of the ones that owe it money. The reassuring print and the assertive enforcement layer describe different parts of the same economy.

Be precise about what a petition is, though. It is not an early warning. It is a late-stage enforcement event — usually the end of a long escalation of missed liabilities, demands and failed negotiations. A petition is early for the supplier who first sees it, but late in the customer’s deterioration. The sequence that matters runs: supplier payments hold → tax pressure builds unseen → enforcement becomes public → your exposure is already at risk. By the time the sequence turns public, most of a creditor’s options have narrowed to one: how much of the balance you recover.

What to monitor before enforcement becomes public

You cannot see HMRC’s ledger. You can watch the behaviour that tends to move with it:

• Filing behaviour. Accounts and confirmation statements drifting late. Administrative slippage often travels with cash strain, and it is visible long before enforcement.
• Court activity from other creditors. County court judgments and enforcement elsewhere are evidence that the payment queue is being ranked — and that someone else has already been moved down it.
• Payment-time drift on your own book. A customer slowing from 30 days to 45 is not just a cash-flow datum; it can be a ranking decision.
• Director and structural change. Resignations and group reshuffles close to filing deadlines deserve a closer look than they usually get.

No single signal is proof, and each has innocent explanations. The point is the rhythm. None of these is visible in an annual review cycle; all of them are visible to continuous monitoring. Your ledger tells you whether the customer is current with you. It cannot tell you who they have stopped paying elsewhere.

The check you ran at onboarding was accurate on the day you ran it. Tax pressure is precisely the kind of risk that builds between checks — invisible in the file, real in the cash flow, public only at enforcement. The first creditor to lose patience isn’t in your ledger. The job is to notice before their patience runs out. For the wider picture on where UK credit enforcement is heading, see our weekly digest.

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