An HMRC statutory demand is a formal written demand for payment of a company tax debt of £750 or more, giving the company 21 days to pay, secure, or dispute the sum before HMRC can ask the court to wind up the business. It is one of the most serious letters a director can receive, because ignoring it starts a legal clock that ends in a winding-up petition. Understanding what the demand means, and what the 21 days actually buys you, is the first step to deciding what to do next.
This guide explains how an HMRC statutory demand works, why the deadline matters, and the realistic options open to a director once one lands on the desk.
What a statutory demand from HMRC is
A statutory demand is a formal document served under the Insolvency Act 1986. It sets out the debt HMRC says the company owes — usually unpaid Corporation Tax, PAYE, VAT or National Insurance — and states that unless the company pays, secures, or comes to an arrangement about the debt within 21 days, HMRC may treat the company as unable to pay its debts.
HMRC's Debt Management team typically issues a statutory demand only after earlier reminders and calls have gone unanswered. It is a precursor step, not the petition itself. The debt must generally be for £750 or more, undisputed, and due for payment (not, for example, still subject to an active appeal).
The 21-day deadline and why it matters
The 21-day statutory demand clock starts from the date the demand is treated as served, not the date you happen to open the post. Within that window, a company broadly has three choices: pay the debt in full, agree security or a payment arrangement HMRC accepts, or show the debt is genuinely disputed.
If none of these happen within 21 days, the company is presumed in law to be unable to pay its debts — a status called "deemed insolvency" for the purposes of a winding-up petition. This does not mean the company is automatically wound up, but it removes one of HMRC's biggest hurdles to petitioning the court. That is why the 21 days matters far more than the letter's tone might suggest.
How a statutory demand leads to winding-up
Once the 21 days expire without payment, security or a genuine dispute, HMRC can present a winding-up petition to the court asking for the company to be compulsorily liquidated. A few practical points follow from that:
- HMRC does not have to petition immediately — some time may pass, but the risk remains live once the deadline has passed.
- A presented petition is usually advertised in The Gazette around seven business days after it is served on the company, unless the court agrees otherwise.
- Once a petition is advertised, banks routinely freeze the company's account, because any transactions after presentation can later be void without a court order.
- If the petition is not challenged, the court can make a winding-up order, placing the company into compulsory liquidation.
This chain — demand, deadline, petition, advertisement, order — is why directors are encouraged to act during the 21 days rather than after a petition has already been issued. Our guide on owe HMRC and can't pay? Your options sets out the broader routes available when a company cannot clear tax arrears in full.
Your options: pay, dispute, or negotiate
A director served with an HMRC statutory demand generally has three realistic paths, and the right one depends on whether the debt is genuine and whether the company can find the funds.
- Pay in full. If the company has the funds, paying within the 21 days ends the matter and avoids any risk of a petition.
- Negotiate. HMRC can agree a Time to Pay arrangement, spreading the debt over instalments, though this needs to be agreed before the deadline passes and HMRC will want a credible proposal. See gov.uk guidance on paying HMRC if your company is struggling for how these arrangements work.
- Dispute. If the company genuinely disagrees the debt is owed — for example it believes an assessment is wrong or a payment was already made — this needs to be raised promptly and in writing, with evidence, rather than left unaddressed.
Doing nothing is rarely a neutral choice, because silence during the 21 days is treated the same as an inability to pay. Where the position is unclear, speaking to a regulated insolvency practitioner or solicitor early gives more options than waiting until a petition has already been issued.
Can a company statutory demand be set aside?
This is a common point of confusion. For an individual facing bankruptcy, there is a formal court application to "set aside" a statutory demand, following the process set out in Part 10 of the Insolvency Rules 2016. For a company, that specific procedure does not apply in the same way — a company cannot simply apply to set the demand aside.
Instead, if a company believes the debt is wrong, disputed on genuine grounds, or subject to a cross-claim that offsets it, the usual route is to raise that dispute directly with HMRC and, if a winding-up petition is later presented, apply to the court to have the petition restrained or dismissed — the test for inability to pay debts sits in section 123 of the Insolvency Act 1986. Our related article on the statutory demand and what it means for your company looks at this distinction, and a genuine dispute, in more detail. This is a legal step that should be handled by a solicitor experienced in insolvency litigation, given how quickly the surrounding deadlines move. Presented petitions are recorded and advertised through notices published in The Gazette.
Frequently asked questions
What happens if I ignore an HMRC statutory demand?
After 21 days with no payment, security or genuine dispute, the company is treated as unable to pay its debts, and HMRC may present a winding-up petition to the court. Ignoring the demand does not make the risk go away.
Is there a minimum debt for HMRC to issue a statutory demand?
Generally the debt must be £750 or more and undisputed. This threshold should always be checked against current guidance, as figures and procedures can change.
Can I get more time to pay after a statutory demand?
It is still possible to approach HMRC about a Time to Pay arrangement, but this needs to be agreed, not just requested, within the 21-day window to avoid the deemed inability to pay taking effect.
Does a statutory demand affect my company's bank accounts?
The demand itself does not freeze accounts. However, if it leads to a winding-up petition, banks typically restrict the account once the petition is advertised, because transactions afterwards can be void.
What's the difference between a statutory demand and a winding-up petition?
A statutory demand vs winding-up petition are two separate stages. The demand is a formal warning and 21-day deadline; the petition is the actual court application to liquidate the company, which can follow if the demand is unresolved.
This article is general information, not legal, financial or insolvency advice, and every company's circumstances are different. If you would like to talk through your position, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry. Harbourfirst introduces directors to regulated practitioners and solicitors; it does not itself advise or act for you.