How to Check a UK Supplier’s Tax Debt and Assess Advance Payment Risk

To check a UK company’s tax debt before paying a supplier in advance, you need evidence about the correct legal entity, the relevant taxes and the current outstanding position. Public records provide useful context, but a company number does not give a buyer access to a supplier’s confidential HMRC accounts.

For a commercial review, the practical approach is to request relevant records from the supplier, investigate discrepancies and assess whether its financial commitments could affect delivery. HMRC’s guidance requires disclosures to representatives and third parties to follow its confidentiality and consent rules. Supplier consent should therefore be handled through the appropriate process rather than treated as automatic access to its tax information.

This matters when a supplier requests payment before manufacturing, procuring or dispatching goods. The buyer is committing money before receiving the agreed result. Third-party due diligence should establish which uncertainties could affect that result and what evidence is needed before the payment is approved.

Key takeaways

• Companies House records and a valid VAT number do not establish that a supplier has no overdue HMRC liabilities.
• Request dated evidence covering the relevant company, tax types and accounting periods.
• Distinguish amounts not yet due, overdue liabilities, disputed amounts and debts covered by a repayment arrangement.
• Assess the proposed advance alongside delivery capability, cash-flow commitments and the practical protection available if the supplier fails to perform.

Understand what the supplier actually owes

A tax liability is not necessarily an overdue tax debt. A company may have Corporation Tax, VAT or payroll-related liabilities that are properly recorded but not yet payable.

Before drawing a conclusion, establish:

• which tax or payment the amount relates to;
• the period covered;
• when payment became or becomes due;
• whether the amount remains outstanding;
• whether interest or penalties are included;
• whether any dispute or payment arrangement affects its treatment.

A figure labelled “taxation and social security” in filed accounts requires particular care. It represents an accounting balance at the reporting date. It does not, by itself, identify today’s overdue HMRC debt.

The supplier’s explanation should address the specific amount under review. A general statement that “our accountant handles everything” leaves the payment position unresolved.

What you can check through public sources

Start by confirming the supplier’s registered name and company number. Match them against the contract, invoice and supporting documents.

A trading name, brand or group website may represent several legal entities. Evidence concerning a parent company does not automatically establish the position of the subsidiary receiving your advance.

Public sources can then help identify inconsistencies and signs that warrant further investigation.

The official Companies House search guidance explains the company information available. Use the reporting dates and filing dates when assessing its relevance to an upcoming payment.

The UK VAT number checker confirms registration details. Its stated purpose does not include checking whether the business has paid all VAT due.

Where insolvency concerns arise, review the relevant Gazette notices and establish the latest procedural position. A winding-up petition, a winding-up order and a notice that a petition has been dismissed describe different events. A clear search result should also be recorded with its date and scope.

Formal insolvency procedures differ across England and Wales, Scotland and Northern Ireland. Material findings should be reviewed with the appropriate legal adviser before funds are released.

For a wider assessment of the entity, its owners and its commercial history, see Molfar’s guide to business partner due diligence.

What evidence to request from the supplier

The request should be proportionate to the advance and the uncertainty you need to resolve. A buyer does not need unrestricted access to the supplier’s tax affairs to ask a focused question about an identified liability.

Recent records for the relevant tax accounts

Ask for available statements, account extracts or correspondence covering the taxes relevant to the concern.

The evidence should make clear:

• the company to which it relates;
• the tax type and period;
• the date of the information;
• amounts outstanding and their due dates;
• relevant payments, credits or adjustments;
• any issues awaiting resolution.

One extract may not cover every tax stream. For example, evidence about Corporation Tax should not be presented as confirmation that all VAT and payroll-related liabilities have also been settled.

A breakdown of any overdue amounts

If the supplier acknowledges arrears, request a schedule that reconciles its explanation with the supporting records.

It should distinguish the original liability from interest, penalties and later charges where relevant. It should also identify which amounts have been paid, remain outstanding or are subject to an arrangement.

The schedule is the supplier’s account of the position. Check it against the underlying evidence rather than accepting it as independent confirmation.

Confirmation from the supplier’s accountant

For a material advance, a focused confirmation from the supplier’s accountant or tax adviser may help resolve uncertainties.

Ask the confirmation to identify:

• the company and tax types covered;
• the date to which the statement applies;
• the records examined;
• any exclusions or unresolved matters.

Establish whether the adviser is reporting from HMRC records, the company’s bookkeeping records or information provided by management. These are different evidential bases.

Verify the adviser’s contact details independently and agree any necessary permission with the supplier. Do not describe an accountant’s letter as an HMRC guarantee or assume it provides assurance beyond its stated scope.

Evidence of payment and allocation

A bank payment and the settlement of a particular tax liability are separate facts to verify.

Check the payer, payment date, amount and relevant reference. Then establish whether the payment has been reflected against the liability under review.

A screenshot showing money leaving a bank account may leave several questions unanswered. The payment could relate to another period, cover only part of the balance or still require reconciliation.

Where records disagree, ask the supplier to explain and resolve the difference before treating the debt as cleared.

How to assess an HMRC Time to Pay arrangement

A supplier may explain that its outstanding tax is covered by a Time to Pay arrangement. HMRC guidance states that taxpayers unable to pay in full may be able to agree instalments, with affordability considered as part of the process.

For the buyer, the relevant questions are whether an arrangement has actually been agreed, what it covers and whether it is being maintained.

Request appropriate evidence of:

• the agreement and the liabilities included;
• the repayment schedule;
• payments made against that schedule;
• any subsequent changes or missed instalments;
• other tax liabilities falling due outside the arrangement.

An application for a plan should not be treated as an agreed arrangement. Equally, an agreed plan does not remove the underlying financial commitment.

Assess the instalments alongside the resources required to fulfil your order. A supplier may be meeting its agreed payments while still needing to demonstrate how it will fund materials, staff or subcontractors during production.

The commercial decision concerns the supplier’s capacity to meet both commitments.

How to interpret a tax clearance letter or certificate

If the supplier provides a document described as “tax clearance”, read what it actually confirms.

Check the issuer, company identity, date, purpose and scope. Determine whether it addresses particular taxes, periods or transactions, and whether it contains qualifications.

Do not substitute a document answering a different question. For example, HMRC’s certificate of residence supports confirmation of UK tax residence for the purposes described in its guidance, including overseas tax relief. It should not be treated as a statement that all company taxes are paid.

For an ordinary supplier review, request evidence of the specific tax position you need to assess rather than relying on the title of a document.

How to assess the risk of paying in advance

The amount of tax debt is one part of the decision. The buyer also needs to understand how much money will remain exposed before it receives the goods or services.

Consider the size and duration of the advance

Identify the amount payable before delivery and how long the supplier will hold it.

A small payment for goods ready for dispatch creates different exposure from a substantial advance for equipment that has not yet entered production.

Also consider how dependent your own operations are on the promised delivery. A delayed component may create costs beyond the advance itself.

Check delivery capability

Ask what supports the proposed delivery date.

Depending on the order, relevant evidence may include existing stock, production schedules, confirmed material purchases or documented subcontractor arrangements.

If the supplier needs your advance to begin fulfilling the order, establish how the proposed payment fits its delivery budget. An absence of overdue tax does not demonstrate that the business has sufficient working capital.

For substantial exposure, a financial specialist may need to examine management accounts, cash-flow forecasts and commitments. Molfar’s guide to financial due diligence explains how financial information can be tested against the assumptions behind a business decision.

Assess the explanation and the supporting evidence together

A tax issue that has been explained and resolved differs from an outstanding balance accompanied by inconsistent documents.

Look for changes in the supplier’s account of events, missing periods and unexplained differences between figures. Establish whether those gaps affect the proposed payment.

Avoid drawing conclusions about a pattern from a single dated balance. A claim that arrears are increasing or repeatedly recurring requires comparable evidence.

Review practical payment protection

Depending on the transaction, the parties may consider:

• a smaller initial advance;
• payments linked to verified delivery milestones;
• payment following inspection or acceptance;
• a suitable advance-payment guarantee or other negotiated protection.

A solicitor should assess the drafting, enforceability and practical value of any proposed protection. A contractual promise to repay an advance still needs to be considered alongside the supplier’s ability to do so.

Use the findings to determine the next action

The following table provides practical decision prompts. It is not a credit rating or a prediction of insolvency.

Worked example of an advance payment review

Consider a hypothetical equipment order worth £120,000. The supplier requests 50% in advance, or £60,000.

During the review, the supplier discloses £8,000 of outstanding tax and says that HMRC has agreed a repayment plan. It provides an account extract and a bank screenshot showing a recent payment.

Before approving the advance, the buyer needs to establish whether the plan has been agreed, which liability it covers and whether the recent payment satisfies the relevant instalment.

The delivery review remains separate. The buyer should establish whether the equipment exists, what work remains and how the supplier will fund production.

Even if the £8,000 position is satisfactorily explained, the buyer is still committing £60,000 before receiving the equipment. Its approval should address that exposure.

One possible outcome is a smaller initial payment followed by a further payment once an agreed production milestone has been independently confirmed. Another is to request additional financial evidence before proceeding. The appropriate response depends on the contract and the findings.

The example does not establish a threshold at which tax debt becomes acceptable. It shows why the tax position and the advance-payment decision require connected but distinct assessments.

A focused request to send to the supplier

A concise request can help the supplier understand what evidence is needed.

Before approving the proposed advance payment, please provide recent evidence of the company’s position for the relevant HMRC tax accounts. Please identify the date, taxes and periods covered, any overdue amounts, and payments or adjustments awaiting allocation. Where an amount is subject to a Time to Pay arrangement or dispute, please provide the relevant supporting documents and confirm its current status. We are happy to agree a proportionate scope and appropriate handling of confidential information.

If a particular discrepancy has already been identified, specify the amount, period and document concerned.

Request only the information necessary for the review. The supplier should not need to share its HMRC sign-in credentials.

Record what was established before approving the payment

A useful internal record distinguishes confirmed findings from supplier statements and unresolved matters.

Record:

• the contracting entity and payment recipient;
• the sources and dates reviewed;
• the taxes and periods covered;
• the evidence supporting payment or repayment-plan claims;
• material exclusions and outstanding questions;
• the reason for approving, changing or pausing the advance.

For example, a hypothetical note might state:

The supplier has provided evidence of an agreed repayment arrangement covering the identified VAT liability. The latest scheduled payment is supported by the documents reviewed. Other tax accounts were outside the scope of this review. Approval of the advance remains subject to confirmation of the production milestone and the agreed payment protection.

This is more informative than a general “tax check passed” label.

For continuing supplier relationships, review triggers and responsibilities can sit within the organisation’s third-party risk management process.

When independent supplier due diligence is useful

Further investigation may be appropriate when tax concerns appear alongside contradictory ownership information, unexplained payment instructions, disputed trading claims or pressure to increase an advance.

These issues should be assessed in context. Molfar’s guide to red flags in due diligence discusses the types of inconsistencies that can justify deeper verification.

Molfar Intelligence’s third-party due diligence examines ownership, corporate records, financial and legal signals, reputation and relevant relationships. Source-referenced findings help the buyer identify what is known and which uncertainties still affect approval.

Current confidential tax balances require appropriate evidence from the supplier and, where relevant, its authorised adviser. Independent corporate research complements that evidence.

Where money has already been transferred and there are concerns about diversion, misconduct or unexplained movements, a separate financial investigation may help establish the facts relevant to a dispute or potential recovery.

Frequently asked questions

Can I check a UK company’s HMRC debt using its company number

A company number helps identify the business in public records. It does not provide access to its confidential HMRC accounts. For a commercial review, request appropriate current evidence from the supplier and clarify its scope.

Does a valid VAT number mean a supplier has no tax debt

No. The VAT checker confirms registration details. It does not confirm that all VAT payments are current or establish the position for Corporation Tax or payroll-related liabilities.

Should I reject a supplier that has a Time to Pay arrangement

The arrangement should be assessed alongside its coverage, payment history and the supplier’s ability to fulfil your order. It is neither automatic grounds for rejection nor an assurance that an advance is safe.

Is a tax residence certificate proof that all HMRC liabilities are paid

No. A certificate of residence addresses tax residence for its stated purpose. Check the actual scope of any document presented as evidence of tax compliance.

Is a screenshot of a tax payment enough to approve an advance

It may support the review but does not necessarily establish that the relevant liability has been fully settled. Match it to the correct company, tax period and payment reference, then resolve any difference with the current account position.

How recent should supplier tax evidence be before an advance payment

The evidence should be sufficiently current for the amount and timing of the payment. Refresh it where the supplier reports a settlement, a repayment arrangement changes or there is a material gap before payment. Record its actual date rather than applying an unsupported universal validity period.

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