Breathing Space: Can It Stop HMRC or Another Creditor Making You Bankrupt?

Breathing space is a legal pause on debt enforcement. For 60 days most creditors, including HMRC, must stop enforcement action, stop adding interest and charges, and stop chasing you for payment, while you take debt advice and put a plan in place. It is set out in the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311) (“the Regulations”), made under sections 6 and 7 of the Financial Guidance and Claims Act 2018 and in force since 4 May 2021. You can read the official overview on GOV.UK.

It is not a payment holiday and it writes nothing off. What it buys is time, and when a bankruptcy petition is looming, that time can be decisive. This guide explains how breathing space works, when it can stop HMRC or another creditor from making you bankrupt, where it falls short, and how our HMRC enforcement defence team uses it alongside negotiation and litigation.

ALWAYS OBTAIN SPECIFIC GUIDANCE & ADVICE

The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Request a legal assessment or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.

The Two Types of Breathing Space

A standard breathing space lasts 60 days, starting the day after it is entered on the official register (regulation 26). A mental health crisis breathing space is for someone receiving mental health crisis treatment. It lasts for as long as the treatment does, plus 30 days (regulation 32). It needs evidence from an approved mental health professional, and a carer, social worker or mental health nurse can apply on the person’s behalf (regulation 29).

What Creditors Must Stop Doing

While the breathing space lasts, a creditor whose debt is included cannot make you pay interest, fees, penalties or charges that build up during it, and cannot claim them afterwards either (regulation 7). Nor can it take “enforcement action”. That covers almost everything a creditor would normally do: collecting the debt, enforcing a judgment or security, obtaining a warrant, taking control of your goods, starting court proceedings, applying for default judgment, and contacting you to demand payment. A creditor cannot get round the rule by instructing agents or by pursuing a joint debtor instead.

The sanction is strong. Under regulation 7(12), any action taken contrary to the regulation is null and void. In Lees v Kaye [2022] EWHC 1151 (QB) a creditor evicted the debtor and sold her flat while a moratorium was in place. The High Court held that both the eviction and the sale were void, so that it was as if those actions had never been taken.

Can Breathing Space Stop HMRC Making You Bankrupt?

In many cases, yes, provided you act before the petition is presented.

Tax debts are covered. A qualifying debt includes any debt owed or liability payable to the Crown (regulation 5(3)(b)). Starting “legal proceedings” expressly includes presenting a bankruptcy petition (regulation 7(7)(f) and 7(8)). HMRC can petition for bankruptcy where an individual owes more than the £5,000 bankruptcy level, and our page on challenging a bankruptcy petition explains how that process works.

So if HMRC has sent a letter warning of bankruptcy, or a statutory demand, and you need time to sell an asset, raise finance, agree Time to Pay or propose an individual voluntary arrangement (IVA), a breathing space registered before the petition is presented stops HMRC presenting it for 60 days. HMRC also cannot demand payment, or contact you as a step towards proceedings. You can still talk to HMRC: contact at your request about the debt or a “debt solution” is allowed (regulation 11), so negotiations can continue under the protection of the moratorium. If you are considering an instalment plan, see our guides to HMRC Time to Pay arrangements and securing a TTP agreement.

A statutory demand has its own strict timetable. Do not assume breathing space removes the need to act quickly on it. Take advice at once on whether to set aside the statutory demand, and see our page on HMRC statutory demands.

What if HMRC Has Already Presented a Petition?

If HMRC has already presented a petition, it must tell the court about the breathing space (regulation 10(1)), and the court must stay the petition until the breathing space ends or is cancelled (regulation 10(2)(a)). That is what happened to the first hearing of the petition in Matthews v BSN (SW) Property Ltd [2025] EWHC 1650 (Ch).

Make Sure the Court Knows

The cautionary tale is Carter v Davies [2024] EWHC 1536 (Ch). The petitioner’s solicitors overlooked the moratorium, nobody told the court, and a bankruptcy order was made. The High Court held that the order should not have been made, but that it was not automatically void: the “null and void” rule applies to steps barred by regulation 7, not to a breach of the stay in regulation 10. The court therefore had a discretion whether to annul the bankruptcy, and it refused. The debtor had the money to pay, and the judge below had inferred that he had not been frank with his debt adviser. If you later need to challenge an order, see our guidance on bankruptcy annulments.

Breathing Space Is for People Who Cannot Pay

Breathing space is for people who cannot pay their debts as they fall due. If you can pay, it is the wrong tool, and using it may count against you later.

Two Tax Points That Are Easy to Miss

First, tax that falls due during the breathing space is an “ongoing liability” and must be paid on time (regulations 2 and 16).

Second, a debt which relates solely to a business is excluded if you are VAT registered, or in a partnership, for that business (regulation 5). That will usually take a trader’s VAT arrears outside the scheme. Where the dispute is about the tax itself, our HMRC tax dispute lawyers can advise on the appeal routes.

Breathing Space Is Not Available to Companies

The scheme applies to individuals. A limited company facing an HMRC winding-up petition cannot register a breathing space. Directors in that position should look instead at opposing the petition, obtaining an adjournment to allow time to pay, or a company voluntary arrangement. Our page on HMRC winding-up petitions sets out the options.

Other Times Breathing Space Can Help

Breathing space also stops bailiffs (enforcement agents) and High Court enforcement officers: a creditor cannot enforce a judgment, obtain a warrant or take control of goods, and the court must make sure enforcement proceedings do not progress. If you face enforcement of a court judgment, our page on enforcement of judgment debts explains what creditors can do.

It stops a landlord serving notice, or taking possession, on rent arrears grounds 8, 10 or 11, although rent falling due during the breathing space must still be paid. It stops energy suppliers fitting a prepayment meter for the debt or disconnecting you, and a council applying to commit you to prison for unpaid council tax. It covers credit cards, loans, overdrafts and most other everyday debts, whenever they arose.

Mortgages

Mortgages are a special case. Only the arrears are covered, not the capital, and the freeze on interest applies only to interest on the arrears. The Court of Appeal confirmed in Forbes v Interbay Funding Ltd [2025] EWCA Civ 690 that the principal sum of a secured loan is not a moratorium debt, even where the lender has already called it in. Where a lender holds a possession order for a debt which is part arrears and part capital, the High Court has held that the lender needs the court’s permission to enforce it during the moratorium (Bluestone Mortgages Ltd v Stoute [2025] EWHC 755 (Ch)). The Court of Appeal has left that point open.

What Breathing Space Does Not Cover

Excluded debts include:

• secured lending apart from arrears;
• debts incurred through fraud;
• court fines and confiscation orders;
• child maintenance and family court orders;
• student loans;
• damages for death or personal injury;
• social fund loans and Universal Credit advances; and
• the current year’s council tax or business rates, unless a reminder or further notice has been served or all the year’s instalments have fallen due with some unpaid.

There are other limits. A charging order or attachment of earnings order made before the breathing space started carries on. A court claim which is already running can continue to judgment; the judgment simply cannot be enforced until the breathing space ends. Only debts which your adviser has reported for the register are protected, so list every debt. And a court can give a creditor permission to enforce if that is reasonable and will not harm you or significantly undermine the moratorium, although never permission to charge interest or fees.

Who Qualifies and How to Apply

You cannot register a breathing space yourself, and a solicitor cannot do it for you. The application must go through a “debt advice provider”: a firm authorised by the Financial Conduct Authority to give debt counselling, or a local authority. Free debt advice charities do this work, and MoneyHelper explains how to find a provider. You must take advice from the provider first, and the provider cannot charge you a fee.

To qualify you must:

• be an individual, domiciled or ordinarily resident in England or Wales;
• owe a qualifying debt;
• not be bankrupt or subject to an IVA, an interim order or a debt relief order; and
• not have had a breathing space which ended in the last 12 months.

The adviser must also be satisfied that you are unable, or unlikely to be able, to repay some or all of your debt as it falls due, and that a breathing space is appropriate. That includes asking whether you have the funds to pay.

Timing matters. Protection starts the day after registration. Until then HMRC, or any other creditor, is free to act. Take advice when the threat arrives, not the day before the deadline.

Your Obligations During Breathing Space

You must give accurate information and hold nothing back. During the 60 days you must tell your adviser about any material change in your finances, keep paying ongoing liabilities such as rent, mortgage instalments, insurance, utilities and current tax, take on no more than £500 of new credit, and stay in touch with your adviser. The adviser carries out a midway review between day 26 and day 35, and must normally cancel the breathing space if you have not complied.

Can a Creditor Challenge a Breathing Space?

Yes. Within 20 days of the start, a creditor can ask the adviser to review the breathing space on the ground that it unfairly prejudices the creditor, or that there has been a material irregularity: you were not eligible, the debt does not qualify, or you have sufficient funds to discharge your debt as it falls due. If the adviser does not cancel, the creditor can apply to the county court within 50 days of the start. The court can cancel the breathing space and order you to pay the interest, fees and charges which built up during it.

The courts will step in where the scheme is being misused. In Kaye v Lees [2023] EWHC 152 (KB) a creditor owed more than £300,000 under a judgment faced a series of mental health crisis moratoria. The High Court found unfair prejudice, cancelled the moratorium, and granted an injunction restraining the debtor from seeking another for a period.

When Breathing Space Is the Wrong Tool

It will not help if you can pay now, if your main debts are excluded, or if you have no plan for the 60 days. It works best as cover for something specific: completing a sale or refinance, agreeing Time to Pay, proposing an IVA, applying to set aside a statutory demand, or disputing the debt itself. For wider background, see our bankruptcy FAQs and our personal insolvency pages.