Cash flow problems, can I negotiate with Inland Revenue instead of legal action?

Yes, Inland Revenue generally prefers to work with taxpayers to recover debt rather than take drastic enforcement action immediately, and under the Tax Administration Act 1994 it has discretion to enter into instalment arrangements, allowing you to pay the debt over a period of time based on your ability to pay. Contact Inland Revenue proactively, before they contact you if possible, and be ready to explain your situation and propose a realistic payment plan, supported by cash flow information. In cases of serious financial difficulty, you might also discuss a write-off of penalties and interest, or in limited circumstances, of the core tax debt in cases of genuine hardship. If the company is facing insolvency more broadly, get advice about options under the Companies Act 1993, including a compromise with creditors or voluntary administration, since directors need to be mindful of reckless trading risks in this situation.