Are you struggling to pay a Corporation Tax bill because of the damaging effects of Covid-19? This is a situation affecting a growing number of companies.

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Corporation Tax COVID

Corporation Tax is paid on a limited company’s profits and is currently set at a rate of 19%. It might appear that if your company has made taxable profits, then there shouldn’t be a problem? 

What is more, if you normally pay the Corporation Tax bill as soon as your accountant lets you know what is due, then you won’t have this problem. But, many instead chose to park this tax payment duty because of the Covid-19 situation and they are now close to the payment deadline, or even worse, it has passed and reminders from HMRC are being sent.

The reality is there have been many cases of firms doing well, turning in a profit, and then suddenly finding that their income has dried up because of lockdowns or other changes in trading. We are now seeing rising cases of insolvency and tax arrears across the UK.

How Long Before Corporation Tax is Due?

Businesses have a lag before they need to pay the tax as Corporation Tax is due nine months and a day after the end of their accounting period – this is the case if a firm has taxable profits of up to £1.5 million. Meanwhile, if taxable profits are over this amount, then the tax is paid earlier and usually in four parts.

Funds that were set aside to pay their Corporation Tax often needed to be used to manage cash flow, such as on staff wages or to cover basic business expenses. Perhaps you took out one of the business coronavirus support loans and had the intention of using this to cover tax but instead it was used to ease cash flow and deal with many more cases of late payment. This is certainly not a rare occurrence and many businesses across the UK have found their performance and profits completely derailed because of the huge disruption caused by the pandemic.

Has Your Payment Deadline to Pay Corporation Tax Passed?

You may well have had a planned date to pay your Corporation Tax bill, but instead are now finding this is just one tax – and other – a bill to pay. It would well be that you are now struggling with PAYE and VAT as well. Perhaps HMRC is just one creditor that is piling on the pressure.

Most importantly, don’t ignore your Corporation Tax bill. This will just make matters worse as once over the deadline, HMRC will charge your company interest and the current late tax rate is set at 2.75%. If you believe you will be in a position to pay HMRC in the future and cover your Corporation Tax bill, then you try and set up an instalment programme. 

Take Expert Advice on Paying Corporation Tax

It may be well worth seeking advice from a licenced insolvency practitioner on your tax debt. They are best placed to help you put your case across to HMRC and improve the chances of a ‘Time to Pay’ scheme being agreed upon. If this happens you will typically be given an extended period of between six and 12 months to meet Corporation Tax payments.

Before speaking to HMRC, ensure you are clear on what you are going to say and that you have all relevant documents to hand and that there are no outstanding tax returns such as for VAT.

You need to look at your tax bill and other debts in the round and work out the total amount owed. It is also important to be realistic about what you can afford, what income you expect, and if six months is inadequate, it is better to say this. If you go ahead and set up a Time to Pay plan based on monthly instalments and then fail to keep to this, then it is unlikely you will be able to renegotiate another one – HMRC may be quick to take action, including winding up your company through compulsory liquidation.

If you feel the corporation tax arrears and other debts are insurmountable, then liquidation may be the only way forward and again, seeking advice is extremely important. If, on the other hand, you believe that business can be turned around, then there may be other solutions. This could include a Company Voluntary Arrangement, a legally binding insolvency procedure where debts are restructured, and the business has a longer period of up to five years to make instalment payments to its creditors. 

If your business is having problems managing Corporation Tax arrears and other tax bills, then a licensed insolvency practitioner at Company Debt can provide clear and confidential guidance on tax liability and what your next steps should be.