Paying corporation tax is critical to running a business, and failure to pay can result in severe consequences for the company and its owners.

If you can’t pay your corporation tax bill or are in arrears, the most important thing to do is to face the situation. HMRC are generally the most aggressive creditor, and if you ignore the problem, your company may get a visit from bailiffs and possibly a winding up petitionTrusted Source – Legislation – Insolvency Act 1986, Circumstances in which the court may wind up the company, leading to compulsory liquidation.

In this article, we will explore what to do if a company cannot pay its Corporation Tax, including steps to take and advice to consider.

What Happens if You Can’t Pay Corporation Tax?

The consequences of not paying Corporation Tax can be severe.

(1) The first thing you should expect is a threatening letter from HMRC. This will explain your position, and the actions expected of you to regain compliance. Make note of any reference numbers and keep this documentation safe.

(2) Secondly, interest and penalties charges will accrue on the outstanding amount, increasing the debt owed. This can make it even more challenging for the company to pay its Corporation Tax in the future.

Period Late ByPenalty at Basic RatePenalty for 3 Consecutive Periods
Missing Filing Deadline£100£500
3 Months£100£500
6 Months10% of Unpaid Tax Amount10% of Unpaid Tax Amount
12 Months10% of Unpaid Tax Amount10% of Unpaid Tax Amount

(3) Thirdly, continued non-payment will provoke HMRC to sterner measures such as fines, court action, or even liquidation of the company.

What are the Options if you have Corporation tax Arrears?

Your options may include:

If a company is unable to pay its Corporation Tax, there are several steps that it can take to address the issue:

  1. Communicate with HMRC: The first step is communicating with HMRC and explaining the situation.
  2. Consider a payment plan: If the company cannot pay the total amount owed, it may be possible to negotiate a payment plan with HMRC. This can help the company to spread the cost of the tax owed over a more extended period.
  3. Utilize Government support schemes: The company may be eligible for support from government schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Back Loan Scheme (BBLS).
  4. Company Voluntary ArrangementTrusted Source – .GOV – Company Voluntary Arrangement – These are repayment plans for a percentage of debts that must be voted into agreement by a majority of creditors. A licensed insolvency practitioner must propose these. HMRC is open to voting upon CVA’s if the conditions are right.
  5. Explore alternative funding options: The company may be able to secure alternative funding options, such as a loan from a bank or private lender, to pay its Corporation Tax.
  6. Seek professional advice: Finally, it’s advisable to seek professional advice from an accountant or tax specialist to understand the options available and to ensure that the best course of action is taken.

How to Get an Installment Plan for Corporation Tax Arrears?

First, you should have a clear conversation with HMRC about your case, explaining your business situation and asking for time to pay. You’ll need all the relevant facts and figures, your tax number, and a clear proposal about how much you can pay.

The response from their Business Payment Support ServiceTrusted Source – .GOV- Payment Problems will guide the next steps, which will be either a payment plan that works or their refusal, which means you have to consider other options.

These may include finance, the sale of corporate assets, and possibly staff layoffs. Any of these should be combined with professional advice because a serious cash-flow crisis requires strategic thinking.

Insolvency solutions when you cannot pay your corporation tax bill

If your failure to pay Corporation Tax is linked to significant debts and cash flow, your company is likely to be insolvent, and you should consider your options with a licensed insolvency practitioner such as ourselves.

Please get in touch with one of our expert team for a same-day consultation or free no-obligation discussion. We’ve helped 1000’s of directors like yourself find positive solutions to business debt.

Corporation Tax Arrears FAQs

Can I negotiate a payment plan if I can’t pay my Corporation Tax?

Yes, it is possible to negotiate a payment plan with HM Revenue and Customs if the company cannot pay its Corporation Tax in full.

How long can you delay paying corporation tax?

Corporation Tax is usually due within 9 months and 1 day of the end of the accounting period. Failure to do this will result in consequences.

How long can HMRC go back for corporation tax?

Investigations into ‘innocent’ errors can go backup up to 4 years, ‘careless’ tax return investigations can go back 6 years, and more serious investigations go back up to 20 years for Corporation Tax investigations. In general, the further back the investigation goes, the more complex and time-consuming it will be, so it’s important for companies to keep accurate records and comply with their tax obligations.