If you can’t pay your corporation tax bill, or are in arrears with your HM Revenue payment, the most important thing to do is to not ignore the situation and, with experienced advice, decide whether you need to think about debt restructuring or insolvency.

Problems paying corporation tax usually indicate that there has been a significant downturn in your business or you have a significant cashflow problem. Allowing things to get worse or to potentially continue trading if your business is insolvent carries significant risks, sometimes even personal liability risks.

We offer an experienced, confidential, free assessment for directors like you. Please do get in contact.

Corporation Tax

What Happens if You Can’t Pay Corporation Tax?

The first thing you should expect is a threatening letter, which will be sent in an automated fashion. This will demand you make contact with HMRC if you can’t pay your tax bill. It will contain all the relevant details of your account, the amount of arrears, and the relevant telephone numbers to call. You should keep this carefully.

Don’t ignore this, it will simple hasten the process of escalation. Telephone HMRC and have an honest discussion about your ability to pay. Suggest a time to pay arrangement and push for the best terms they’re prepared to grant your limited company.

If you do ignore their warnings, however, you should expect a process of escalation including further threatening letters, and perhaps a warning of enforcement action, or third-party bailiffs. But before any of that happens you will be informed by letter.

There are also fines for not paying corporation tax. Make sure you file your company tax return on time even if you can’t make the full corporation tax payment that is due.

There is also late payment interest for late filing. For exact rates, see our full article on HMRC Tax Penalties and Late Payment Interest.

Ultimately, HMRC may send you a winding up petition (if the amount is at least £750) which can force your company into liquidation for non payment.These petitions represent the final tool available to creditors to recoup their money. Your company will be forcibly closed, your employees made redundant.

It’s important to point out that HMRC often  do this, even if it’s not in their financial interests, especiallyespecially where directors haven’t kept in contact and appear to have ignored their communications. HMRC debt is the one you simply cannot put your head in the sand about.

What to do if you have Corporation tax arrears

Your options are as follows:

TIme to Pay Arrangement – This is a structured repayment plan with HMRC. Pre-Covid these used to be 12 months as a maximum length. However, they are now open to longer periods due to the extraordinary pressures on British businesses.

Your company’s cash flow and financial status will also be considered before any payment plan for tax is considered.

Be aware that if you have an overdrawn director’s loan account they will want this repaid immediately before any time to pay arrangement, or instalment payments, would be considered.

For larger amounts, an experienced mediator such as ourselves may be a useful addition. We often act as a third party mediator for business seeking to establish repayment terms with HM & Revenue over significant amounts of tax arrears. Understanding the methodology which HMRC prefer can be an advantage in the process.

Insolvency Procedures – This may include liquidating the company if it simply cannot pay, or perhaps a rescue measure such as administration if it’s felt that restructuring could restore the company to profitability. Insolvency practitioners are not just focussed on shutting down insolvent companies, but also restructuring and rescuing those for whom the business model remains viable.

Company Voluntary Arrangement – These are repayment plans for a percentage of debts that must be voted into agreement by a majority of creditors. These must be proposed by a licensed insolvency practitioner. HMRC is open to voting upon CVA’s if the conditions are right.

Finance – Ask us about business finance options such as invoice finance, which can improve the working capital cycle.

Time to Pay if you Can’t pay Corporation Tax on time

First you should first have a clear conversation with HMRC about your case, explaining your business situation and asking for time to pay. Their response will guide 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, possibly staff layoffs. Any of these should be combined with professional advice because a serious cash-flow crisis requires strategic thinking.

Voluntary Liquidation when you Cannot pay your Corporation tax bill

If the situation is a precursor or indicator of insolvency then you should consider your options with a licensed insolvency practitioner such as ourselves.

Voluntarily liquidating your company will mean an immediate end to creditor pressure, and the chance to be free of the debts associated with your limited company. An insolvency practitioner will close the company, it will be stuck from the Companies House register and cease to exist. As such, the debt will be liquidated and you’ll be free to start another company, or seek employment elsewhere..

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

What are the Implications for Directors if you Cannot Pay the Tax

Taking advice with your accountant or an insolvency practitioner such as ourselves is useful if you’re not sure about what you should do. This could protect you from being accused or directorial misfeasance further down the line, or wrongful trading.