Can’t Pay Corporation Tax? Understanding the Consequences and Exploring Your Options
Paying corporation tax is critical to running a business, and failure to pay can result in severe consequences for the company and its owners.
Failing to pay corporation tax can lead to serious consequences, including fines, interest charges, and legal action.
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 petition[1]Trusted 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 you are unable to pay your corporation tax and provide practical advice on how to avoid this situation in the first place. By taking a proactive approach to tax management, you can protect your business from the penalties that come with not paying corporation tax and ensure its long-term success.
Consequences of Not Paying Corporation Tax
The consequences can be severe if you’re struggling with corporation tax obligations and arrears. Here’s what to expect:
(1) Threatening Letters – First, you should expect 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) 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 By | Penalty at Basic Rate | Penalty for 3 Consecutive Periods |
|---|---|---|
| Missing Filing Deadline | £100 | £500 |
| 3 Months | £100 | £500 |
| 6 Months | 10% of Unpaid Tax Amount | 10% of Unpaid Tax Amount |
| 12 Months | 10% of Unpaid Tax Amount | 10% of Unpaid Tax Amount |
(3) Court Action – Continued non-payment will provoke HMRC to sterner measures such as court action and even liquidation of the company.
What are the Options if you have Corporation tax Arrears?
If a company is unable to pay its Corporation Tax, there are several steps that it can take to address the issue:
Your options may include:
- Contact HM Revenue and Customs (HMRC: The first step is communicating with HMRC and explaining the situation.
- 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.
- Company Voluntary Arrangement[2]Trusted 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.
- 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.
- Seek professional advice: Finally, it’s advisable to seek professional advice from your accountant or a debt specialist, such as ourselves, 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 Service[3]Trusted Source – .GOV- Payment Problems will guide the next steps: 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.
Voluntary Liquidation as a Last Resort for Unpaid Corporation Tax
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
Yes, it is possible to negotiate a payment plan with HM Revenue and Customs if the company cannot pay its Corporation Tax in full.
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.
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.
- Trusted Source – Legislation – Insolvency Act 1986, Circumstances in which the court may wind up the company
- Trusted Source – .GOV – Company Voluntary Arrangement
- Trusted Source – .GOV- Payment Problems
