What to do if you Can’t Pay Your Corporation Tax Bill

What Will Happen if You Can’t Pay a Corporation Tax Bill?

If your business is unable to pay its corporation tax, you should be prepared for the following consequences. HMRC are the UK’s largest creditor and have a very practised system of responding to default, which includes the following:

1. The Company Will Be Charged Interest: You will be charged interest on the amount due from the deadline until the full payment is made. Typically, this is 5% of the tax outstanding after 30 days, an additional 5% if unpaid after six months, and 10% of the unpaid tax every year thereafter.
2. Penalties for Late Payment: You will incur penalties for not paying on time, which escalate the longer the tax remains unpaid (e.g., six months, 12 months). These are calculated as a percentage of the unpaid tax.
3. Directors Will Receive Threatening Letters: HMRC will send reminders and threatening letters, escalating to legal notices if the payment continues to be overdue.
4. Enforcement Actions: If the situation persists, HMRC may take enforcement actions. This could include seizing company assets or taking court action to recover the debt.
5. Impact on Business Credit Rating: Non-payment can negatively impact your company’s credit rating, affecting future borrowing and business relationships.
6. Potential Personal Liability: In some cases, directors may become personally liable for unpaid taxes, especially if wrongful trading is identified.

The key thing with HMRC is to keep in communication with them if you don’t wish the situation to escalate further. They are generally quite understanding and open to flexibility if they feel your business remains viable and can bounce back.

Immediate Actions If You Can’t Pay Corporation Tax

If you find that your company is unable to meet its Corporation Tax obligations, the initial and most crucial step is to contact HM Revenue and Customs (HMRC) without delay.

Communicating early with HMRC can help prevent the situation from worsening and demonstrates your intent to resolve the issue. HMRC may be more inclined to work with your company on a solution if they are aware that you are proactively seeking to address the payment difficulties.

Parallel to contacting HMRC, conduct a thorough review of your company’s financial status. This involves examining cash flow forecasts, outstanding debts, and current assets.

Understanding the full scope of your financial situation will not only prepare you for detailed discussions with HMRC about possible payment plans but also help identify internal measures to alleviate financial strain, such as cost-cutting or restructuring efforts.

Options if You Can’t Afford HMRC Corporation Tax

Negotiate a Time to Pay (TTP) Arrangement

A Time to Pay (TTP) arrangement is a formal agreement made with HMRC that allows businesses facing financial difficulties to pay their Corporation Tax in smaller, more manageable instalments over a period of time.

To negotiate a TTP arrangement, you’ll need to present a solid case to HMRC, which includes a realistic cash flow forecast, a detailed business plan, and evidence that shows your company’s commitment to meeting future tax liabilities.

HMRC will assess your past tax compliance history, current financial situation, and the likelihood of your business recovering financially before agreeing.

Company Voluntary Arrangement (CVA)

A CVA can be an appropriate option for companies that are insolvent but have a viable business model and the potential to become profitable again. It allows a company to pay creditors over a fixed period of time while continuing to trade, potentially preserving jobs and business value.

The process involves creditors voting on whether to accept the arrangement, which typically requires approval from creditors representing at least 75% of the debt value. Opting for a CVA should be based on comprehensive advice from an insolvency practitioner and a thorough analysis of the company’s long-term viability.

Formal Insolvency Procedures

If the financial challenges are too severe and a Time to Pay arrangement is not feasible or sufficient to cover the tax liabilities, it may be necessary to consider formal insolvency procedures. These can include going into administration or even liquidating the company.

These procedures can offer a structured way to deal with debts but require careful consideration and should be undertaken with professional advice to ensure they are implemented effectively and legally.

Consequences of Failing to Pay Corporation Tax

When corporation tax is overdue, and communication with HMRC has not been established, or negotiations have failed, HMRC may initiate enforcement actions to recover the tax owed. These actions can include charging interest on the late payment, issuing penalties for non-payment, and, in severe cases, moving to issue a winding-up petition, which could lead to the company’s dissolution.

It’s crucial to understand that HMRC prioritises the collection of taxes due and will take significant steps to ensure compliance.

Non-payment of corporation tax carries serious legal implications. If HMRC believes that the company or its directors have deliberately avoided paying taxes, it could lead to accusations of fraudulent trading. Directors may face personal liability, which can include financial penalties or criminal prosecution, particularly if they continued trading when the company was insolvent and owed taxes. Ensuring transparency and seeking early resolution with HMRC can help avoid these severe consequences

Expert Help When you Need it

We can offer strategic advice on debt management, restructuring, and insolvency processes if necessary. Our expertise is invaluable in navigating complex financial situations, ensuring legal compliance, and minimising potential damage to the company’s reputation and operational capacity.

Reach us immediately during working hours via live chat for friendly, confidential advice. Or call 0800 074 6757 to speak with an insolvency practitioner.

Can’t Pay Corporation Tax FAQs