I’ll cover options for businesses unable to pay corporation tax, including immediate actions, contacting HMRC, setting up payment plans, and understanding potential penalties.
Corporation Tax is a direct tax on company profits applying to limited companies, foreign companies with UK branches or offices, and some unincorporated associations like clubs and co-operatives.
Companies pay this tax on profits from trading activities, investments, and chargeable gains from selling assets for more than they cost.
When Do I Pay Corporation Tax?
You must pay Corporation Tax before filing your company tax return. The deadlines are:
9 months and 1 day after your accounting period ends for the tax payment.
12 months after your accounting period ends for filing your tax return.
For example, if your accounting period ends on March 31, your Corporation Tax is due by January 1 of the following year. You don’t receive a bill; it’s your responsibility to calculate, pay, and report it on time.
What to Do If You Can’t Pay Your Corporation Tax Bill
If your limited company can’t pay its corporation tax liabilities, the most important step is to contact HM Revenue and Customs (HMRC) immediately[1]Trusted Source – GOV.UK – If you cannot pay your tax bill on time. HMRC are open to payment plans if they feel you are being proactive and not trying to evade responsibility.
Before your conversation with HMRC, take a close look at your cash flow forecasts, outstanding debts, and current assets. Having this information at your fingertips will not only help you present a clear picture to HMRC but also inform any repayment proposals you might make.
If you’re feeling overwhelmed or unsure about the best approach, I also recommend seeking professional advice. A qualified accountant or insolvency practitioner can explain your options based on the company’s particular situation.
It’s also important to be aware of potential insolvency indicators. If your company is consistently struggling to pay bills when they’re due, it might signal deeper financial issues that need addressing.
Remember, HMRC’s primary goal is to recover the tax owed, but they also want to support viable businesses. By approaching them early and with a well-prepared case, you increase your chances of negotiating a manageable payment plan.
ⓘ How do I contact HMRC to explain my situation?
To contact HMRC for general corporation tax questions:
Have Your UTR Ready: You can find your 10-digit Unique Tax Reference (UTR) in HMRC letters or online services.
Call HMRC:
UK: 0300 200 3410
Outside UK: +44 151 268 0571
Opening Hours: Monday to Friday, 8 am to 6 pm. Closed on weekends and bank holidays.
Or contact the Payment team to discuss an instalment plan on: 0300 200 3822
What are the Consequences of Not Paying Corporation Tax on Time?
HMRC have a practised system of escalation for non-payment of taxes, which begins with an automatic letter. Here are the consequences that will follow your corporation tax arrears.
Your company will be charged interest
HMRC charges interest on late or underpaid corporation tax from the day after the payment was due until the payment is made. The rate varies but is usually closely linked to the Bank of England base rate. Full details on the current interest rates can be found here.
You’ll receive penalties for late filing
Here are the current penalties for late filing of corporation tax
Lateness
Penalty
Missed deadline
£100
3 months late
£100
6 months late
10% of unpaid tax
12 months late
10% of unpaid tax
If your tax return is late 3 times in a row, the £100 penalties are increased to £500 each.
HMRC will send reminders and threatening letters, escalating to legal notices if the payment is still overdue. These will always contain clear information about the department dealing with the issue, a reference number, and an indication of the actions they wish you to take.
You could face enforcement action or winding up
If the situation persists, HMRC may take enforcement actions. This could include seizing company assets (‘distraint’) or taking court action to recover the debt. If substantial tax debts remain unpaid, HMRC might issue a statutory demand as a precursor to initiating winding-up proceedings, which can lead to the company being compulsorily liquidated.
Your business credit will be impacted
Non-payment can negatively impact your company’s credit rating, affecting future borrowing and business relationships.
You could face potential personal liability
When a company is insolvent, the appointed insolvency practitioners have a responsibility to investigate the actions of company directors to ensure they behaved fairly to creditors in the period preceding the insolvency process. If they discover misfeasance, directors may become personally liable for unpaid taxes, especially if wrongful trading is identified.
Options if You Can’t Pay Corporation Tax
Here are three options for you to consider if you don’t have the capital to pay the corporation tax[2]Trusted Source – GOV.UK – Pay your Corporation Tax bill and don’t feel that you can raise finance to cover the cost.
Pay Corporation Tax in Instalments
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[3]Trusted Source – GOV.UK – Payment Plan.
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.
Setting up a TTP should be your first port of call to avoid HMRC escalating the situation further. They remain the UK’s largest issuer of Winding up Petitions which can force a business into compulsory liquidation for non-payment of debts.
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.
Choosing the Right Path: Expert Advice and Next Steps
Struggling with corporation tax arrears? Our team of licensed insolvency practitioners at Company Debt can provide expert advice and help you explore all available options. With over 100 years of combined partner experience, we specialise in practical, no-jargon advice that gives you options.
Phone: Call 0800 644 6080 to speak directly with one of our experienced advisors. The initial consultation is free and can help clarify your options and the best path forward.
Email: Prefer written communication or need to provide detailed information? Email us at info@companydebt.com. An advisor will respond promptly to discuss your enquiry further and provide transparent pricing information for our services.
Can’t Pay Corporation Tax FAQs
What Happens If I Simply Don’t Pay Corporation Tax?
Failure to pay your corporation tax will result in immediate interest on the outstanding amount. Additional penalties are applied if the tax remains unpaid for an extended period. Ultimately, HMRC can take legal action, up to and including shutting down your company.
What Are the Penalties for Not Paying Corporation Tax on Time?
If you don’t pay the corporation tax on time, interest will start accruing on the unpaid amount from the day after the deadline. Additional penalties can be levied if the tax remains unpaid for 30 days, 6 months, and then 12 months.
Is Voluntary Liquidation an Option for Settling Corporation Tax Debts?
Yes, voluntary liquidation is a formal insolvency option to consider when you can’t pay your corporation tax. Your company’s assets are sold off to pay off debts, including corporation tax owed to HMRC. However, this also means that your company will be dissolved.
Can HMRC Seize Company Assets for Unpaid Corporation Tax?
Yes, HMRC has the authority to take control of your company’s assets to recover unpaid corporation tax. This is usually a last resort after other means of settlement have been exhausted.
Can HMRC Close Down My Company for Unpaid Corporation Tax?
Yes, as a last resort, HMRC can initiate legal proceedings to wind up your company if you fail to pay corporation tax. This will result in the dissolution of your business and the sale of assets to pay off debts, including the owed tax.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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