I’ll cover options for businesses unable to pay corporation tax, including immediate actions, contacting HMRC, setting up payment plans, and understanding potential penalties.

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) without delay[1]Trusted Source – GOV.UK – If you cannot pay your tax bill on time. They are open to payment plans if they feel you are being proactive and not trying to evade responsibility.

Parallel to contacting HMRC, my advice is to conduct a thorough review of your cash flow forecasts, outstanding debts, and current assets, before speaking with a professional advisor.

If you feel you have crossed the tipping point of insolvency, it’s time to seek professional advice from insolvency practitioners such as ourselves. Not being able to pay bills when due is one possible indicator of insolvency, which means you should take this seriously.

Below, I’ll outline what to expect from HMRC in this scenario and some practical solutions to help your company through the challenge.

To contact HMRC for general corporation tax questions:

  1. Have Your UTR Ready: You can find your 10-digit Unique Tax Reference (UTR) in HMRC letters or online services.
  2. Call HMRC:
    • UK: 0300 200 3410
    • Outside UK: +44 151 268 0571
  3. 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 very 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.

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.

Here are the current penalties for late filing of corporation tax

LatenessPenalty
Missed deadline£100
3 months late£100
6 months late10% of unpaid tax
12 months late10% of unpaid tax

If your tax return is late 3 times in a row, the £100 penalties are increased to £500 each.

HMRC’s page on this is here.

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.

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.

Non-payment can negatively impact your company’s credit rating, affecting future borrowing and business relationships.

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.

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

Options if You Can’t Afford HMRC 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.

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.

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.

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.

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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

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.

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.

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.

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.

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.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – If you cannot pay your tax bill on time
  2. Trusted Source – GOV.UK – Pay your Corporation Tax bill
  3. Trusted Source – GOV.UK – Payment Plan