Can’t Pay Corporation Tax: What are the Options?

If you cannot pay your Corporation Tax bill, the debt does not sit quietly waiting for you to find the money.

HMRC charges interest from day one, applies penalties for late payment, and has the power to petition for your company’s compulsory liquidation for debts as low as £750.

We work with directors who owe HMRC for Corporation Tax every week. The pattern is almost always the same: the bill was larger than expected, the cash was not there, you assumed you would catch up next quarter, and now the debt has grown by 20% in interest and penalties and HMRC is sending increasingly aggressive letters.

The good news is that HMRC will negotiate. The bad news is that their willingness to negotiate decreases with every week you leave it. We cannot say this clearly enough: call them today, not next month.

Quick Answer: What to Do When You Cannot Pay Corporation Tax

Call HMRC’s Business Payment Support Service on 0300 200 3835 and request a Time to Pay arrangement. Propose a realistic monthly repayment over 6 to 12 months.

File your Corporation Tax return on time even if you cannot pay: late filing triggers separate penalties on top of the late payment charges. If the debt is too large for a TTP or HMRC rejects your application, speak to a licensed insolvency practitioner about alternatives.

How Corporation Tax Debt Escalates with HMRC

Corporation Tax is due 9 months and 1 day after the end of your accounting period. If you do not pay by that date, HMRC’s enforcement process begins automatically.

Stage	What HMRC does
Day 1 after deadline	Interest accrues at the late payment rate (currently 7.5% per annum). It compounds daily.
30 days late	HMRC may issue a formal payment reminder. A phone call to the Payment Support line can usually resolve this with a TTP.
6 months late	A 5% surcharge of the unpaid tax may apply on top of interest. On a £30,000 bill, that is £1,500 added overnight.
12 months late	A further 5% surcharge applies. Total penalty 10% of the original debt plus daily interest.
Beyond 12 months	HMRC escalates: debt collection agents, statutory demands, then a winding-up petition.

We see directors who assumed the penalties were small. On a £50,000 bill, the penalties alone reach £5,000 plus interest of approximately £3,750 in the first year. The £50,000 debt has become £58,750 without you spending a penny.

We find that HMRC typically moves to enforcement between 6 and 12 months after the original deadline, depending on the size of the debt and your compliance history. By that stage, a winding-up petition is on the table.

Corporation Tax vs Other HMRC Debts: One Key Difference

Unlike VAT and PAYE, Corporation Tax is not a preferential debt in insolvency. It ranks as an unsecured claim in the creditor priority order, alongside trade suppliers and other unsecured creditors.

This means HMRC recovers less from a Corporation Tax debt in liquidation than from VAT or PAYE, which since 2020 have preferential status.

We mention this because it has a practical implication: HMRC has slightly more incentive to negotiate a TTP for Corporation Tax than for VAT or PAYE, because a winding-up petition recovers less for them on Corporation Tax. It is not a guarantee they will agree, but the arithmetic favours negotiation more than it does for preferential debts.

Time to Pay for Corporation Tax: How It Works

The process is the same as for any HMRC debt. Call 0300 200 3835, explain the position, and propose a repayment schedule. We advise:

• Be realistic. Propose what you can actually pay, not what you think HMRC wants to hear. A TTP that you cannot sustain will fail within months and leave you in a worse position.
• Be current on everything else. HMRC assesses your full compliance record. If you are also behind on VAT and PAYE, a Corporation Tax TTP is much harder to negotiate.
• File the return first. HMRC cannot agree a TTP if they do not know the amount owed. File the Corporation Tax return before calling, even if you cannot pay.
• Call before the deadline. If you know you cannot pay before the due date, calling a week early is significantly more effective than calling a month late.

We find that HMRC typically agrees TTP arrangements of 6 to 12 months for Corporation Tax. Longer terms are possible for larger debts but require stronger evidence of viability. Interest continues to accrue during the TTP period, but penalties and enforcement are suspended.

When Corporation Tax Debt Signals a Bigger Solvency Problem

We are honest about this: a single Corporation Tax bill that you cannot pay because of a timing issue is a cash-flow problem. Multiple Corporation Tax bills that you cannot pay because the business does not generate enough cash is a solvency problem.

The distinction matters because TTP fixes the first problem but not the second.

If your company has been behind on Corporation Tax for more than one year, if you are also behind on VAT and PAYE, and if you are choosing which creditors to pay each month, the question is no longer “how do I pay this tax bill?”

It is “should I still be trading?” A licensed insolvency practitioner can assess whether the business is viable with restructured debt or whether formal insolvency is the appropriate route.

What to Do About Unpaid Corporation Tax Right Now

1. File your Corporation Tax return if you have not already. Late filing triggers separate penalties.
2. Call 0300 200 3835 and request a Time to Pay arrangement. Have your UTR and the amount owed ready.
3. Check your other tax obligations. Bring VAT and PAYE up to date if possible before calling about Corporation Tax.
4. If the debt is large, multi-year, or part of a wider cash-flow crisis, speak to a licensed insolvency practitioner. Company Debt connects directors with IPs who handle HMRC debt cases regularly.

A free, confidential consultation will tell you whether a TTP is realistic or whether a different route is needed.

FAQs on Unpaid Corporation Tax