If you are having trouble paying the corporation tax for your limited company, this article will help you understand how serious your situation is, and what is the best course of action.
While HMRC take corporation tax arrears less seriously than VAT, perhaps, it is still something to address by keeping clear lines of communication with them, and not putting your head in the sand.
This article will explain your options if you can’t pay your corporation tax on time.
Accounting Deadlines
Corporation tax is not only dependent on the timing of your accounting year end but from a practical point, it is imperative that once you have reached the company’s year-end that you organise for your accountant to prepare the financial accounts as soon as possible.
It is only once the accounts are prepared that you will be able to ascertain the extent of your corporation tax liability. Therefore, if you leave the preparation of the financial accounts to the last minute and then face an unexpected high corporation tax bill; you may be in a position whereby you are unable to meet this corporation tax liability.
It is important to know that if you are unable to pay the tax liability, that doing nothing is not an option because HMRC will soon force the issue for repayment.
Is there a Penalty for Late Payment of Corporation tax?
If you file your company accounts and Company tax return (CT600) late, then HM Revenue & Customs will issue you with a penalty. If your corporation tax return is more than 6 months late, then HMRC will raise a ‘tax determination’ based on the anticipated tax together with penalties.
| Time after your deadline | Penalty |
| 1 day | £100 |
| 3 months | Another £100 |
| 6 months | HMRC will estimate your corporation tax bill and add a penalty of 10% on the unpaid tax |
| 12 months | Another 10% of any unpaid tax |
Interest Charged on Late or Underpaid Corporation Tax
If you pay your Corporation Tax late, do not pay enough or do not pay at all, HMRC will charge your company interest. Interest is charged from the day after the tax should have been paid (i.e. normally 9 months and one day after the end of your accounting period).
The current corporation tax late payment interest rate is 7.5% as of August 2024.
What Happens if I Can’t pay my Corporation tax?
If you are unable to meet your corporation tax liability, HMRC will soon refer the matter to the Enforcement Team in order to collect the tax owed and they will begin sending you payment demands.
It is important that at this early stage you consider your options and call us for professional advice. There are a number of options available to the Company which may include some of the following:-
Tax Losses
If HM Revenue & Customs are chasing for payment on your previous year’s tax liability and the business is now not performing, then one of the options which you can consider is utilising corporation tax losses.
If the company is struggling with cash flow, it is likely to also mean that the company has made trading losses in the current accounting period. If your company is liable for corporation tax from previous accounting periods and is now making a trading loss, then you may be able to claim relief from corporation tax.
You will get this loss relief by offsetting it against other gains or profits in the same accounting period or alternatively, the tax loss can be carried back against profits for the preceding 12 months.
This means that as a result of the losses being incurred in the current accounting period, if you are able to file your corporation tax returns, this may result in a tax refund from HM Revenue & Customs.
Tax Funding
If there is insufficient cash flow to meet the corporation tax liability, then it could be possible to obtain tax funding to pay the tax liability. The lender is likely to require security either against company assets (e.g. property, debtor book) or look to the directors’ to offer personal guarantees.
Whilst this is an option to consider, this may be an expensive route not only due to the rate of interest which the lender will charge but also the business will need to demonstrate that cash flow will improve in order to repay the tax loan.
Can you Delay Paying Corporation tax?
If you know that you are going to be unable to meet the tax deadline, then you should contact HMRC on their support line as soon as possible.
It is vital to know what HMRC are going to ask when you speak to them and so it is important that you speak to either with your accountant or us prior to this conversation.
HMRC will ask you to provide current management accounts and cash flow forecasts in order to establish how much of the tax liability you can pay immediately and how long you may need to pay the rest of the balance.
Can you pay HMRC in Instalments?
It is likely that HMRC will also look as to whether there are any overdrawn director’s loan accounts or any dividends which may be excessive to the level of profit reserves available in the company. If these do exist, then it is likely that HMRC will want these to be repaid before a Time to Pay Arrangement is agreed.
HMRC will not agree for a Time to Pay Arrangement for a period of longer than twelve months. In addition during this period, HM Revenue & Customs will expect you to maintain other tax payments i.e. both VAT and PAYE will need to be paid in a timely manner.
Failure to adhere to the Time to Pay Arrangement will result in HMRC failing the informal arrangement and considering other measure to collect the tax.
Time to Pay Helpline
If you need to speak with someone at HMRC about your situation call the BPSS (Business Payment Support Services) line on 0300 200 3835.
For general Corporation Tax enquiries they have a different number which is: 0300 200 3410.
What Recovery Action will HM Revenue & Customs take for Corporation Tax Arrears?
Once HMRC has established that informal steps have not resulted in any recoveries, they will then take formal enforcement action against the company.
Depending on the nature of the business, this could involve HMRC instructing bailiffs to seize assets on their behalf which would be sold at auction to settle the outstanding liability. Obviously, this would cause disruption to the business if assets are seized and potentially the company could come to a standstill.
Alternatively, HMRC might consider issuing a winding up petition against the company in order to force the company into Compulsory Liquidation.
Once a winding up petition is presented, then as directors’, you should ensure that you minimise any losses to creditors as you may become personally liable for the debts of the company if any wrongful trading actions are taken against you.
It is crucial that you take independent advice and contact us as there may be other options for you to consider e.g. Company Voluntary Arrangement or Creditors’ Voluntary Liquidation.