Can’t Pay Company Corporation Tax Bill

If your company cannot pay its corporation tax bill on time, you are not alone. In fact, corporation tax arrears are one of the most common forms of HMRC debt, and in most cases, the situation is manageable provided you act quickly and understand what options are available to you.

The important thing to remember is that HMRC would rather recover corporation tax debt over time rather than force a company into compulsory liquidation. The key here, however, is to seek advice at an early stage and engage proactively with HMRC. Ignoring the problem will not make it go away, and in the vast majority of cases will only serve to make it worse.

At BTG Begbies Traynor, we speak to directors every single day who are struggling with corporation tax bills they simply cannot afford to pay. This article answers the questions and concerns we hear the most from directors.

This article will explain what happens when your company cannot pay its corporation tax, what penalties and interest apply, what your options are, and when it may be time to consider formal insolvency advice for your company.

Corporation tax debt at a glance

What happens if my company does not pay its corporation tax bill?

Corporation tax is due nine months and one day after the end of your company’s accounting period. For most companies with annual profits under £1.5 million, this means a single payment. Larger companies may be required to pay in quarterly instalments. If your company misses the payment deadline, HMRC will immediately begin to chase the money you owe in the following ways:

• Interest and penalties

HMRC charges late payment interest from the first day the Corporation Tax payment is overdue. The interest rate is set at the Bank of England base rate plus 2.5%, and it accrues daily on the outstanding balance. There is no grace period.

In addition to interest, HMRC can impose late payment penalties where a pattern of late payment emerges. Unlike VAT, Corporation Tax does not have an automatic penalty regime for a single late payment, but repeated late payment across multiple accounting periods can trigger surcharges. Penalties for deliberately withholding tax or submitting inaccurate returns are more severe and can reach up to 100% of the tax owed in the most serious cases.

• HMRC debt collection and enforcement

If the corporation tax debt remains unpaid after initial correspondence, HMRC will escalate its collection efforts. The typical enforcement path includes:

o   Automated reminders and formal demand letters

o   Contact from HMRC’s debt management team

o   Referral to a debt collection agency

o  HMRC enforcement officers visiting company premises to seize assets

o   County Court or High Court judgment

o   Winding up petition

HMRC is one of the most active creditors when it comes to issuing winding up petitions in England and Wales. If your corporation tax debt is significant and you have made no effort to engage with HMRC about it, you should be aware that there is a very real risk that HMRC will look to force your company into compulsory liquidation.

Acting before the situation reaches this stage gives you considerably more control over the outcome.

What are my options if I cannot pay my corporation tax bill?

1.    Request a Time to Pay arrangement

If your company cannot pay its corporation tax bill in full but you know you will be able to pay it if given more time, the first step is to contact HMRC to discuss a Time to Pay (TTP) arrangement.

This allows you to spread the overdue corporation tax over an agreed repayment period, typically up to 12 months. You will also be required to keep up with any tax obligations that fall due during the period of the Time to Pay.

To give yourself the best chance of a successful Time to Pay negotiation, contact HMRC as early as possible, have up-to-date management accounts and a cash flow forecast ready, and ensure you propose a monthly repayment amount you are confident the company can sustain.

2.    Consider a Company Voluntary Arrangement (CVA)

If your company has Corporation Tax arrears alongside other debts which it cannot pay, entering into a Company Voluntary Arrangement (CVA) may be a viable option. A CVA allows a company to continue trading while repaying HMRC and other creditors by way of a legally binding repayment plan, typically over three to five years.

A CVA can result in HMRC agreeing to extended repayment terms that go well beyond what would be achievable through a Time to Pay arrangement. Once a CVA is approved by creditors, it becomes legally binding on all parties.

3.    Consider a Creditors’ Voluntary Liquidation (CVL)

If the company is insolvent, meaning it cannot pay its corporation tax and other debts as they fall due, a Creditors’ Voluntary Liquidation (CVL) may be the most appropriate route forward.

A CVL allows directors to close their insolvent company in an orderly and legally compliant way, with any outstanding debt written off as part of the liquidation process. At the end of the CVL, the company will be removed from the register of companies and will cease to exist as a legal entity.

How do the options compare?

The right option for dealing with your company’s corporation tax debt depends on your company’s specific circumstances, including the size of the corporation tax bill, whether the business is viable, and where the company has any other debts it cannot pay.

The table below shows the likely best option for your company based on its wider situation:

Are directors personally liable for unpaid Corporation Tax?

Directors will not be held personally liable for company debts, including unpaid corporation tax, in the vast majority of cases. Corporation tax is a company liability, and as a director of a limited company you are protected via limited liability.

There are circumstances where personal liability can arise, however, this is typically in cases where there is evidence of wrongful or fraudulent trading. For the vast majority of directors, unpaid corporation tax is a company cash flow problem rather than a personal conduct issue, and personal liability does not arise.

If you are concerned about your specific position, particularly in regard to potential wrongful or fraudulent trading, this is something to discuss with a licensed insolvency practitioner before the situation escalates.

Can I continue trading if I have corporation tax debt?

Having an unpaid corporation tax bill does not mean you must stop trading. If you are actively engaging with HMRC through a Time to Pay arrangement, you can continue to operate as normal.

However, if the company is insolvent, meaning it cannot meet its debts as they fall due on an ongoing basis, continuing to trade may expose directors to personal liability for wrongful trading. The distinction between “a company with a manageable tax debt” and “an insolvent company” is important, and it is one that a licensed insolvency practitioner can help you determine.

How BTG Begbies Traynor can help

We help directors navigate corporation tax debt situations every day, from advising on Time to Pay proposals, through to formal insolvency processes. Whatever stage you are at, taking advice early gives you the most options and the best chance of a positive outcome.

All insolvency practitioners at BTG Begbies Traynor are fully licensed and regulated. We offer a free initial consultation with no obligation and treat every conversation as strictly confidential. Whether you want to explore ways to keep the company trading or need to understand your closure options, we are here to help.

Frequently asked questions

Can I file my corporation tax return without paying the tax owed?

Yes, and you should. Filing your corporation tax return on time avoids a separate late filing penalty on top of the late payment interest. HMRC treats late filing and late payment as two distinct issues with separate penalty regimes. Always file on time, then address the payment separately by contacting HMRC to discuss your options.

How quickly can HMRC issue a winding up petition for unpaid corporation tax?

HMRC can petition to wind up a company once the debt is undisputed, unpaid, and they have taken reasonable steps to recover it. In practice, HMRC typically pursues other enforcement routes first, but there is no fixed minimum period before a petition can be presented. Once a petition is advertised, the company’s bank accounts are typically frozen immediately which is why acting before this stage is so important.

What if my company has corporation tax arrears from multiple accounting periods?

Accumulated corporation tax arrears across multiple periods can be included within a single Time to Pay arrangement, giving you one consolidated monthly repayment. The more periods involved, the more important it becomes to approach HMRC with a credible proposal and up-to-date financial information. If the total arrears are significant relative to the company’s turnover, HMRC may want to assess the company’s viability before agreeing terms.

Will negotiating with HMRC about corporation tax affect my company’s credit rating?

A Time to Pay arrangement is not publicly registered and does not appear on the company’s credit file. It is a private arrangement between the company and HMRC.

Can HMRC pursue me personally for the company’s corporation tax debt?

Corporation tax is a company liability, and directors benefit from limited liability protection. Therefore for the vast majority of directors dealing with unpaid corporation tax, personal liability does not arise.