Corporation Tax is due nine months and one day after your accounting period ends. For some directors, that deadline arrives when cash flow is already under pressure or the business has changed since the year end.
HMRC doesn’t ignore missed Corporation Tax payments. Interest starts immediately and enforcement can escalate quickly. If your company can’t pay in full, there are still options available.
The key is acting early, before the debt is passed to HMRC’s enforcement team.
Understanding your Corporation Tax obligations
Corporation Tax applies to limited companies, overseas companies with UK branches and some unincorporated bodies such as clubs and co-operatives. It’s charged on trading profits, investment income and chargeable gains.
Corporation Tax is paid before the Company Tax Return is filed. Payment is due nine months and one day after the accounting period ends. The CT600 must be submitted within 12 months.
Companies with profits over £1.5 million pay Corporation Tax in quarterly instalments instead. These are spread across the accounting period and the months that follow.
HMRC does not issue a bill. Calculating and paying Corporation Tax sits with you as the director. This is why companies often fall behind, especially where accounts are delayed or trading has deteriorated since the year end.
The consequences of missing a Corporation Tax payment
Late or unpaid Corporation Tax attracts interest from the day after the deadline. The current late payment interest rate is 7.5%, although this can change if the base rate moves.
HMRC also applies penalties based on how long the tax remains unpaid:
- Within 30 days, interest only
- After 30 days, a 5% penalty
- After 6 months, a further 5%
- After 12 months, another 5%
These penalties apply to the outstanding balance. A £20,000 Corporation Tax bill left unpaid for over a year results in £3,000 in penalties, plus ongoing interest.
Separate penalties apply for late filing of the Company Tax Return, even if no tax is due. These start at £100 and increase where deadlines are missed repeatedly.
Time to Pay arrangements
A Time to Pay arrangement allows Corporation Tax to be repaid in instalments, usually over 3 to 12 months. It’s intended for short-term cash flow problems, not long-term insolvency.
A Time to Pay agreement covers the full balance owed, including interest and penalties, and acting early can help limit further penalties. However, a Time to Pay arrangement only works if the company can keep up with future tax bills as well as the instalments.
HMRC will assess what the company can afford and often expects around half of monthly disposable income to go towards the arrangement. Where cash flow is stronger, faster repayment may be expected.
When HMRC escalates enforcement action
If Corporation Tax remains unpaid, HMRC will move the debt to its enforcement team. At that point recovery action begins. This can include:
Seizure of company assets
HMRC can instruct enforcement agents to seize and sell company assets. If essential equipment or stock is removed, trading can quickly grind to a halt.
Statutory demand
HMRC often issues a statutory demand before moving to liquidation. This gives 21 days to pay the debt or demonstrate solvency. Ignoring it is usually treated as evidence that the company cannot pay its debts.
Winding-up petition
HMRC is the UK’s most active winding-up petitioner and accounts for around 60% of petitions. While the legal minimum debt is £750, HMRC petitions are usually far higher.
Once a winding-up petition is issued, it becomes public, bank accounts can be frozen and the business effectively loses control. If the petition is granted, the company enters Compulsory Liquidation and the Official Receiver takes over.
Formal insolvency options
If a Time to Pay arrangement isn’t realistic, formal insolvency options provide a regulated way forward that could help you avoid any escalation of HMRC enforcement.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement can work where the business is viable but needs time. Debts are repaid at an affordable level while trading continues, subject to creditor approval.
Administration
Administration gives immediate protection from creditor action. It’s used where the business has value that could be rescued, restructured or sold, or where urgent action is needed to stop a winding-up petition.
Creditors’ Voluntary Liquidation (CVL)
Where recovery isn’t realistic, a Creditors’ Voluntary Liquidation allows directors to close the company properly and on their own terms, as long as there’s been no director misconduct.
Key takeaways if you can’t pay Corporation Tax
- Act quickly if you can’t pay Corporation Tax
- Interest and penalties start immediately
- Time to Pay only suits genuinely viable businesses
- HMRC can seize assets and force liquidation
- Early advice keeps control with you
Get advice on Corporation Tax arrears
There’s no time limit on HMRC chasing unpaid Corporation Tax and, once they step in, things tend to move quickly. Interest and penalties continue to build, and enforcement action can follow sooner than many directors expect. Leaving it too long doesn’t usually buy you time, it often just reduces your options.
Speaking to a qualified insolvency practitioner early gives you clarity on where you stand and, just as importantly, what your risks actually are. We’ll take a practical look at your position and talk it through properly.
That might mean assessing whether a Time to Pay arrangement with HMRC is genuinely affordable, opening discussions with HMRC on your behalf, or guiding you through formal rescue or liquidation options if that’s the safer route.
Get in touch for free, confidential advice and take control of the situation before decisions are taken out of your hands.
