Can’t Pay Corporation Tax Bill? Here are Your Options

Difficulties paying HMRC? There’s help and advice available

Tax is one of those things that can keep you up at night. If you’ve landed on this article, you may be thinking that you can’t pay corporation tax bills this year, or perhaps know someone else who’s struggling to pay. This difficulty could stem from a variety of different reasons – perhaps the business wasn’t profitable enough the year before, or maybe your business is still feeling the effects of the COVID-19 pandemic.

I imagine you are looking for a magical answer to make it disappear – unfortunately there isn’t one, but that doesn’t mean it cannot be reduced or handled. Co-operation with HMRC is absolutely essential, and strongly recommended in order to make your life easier in the long run.

If you think you can’t pay corporation tax you’ve been billed, this article should help you to understand your options, with specialist advice from experts on how best to deal with it.

Corporation tax deadlines

Any corporation tax payments for the current tax year must be made between 1 April and 31 July. It’s important to check whether there is an extension available for later payments. Depending on the nature of your business, an extension could be exactly what you need.

You can only apply for an extension after the 30th of September, when your next return is due.

You can apply for this via the government website.

Remember to file your self-assessment tax return form

Your tax return gives you the opportunity to show HMRC how your business is doing in order for them to tax you fairly. While this might not sound like the best opportunity to take advantage of, the alternative can be much worse.

If you fail to file your self-assessment tax return within six months of the deadline, HMRC will make an educated guess based on figures collected from similar businesses. If your business has been struggling, this could see you taxed at a rate more fitting for a more successful company. What’s more, HMRC don’t allow for any appeals, and actually have the authority to begin debt recovery procedures against your business.

When do I pay corporation tax?

Corporation tax has to be paid nine months and one day after your business’s tax accounting period has ended. If you’re unsure of when that might be, your business accountant will be able to advise you.

Limited companies with revenue under $1.5 million typically pay their corporation tax annually all at once, while those that earn over $1.5 million are able to spread their bill over four instalments across the year.

Corporation tax late payment penalties

There will be penalties for late payments – whether you’re unable to meet the deadline because you haven’t received sufficient information from HMRC, or because you don’t have enough money to pay the tax bill. As of August 2023, the late payment rate is 7.75% of the total amount owed per month. This figure does fluctuate, and is based upon the base rate of interest, plus 2.5% on top.

This also works the other way around too. If you pay your corporation tax early, you will get paid interest from the HMRC. This is to prompt earlier payments from business owners and is currently paid at a rate of 4.25% (August 2023)

Even if the late payment rate sits at a relatively favourable figure, you need to be aware of HMRC’s late filing penalties. Even by straying just one day overdue, you’ll instantly incur a £100 pound penalty charge which is added to your tax bill. If you delay your repayments for an even longer spell, you can soon start to accrue a sizeable penalty.

HMRC late payment penalties

• One day late – £100 added to your tax bill
• Three months late – An extra £100 added
• Six months late – 10% of whatever is still unpaid is added
• 12 months late – Another 10% of whatever is still unpaid is added

These penalties get worse for business owners that have missed the deadline three times. They should refer to the figures below:

• One day late – £500 added to your tax bill
• Three months late – An extra £500 added
• Six months late – 10% of whatever is still unpaid is added
• 12 months late – Another 10% of whatever is still unpaid is added

As you can see, the sooner you pay off your corporation tax, the better. By looking at these figures, it can be easy to understand how unpaid tax bills can snowball to the point that they become absolutely crippling to some small businesses.

What happens if I can’t pay corporation tax I’ve already been given an extension for?

There are two ways in which you can handle this situation. If you’ve already filed your last tax return, then it might be possible to arrange a payment plan.

This could involve making regular payments through instalment orders, or arranging an overdraft arrangement until the debt is cleared. There’s usually a limit on how much time you have to file a tax return, but in some cases, you might be able to extend this time frame as mentioned above.

In very limited circumstances, you could ask HMRC to waive the interest on unpaid taxes. This isn’t always granted however and depends completely on your circumstances. This is why it’s so important to stay in contact with HMRC throughout.

If you simply ignore HMRC’s requests for tax payments, they can potentially close your company or even hire a debt collection agency to collect the money.

How do I pay my corporation tax in instalments?

This is done via a scheme called a Time to Pay arrangement. Depending on the size of your business, this can be set up easily online through the government website, however, the caveat is that you have to owe less than £30,000.

For larger businesses that may owe more money, the option is still available, but must be discussed with HMRC first. It’s important to consider whether you can afford to pay less every month.

Business owners that can’t pay their corporation tax all at once often take advantage of instalment plans. This sees them pay a smaller sum each month. However, these arrangements typically require you to pay back the difference using funds that you earn within a certain time frame – for example, 6 months.

HMRC will need to be confident in your ability to keep up the repayments in order to offer you a Time to Pay arrangement. You’ll need to get in touch with them to determine how much you can afford to pay, and what period of time you can expect to clear the bill by. It’s best to do this as promptly as possible, before they can issue a winding up petition against your company.

You’ll need to notify HMRC of your intention to ask for a Time to Pay arrangement. This is done by sending a written letter to them with documents that explain your financial situation (namely, how you are unable to pay your tax bill in its current form.

Who is exempt from corporation tax?

Limited companies that aren’t making a profit don’t have to pay corporation tax. Businesses that are currently operating at a loss will have to make HMRC aware of this, so they can formally make them exempt.

Sole traders are also exempt from corporation tax, but still need to pay income tax.

Unsure if you can pay your bill even with a Time to Pay arrangement?

If your business is struggling, even breaking a large bill down into instalments might not be viable. If you have serious concerns about not being able to pay, it may be time to look into dissolving the company. There are several different avenues available to businesses looking to close, with pros and cons for each. Take a look at our advice on dissolving a UK company to determine if it might be an option for your business.

Need help? Get free advice today

Every day, thousands of businesses struggle and face uncertainty. Our business advisors are always available for free, immediate and confidential advice. if you think you can’t pay corporation tax this year, get in touch using our contact form, or call us on 0800 975 0380.