John A Waller
Reviewed 23rd April 2021.
Can’t Pay Corporation Tax
Year-End Accounting Deadlines
Corporate tax is an annual event that depends on the time of year-end of your accounting. Hence, directors must insure their accountants prepare the statements required at the end of the year. Please note this is the responsibility of the director, and that all failures of the accountant are the responsibility of the director.
As soon as you have prepared the accounts, you will determine your company’s tax liability. Therefore, delaying the financial accounts’ preparation to the last minute and encountering an unexpected high corporation tax bill, you may then be in a position whereby you cannot meet this corporation tax liability.
Directors must note, once you then know you cannot pay the tax liability, not doing anything then ensures HMRC will enforce payment. Therefore,please contact HMRC if you have a problem first.
Keeping contact with HMRC is imperative
Carry forward Corporation Tax losses.
Your company can carry forward trading losses to deduct from future accounting periods, providing the company continues trading.
If your company uses a carried forward trading loss in an accounting period that ends before 1 April 2017, you may only utilise the relief against profits of the same trade.
Your company uses a carried forward trading loss in an accounting period that starts on or after 1 April 2017.
The situation depends on when your company has made the loss. For example, if your company made a loss:
- Before 1 April 2017, companies can only use it against profits of the same trade.
- On or after 1 April 2017, limited companies can usually use it against your company’s total profits.
Special rules apply for accounting periods that start before and end on or after 1 April 2017.
Who must pay corporation tax?
Businesses that trade with the protection of a limited company are however charged with paying corporation tax on their trading profit, but not losses. However, if you have previous losses retained in your limited company? Then you can carry the losses offset from the reported profits.
HMRC requires notification in both cases if your company works profitably to determine your corporation tax liability. Also, if a loss, so your company’s tax records are maintained.
Corporation tax applies only to:
- Limited company in the UK;
- Foreign companies with an office in the UK;
- a co-operative;
- Unincorporated associations.
Companies with limited status at the company register. However, it is not charged to sole traders, as they are taxed on their income.
Since inception of the pandemic in March 2020. Companies across the UK have struggled to maintain solvency during the Coronavirus crisis, and the government has launched a series of initiatives to counteract an increase in business insolvency.
Business cash flow has been the major issue affecting how businesses pay each other. Additionally, a major strain has been placed over business on paying TAX. However, HMRC has further supported UK businesses during the Coronavirus pandemic by expanding their Time to Pay scheme,
Inability to pay HMRC due to the pandemic? Then contact the HMRC coronavirus (COVID-19) helpline.
As previously stated. HMRC has however, increased access to their Time to Pay scheme to support UK businesses impacted by the Coronavirus COVID-19 pandemic. You can negotiate up to 12 months more time to pay arrears of corporation tax, providing a respite from the demands on your businesses working capital.
Can’t Pay Corporation Tax – What then?
When you can’t pay a corporation on time and have mounting corporation tax arrears, act quickly. Ensure you then make contact with a Licensed Insolvency Practitioner for company debt advice. Once overdue, HMRC will commence debt recovery, firstly with threatening letters, followed by enforcement action if you fail to connect.
They will then proceed with a liquidation petition. So, avoid receiving a winding-up petition by acting swiftly for help.
As a director of a company struggling financially and unable to pay your corporation tax. It is therefore crucial to make sure you deal with the problem. HMRC will not go away. Interest and fines will mount up, leading to a visit from an HMRC bailiff.
Usually, when unable to pay your corporation tax, you can’t pay VAT options also need to be considered.
So act now. Consult with HBG Advisory 0800 612 5448, and then please arrange an online VIRTUAL meeting today, to deal with the problem. Various closure options exist, along with business rescue if you can’t afford to pay HMRC.
For further reading on Corporation Tax debt, please read ‘dealing with HMRC company debt.’
Contact the HMRC.
Once you have accepted you cannot pay your corporation tax bill on time or at all, contact HMRC before the due date.
You need to then speak with the Business Payment Support Service on 0300 200 3825.
If they then reject your request for help, please contact HBG Advisory for immediate assistance. We have many years of experience dealing with matters of tax. By contacting us, it does not infer that you are entering insolvency. Indeed, an important part of our brief is to act in a purely advisory capacity.
Can you Pay Corporation Tax by Installments?
HMRC will listen to your application. However, you must ensure your facts and figures are correct and ready for HMRC questions. Usually, they will inquire why your company is finding it difficult to pay the tax? Also, they will ask what effort have you performed to attempt payment. Finally, ensure your company can pay if asking for instalments. Do not agree if you are unable to agree to an acceptable payment plan. Seek help immediately from HBG Advisory.
Let’s assume that HMRC agrees to a Time to Pay arrangement. Monthly instalments then determine tax payments, up to usually 12 months. HMRC will agree with this when the company cannot pay now, but has the ability to pay over 12 months, subject to its viability. HMRC will maintain the Time To Pay arrangement for tax liabilities if you do.
For further help on arranging time to pay arrangement, please read ‘negotiating a time to pay with HMRC.’
Ensure you keep to the plan on the set dates. If you fail? The HMRC will then petition to Wind Up the company.
Negotiating “Time to Pay (TTP)” with the HMRC.
Negotiate with HMRC to pay your tax bill. Though, it is wise to use an experienced firm to act for you.
However, negotiations work if you have a viable business and have not had previous failed talks in the past.
So, if you fail to pay or agree on an arrangement, they will begin enforcement to recover the debt.
- Earnings or pension directly;
- Instruct debt collectors;
- Apply to your bank for the money;
- Take possession of company assets and sell them;
- Apply to the courts for recovery;
- Wind the business up.
Can I Fund Tax?
If there is insufficient cash flow to meet the corporation tax liability, it could be possible to obtain tax funding. Often the lender requires some form of security for the advance, including assets of the company not charged by other lenders, failing a personal guarantee.
While this is an option to contemplate, interest rates usually are high charged by the lender. Additionally, the company needs to demonstrate that the business cash flow will improve to enable the business to repay the loan.
As a Director, am I Personally Responsible for Corporation tax?
As a Company Director, you are a separate legal entity to your company. Therefore, directors personally are not liable for your company’s liabilities (unless you have given a personal guarantee). In insolvency, however, you may be liable if you trade wrongfully or fraudulently.
If involved in the knowing mismanagement of your company, as a company director, you may be personally liable, therefore, for money owed and not ranked in the normal mode of paying creditors.
So ensure you keep up to date with your company records and make every effort to pay your tax bills. Keep control of how your cash flows. If it helps change your accounting periods (Speak with your accountant for advice). Additionally, ask your accountant to produce management accounts monthly and explain them.
In conclusion, if you are a director, act responsibly.
Can I Delay my Companies Corporation Tax Payment?
During Coronavirus COVID29 Pandemic. HMRC appears to allow a level of empathy in helping small companies struggle.
As always with HMRC. When dealing with them, you should speak honestly and openly. The HMRC will help if advised. The earlier you approach and open dialogue, the better the response.
Insolvency – When you can’t pay Corporation Tax?
In the event your company is unable to pay its Corporation tax, and you have exhausted or your available options with the HMRC.
Ensure you explore ways to clear HMRC debt?
Then it is time to sit down and look at your available options with a Licensed Insolvency Practitioner. Often referred to as an insolvency advisor.
At this point, directors need to be realistic and accept your company is insolvent.
Failing to pay HMRC and not seeking help
Failing to pay Corporation Tax will prompt HMRC to commence a well practised process for collection of the tax, so failing to pay means:
- HMRC first issues an initial letter to highlight that the tax remains unpaid;
- Failing to respond, then may trigger a bailiff attending on behalf of the HMRC.
- If you then fail to pay the debt or have no assets to remove, then a statutory demand may be issued, giving 21 days to pay.
- HMRC then file the winding-up petition at the Court. The Court will then advise you in writing of a hearing date, giving fourteen days notice.
- The date and issuing of the winding-up petition are advertised in the Gazette, allowing company creditors, and the world at large, to see the order. Additionally, the company bank will pick up the notice.
- Then your company bankers will freeze all transactions with your accounts fourteen days before your court presentation.
- It is usual to arrange a Barrister to attend on your behalf, via a solicitor, if disputed, to request an adjournment, so to gain additional time to prepare a defence. An expensive point to be at, though, and considered risky.
- Failing which, your company faces Compulsory Liquidation.
If HMRC is pursuing your limited company for payment on your previous year’s tax liability, and the business is now not performing. One alternative is utilising corporation tax losses.
In the situation the company is struggling with cash flow, it is likely to mean it has acquired trading losses in the current accounting period. If your company remains liable for corporation tax from previous accounting periods and is now trading at a loss, then you may claim relief from corporation tax.
You claim loss relief by offsetting it against other gains or profits during the same accounting period. However, profits can offset tax loss against profits for the previous 12 months.
Therefore, due to the losses incurred in the current accounting period, if you can file your corporation tax returns, a tax refund from HM Revenue & Customs is possible.
Insolvency options for distressed companies
Suppose your company is financially distressed and unable at present to deal with its corporation tax liability along with other creditors. Then if your company is beyond rescue, consider closing the company formally with an insolvency procedure. Perhaps you may need advice on what an Insolvent Liquidation is, and talk through the process in understandable terminology.
Can a Bailiff Force Entry to My Premises?
Saving bailiffs arrive acting as high court enforcement officers attending with a signed warrant authorised by a judge. Bailiffs have no legal authority to execute entry of commercial premises, nor remove any goods.
Court-appointed bailiffs cannot simply appear and then force entry. They are permitted to gain access having entered previously while then listing goods to be removed if payment is not obtained.
For further detail, please read ‘Bailiff’s powers with a Ltd Company‘
CVA and Corporation tax
Will I lose out on tax if I take out a CVA?
Proposing a Company Voluntary Arrangement CVA remains a job that needs serious input to secure approval from your company’s creditors.
A company proposing taking out a CVA has accumulated tax trade losses. The continued accessibility of losses in future periods remains a crucial part of the successful implementation of the CVA.
Assuming that the company continues to trade throughout the CVA process, its undiminished trading losses remain transferable to future profits from the same trade.
As the HMRC is often a major creditor. When a company enters insolvency, why is HMRC the largest business creditor?
HBG Advisory licensed insolvency practitioners will help you to explore the options available to you. Ensuring resolution, your company’s corporation tax commences as soon as you make contact.
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The Team at HBG Advisory