Can’t Pay Corporation Tax – What Next

Can’t pay corporation tax – What Next Written by: John A Waller Director Reviewed March 9th, 2022.

Being unable to pay my corporation tax as and when due. Maybe a sign your limited company is insolvent.

However, as a director, you may wish to consider before anything else contact HM Revenue and Customs if you:

  • Missed a tax deadline
  • You know you can’t pay the corporation tax on time.

Year-End Accounting Deadlines

Corporation tax is the tax a company pays on its profits. Tax fees vary between 20% and 21%, depending on the company’s profit. However, it should be remembered that directors must file accounts and report profits correctly, allowing the right amount of tax to be collected. To do so, you must file a CT600 return within 12 months of your company’s year-end.

Due to the coronavirus COVID-19 pandemic. Corporation tax will be raised to 25% in 2023 for larger businesses.

Corporate tax is an annual event based on the time of year-end of your accounting. Please note this is the director’s responsibility, 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 that once you know you cannot pay the tax liability, not doing anything then ensures HMRC enforces payment. Therefore, please contact HMRC if you have a problem first.

Keeping contact with HMRC is imperative

Can'pay HMRC -what next

Carry forward Corporation Tax losses.

However, your company may carry forward trading losses to deduct future accounting periods, provided 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 starting 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 then 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

As a company director, it is important to investigate the causes of insolvency in your company. What is important is that you can turn the company around while avoiding insolvency.

Can’t pay corporation tax – What Next? – 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 by the reported profits. 

HMRC requires notification if your company works profitably to determine your corporation tax liability. Also, your company’s tax records are maintained if there is a loss.

Corporation tax, however, only applies to:

  • A limited company in the UK;
  • Foreign companies with an office in the UK;
  • a co-operative; 
  • Club; 
  • Unincorporated associations.

Companies with limited status at the company register. However, it is not imposed on sole traders, as they are taxed on their income.

If your business can’t pay HMRC due to coronavirus (COVID-19)

Since the beginning of the pandemic in March 2020. Companies across the UK struggled to maintain solvency during the coronavirus crisis, and the government has launched a series of initiatives to counter an increase in business insolvency.

Companies’ cash flow has been an important issue in how companies pay each other. In addition, considerable pressure has been placed on companies to pay taxes. 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 on 0800 024 1222.

As previously stated. However, HMRC has increased access to their Time to Pay scheme to support UK businesses affected by the Coronavirus COVID-19 pandemic. You can negotiate up to 12 months more time to pay corporation tax arrears, providing a respite from the demands on your business working capital.

Can’t Pay Corporation Tax – What then?

Act quickly when you can’t pay a corporation on time and have mounting corporation tax arrears. Ensure you contact a licensed Insolvency Practitioner for company debt advice. Once overdue, HMRC will commence debt recovery, first with threatening letters, followed by enforcement action if you fail to connect.

Directors must understand clearly about the causes of insolvency in business.

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. Therefore, it is crucial to deal with the problem. HMRC will not go away. Interest and fines will mount, leading to a visit from an HMRC bailiff.

Usually, when you can’t pay your corporation tax, you can’t pay VAT. Options also need to be considered.

So act now. Consult with the team at HBG Advisory 0330 056 3120, 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.’

HMRC support available paying Corporation Tax

If you can’t pay corporation tax, HMRC should be your first port of call. They will listen to struggling businesses. So, begin talking to them and accurately put your company’s financial situation in writing. Should this be the first time you have approached HM Revenue and Customs directly, contact HMRC’s Business Payment Support Service.

Should you consider avoiding demands from HMRC, then matters only escalate, costing you more. You may consider arranging a time to pay with HMRC. Allowing you to pay the tax over an agreed period, usually up to 12 months. However, arranging such a scheme must be affordable to the company failing, which shouldn’t hesitate to contact the team at HBG Advisory.

Can’t pay Corporation Tax – 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 speak with the Business Payment Support Service on 0300 200 3825.

If they then reject your request for help, please get in touch with 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 essential 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 ask why your company finds it challenging to pay the tax. Also, they will ask what effort you have performed to attempt payment. Finally, ensure your company can pay if asking for instalments. Do not agree if you cannot agree to an acceptable payment plan. Seek help immediately from HBG Advisory.

Let’s assume HMRC agrees to a Time to Pay arrangement. Monthly instalments then determine tax payments, up to usually 12 months. HMRC will agree that the company cannot pay for over 12 months, subject to its viability. HMRC will maintain the Time To Pay arrangement for tax liabilities if you do.

For further help with arranging a 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. 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.

In:

  • 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;
  • Dealing with a winding up petition.

Suppose your business has insufficient cash to pay its corporation tax when due to meet the corporation tax bill. In that case, it could be possible to obtain tax funding to pay the tax liability. The lender typically requires the borrower to provide a personal security guarantee, such as its debtor’s book or property.

What recovery actions will HMRC take for arrears of corporate tax?

As soon as HMRC has confirmed informal steps have not led to recoveries, they will take formal enforcement action against the company.

Subject to the nature of the business, HMRC could instruct bailiffs to seize assets on their behalf, then sell at auction to use the proceeds to pay the tax owed. Such action will impact the business heavily, possibly forcing insolvency.

HMRC, however, could contemplate issuing a liquidation petition to force the company into compulsory liquidation

As soon as a liquidation petition is submitted, you should ensure you minimise any losses to creditors, as you may personally be liable for the company’s debts if you are subject to wrongful trading actions.

So what will HMRC do if you do not pay corporation tax due?

Once they have written to you and you have failed to pay:

  1. Then a bailiff may attend;
  2. Should they not satisfy the debt, HMRC then issues a statutory demand allowing 21 days to make payment;
  3. If you still fail to do so, then a winding up petition in Court is filed;
  4. The Court then advises the hearing date diving 14 days notice minimum;
  5. At this point, be prepared for the winding up petition to be advertised in the London Gazette. Once the bank sees this, they will freeze the company account, and your creditors will be aware of the company’s situation;
  6. If you wish to defend the winding up order, you now need to attend the hearing, usually with a lawyer, to adjourn the hearing disputing the tax owed.
  7. However, if you fail at the meeting? The company will be wound up and placed into compulsory liquidation.

you must seek independent advice and contact us, as options exist, including 

Can I Fund Tax?

Yes!

If there is insufficient cash flow to meet the corporation’s 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, interest rates are usually high charged by the lender. Additionally, the company must demonstrate that the business cash flow will improve to repay the loan.

Will HMRC charge interest?

Paying your Corporation Tax late prompts HMRC to charge your company interest. So, late payment interest will be charged from the day after the tax falls due. (i.e. nine months and one day after the end of your company accounting period).

As a Director, am I personally responsible for Corporation tax?

As a Company Director, you are a separate legal entity from your company. Therefore, directors personally are not responsible for your company’s liabilities (unless you have given a personal guarantee). However, you may be liable in insolvency if you trade wrongfully or fraudulently.

If involved in the mismanagement of your company, you may be personally liable 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 settle 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 monthly management accounts and explain them.

Can HMRC hold directors liable for tax?

Yes!

However, directors must be guilty or fading while insolvent, committing fraud or misfeasance. For further details, please read directors duties and responsibilities.

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 empathy in helping small companies struggle.

As always with HMRC. When dealing with them, you should speak honestly and openly. If advised, the HMRC will help. The earlier you approach and open dialogue, the better the response.

Insolvency – When you can’t pay Corporation Tax?

Insolvency support.

If your company cannot clear its corporation tax and you have exhausted your 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 Practitioners. 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

Failure to pay Corporation Tax will prompt HMRC to commence a well-practised process for tax collection. So failing to do so means: 

  • HMRC first issues an initial letter to highlight the tax remains unpaid;
  • Failure to respond may then trigger a bailiff attending on behalf of the HMRC.
  • If you fail to clear the debt or have no assets to remove, a statutory demand may be issued, giving 21 days to settle the amount due.
  • HMRC then filed 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 to view 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 for a Barrister to attend on your behalf via a solicitor, if disputed, to request an adjournment so that you can gain additional time to prepare a defence. An expensive point to be at, though, and considered risky.
  • Failing which, your company faces Compulsory Liquidation.

Tax Losses

If HMRC is pursuing your limited company for payment on your previous year’s tax liability, the business is now not performing. One alternative is to use corporation tax losses.

In a situation where the company is struggling with cash flow, it is likely to have 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, you may then 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 earnings 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.

terminal loss relief

Insolvency options for distressed companies

Suppose your company is financially distressed and unable to deal with its corporation tax liability and 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 Insolvent Liquidation is and talk through the process in understandable terminology.

Can a Bailiff Force Entry to My Premises?

Saving bailiffs arrive as high court enforcement officers, attending with a signed warrant authorised by a judge. Bailiffs have no legal authority to enter commercial premises or remove any goods.

Court-appointed bailiffs cannot simply appear and then force entry. They are permitted to gain access previously while listing goods to be removed if payment is not obtained.

For further detail, please read ‘Bailiff’s bailiff powers with an Ltd Company.

CVA and Corporation tax

Will I lose 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 the company continues to trade throughout the CVA process, its undiminished trading losses remain transferable to future profits from the same trade. 

Creditors’ Voluntary Liquidation (CVL) when you cannot pay your corporation tax

Ordinarily. Unless directors have no further use for their limited company, a closure option is not considered. However, a CVL renders the best route away from a stressful predicament when no other option exists. It may allow you to claim director redundancy,, provided you have no overdrawn directors loan, assisting in paying for the liquidation.

Robust immediate, professional advice is imperative when your business cannot pay HMRC. Delay and HMRC will commence debt enforcement.

As the HMRC is often a significant creditor. When a company enters insolvency, why is HMRC the largest business creditor?

HBG Advisory licensed insolvency practitioners will help you explore available options. Ensuring resolution, your company’s corporation tax commences as soon as you make contact.

STOP CREDITOR USING PRESSURE TODAY! 

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