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Corporation tax is paid annually by limited companies registered in the UK that are making a profit. The extent of your company’s liability for corporation tax depends on how much profit it makes.
If you receive a corporation tax bill that you cannot pay, you need to seek specialist insolvency advice straight away to avoid an escalation of arrears, and strong debt recovery actions by HMRC.
So what happens if you cannot pay your company's corporation tax bill? What action can HMRC take against your company?
Concerned about the National Insurance increase?
For the 2024-25 tax year, the rate of employer National Insurance increases from 13.8% to 15% adding yet more pressure onto already squeezed cash flows. If you are worried about the impact this could have on your company’s finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0800 063 9262.
Initially, HMRC will contact you with a reminder/warning letter that your corporation tax payment is overdue. If you don’t respond, they may send a bailiff or HMRC enforcement officer to your business premises to identify goods for seizure.
HMRC has a range of strong enforcement measures at their disposal, and are known to act quickly and decisively in collecting tax arrears – particularly if they believe the debtor business may be at risk of becoming insolvent.
For tax debts of £750 or more they can petition to wind up the company and force it into compulsory liquidation. This sets in motion an investigation by the Official Receiver into how the directors have handled the company’s affairs, and whether their actions in the period leading up to the company becoming insolvent contributed to its demise.
When considering your options if you can’t afford your corporation tax bill, a key piece of advice is to contact HMRC as soon as possible. Entering into a conversation with HMRC conveys a proactive approach to repaying the arrears, and demonstrates that you’re not avoiding payment deliberately.
While most consumer debts become statute barred after seven years, this does not apply to money owed to HMRC, which includes corporation tax. HMRC has the power to pursue debts indefinitely.
If you do owe money to HMRC, therefore, it is vital that you take action to resolve the problem rather than hoping it will go away on its own. Knowing HMRC can continue to chase you for unpaid corporation tax for an unlimited length of time is an unwelcome burden to carry through the rest of your working life.
By speaking to one of UK Liquidator's licensed insolvency practitioners, we can remove this worry by ensuring the right steps are taken to resolve your outstanding HMRC corporation tax arrears, even if your company does not have the ability to repay them.
Liquidation Portal
For Company Directors
When your company is struggling financially and cannot afford to pay its corporation tax bill in full, HMRC may be willing to offer you more time to pay. Their Time to Pay (TTP) scheme allows eligible businesses extra time to repay tax arrears by spreading the cost into a series of more affordable monthly instalments, usually over a period of three to six months.
It’s important to understand how HMRC operates this scheme, however, and the way in which they view applicants. Obtaining professional insolvency advice before presenting your case for a Time to Pay scheme to HMRC can be hugely beneficial.
In brief, you need to consider how to convince HMRC of your company’s ability to pay corporation tax arrears over the additional months, as you’ll still have to keep up with all other current tax obligations during this time.
The evidence you present might include:
HMRC will also expect to see detailed cash flow and sales forecasts for the coming months – essentially, a clear business plan demonstrating how you’ll repay your tax debt.
If HMRC don’t grant extra time to pay, a formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA) may help the business survive this period of financial distress.
Company Voluntary Arrangements are appropriate for businesses that are viable for the long-term, and involve formally renegotiating multiple debts, including tax debts owed to HMRC. CVAs typically run for between 3-5 years and act as a formal and legally-binding repayment plan between an insolvent company and its creditors.
Company administration, on the other hand, can allow a company to restructure its finances and operations to improve efficiency, boost cash flow, and get the business back on a solid financial footing. When a company enters into administration it is granted a moratorium which staves off any impending on ongoing legal action against the company; this moratorium provides the time and space a company needs to consider its options free from the threat of legal action.
Creditors’ Voluntary Liquidation (CVL) is a director-initiated process which brings about the end of an insolvent company which is beyond the point of rescue. CVL involves liquidating the company’s assets and paying its debts as far as possible from the proceeds; the company will then be wound down and it will cease to exist as a legal entity.
Liquidation results in the ultimate closure of the company, but if no other options exist, it’s preferable to enter into liquidation voluntarily rather than waiting for HMRC to close you down against your will via compulsory liquidation.
Clearly, nobody wants to close their company in this way, but when there really is no other option, CVL provides the optimal route away from an extremely stressful situation.
Start your online liquidation today
If you have decided liquidation is the right option for your limited company, you can take the first step and begin the process online using our online portal. Starting the process is quick, simple, and can be done at a time that suits you. Your information will be submitted to your local UK Liquidators insolvency practitioner who will be with you every step of the way. Click here to start your company’s liquidation online.
Professional advice is vital if you can’t pay your HMRC liabilities, and speed is of the essence given HMRC's powers of debt enforcement. UK Liquidators can provide the reliable guidance you need in this situation.
Please contact one of the team for a free, same-day consultation - we operate from an extensive network of offices throughout the country, and will quickly provide the assistance you need.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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