Woman wearing a hijab on phone outside building | I can’t pay my Corporation Tax bill. What can I do?

I can’t pay my Corporation Tax bill. What can I do?

March 15, 2023
One of the perks of switching from sole trader to limited company is tax efficiency. While sole traders are required to pay up to 45% in Income Tax on their profits, limited companies only pay 19% in Corporation Tax. (You can find out if making the switch is worth the effort in tax terms using our Sole Trader vs. Limited Company tax calculator.)

However, sometimes external shockwaves can cause cash flow issues, and as a result you might find you don’t have the means to pay your Corporation Tax bill when the deadline rolls around.If you find yourself in this situation, it’s crucial you take action as soon as possible. Here’s what to do if you can’t pay your Corporation Tax liabilities by the tax deadline.

I can’t pay my Corporation Tax bill. What can I do?

If you can’t pay your Corporation Tax bill, get in touch with HM Revenue and Customs (HMRC) fast. The sooner you act, the sooner you can get a plan of action in place, reducing your risk of landing a penalty.
If you know you won’t be able to pay the Corporation Tax due, you can call the Business Payment Support Service on 0300 200 3835. Alternatively, if you’re having problems paying what you owe, you can use HMRC’s digital assistant, who can transfer you to a webchat with an available HMRC adviser.

What options do I have if I can’t pay Corporation Tax?

After getting in touch with HMRC, you can starting taking steps to manage your debt.

Time to Pay (TTP) arrangement

If you can’t pay Corporation Tax in full, you may be able to set up a ‘Time to Pay’ arrangement to pay your tax bill in instalments, usually over a period of 3-6 months.To set up a payment plan, you’ll need the following information to hand:
    10-digit company UTR (company Corporation Tax number) Bank account details Details of any previous tax payments you’ve missed
Depending on the amount you owe, you may be able to set up your payment plan online.
If this isn’t an option, however, you’ll need to contact HMRC, where they’ll ask you to propose a plan to repay your bill as soon as possible. With this plan, they’ll ask you questions to make sure your proposal is realistic and affordable.

Before you can set up a payment plan, you’ll need to reduce your debt as much as possible. You can do this by:
    Introducing cost-cutting measures to the businessReleasing assets, such as stock, vehicles and sharesSecuring alternative finance to improve cash flow
HMRC may also ask you and other company directors to put personal funds into the business, accept lending or to extend credit.

Company Voluntary Arrangement

While a payment plan is ideal, if HMRC doesn’t think you’ll be able to keep up with payment, you won’t be able to set one up. As a result, you’ll need to look to alternative methods to paying your Corporation Tax bill.
If your company becomes insolvent — that is, your debts become greater than your assets — a Company Voluntary Arrangement (CVA) can be used to pay HMRC over a fixed period of time.

To do this, you’ll need to reach out to a licensed insolvency practitioner, who will work out an ‘arrangement’ covering the amount of debt you can pay over a payment schedule. Once arranged, creditors will be invited to vote on the arrangement.If 75% of creditors approve, the arrangement can proceed and HMRC may allow you to continue trading. If not, however, your company could face voluntary liquidation.

Liquidate your limited company

In the worst case scenario, you may have to liquidate your company in a process known as ‘winding up’.

After not paying your Corporation Tax bill for a period of time without a successful payment plan put in place, HMRC can petition to wind up your company. If this petition is successful, your company legally be required to stop doing business or hiring employees, and will be struck of the companies register at Companies House.From here, your company assets will be used to pay your debts, with any money outstanding going to shareholders.
Of course, this is an absolute last resort. There’s plenty of professional advice available before this point if you’re struggling to pay your Corporation Tax bill, whether that’s confidential advice from Money Helper, or more specialised support from an accountant.

What if I pay Corporation Tax late?

You’ll also start to receive letters from HMRC explaining your position and what you need to do to regain compliance. With every letter you receive, be sure to note the reference numbers and keep the documentation safe.

What if I don't pay my Corporation Tax bill at all?

If you don't pay your Corporation Tax bill at all, HMRC can take legal action against your company, applying to the court for a County Court Judgment (CCJ) or a winding-up petition.While a CCJ will affect your company's credit rating, a winding-up petition could lead to your company being liquidated and your company assets being sold off to cover the debts.While dealing with a tax bill you can’t pay is stressful, avoiding the situation altogether can lead to legal action and potentially, the end of your business. It’s tough, but never too late to take control of your situation, seek help, and get your finances back on track.