Corporation tax is a tax imposed on business profits. In the UK, it’s the government department HMRC that collects corporation tax. The amount of corporation tax that a business owes depends on how much profit they’ve made in a year.
For small businesses, the rate of corporation tax is 20%. For larger businesses, the rate is 23%. Businesses can deduct certain expenses from their profits before they calculate how much corporation tax they owe
If you have received a corporation tax bill that you are struggling to 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 are your options if you cant pay corporation tax? How will HMRC enforce action against you?
What happens if I can’t afford to pay my corporation tax bill?
If you are unable to afford to pay your corporation tax bill, the first thing you should do is contact HMRC to discuss your options. They may be able to offer you a payment plan or some other arrangement. If you do not make arrangements with HMRC, they will take enforcement action. This could include sending bailiffs to your business premises or seizing assets.
If you are facing enforcement action, it is important to get professional help as soon as possible. HMRC enforcement is a complex process and you may be able to negotiate a better outcome if you have expert help on your side.
HMRC has a number of enforcement measures in which they can call upon, The Debt Management team of HMRC are known to act quickly and decisively in collecting tax arrears, this is even more so if they believe the debtor business is insolvent.
If the tax debt is £750 or more they HMRC can petition to wind up the company by forcing it into liquidation. This will trigger an investigation by the Official Receiver into how the directors have handled the company’s affairs, as well at looking for signs of wrong doing.
When considering your options if you can’t afford your corporation tax, the first thing you should be doing is making contact with HMRC as soon as possible and explaining your situation. By showing a proactive approach in order to repay any arrears, this demonstrates that you’re not avoiding payment deliberately.
What options do I have if I am unable to pay your corporation tax?
Time to Pay (TTP) arrangement
The HMRC Time to Pay arrangement is a voluntary agreement between a taxpayer and HM Revenue & Customs (HMRC) to defer payment of tax liabilities. The arrangement must be entered into before enforcement action is taken, and allows the taxpayer to spread the payment of their tax bill over an agreed period of time.
This can be beneficial for both the taxpayer and HMRC, as it avoids the need for enforcement action, which can be costly and time-consuming. There are a number of factors that need to be considered before entering into a Time to Pay arrangement, such as the amount of tax owed, the taxpayer’s ability to pay and the effect on their credit rating.
However, if all parties are in agreement, then a Time to Pay arrangement can be a useful way to manage tax liabilities.
The evidence you present might include:
- Any cost cutting measures
- Securing finance to improve cash flow
- Selling non-essential assets
- Restructuring of business or renegotiating other debts to free up cash
You will also need detailed cash flow and sales forecasts for the coming months as well as having a clear business plan that can demonstrate how you’ll repay your tax debt.
Formal insolvency procedures
If HMRC don’t grant a time to pay arrangement, then you will need some type of formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA) to survive the period of financial distress.
Company voluntary arrangements (CVAs) have become a popular insolvency procedure in the UK over the past decade. A CVA is a formal agreement between a company and its creditors to repay debts over an agreed period of time. In order to be approved, CVAs must be voted on by creditors and backed by at least 75% of those who vote.
Once approved, the terms of the CVA are binding on all creditors, even if they did not vote in favour of it. This means that creditors cannot take enforcement action against the company during the life of the CVA. However, if the company breaches the terms of the CVA, creditors are free to pursue enforcement action.
As such, CVAs provide a breathing space for companies in financial difficulty, giving them time to restructure their affairs and return to profitability.
Request to pay corporation tax in instalments
HMRC offers businesses the ability to pay corporation tax in instalments. This option is available for businesses that have a lower to medium risk rating with HMRC and are looking to spread out their tax liability over regular periods. It’s an invaluable way of reducing the financial strain of payment, especially when faced with large corporation tax bills at the end of the year.
HMRC offers an array of reliable guidance and helpful advice on choosing this option, so make sure you investigate all your options when considering managing your tax payments throughout the year.
Voluntary liquidation of a company is a process whereby a company is wound up by its shareholders. This is usually done when the company is insolvent and unable to pay its debts as they fall due. The creditors appoint a liquidator who will realize the assets of the company and distribute the proceeds to the creditors. CVL is different from compulsory liquidation, which is initiated by the court. CVL is also different from voluntary administration, which is a process whereby the company is given a chance to restructure its affairs.
The main advantage of CVL is that it gives the creditors some control over the liquidation process. The disadvantage of CVL is that it can be costly and time-consuming. In addition, CVL does not always result in the full payment of the debts owed to the creditors.
If you are a creditor of a company that is in financial difficulty, you should consider taking legal advice to determine whether CVL is the best option for you. You should also be aware that there are strict deadlines for taking action and that enforcement action may be taken against you if you do not comply with the deadlines.
Creditors’ Voluntary Liquidation when you cant pay your corporation tax bill
Nobody starts out wanting to end their company in this way, but when there really is no other option, CVL provides the optimal route away from an extremely stressful situation. If your company has traded for two years or more you maybe entitled to claim director redundancy pay, which could cover the professional fees involved.
If you can’t pay your HMRC liabilities seeking professional advice is vital in order to suspend the tax authorities debt enforcement action. We can provide reliable guidance in order to establish the best outcome for directors in this situation.
In conclusion, struggling to pay corporation tax can be a difficult and stressful situation for any business. However, there are options available to help manage the burden of the tax bill. Negotiating a payment plan or applying for a Time to Pay arrangement can help spread out the payment over a longer period of time.
Selling assets or taking out a loan are also options to consider. If all else fails, you can apply to liquidate your company may be an option. It is important to reach out to the tax authorities as soon as possible and discuss your situation with them. They may be able to offer assistance and guidance to help you find a solution that works for your business.
Can’t pay corporation tax – what next, one of our team will be happy to talk you through your options, as we operate a network throughout the country, and will quickly provide the assistance you need.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.