Corporation Tax is an expense all companies must budget for. It is a tax linked to a company’s profits and must be paid every twelve months as part of a company’s year-end accounts. However, although it is a regular expense, it is not uncommon for directors of struggling companies to fail to budget for their Corporation Tax. For some companies, there simply isn’t enough money in the company to set aside; for others, it is left as a low priority.
In this article, Clarke Bell will discuss what you can do if your company cannot pay its Corporation Tax.
What is Corporation Tax?
Corporation Tax is an annual tax on a company’s profits. It is most often taxed at a rate of 20%, though it can rise to a rate of 21% depending on the profits earned by a company. As with many taxes and expenses, Corporation Tax can be fairly complicated, especially for small businesses. As such, it is advisable to use an accountant to help file accurate documents and ensure your tax obligations are properly met.
It is important to remember, even if you use an accountant, the responsibility for filing accurate tax returns still falls on you.
I can’t pay Corporation Tax – what now?
If you find that you cannot pay your company’s Corporation Tax, the first action you should take is to contact HMRC. You should do so immediately, as making contact earlier will make the entire process smoother. If you cannot reach HMRC, or they cannot help you, then you should contact a licensed insolvency practitioner.
Contacting an insolvency practitioner for assistance with Corporation Tax does not mean you have to enter into insolvency proceedings. The insolvency practitioner can help you deal with HMRC.
What you can do if you can’t pay Corporation Tax
HMRC will often be quite flexible with struggling companies, allowing these companies to make payments in a way that suits them.
Delaying Corporation Tax payment
One of the first options to consider is whether you can delay your Corporation Tax payment. Depending on your circumstance, HMRC may be willing to afford your company extra time in which to make your payment, potentially buying you an extra few months. During the height of the Coronavirus pandemic, HMRC granted many companies additional time to meet their Corporation Tax obligations. As the UK is still feeling the economic shockwaves of this pandemic, HMRC may to grant your company more time.
Negotiating a Time To Pay (TTP) agreement with HMRC
This option is similar to the above, though it can open the door to more flexibility in how you make your Corporation Tax payment. It is a negotiation and a TTP agreement can help extend your Corporation Tax payment window, along with restructuring payment into regular instalments. These instalments can also be adjusted over time, increasing or decreasing in value to reflect the state of your company’s finances. However, if HMRC does not think your company can meet the terms of a TTP agreement, it will refuse your negotiations and will expect you to pay your Corporation Tax immediately and in full.
If your company cannot raise emergency finance in time, HMRC may resort to other measures to obtain payment. This can include using debt collectors, seizing assets, or even forcing your company into compulsory liquidation.
Paying Corporation Tax in instalments
The last option you have available to pay Corporation Tax is to pay in instalments. This can be done as part of a TTP agreement, or as a separate negotiation. If accepted, your company will be able to meet its Corporation Tax obligations in monthly instalments, usually over a period of six to twelve months. However, HMRC can refuse any negotiation if it expects you cannot meet the new monthly payments. In this event, your company will be expected to pay its Corporation Tax in full once the deadline arrives. Similarly, HMRC can break an agreement if you fail to pay your other tax obligations.
Closing your company using a Creditors’ Voluntary Liquidation
If your company cannot pay its Corporation Tax, even using the aforementioned methods, then it might be time to consider liquidation. Falling into Corporation Tax arrears and being unable to recover is a clear indicator of insolvency.
Using a Creditors’ Voluntary Liquidation (CVL) is often the best method available for an insolvent company considering liquidation. This insolvency procedure provides companies with several important benefits and protections. As the procedure is voluntary, directors can appoint an insolvency practitioner of their choice. They will be tasked with conducting the CVL process, ensuring your company is liquidated efficiently, without falling foul of the law. As part of the liquidation procedure, any company’s assets will be sold off, with the proceeds being distributed amongst outstanding creditors. Any company debts will be written off in the CVL process. Directors will not be held personally responsible for company debt, unless they have signed a personal guarantee or are found guilty of misconduct. Moreover, creditors cannot take legal action against your company once the CVL procedure has begun, effectively protecting you from compulsory liquidation.
Clarke Bell can help
If your company is struggling to pay its Corporation Tax, let Clarke Bell help you.
We have more than 28 years of experience in helping companies that are struggling financially, and we can help yours.
Our specialist team can help you to find the best path forward, whether that be liquidation or otherwise.
Contact us today and find out how we can help you.