Every company must pay corporation tax once every 12 months. Unlike income tax, corporation tax does not have a particular payment date. Instead, companies will submit their corporation tax according to their own accounting period. If payment is even a single day late, the company in question will suffer a penalty of £100. This penalty will steadily increase, quickly putting heavy financial pressure upon a company. If left unchecked, the additional cost can pose a significant problem for an already struggling company, potentially pushing it past the point of no return.
In this article, Clarke Bell details the penalties for late corporation tax payments, and what you can do to address the situation should you find yourself in it.
What is corporation tax?
Corporation tax is a tax on a company’s profits. The exact amount is directly tied to how much profit the company made during a twelve-month period, and must be paid at the end of a company’s accounting period. As such, the amount and payment date can vary from company to company. What is much less varied are the penalties for late corporation tax payments.
Penalties for late corporation tax payments
As we mentioned, penalties apply immediately upon the first late day. From there, the penalties will steadily increase in four stages, making it a problem best taken care of quickly. These penalties are as follows:
- £100 after one day
- Another £100 after three months
- 10% of the remaining unpaid amount after six months
- An additional 10% of the remaining amount after twelve months
As you can see, these penalties can compound into a fairly hefty fine for an already struggling company. However, there is another factor that can continue to increase the value of these penalties. If you have missed three consecutive deadlines, the penalties rocket to £500 per penalty. This £500 penalty applies to both the one-day and three-month late stages. Additionally, the 10% penalty applies to the six-month and twelve-month stages. Clearly, this can become quite the financial burden if left unchecked.
In addition to the penalties above, there is another downside to making an especially late corporation tax payment. If you have delayed your corporation tax payment for more than six months, HMRC will be able to conduct a “tax determination.” This process allows HMRC to assess your company and determine the amount of corporation tax you owe. Once the figure has been finalised, you will be expected to pay that amount regardless of any inaccuracies. Tax determination has no opportunity for appeals, and so once you have received the requested amount, your only option is to pay. This amount, coupled with the previous penalties for late payments, can result in a devastating fine for small companies, and those dealing with financial problems. As such, filing your corporation tax should be a high priority indeed.
Contacting HMRC regarding a late corporation tax payment
If you have missed the payment date for your corporation tax, your top priority should be to contact HMRC. In doing so, you are much more likely to find a favourable solution to your problem. If you fail to pay your corporation tax on time, yet do not notify HMRC, they will likely take legal action against your company to collect what you owe.
Once you contact HMRC, you will be asked a range of questions regarding your company. These questions surround your company’s assets, accounts, and liabilities, and aim to determine when you can pay your corporation tax arrears. If HMRC deems that your company cannot make the necessary payments immediately, but could in the future, they may be inclined to negotiate a Time to Pay (TPP) arrangement.
What to do when your company is in corporation tax arrears
If your company is late in paying its corporation tax, you’ll need to take action fast. As we mentioned, your first point of call should be to contact HMRC. In doing so, you may be able to negotiate an agreement to pay your corporation tax arrears. After you have contacted HMRC, you have two main options available – a TPP arrangement or a Creditors’ Voluntary Liquidation (CVL).
What is a TPP arrangement?
A TPP arrangement is similar in function to a Company Voluntary Arrangement (CVA). With it, you agree to pay your corporation tax arrears in installments, usually over a period of six months. Depending on your situation, this term can be extended or retracted, allowing you to pay your corporation tax in a relatively convenient manner. However, before you agree to any terms, you must ensure that you can abide by them without issue.
If you fail to adhere to the terms of your TPP arrangement, there could be serious consequences. First, HMRC will likely demand the remaining arrears immediately and in full. Neglecting to pay will spark legal action against your company. As such, you shouldn’t over-estimate what your company can pay. However, be careful not to offer too low a figure that dissuades HMRC from agreeing to a TPP.
What is a CVL?
If you cannot afford to provide HMRC with enough to warrant a TPP, then closing your company might be the next best option. This process allows you to voluntarily close down your company, protects you from legal action, and can even result in some of your company’s debt being written off. A licensed insolvency practitioner of your choosing will oversee the process, ensuring your company is closed both efficiently and in accordance with the law.
For more information about a Creditors’ Voluntary Liquidation, read our complete guide on the process.
Clarke Bell can help you
Having your company fall into corporation tax arrears isn’t ideal, and it can be made much worse if your company is struggling already. Rather than face HMRC alone, let Clarke Bell help. We have assisted companies facing financial problems for over 28 years, ensuring they close in the most efficient way possible, or find the right agreement to get back to financial stability. Don’t hesitate to contact us today for a free, no-obligation consultation, and find out what we can do for you.
