All businesses are required to pay corporation tax to HMRC on all their profits. It is the directors responsibility to ensure that accounts are filed and profits are reported accurately so the correct and full amount of tax can be determined.
It can be a stressful moment, as a director, when you realise that you aren’t going to be able to meet tax deadlines, but we can help to ease the burden. Read our guide on what to do if you can’t pay your Corporation Tax bill.
What is corporation tax?
Corporation Tax is a corporate tax paid by UK Limited Companies and is payable against all annual income or capital gains. Company directors must register their business when they begin trading in order to pay owed corporation tax to HMRC.
A company director has three months from when they began trading to register for corporation tax with HMRC or face legal implications.
Who pays corporation tax?
Directors of limited companies are responsible for ensuring that corporation tax is paid. Larger businesses may have an in-house finance team or accountant who deals with tax payments, smaller ones may not. As long as the tax is paid on time by the company, there should be no issues.
Only limited companies that are turning a profit will be obliged to pay corporation tax. If you are operating at a loss, you will need to notify HMRC of this to be exempt from paying corporate taxes.
Sole traders do not have to pay corporation tax. They do however, have to pay income tax on their profits.
When do I pay corporation tax?
The date in which corporation tax is due depends on your company’s tax accounting period – this will be filed with your business accountant. Corporation tax is due 9 months and 1 day after the date your tax accounting period ends.
This tax is payable annually, in one installment for businesses with revenue under £1.5 million and in four installments for businesses exceeding that figure in profits.
What happens if I can’t pay my corporation tax?
If your business is unable to pay its corporation tax, then the first step is to get in touch with HMRC. They are always likely to listen to businesses that are struggling and are more likely to agree to a compromise if you have been upfront with them.
Ignoring demands and notices is never the right course of action for your business. HMRC can agree to a “time to pay deal” that allows your business to pay the money it owes over a predetermined period. Failure to meet the terms of this deal can lead to HMRC moving to file a winding-up petition against you.
Get in touch with The Insolvency Experts if you have received any statutory demands or winding up threats against your business. The Insolvency Experts have extensive experience working with HMRC and businesses to decide the best course of action.
Can I pay my corporation tax in installments?
If you need more time to gather the funds to pay your corporation tax in full, you can enquire about paying in installments. HMRC may offer to set up a payment plan, a Time to Pay (TTP) Arrangement, that allows your business to settle arrears over an agreed period of time.
HMRC will look into your past finances and tax affairs to assess the likelihood of your business repaying the debt. If they believe that you are able to make the repayments, a TTP arrangement will be put in place.
If you wish to pay your corporation tax in installments, you must:
- Act quickly – You’ll need to apply for a TTP arrangement before HMRC issues a Winding Up Petition against your business.
- Submit in writing – A TTP arrangement must be submitted in writing with supporting documents to show your financial position and inability to pay the tax owed in full.
- Choose wisely – You need to choose your options carefully. If you cannot afford to pay your corporation tax and would struggle even through monthly installments, you will face far more serious legal consequences from HMRC than if you took action yourself.
FAQs about paying corporation tax
We get asked a lot of questions about corporation tax and the consequences for late or missed payments. In any case of business financial trouble, it is best to get in touch with our Insolvency Experts to discuss your options and allow us to guide you through this difficult period.
Can I delay my corporation tax payment?
If you cannot afford to pay your corporation tax, you can apply to spread the cost out. You can’t apply to have the payment delayed as such.
Technically, if you are granted a TTP arrangement, you will be delaying the full corporation tax payment, but you’ll still be expected to pay over a set period of time, typically between 3 and 6 months.
What happens if I pay corporation tax late?
If you haven’t contacted HMRC prior to your tax payment date and then pay late, you will be issued a penalty. The penalties work as follows:
- Payment 1 day late: £100 penalty
- Payment 3 months late: A further £100 penalty
- Payment 6 months late: A penalty of 10% of your estimated corporation tax bill will be added to your unpaid tax debts
- Payment 1 year late: A further 10% penalty will be added to your tax bill
You will also be charged interest if you are late in paying your corporation tax. This currently stands at 2.75%.
Get help with corporation tax payments
If you are worried that you might be unable to pay your corporation tax, then seek professional debt advice from The Insolvency Experts today.
Contact us online or speak to one of our Insolvency Practitioners today by calling 0333 303 8284 to discuss your situation. We can support you and your business through these challenging times and aim to help you repay debts in an appropriate manner.