Corporation tax is paid annually by limited companies registered in the UK that are making a profit. The extent of your company’s liability for corporation tax depends on how much profit it makes.
If you receive a corporation tax bill that you cannot 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 happens if you cannot pay corporation tax? What action will HMRC take against you?
Initially, HMRC will contact you with a reminder/warning letter that your corporation tax payment is overdue. If you don’t respond, they may send a bailiff or HMRC enforcement officer to your business premises to identify goods for seizure.
HMRC has a broad choice of strong enforcement measures at their disposal, and are known to act quickly and decisively in collecting tax arrears – particularly if they believe the debtor business is insolvent.
For tax debts of £750 or more they can petition to wind up the company by forcing it into liquidation. This sets in motion an investigation by the Official Receiver into how the directors have handled the company’s affairs, and whether they’ve taken loans from the company.
When considering your options if you can’t afford your corporation tax, a key piece of advice is to contact HMRC as soon as possible. Doing so conveys a proactive approach to repaying the arrears, and demonstrates that you’re not avoiding payment deliberately.
Time to Pay (TTP) arrangement
When your company is struggling and cannot afford the corporation tax bill, HMRC may be willing to offer you more time to pay. Their Time to Pay (TTP) scheme allows eligible businesses extra time to repay tax arrears, usually over a period of three to six months.
It’s important to understand how HMRC operates this scheme, however, and the way in which they view applicants. Obtaining professional insolvency advice is crucial in this respect, and can help you secure the extra time you need whilst avoiding hugely damaging action by the tax body.
In brief, you need to consider how to convince HMRC of your company’s ability to pay corporation tax arrears over the additional months, as you’ll still have to keep up with all other current tax obligations during this time.
The evidence you present might include:
HMRC will also expect to see detailed cash flow and sales forecasts for the coming months – essentially, a clear business plan demonstrating how you’ll repay your tax debt.
Formal insolvency procedures
If HMRC don’t grant extra time to pay, a formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA) may help the business survive this period of financial distress.
Company Voluntary Arrangements are appropriate for businesses that are viable for the long-term, and involve formally renegotiating multiple debts. Entering company administration provides an eight-week ‘breathing space’ to assess the company’s future, and take action as appropriate, but eligibility for both of these options depends on your individual situation.
Creditors’ Voluntary Liquidation (CVL) is a process that protects creditor interests, and helps directors to fulfil their legal obligations. As soon as your company enters insolvency, you must cease trading and work to minimise creditor losses, otherwise you could face allegations of wrongful trading and misconduct.
CVL involves liquidating the company’s assets and paying its debts as far as possible from the proceeds. It’s a process that results in closure, but if no other options exist, it’s preferable than waiting for HMRC to close you down.
Clearly, nobody wants to close their company in this way, but when there really is no other option, CVL provides the optimal route away from an extremely stressful situation. It might also enable you to claim director redundancy pay, which could cover the professional fees involved.
Professional advice is vital if you can’t pay your HMRC liabilities, and speed is of the essence given the tax body’s powers of debt enforcement. UK Liquidators can provide the reliable guidance you need in this situation.
Please contact one of the team for a free, same-day consultation - we operate an extensive network of offices throughout the country, and will quickly provide the assistance you need.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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