Overcoming Corporation Tax Payment Obstacles: A Guide to Alternative Solutions
If you’re struggling to pay your corporation tax, promptly reach out to HM Revenue and Customs (HMRC) and consider consulting a specialized insolvency advisor. This article provides company directors with a roadmap for navigating this difficult situation, outlining the necessary actions, the repercussions of non-payment, and available solutions, including expert insolvency guidance, to safeguard your business.
What Are the Implications of Failing to Pay Corporation Tax?
As a company director, facing an inability to settle corporation tax obligations can lead to a series of consequences:
• Interest Charges on Unpaid Taxes: From the due date until the full amount is settled, interest will accrue on the outstanding balance.
• Late Payment Penalties: Failure to pay on time will result in penalties, which increase as the delay extends.
• HMRC Communications and Legal Action: HMRC will issue reminders and escalating threatening letters, culminating in legal action if the payment remains overdue.
• Enforcement Measures: Persistent non-payment may trigger HMRC enforcement actions, including asset seizure or court proceedings to recover the debt.
• Damage to Business Credit Rating: Non-payment can severely harm your company’s credit rating, hindering future borrowing and business partnerships.
• Potential Director Liability: In certain instances, directors may be held personally liable for unpaid taxes, particularly if wrongful trading is suspected.
These consequences highlight the urgency of addressing corporation tax liabilities promptly and seeking professional guidance if payment difficulties arise.
What options are available if a company cannot afford corporation tax?
Facilitate a payment plan with HMRC
Upon initial contact with HMRC, consider formalizing a payment plan, known as a time-to-pay agreement. This allows you to spread the cost of your tax liability over smaller, manageable payments. Ensure the plan is realistic and aligns with your company’s cash flow capabilities, as failure to meet the agreed-upon terms could result in additional penalties.
Voluntary liquidation
If the financial burden is insurmountable and continued operation is not feasible, voluntary liquidation may be an option. This formal insolvency procedure involves selling the company’s assets to repay creditors, including HMRC. It is a drastic measure that results in the company’s dissolution but ensures you meet your legal obligations.
Company rescue procedures
For companies facing financial difficulties but possessing a viable core business, rescue procedures like a Company Voluntary Arrangement (CVA) or Administration might be appropriate.
Company Voluntary Arrangement (CVA): A CVA allows you to pay off your debts, including tax arrears, over an agreed-upon period while continuing to trade. This option requires approval from 75% of your creditors by value.
Administration: This involves appointing an administrator to manage the company while options are explored for its rescue or for the sale of its assets. It offers protection from creditor action while a long-term plan is developed.
If you’re unable to pay your Corporation Tax bill, take immediate action to address the situation.
Contact HMRC promptly. They may offer a Time to Pay arrangement, allowing you to pay in installments over time.
Gather financial information. Prepare your company’s financial details, including tax reference number, the amount owed, and an explanation for non-payment. Present a realistic payment plan proposal.
Seek professional advice. Consult an accountant or insolvency practitioner for guidance, negotiation assistance with HMRC, and potential financial improvement strategies.
Reduce costs and improve cash flow. Review expenses for areas to cut costs. Improve cash flow by managing inventory, chasing outstanding invoices, and renegotiating supplier terms.
Avoid further debt. Refrain from incurring additional debt while resolving the Corporation Tax bill.
Maintain compliance. Continue timely filing of Company Tax Returns and other statutory documents to avoid penalties and additional charges.
Explore financing options. Consider short-term loans or overdrafts to cover the tax bill, but proceed with caution and fully understand the terms and implications.
Plan future tax payments. Once the immediate issue is resolved, implement strategies to avoid similar situations in the future.
Communicate with HMRC regularly. Maintain open communication with HMRC throughout the process. Immediately inform them of any changes in your circumstances.
Remember, prompt action is crucial. Delaying can lead to penalties and additional interest on the outstanding amount.
Can’t Pay Corporation Tax FAQs
What are the consequences of not paying corporation tax?
Failure to pay corporation tax leads to immediate interest charges on the outstanding amount. Prolonged non-payment can result in additional penalties and even legal action by HMRC, potentially leading to company closure.
What penalties apply for late corporation tax payment?
Late corporation tax payments incur interest charges from the day after the due date. Further penalties are imposed if the tax remains unpaid for 30 days, 6 months, and then 12 months.
Can I use voluntary liquidation to settle corporation tax debts?
Voluntary liquidation is a formal insolvency option when you cannot pay corporation tax. Company assets are sold to clear debts, including corporation tax owed to HMRC, but the company will cease to exist.
Can HMRC seize company assets for unpaid corporation tax?
Yes, HMRC can seize company assets to recover unpaid corporation tax, typically as a last resort after other settlement attempts have failed.
Can HMRC shut down my company for unpaid corporation tax?
Yes, as a last resort, HMRC can initiate legal proceedings to wind up your company if you fail to pay corporation tax. This results in company dissolution and asset sale to pay off debts, including the owed tax.