Corporation tax: What happens if you file or pay late?

What are corporation tax late filing penalties?

Late filing penalties for corporation tax are imposed when companies fail to submit their Company Tax Return by the official deadline. A fine of £100 is levied by HMRC, even if the filing is just one day overdue. These penalties escalate over time and can harm your company’s standing with HMRC, potentially leading to business failure if not handled effectively.

Unlike a fixed day for all companies, each company must file its tax return 12 months after the end of its accounting period. Whether self-filed or done by an accountant, as the director, you bear the ultimate responsibility to ensure timely and accurate submission. Remember, even if there’s no corporation tax to pay or a loss for the year, filing a tax return is mandatory.

What penalties do you face for filing late, and how can you regain control if you’ve already fallen behind?

Late filing penalties for corporation tax

As mentioned before, a penalty is imposed for a tax return being just one day late. Subsequently, the following penalties take effect:

• 1 day late: £100 penalty
• 3 months late: A further £100 penalty
• 6 months late: 10% of the unpaid amount (as estimated by HMRC)
• 12 months late: A further 10% of any unpaid tax

Missing the deadline for three consecutive occasions leads to increased financial penalties. Filing your tax return one day late and three months late incurs £500 each, while a 10% surcharge is applied to any unpaid tax after 6 months and 12 months.

When your tax return surpasses 6 months of lateness, HMRC will estimate your company’s owed corporation tax through a process called ‘tax determination.’ No appeals process exists; instead, you must pay the requested amount. This amount can be ‘displaced’ if you file your tax return, pay your actual corporation tax liability, and settle any owed penalties and interest.

Interest charges on late or unpaid corporation tax

Failing to pay your corporation tax on time or in full results in HMRC charging daily interest on the outstanding amount. Interest is automatically applied and begins from the first day of the missed or incomplete payment. HMRC’s interest rates for late payment are determined at the Bank of England base rate plus 2.5%.

How HMRC deals with late filing and payment

If the payment deadline has lapsed, it’s crucial to promptly contact HMRC; otherwise, legal action against your company may be initiated. During this contact, you’ll be inquired about various aspects of your company, such as assets, liabilities, income, and expenditure, helping HMRC assess your ability to make an immediate payment.

If HMRC determines that your company can’t settle the arrears immediately but could meet its corporation tax liability with additional time, you might negotiate a Time to Pay arrangement.

What is a Time to Pay (TTP) arrangement?

The Time to Pay arrangement is typically a six-month instalment plan, although its duration may vary depending on each company’s circumstances. When negotiating these terms, it’s vital to ensure affordability for the entire term.

Failing to uphold this agreement may lead HMRC to demand the entire debt immediately, initiating legal action if the funds are not promptly provided. Striking a delicate balance is crucial—offering sufficient monthly payments to persuade HMRC for an extended repayment period, while ensuring financial capabilities to meet the agreed repayments.

Providing supporting documentation for your proposed repayment figures is essential. HMRC may reject your application and deny an extension if they doubt your ability to adhere to the proposed payment plan. 

Read More :

• What is a HMRC Time to Pay Arrangement
• What to do when your company falls behind in paying PAYE
• What are my options when I cannot pay the VAT
• What are the penalties for paying VAT late
• HMRC Bailiffs: What Are Their Rights

Professional help with negotiations

Vanguard Insolvency boasts a lengthy and successful history of handling HMRC matters, including negotiating Time to Pay arrangements for clients. Our involvement alleviates much of the stress for directors and can aid your company in recovering from a temporary financial setback.

We are also equipped to assist directors grappling with various creditors, including HMRC, in exploring options for either saving or winding down their company. This may entail legally binding negotiations with multiple creditors through a Company Voluntary Arrangement (CVA) or the orderly closure of an insolvent company via a Creditors’ Voluntary Liquidation (CVL).