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What are my options if I can’t pay my company tax?

All limited companies must file annual accounts and pay Corporation Tax on their profits. But what happens when the payment deadline approaches and you realise you don’t have sufficient funds to pay your tax bill on time?

If you find yourself in this position, you’re certainly not alone. Having unpaid tax liabilities is not uncommon, and with the right help, you can get back on track and avoid the debt recovery actions of HMRC.

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What is Corporation Tax?

Corporation Tax is a tax limited companies pay on their profits. If you don’t make a profit, you don’t have to pay Corporation Tax, but you must still notify HMRC. You can also carry forward losses from previous years to reduce your tax liability.

All company directors must register for Corporation Tax within three months of starting to trade under a limited company structure. You must pay your Corporation Tax nine months and one day after the company’s year-end. It’s worth preparing your financial accounts as early as possible so you know how much you owe and have more time to get your finances in shape.

What happens if I can’t pay my Corporation Tax?

If you don’t have the money in your account to pay your Corporation Tax when it’s due, doing nothing isn’t an option. You will receive a penalty if you do not contact HMRC to explain your situation and you will be charged interest on the liability from the day after your tax bill should have been paid.

HMRC will escalate the nonpayment by referring the matter to its enforcement team. You will receive a payment demand. If you do not respond or pay what you owe, the next step is for an HMRC enforcement officer to visit your business premises to identify goods they can seize to cover the value of the debt.

From this point, the matter can get very serious very quickly. HMRC has a powerful and unique range of enforcement measures. If it believes your business is insolvent, it can issue a Winding Up Petition against your company to force it into liquidation. That will prompt an investigation by the liquidator into how you have run the company’s affairs. If the liquidator finds acts of wrongful or unlawful trading, you could be made personally liable for company debts or be disqualified from acting as a director in the future.

Given the severity of the situation, you should contact an insolvency specialist at your earliest opportunity. We will talk you through your options and help you make a plan to get back on track.

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What are my options if I can’t pay my Corporation Tax bill?

Time to Pay (TTP) Arrangement

If you could pay what you owe if you had more time, you should contact HMRC and enquire about setting up a Time to Pay Arrangement. That will allow you to pay your Corporation Tax bill in monthly instalments over a typical period of three to six months, although a term of up to 12 months might be possible. You’ll also have to keep up with all your other tax obligations during this time.

Before making the arrangement, HMRC will look closely at your finances. It will expect to see sales and cash flow forecasts for the coming months and will ask what measures you have taken to repay the debt.

You can negotiate a TTP Arrangement with HMRC yourself. However, asking a licensed Insolvency Practitioner to act on your behalf can be beneficial. We understand how the tax authority operates and can propose a deal that is attractive to HMRC but is also affordable for you.  

Formal insolvency procedures

if HMRC believes the repayments are unaffordable or you have previous defaults, it may not grant you a Time to Pay Arrangement. However, there are other options you can explore.

A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows you to renegotiate your debts and pay them over a period of up to five years. As part of the process, you will have to create a proposal, with the help of an Insolvency Practitioner, which details how much your creditors will receive over what timescale.

If a CVA is unsuitable or your creditors reject your proposals, Company Administration could be another option to explore. It will give you some breathing space away from creditor pressure so an Insolvency Practitioner can assess the company’s position and take action to restructure it or sell it as a going concern.   

Voluntary liquidation

If you cannot pay your Corporation Tax bill even with more time, voluntary liquidation could be your last resort. Creditors’ Voluntary Liquidation (CVL) allows you to draw a line under the company and potentially start again.

You will need to appoint a licensed Insolvency Practitioner to act as the liquidator. They will take control of the company and bring an end to its affairs. As part of that process, they will sell the company’s assets and use the proceeds to repay its creditors, including HMRC. If you cannot repay all your creditors in full, the company will be removed from the official register and your outstanding debts will be written off.

Take our 60 Second Test to understand your options

There are three main ways to close a company in Scotland. Taking our 60 Second Test will help our advisers identify the correct route forward for you and your company.

While all three closure options have their advantages and disadvantages, the right one for you will depend on a number of factors including the current financial position of the company and your plans for the future.


Need advice?

At Scotland Liquidators, we have vast experience helping businesses struggling with Corporation Tax liabilities. We will review your financial position, guide you through your options and act on your behalf wherever necessary. Get in touch for a free, same-day consultation or to arrange a meeting at one of our offices in Scotland.

Supporting 25,000+ Limited Company Directors

I knew I needed to close my company but I wasn’t sure how to go about this with large debts that I was unable to repay. Scotland Liquidators clearly explained my options and held my hand throughout the entire process.

Catherine Muller | Director

I would highly recommend Scotland Liquidators to anyone considering closing their business. From the first phone call I knew where I stood and what my options were. I cannot thank them enough.

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Scotland Liquidators helped me close my company last year after I made the tough decision to stop trading. My advisor was patient, knowledgeable, and supportive from start to finish. Many thanks.

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Contact the Scotland Liquidators Team

There are several options when it comes to closing a limited company and it is vitally important you choose the one which is right for you, your company, and your creditors. Whether you are struggling with rising costs, falling trade, or impatient creditors, we are here to help.

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