What if you can’t pay corporation tax? Options explained when cashflow can’t cover your tax bill

Can’t pay corporation tax? There comes a time in the life cycle of any business when cashflow may become tight, often due to unforeseen circumstances. This can make meeting obligations like paying corporation tax to Her Majesty’s Revenue and Customs (HMRC) a daunting task.

However, businesses need not panic or lose sleep over this situation. There are several options available when a UK corporation finds itself unable to pay its corporation tax bill on time. This article will explore these options, offering guidance for businesses experiencing financial difficulty.

1. Time to Pay arrangement (TTP)

If your company is unable to pay its corporation tax on time due to financial distress, one option to consider is HMRC’s Time to Pay (TTP) arrangement. This agreement allows businesses to pay their tax bill over an extended period, typically up to 12 months. It’s a valuable lifeline that can provide breathing space for your business.

However, securing a TTP agreement isn’t automatic. HMRC will assess your company’s financial circumstances, including your cash flow and other financial commitments, before agreeing to a payment plan. During this negotiation process, you should demonstrate a clear understanding of your current financial situation and present a viable plan for repaying the debt over the agreed period.

2. Business loan or overdraft

A business loan or an overdraft could provide temporary relief if your business is struggling with cashflow. This approach allows you to pay your tax bill on time, avoiding any penalties, and then pay off the loan or overdraft over a period.

This can be a viable solution for short-term cash flow problems, but it’s essential to consider the cost of borrowing, as interest and charges can add up. In addition, lenders will assess your business’ creditworthiness and financial health before granting a loan or overdraft, so this might not be an option for all businesses.

3. VAT deferral

Businesses that are registered for VAT and are unable to pay their tax bills could consider applying for a VAT deferral. This scheme allows businesses to delay the payment of VAT, helping to alleviate immediate cashflow problems. However, it’s important to note that this is a deferral, not a cancellation, and your company will need to plan for the eventual payment of the deferred VAT.

4. Company Voluntary Arrangement (CVA)

If your company is facing more significant financial difficulties, a Company Voluntary Arrangement (CVA) might be the solution. A CVA is a formal agreement between a company and its creditors, which allows the company to repay a proportion of its debts over time. This can often include HMRC for unpaid corporation tax.

CVAs can be complex, and you’ll need the assistance of an insolvency practitioner to propose and manage a CVA. It’s also important to remember that entering a CVA could affect your business’ reputation and credit rating. However, a well-managed CVA can allow a company to continue trading while meeting its obligations to its creditors.

5. HMRC Business Payment Support Service

If your business is facing short-term cash flow difficulties, HMRC’s Business Payment Support Service may be able to help. They may allow you to spread the cost of your tax bill by paying in instalments. It’s important to contact them as soon as you realise you’re likely to miss the payment deadline, as they are often more lenient if you get in touch before the payment is due.

Conclusion – Can’t pay corporation tax

Meeting corporation tax obligations is crucial for all businesses, but there may be times when cash flow difficulties make this challenging. If your company finds itself in this position, remember that you’re not without options.

Key solutions can include negotiating a Time to Pay (TTP) arrangement, seeking a business loan or overdraft, applying for VAT deferral, exploring a Company Voluntary Arrangement (CVA), or reaching out to HMRC’s Business Payment Support Service.

Acting proactively is vital when you recognise that your business may struggle to meet its corporation tax obligations. By promptly exploring these options and seeking professional advice, you can alleviate some of the stress associated with financial strain and ensure the best outcome for your company. It’s also crucial to maintain open and clear communication with HMRC, as they are often more receptive to creating payment solutions if they’re informed in advance of the payment deadline.

Remember, experiencing cashflow difficulties does not spell the end for your business. Many successful businesses have navigated similar challenges and emerged stronger on the other side. By understanding your options, seeking help when necessary, and working with HMRC, you can manage your corporation tax obligations effectively, even during financially challenging times.

FAQ – Can’t pay corporation tax