Published June 2022 by Steven Wiseglass. Last updated May 2026.
If your limited company can’t pay its corporation tax bill, you need to act quickly. HMRC takes unpaid tax seriously and has strong enforcement powers, but it’s important to note that you do have options if you deal with the situation proactively rather than ignoring it.
The worst thing you can do here is nothing. Directors who bury their heads in the sand face escalating penalties, enforcement action, and ultimately the forced closure of their company. Directors who communicate with HMRC and seek professional advice, on the other hand, can usually find a way through.
This guide explains what happens if you can’t pay corporation tax, the penalties you’ll face, how HMRC enforces payment, and the options available to you.
If you can’t pay your corporation tax right now, do these three things:
The rest of this guide explains what happens if you don’t, and what each option means for your company. |
What is Corporation Tax and What Rate Will I Pay?
Corporation tax is paid by every limited company trading and registered in the UK on its annual profits. The responsibility for calculating, filing, and paying on time falls to the company director. HMRC does not issue a bill. You must register for corporation tax within three months of starting to trade.
The current rates, which have applied since April 2023, are:
- Small profits rate: 19% for companies with profits under £50,000
- Main rate: 25% for companies with profits over £250,000
- Marginal relief applies for profits between £50,000 and £250,000, providing a gradual increase up to the 25% main rate
Corporation tax is due nine months and one day after the end of your company’s accounting period. Your Company Tax Return (CT600) must be filed within 12 months. These are separate deadlines. You can owe late filing penalties even if you’ve already paid the tax, and you can owe interest even if you’ve filed on time.
While corporation tax is primarily for limited companies, certain other organisations must also pay. This includes:
- Trade associations.
- Housing associations.
- Co-operatives.
- Members’ clubs.
Sole traders do not pay corporation tax; they pay income tax on their profits instead.
What Happens If You Can’t Pay Corporation Tax?
For many directors, the problem begins before the deadline. Cash that was earmarked for corporation tax gets absorbed by wages, supplier payments, or an unexpected shortfall. By the time the due date arrives, the money isn’t there. If that situation sounds familiar, you are not alone — and you are not yet out of options. What matters most from this point is what you do next.
If you miss your corporation tax payment deadline, HMRC will not ignore it. Interest begins accruing immediately, enforcement follows quickly if you don’t engage, and the situation can escalate from a missed payment to a winding-up petition faster than most directors expect. Acting before that process begins is always the better option.
HMRC’s enforcement team has a range of powers to recover the debt, up to and including forcing your company into liquidation. The typical enforcement timeline looks like this:
- Reminders and Interest: HMRC sends payment reminders. Interest accrues from the day after your payment was due. Late filing penalties are also added if you have not yet filed your CT600.
- Debt Collection Contact: HMRC’s debt management team contacts you by letter and phone demanding payment and asking about your ability to pay.
- Enforcement Action: If you don’t engage, or can’t reach an agreement, HMRC may instruct enforcement agents (bailiffs) to visit your business premises and seize assets to sell at auction.
- Statutory Demand: HMRC issues a statutory demand. A formal notice giving you 21 days to pay the debt or reach an agreement. Ignoring a statutory demand is extremely serious.
- Winding-up Petition: If the statutory demand is ignored, HMRC has the legal right to petition the court to wind up your company, as long as the debt is £750 or more. HMRC is the most active winding-up petitioner in the UK, accounting for around 60% of all petitions filed.
- Compulsory Liquidation: If the winding-up petition succeeds, your company is forced into compulsory liquidation. The Official Receiver takes control, your bank accounts are frozen, and your conduct as a director will be investigated.
As soon as your winding up petition gets advertised in the Gazette, your bank accounts will be frozen immediately. If you need to pay staff wages in a couple of days, it doesn’t matter. Once the bank sees the petition, you lose all control over your money.
Fortunately, before it comes to that, there are opportunities to negotiate. However, this opportunity is only present for directors who engage. HMRC will act if you leave things to chance.
What Are the Penalties and Interest for Late Corporation Tax?
It is important to understand that late filing and late payment attract different consequences. These are separate obligations and separate penalty regimes. Filing your return late triggers fixed penalties regardless of whether you have paid. Paying late triggers daily interest with no fixed penalty. Both can apply simultaneously if you are late on both obligations.
Late filing penalties (CT600)
If you do not file your Company Tax Return on time, HMRC imposes fixed penalties. From 1 April 2026, these rates have increased significantly:
| How late? | Penalty |
| One day late | £200 |
| Three months late | £400 total |
| Six months late | 10% of unpaid tax (estimated by HMRC) |
| 12 months late | A further 10% of unpaid tax |
| Third consecutive failure (one day late times three) | £1,000 |
| Third consecutive failure (three months late times three) | £2,000 |
These penalties apply to returns with a filing date on or after 1 April 2026. For most companies with standard accounting periods, this means the new rates are already in effect for your current or next return. You must file your Company Tax Return even if you cannot pay the tax owed — failing to file adds penalties on top of whatever you already owe.
Late payment interest
There are no fixed penalties for paying corporation tax late. HMRC charges interest daily from the day after your payment deadline until the debt is paid in full. The current rate is 7.75%, calculated as the Bank of England base rate plus 4%. This rate changes when the base rate moves. If you are ever in doubt, always check the current rate on GOV.UK.
The longer an unpaid corporation tax bill is left, the larger it becomes. A bill that was manageable in January can be significantly harder to clear by June purely through daily interest accumulation. This is why acting early is so important.
Your Options if You Can’t Pay Corporation Tax
If you cannot pay your corporation tax, you have options. But which option is right for you depends on whether your cash flow problem is temporary or whether the company has deeper financial difficulties. The earlier you seek advice, the more options remain open. Directors who act at the first sign of difficulty have significantly more choices than those who wait.
Time to Pay Arrangements
A Time to Pay (TTP) arrangement is HMRC’s primary concession for companies that genuinely cannot pay their corporation tax in full on time. It allows the debt to be repaid in monthly instalments — typically over three to twelve months — while the company continues trading and avoids enforcement action. It is not an automatic right and must be negotiated.
HMRC will assess whether your company genuinely can’t pay immediately, as opposed to simply choosing not to, and whether you have a realistic ability to clear the debt while keeping up with future tax obligations.
Who Qualifies for Time to Pay?
HMRC considers TTP applications individually, but you’re more likely to be accepted if:
- Your corporation tax debt is under £30,000.
- You can realistically clear the debt within 12 months.
- You’ve filed all required tax returns.
- You have no other outstanding HMRC debts or payment plans.
- You can demonstrate the cash flow problem is temporary.
- You can show you’ll keep up with future tax obligations.
How to Apply
For corporation tax debts under £30,000, you may be able to set up a payment plan online through your HMRC business tax account. For larger debts or more complex situations, call HMRC’s Business Payment Support Service on 0300 200 3835.
Be prepared to explain your financial situation, provide management accounts and cash flow forecasts, and propose a realistic repayment schedule.
What HMRC expects
HMRC will want to see that you’ve taken steps to raise funds before asking for extra time. They’ll look at whether directors have taken excessive drawings or dividends while the company was struggling. If so, they may expect these to be repaid before agreeing a TTP. During the arrangement, you must keep up with all other tax payments. If you miss a TTP payment, or fall behind on VAT or PAYE, HMRC can cancel the arrangement and escalate to enforcement action immediately.
Interest continues during TTP
A Time to Pay arrangement stops further penalties from accruing but does not stop interest. Interest continues on your outstanding balance until it’s paid in full. Avoiding enforcement action almost always makes a TTP worthwhile despite the ongoing interest cost.
Is your company struggling to pay its corporation tax? Inquesta is a licensed insolvency practice led by Steven Wiseglass — IPA regulated, Fellow of R3, over 20 years of experience helping directors navigate HMRC debt before it reaches enforcement stage. Call 0800 093 4604 for a confidential, no-obligation assessment. The earlier you act, the more options remain open to you.
Using Tax Losses to Reduce Your Bill
If your company made a profit in a previous year but is now loss-making, you may be able to use current trading losses to reduce or eliminate a historic corporation tax bill. This is one of the most commonly overlooked options available to directors facing HMRC pressure, and it can result in a significantly reduced liability or even a refund.
This works by carrying back trading losses to offset against profits from the previous 12 months. If HMRC is chasing you for last year’s corporation tax but your company has since made losses, filing your current accounts promptly could result in a reduced bill — or even a refund.
If your company’s performance has deteriorated significantly since the profitable period that generated the tax bill, speak to your accountant about whether loss relief could help before entering into any arrangement with HMRC.
Company Voluntary Arrangement (CVA)
A CVA is a formal insolvency procedure that allows a viable company to continue trading while repaying its debts (including those to HMRC) over a fixed period, typically three to five years. It is appropriate where the underlying business is sound but the debt burden has become unmanageable.
CVAs requires creditor approval and must be supervised by a licensed insolvency practitioner.
Under a CVA, creditors agree to accept reduced or restructured payments, and in return your company can continue trading. At the end of the CVA period, any remaining debt included in the arrangement is written off. CVAs require approval from 75% of creditors by value.
HMRC will consider CVA proposals but will scrutinise your company’s ability to meet the proposed payments while staying current on future tax obligations. A CVA is not suitable for companies with no realistic prospect of trading their way back to solvency. In those cases, liquidation is often more appropriate.
Creditors’ Voluntary Liquidation
If there is no realistic prospect of the company recovering and repaying its debts, a CVL allows directors to close the company in an orderly, controlled way rather than waiting for HMRC to force compulsory closure. It is always preferable to initiate this process yourself than to have it imposed on you.
In a CVL, a licensed insolvency practitioner takes control of the company, sells any assets, and distributes the proceeds to creditors, including HMRC, in order of priority. Once complete, the company is dissolved and any remaining unsecured debts are written off.
A director-initiated CVL gives you more control over the process, typically concludes faster than compulsory liquidation, and means your conduct as a director receives less scrutiny than if HMRC forces closure.
For more information on the liquidation process and what it means for you as a director, download Inquesta’s free liquidation guide.
Can You Pay Corporation Tax in Instalments?
Yes — but how depends on the size of your company and whether you are already behind on payments. For large companies, quarterly instalment payments are the standard regime. For smaller companies that have missed their deadline, a Time to Pay arrangement with HMRC is the only route to spreading payments over time.
- Large Companies (profits over £1.5 million): Required to pay corporation tax in quarterly instalments throughout the year under the Quarterly Instalment Payments (QIP) regime.
- Small Companies: For smaller companies unable to afford their full bill when due, a Time to Pay arrangement is the primary route.
For debts under £30,000, you may be able to set up a payment plan online through your HMRC business tax account. For larger debts, call HMRC directly on 0300 200 3835.
Can HMRC Close Your Company Down?
Yes, and they will. HMRC has the power to petition for the compulsory liquidation of any company that owes them £750 or more, and they exercise this power more than any other creditor in the UK. If a Time to Pay arrangement cannot be agreed and the debt remains outstanding, compulsory liquidation is a realistic outcome. HMRC accounts for around 60% of all winding-up petitions filed in the UK.
If HMRC issues a winding-up petition:
- The petition is advertised in The Gazette, making your financial difficulties public.
- Your bank will likely freeze your accounts when they see the petition.
- Suppliers and customers may stop dealing with you.
- You’ll have a court hearing where a judge decides whether to wind up the company.
- If the petition succeeds, the Official Receiver takes control and investigates your conduct as a director.
Compulsory liquidation is disruptive, public, and puts directors under much greater scrutiny than voluntary liquidation. Taking control of the situation yourself is always the better outcome.
Unlike most commercial debts, there is no time limit on HMRC’s ability to pursue unpaid corporation tax. The standard six-year limitation period that applies to most debts does not apply to Crown debts. HMRC can pursue unpaid corporation tax indefinitely — which is why hoping the problem will go away is never a viable strategy.
What Should You Do if You Cannot Pay Corporation Tax?
The single most important thing a director can do when they cannot pay corporation tax is act immediately. Every week of delay narrows the options available, increases the total amount owed through daily interest, and moves the situation closer to enforcement. Directors who engage early almost always have more choices than those who wait.
- Never Ignore the Issue: HMRC will escalate enforcement if you don’t engage. Every week you delay reduces your options and increases the total amount owed.
- Contact HMRC as Soon as Possible: If you know you’ll miss a payment, call HMRC before the deadline. They are significantly more likely to agree a Time to Pay arrangement with companies that approach them proactively before enforcement begins.
- Gather Your Financial Information: Before speaking to HMRC or an insolvency practitioner, prepare management accounts, cash flow forecasts, and a clear picture of what you owe and what you can realistically afford to repay monthly.
- Seek Professional Advice: If your company has significant tax debts or multiple creditors, speak to a licensed insolvency practitioner immediately. Professional representation can make a material difference to both the outcome and the terms of any arrangement
Frequently Asked Questions From Directors Unable to Pay Corporation Tax
Can I defer my corporation tax payment?
HMRC doesn’t offer a formal deferral option where you simply delay payment with no consequences. However, if you contact them before your deadline and explain your situation, you may be able to negotiate a Time to Pay arrangement that effectively gives you more time.
The key difference is that you’ll be making monthly instalments rather than delaying the full payment. It’s important to also remember that interest will accrue from your original due date.
What if I can’t pay HMRC and it’s not just corporation tax?
If your company owes multiple taxes — corporation tax, VAT, PAYE — the situation is more serious, though the principles are similar. HMRC can consider all your tax debts together when negotiating a Time to Pay arrangement. However, they’ll expect you to stay current on ongoing obligations while repaying arrears.
If the total debt is considered unmanageable, formal insolvency options like a CVA or liquidation may be more appropriate than trying to negotiate separate arrangements for each tax type.
Are directors personally liable for unpaid corporation tax?
Generally, no. Corporation tax is a debt of the company, not the directors personally. The limited liability protection means HMRC cannot pursue your personal assets for the company’s tax bill. However, there are exceptions. If you’ve signed personal guarantees, committed fraud, or HMRC can prove you deliberately evaded tax, personal liability can arise.
Directors can also face disqualification for up to 15 years if their conduct contributed to the company’s failure to meet its tax obligations.
What if HMRC has already sent bailiffs or issued a statutory demand?
You still have options, but you need to act immediately. Even at this stage, HMRC may negotiate if you can demonstrate a realistic ability to pay. A licensed insolvency practitioner can help you respond to a statutory demand and potentially negotiate a Time to Pay arrangement or formal insolvency procedure before a winding-up petition is issued.
Once a winding-up petition is advertised, your options narrow significantly, so act immediately if you are in this position.
Will negotiating with HMRC affect my company’s credit rating?
A Time to Pay arrangement is between you and HMRC — it’s not reported to credit agencies. However, if enforcement action has already begun (CCJs, statutory demands, winding-up petitions), these can appear on public records and affect your company’s creditworthiness.
This is another reason to approach HMRC early, before enforcement escalates to actions that become public.
Speak to Inquesta Before The Issue Escalates
If you can’t pay your corporation tax, act today — not next week. The earlier you address the situation, the more options remain available.
Directors who contact HMRC proactively and take professional advice usually find a way through. Directors who ignore the problem face enforcement action, winding-up petitions, and forced closure.
Inquesta is a licensed insolvency practice led by Steven Wiseglass — IPA regulated, Fellow of R3, over 20 years of experience helping directors deal with HMRC debt at every stage of escalation. Whether you need help negotiating a Time to Pay arrangement, exploring a CVA, or understanding whether liquidation is the right option, we can give you an honest assessment of where you stand. Call 0800 093 4604 for a free, confidential consultation, or fill in our contact form to request a call back as soon as possible.
“HMRC’s approach to Time to Pay arrangements has become much stricter since COVID. During the pandemic, they were happy to accept 12-month arrangements because they had to. But now? They’ve gone back to heavily scrutinising everything, and will reject any requests they think comes from a company looking to delay the inevitable. What gets approved? Businesses that can prove they can actually make the payments, those with evidence of why they got into arrears, and any with proof that they are staying current on any ongoing tax obligations. Vagueness, limited supporting data, or signs of continued racking up of new debt will be rejected. If your corporation tax arrears are just the tip of an iceberg, with PAYE and VAT arrears stacking up behind it, HMRC will smell insolvency and push you straight towards liquidation instead.”
Steven Wiseglass, Director | Licensed Insolvency Practitioner