As owners and directors navigate the intricate financial waters of running a business, one recurring challenge often looms large: Corporation Tax. This tax, levied on the profits of businesses, is a fundamental obligation for all qualifying enterprises. However, mastering the deadlines and intricacies that are associated with Corporation Tax can be highly demanding.
Businesses today are struggling like never before in the face of the cost of living crisis and rising energy prices, so profit margins are being squeezed and squeezed hard. This means that many are finding themselves struggling to pay their taxes on time, including Corporation Tax.
Businesses that are in financial difficulty and facing the real prospect of defaulting on their obligations may be asking themselves the following question: what is the penalty for late payment of Corporation Tax? Answering this question properly involves unravelling the intricacies of the Corporation Tax payment deadline and the different actions which could elicit a fine from HMRC.
What is the Corporation Tax Payment Deadline?
In the United Kingdom, the Corporation Tax payment deadline for a business will vary based on its annual accounting period. Typically, this deadline for paying your Corporation Tax is nine months and one day after the conclusion of the accounting period. This should allow for efficient financial planning and compliance in most situations.
As every business operating today in the UK is subject to Corporation Tax, understanding the deadlines associated with it are vital to avoid penalties and compliance issues. In order to answer the question of “what is the corporation tax payment deadline”, there are a few other considerations that you need to keep in mind.
- Accounting Period: Your business’ corporation tax payment deadline is calculated dependent on your accounting period. This is usually 12 months long and will depend on the financial year-end date of the company. It’s important to remain aware of your specific accounting period, as it will determine not only your payment, but the deadlines for filing as well.
- Filing Deadline: In the UK, your Corporation Tax return must be filed with HMRC within 12 months of the end of your accounting period.
Once you are aware of your accounting period and filing deadline, it becomes much easier to work out when exactly your corporation tax payment deadline is. All UK based companies are expected to pay their Corporation Tax liability within nine months and one day of the end of their accounting period.
Regardless of the size of your business, what industry you are in, or where in the UK you are based, it is vital that you understand when your Corporation Tax payment deadline is. Having this knowledge ahead of time will ensure that you maintain a positive standing with HMRC and that you avoid any corporation tax late filing penalties.
What are the Corporation Tax Late Filing Penalties?
In the United Kingdom, failing to meet your Corporation Tax payment deadline can result in penalties being imposed by HM Revenue and Customs. The penalties can vary from fines of £100+ and interest charges, to enforcement action and criminal prosecution. The actual extent of the penalty will depend on the lateness of the filing and the size of the business.
Corporation Tax late filing penalties are as follows:
Up to Three Months Late: Minor Penalties
There are minor penalties enforced for the only marginally late payment of Corporation Tax. This covers a period of up to three months late with payment. These fines are as follows:
- A penalty of £100 for companies up to one month late
- A penalty of £200 for payment between two and three months late.
Any lateness above three months will be deemed as worthy of a more serious penalty.
More than Three Months Late: Moderate Penalties
If a businesses Corporation Tax Return is more than three months past its due date, HMRC can charge additional penalties. The amount is based on a percentage of the outstanding tax liability as follows:
- An additional 10% of the unpaid tax is owed if the return is more than six months late.
- A further 10% penalty charge is applied on any returns over 12 months late.
These fines are cumulative, meaning that if your tax return is over 12 months late, you can expect to face a total charge of 20% of the unpaid tax, in addition to the minor penalties mentioned above.
More Serious Penalties
There are a number of additional circumstances that could call for a more severe penalty for late payment of Corporation Tax. These additional penalties can, in extreme cases of non-compliance, be much more harsh for all parties involved. Further punishments can include:
- Tax Liability Estimation: If you fail to fail a return, requiring HMRC to estimate your liability for you, and you later file a return with a lower liability, you could be liable for financial penalties equal to the overall difference between the two amounts.
- Enforcement Action: For cases of persistent non-compliance, or in extreme cases of late payment, HMRC may consider taking enforcement action. This will require a court order in order to allow HMRC to appoint a third party to recover the outstanding tax, seize assets, or wind up the company.
- Personal Liability: If a company becomes insolvent and enters liquidation, the liquidator appointed to the case may investigate the conduct of the firm’s directors. Should they be found to have acted inappropriately or negligently, they may become personally liable for their businesses unpaid Corporation Tax
- Deregistration: If a company repeatedly, over a significant amount of time, fails to meet its tax obligations, HMRC does have the authority to deregister the business. This course of actions will not absolve the business of its previous liabilities.
- Prosecution: Reserved for particularly extreme cases of tax evasion or deliberate failure to comply. HMRC can, should it wish, pursue official criminal prosecution against a guilty party.
While there are a number of potential penalties for late payment of corporation tax, it should always be remembered that these consequences and severe courses of action are generally only taken as a last resort. HMRC would, as a general rule of thumb, much prefer to work with a struggling business in order to help them meet their tax obligations,
It’s essential that companies treat their tax responsibilities with the utmost seriousness. It’s vital that deadlines are met and if facing difficulties, you should communicate with HMRC as clearly and effectively as you can. Additionally, seeking third party professional advice from an expert insolvency practitioner can put you in great stead when addressing ongoing tax issues and help you to avoid possible legal consequences.
Support With Corporation Tax Late Filing Penalties Today
When it comes to corporate taxation, meeting your obligations should not be seen as merely a legal requirement, but a fundamental component of maintaining your company’s financial well-being and long-term health. Corporation tax late filing penalties and the associated variable with it, may seem like a daunting hurdle, but it is a crucial aspect of the business landscape in the United Kingdom.
Your company’s fiscal health depends on knowing exactly when and how to file, as well as understanding the answer to the pivotal question: What is the penalty for late payment of Corporation Tax? In this blog, we have unravelled the complex world of Corporation Tax, exploring the payment deadline variables, expected penalties, and the consequences of falling significantly behind.
Armed with this knowledge, you can much better steer clear of the pitfalls of late payment and help you to remain on the path to financial security.
For support with avoiding corporation tax late filing penalties, don’t hesitate to consult with a trusted insolvency practitioner. Alternatively, if Corporation Tax has increased and you need support, feel free to get in touch and we can help you.
At Inquesta, our team of experts have years of experience supporting businesses through all manner of financial issues. So regardless of the size of your business, what industry you are in, or where in the UK you are based, get in touch today.
We can provide valuable guidance to help you navigate the complexities of Corporation Tax and safeguard your business from any unnecessary penalties and legal consequences.