Corporation Tax late payment penalties
HMRC has a number of penalties and clauses in place relating to late Corporation Tax payments. In this guide we’ll explore these, as well as breaking down what you need to have on hand to ensure that you pay on time.
Deadlines for paying Corporation Tax
Corporation Tax payment deadlines depend on the amount of taxable profits your company has generated within the annual accounting period.
Companies that have generated less than £1.5million in taxable profits must make the payment within 9 months and 1 day after the accounting period has ended. Larger companies with profits in excess of £1.5 million must also pay within 9 months and 1 day. The key difference here is that with larger companies, payments will be made via quarterly installments, with the first two being within the accounting period itself.
For larger companies paying in installments, payments are to be made as follows:
- 6 months and 13 days after the accounting period begins
- 3 months after the first installment has been paid
- 3 months after the second installment. This is normally 2 weeks after the accounting period has ended
- 3 months and 14 days after the accounting period has ended
To calculate which way your company needs to pay Corporation Tax you’ll need to work out your total tax liability. You may also need to consider different circumstances like accounting periods that are less than the regular 12 months. For all the deadline details, see the HMRC site.
HMRC also has a “time to pay” system to help smaller companies struggling to pay their bills on time. With this payment plan, you’ll still pay interest on the corporation tax arrears but won’t be charged penalties on top. It’s best to contact HMRC as soon as possible after filing your company tax return to discuss this.
As we’ll cover next, unpaid tax after this deadline is subject to late fees depending on how much Corporation Tax you cumulatively owe.
What happens if my company pays Corporation Tax late?
Late payment penalties start at fixed fees and increase to full percentages of total tax liability the longer payments are overdue.
Here is the Corporation Tax late payment penalty structure:
Amount of time | Penalty |
1 day | £100 immediately |
3 months | £100 penalty on top of the first |
6 months | 10% of total unpaid tax |
12 months | An additional 10% of unpaid tax |
If you have missed, the deadline three or more times consecutively, you’ll incur these charges:
Amount of time | Penalty |
1 day | Fixed £500 penalty immediately |
3 months | An additional £500 penalty |
6 months | 10% of total unpaid tax |
12 months | An additional 10% of unpaid tax |
For companies generating over £1.5 million who pay their tax in installments, the penalty will only apply after the deadline date meaning you’ll have some time between the second and third payments to clear up any discrepancies.
Not sure if you have to pay corporation tax when you close your company ? Click that link to our article to find out more!
What happens if the tax return is more than 6 months late?
There are also penalties if you fail to notify HMRC of your Corporation Tax liability due to an inaccurate or late corporation tax return. They have a system in place called PLR or Potential Lost Revenue for dealing with this.
In general, the government is reasonable and will not apply a penalty if there are genuine reasons behind the inaccurate or late tax return, provided you contact HMRC as soon as possible and show that you are prepared to pay the Corporation Tax arrears.
HMRC will apply a percentage to the total amount of late Corporation Tax that you owe once this has been correctly calculated. The figure for this percentage will depend on the reasoning behind the late return and is broken down into the following categories:
- Careless – if it is deemed you have not done due diligence and shown reasonable care taken in your Corporation Tax activities
Unprompted disclosure: 0%-30%
Prompted disclosure: 15%-30%
- Deliberate – such as intentionally sending incorrect information
Unprompted disclosure: 20%-70%
Prompted disclosure: 35%-70%
- Deliberate and concealed: this is when incorrect information has been deliberately sent and steps have been taken to conceal this
Unprompted disclosure: 30%-100%
Prompted disclosure: 50%-100%
While the penalty HMRC will apply is based on the kind of failure, you can potentially reduce this amount by:
- Promptly contacting HMRC to fully disclose all information
- Being transparent with records and assisting HMRC in properly calculating the amount of Corporation Tax owed
Not sure what a non trading company is? If so, check out our article “What is trading and non-trading for corporation tax”.
Appealing to penalties
A deadline penalty for Corporation Tax is what’s called a direct penalty and letters are sent via post containing a form to return if you believe there are grounds to appeal against HMRC’s decision. You can also find these on the GOV.uk site.
What happens if my company can’t pay Corporation Taxes?
If your company is unable to make a satisfactory payment following penalties or if you have failed an appeals process with HMRC, they will pass the case on to the enforcement team. The enforcement team will then begin sending payment demands and may take legal action if the case goes on long enough.
Company directors can be personally liable for Corporation Tax even if the company has undergone insolvency or creditors voluntary liquidation and no longer trades.
Trying to find more information about the tax on selling a business in the UK? Check out our article “Paying corporation tax when selling a business asset”.
Tax loss
For companies who are still behind on payments and are experiencing financial difficulties leading to trading losses in the current accounting period, there is scope to utilise what’s called tax loss to claim relief from the owed Corporation Tax.
This relief is achieved by offsetting these losses against other revenue or can be retroactively carried back against profits from the previous year. This can result in tax refunds from HMRC when you file returns for the accounting period in which you are experiencing losses.
Tax funding
If you are completely unable to pay there is also tax funding in which you essentially receive a loan from a third party lender to pay the amount due before it gets to legal action.
This can be an expensive route as there are often high-interest rates and the lender will normally need security in the form of assets like property. You will also have to demonstrate that cash flow is likely to improve for the company in the future.
Conclusion
As you can see it’s important for a company director to ensure that the business has paid any tax it is liable for in a timely manner and accounts are in order to avoid any penalties.
We would advise being as open and honest with HMRC as possible and getting ahead of any issues as this will almost certainly save you money in the long run.
If you’re unsure about any aspect of your taxes or need assistance with financial tax planning, consulting our tax advisors for corporate tax advice will save you time, money, and potential headaches. To provide you with an efficient and seamless tax process, Sleek has the right set of solutions for you!
Get in touch with an accountant such as Sleek if you’d like assistance with Corporation Tax and managing your accounts. We can also help you to avoid late payments by handling all of the admin for you.
Articles you might want to read:
- Paying corporation tax when selling a business asset
- Paying corporation tax when selling or closing your business
FAQ
Yes, sometimes. You should contact HMRC on their support line as soon as possible to see if this is an option. They will usually require forecasts and projections of future cash flow to make a decision on whether the payment can be postponed and by how much. Speak to a professional accountant before making contact to ensure you are aware of what they are likely to ask so you can have all the required information readily available.
You may be able to utilise the ‘time to pay’ scheme to give yourself some breathing room and spread out costs. This will usually depend on other financial commitments like overdrawn loan accounts for directors and it will still have to be paid within 12 months.
In November 2022, the interest rate on late payments was 5.5%. However, this is due to rise in January 2023 and will be going up to 6%.
