As any business owner knows, taxes can take a big bite out of profits. In the UK, corporation tax is levied on companies’ profits, and the rate can vary depending on the size and type of business. For small businesses, the rate is currently 20%, while larger businesses may pay up to 28%. This can make a significant difference in the bottom line, so it’s important to understand how corporation tax works. Essentially, any profit that a company earns is subject to corporation tax.
This includes income from sales, investments, and even interest earned on savings. The amount of tax owed is calculated based on the company’s profits, and then paid to HM Revenue & Customs.
There are a few different ways to reduce the amount of corporation tax that a business owes, such as claiming allowances and deductions, but ultimately it is a significant expense that all companies must budget for. If you can’t pay your corporation tax you need to make contact with HMRC immediately and inform them.
What happens if I cannot pay my corporation tax bill?
If you cannot pay your corporation tax bill, the first thing you should do is contact the HMRC to discuss your options. They may be able to offer you a payment plan or extend the deadline for payment. If you do not contact them and simply stop making payments, you may be subject to penalties and interest charges.
In extreme cases, you may even be prosecuted for tax evasion. So it is always best to talk to the authorities as soon as you think you may have difficulty paying your bill.
If a company has tax debts of £750 or more, HMRC can petition to wind up the company. This means that the company will be dissolved and its assets will be sold off to pay its creditors. After the creditors are paid, any remaining funds will be distributed to the shareholders. However, if the company is unable to pay its debts, it may be wound up by the court.
This process can be costly and time-consuming, so it is important for companies to try to avoid tax debt in the first place. One way to do this is to ensure that all taxes are paid on time. Another way to reduce tax debt is to take advantage of any available tax breaks or deductions. By taking these measures, companies can help protect themselves from the risk of being wound up by the government.
What options do I have if I cannot afford corporation tax?
If you are struggling to pay your corporation tax, there are a number of options available to you. One option is to negotiate with HMRC to agree on a payment plan. This can help to spread the cost of the tax bill and give you more time to pay off the debt. Another option is to apply for a time to pay arrangement, which allows you to defer payment of the tax bill for a period of time.
If you are unable to pay the full amount of corporation tax due, you may also be able to appeal to HMRC for a reduction in the amount payable. However, it is important to note that interest will continue to accrue on any unpaid tax, so it is important to take action as soon as possible if you are struggling to pay your corporation tax bill.
The following options may also help so you can pay your corporation tax bill:
Time to Pay (TTP) arrangement
A time to pay arrangement is an agreement between a taxpayer and the tax authority (HMRC) that allows the taxpayer to defer payment of their tax liability over an agreed period of time. This can be an useful option for taxpayers who are unable to pay their tax bill in full and need some extra time to raise the money.
There are several things to consider before entering into a time to pay arrangement, such as whether you can afford the repayments and whether you will be able to meet the deadline. If you default on the arrangement, you may be liable for late payment penalties and interest charges, so it is important to make sure you can commit to it before entering into one.
Time to pay arrangements are not suitable for everyone, but if you are struggling to pay your tax bill they could be worth considering.
Formal insolvency procedures
If a business is facing financial difficulties and unable to secure a time to pay arrangement with HMRC, there are a number of options available to help it survive.
A formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA) may be the best course of action. Both of these options have their advantages and disadvantages, and it is important to seek professional advice to ensure that the best option is chosen for the particular circumstances of the business.
However, either option may help the business to survive this period of financial distress.
A creditor’s voluntary liquidation (CVL) is a type of insolvency procedure undertaken by companies in the United Kingdom. It is initiated by the directors of the company when they are of the opinion that the company is unable to pay its debts as and when they fall due. The directors then contact a licenced insolvency practitioner (IP) to act as the liquidator of the company’s assets. IPs are regulated by the Insolvency Practitioners Regulations 2010 (as amended). CVLs are also commonly referred to as “winding-up by creditors”, “creditors’ voluntary dissolution” or “creditors’ voluntary winding-up”.
Once a CVL has been commenced, an IP will take control of the company’s assets and apply them in satisfaction of its debts. They will also investigate the company’s affairs and report on these to creditors. This report must be provided to creditors at least 14 days before any final meeting is held. A final meeting of creditors is not mandatory, although it is usual for one to be called so that creditors can vote on resolutions relating to the liquidation, such as approving the IP’s fees. Once all debts have been paid, any remaining assets will be distributed among shareholders in accordance with their rights and interests.
A CVL can be an effective way for a company to wind-up its affairs in an orderly manner and pay off its debts. However, it should be noted that a CVL does not release directors from their personal liabilities. If you are considering a CVL for your company, you should seek professional advice from an experienced insolvency practitioner.
Additional debt finance
Any business owner knows that access to funding is essential for keeping the doors open and the lights on. There are a number of ways to finance a business, but one often overlooked option is invoice finance. Invoice finance allows businesses to borrow money against outstanding invoices, providing an influx of working capital that can be used for a variety of purposes.
While traditional lending options may be more difficult to obtain in today’s economic climate, invoice financing can provide a much-needed lifeline for small businesses. In addition, since the loan is secured by the invoices, it is typically easier to obtain than other types of financing. As a result, invoice finance can be an attractive option for businesses looking to raise additional debt financing.
Creditors’ Voluntary Liquidation when you cannot pay your corporation tax bill
If you find yourself in a position where you can’t pay your HMRC liabilities, it’s important to seek professional advice as soon as possible. The tax body has a number of powerful debt enforcement tools at its disposal, and the sooner you take action the better.
A professional advisor can help you to understand your options and put together a plan to deal with the situation. They can also negotiate on your behalf with HMRC, which can give you some much-needed breathing space. So if you’re struggling to pay your taxes, don’t delay – seek professional help today.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.