What Are the Corporation Tax Late Filing Penalties?
Corporation Tax late filing penalties apply when you don’t submit your returns to HMRC within 12 months of the end of your accounting period. The penalties increase the longer you wait, potentially resulting in hefty fines.
There aren’t any penalties for late payments, but – if you don’t pay quickly enough – HMRC will take legal action against you. Failing to deal with the issue promptly can result in the closure of your business.
So, what penalties do you face for filing your Corporation Tax returns late? How does HMRC deal with nonpayment? And what solutions are available to deal with the problem?
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Late Filing Penalties for Corporation Tax
You have 12 months following the end of your company’s accounting period to file your Corporation Tax returns. If you’re unsure when your accounting period ends, it’s worth checking with your accountant.
If you file your returns just one day late, you’ll be subject to a penalty. The penalty size increases the later you file.
Standard Penalties
| Time after Your Deadline | Penalty |
|---|---|
| One day | £100 |
| Three months | Another £100 |
| Six months | 10% of the unpaid tax |
| Twelve months | Another 10% of the unpaid tax |
These are the standard penalties.
However, If you submit Corporation Tax returns late three times in a row, the flat-rate penalties will increase.
Increased Penalties
| Time after Your Deadline | Penalty |
|---|---|
| One day | £500 |
| Three months | Another £500 |
| Six months | 10% of the unpaid tax |
| Twelve months | Another 10% of the unpaid tax |
Interest on Late or Unpaid Corporation Tax
The deadline for paying your Corporation Tax is nine months after the end of your accounting period.
That’s right – the deadline for paying the bill is actually three months earlier than the deadline for submitting the tax return.
Thankfully, there aren’t any penalties for late Corporation Tax payments. However, HMRC will charge you daily interest on the outstanding debt.
From the day you miss or make an incomplete payment, HMRC will charge interest at 2-3%. This means the size of your debt can spiral if you don’t deal with it quickly.
How Does HMRC Deal with Late Filing and Payment?
You don’t need to worry about going to court if you’ve missed your Corporation Tax deadlines.
You will, however, have to worry about HMRC.
If you don’t inform them of your situation and continue failing to repay, HMRC will refer the case to its Enforcement Team.
They may send bailiffs to seize and sell your assets to pay back the money you owe. Depending on what they take, this could stop your business from running effectively on a day-to-day basis.
If a significant amount of debt is outstanding, HMRC will issue a winding-up petition, resulting in the compulsory liquidation of your business.
What Options Do I Have if I Can’t Afford to Pay My Corporation Tax?
If you know that you won’t be able to meet your Corporation Tax deadline, it’s crucial that you contact HMRC as soon as possible.
They’ll be willing to agree on a strategy that will allow you to continue trading while you pay off your debts over time. Remember, HMRC acts in the interest of the economy, so they will avoid pursuing liquidation wherever they can.
So, what are your options?
Time to Pay Arrangement
Any company struggling with tax debt should first consider a Time to Pay Arrangement.
HMRC offers Time to Pay Arrangements to help businesses by giving them some breathing room on their debts. They allow you to stretch out your repayments up to 12 months, dividing payments into affordable instalments.
According to HMRC, over 90% of Time to Pay arrangements are completed successfully.
Corporation Tax Relief
If your business is starting to underperform, you may be able to claim Corporation Tax loss relief. Your company can qualify if it had trading losses this year and owes Corporation Tax from last year.
You get this relief by offsetting your losses against gains or profits. First, you carry the loss back against earnings in the preceding 12 months. Next, HMRC will recalculate your outstanding Corporation Tax bill. In some cases, this can even result in a refund.
Tax Loans
Tax loans allow businesses to resolve their short-term tax difficulties so that they can continue trading. You replace the tax debt with a new, more agreeable loan debt.
While this can be a good option, it’s important not to rush into anything. Some lenders provide tax loans with an unfavourable interest rate, which will make them very costly in the long run.
Additionally, most lenders will require you to provide security to protect their position. This could require you to sign a personal guarantee—if the company then fails and the loan goes unpaid, you will be responsible for paying it yourself.
Company Voluntary Arrangement
A Company Voluntary Arrangement is a payment plan made with your creditors to manage debts and avoid liquidation:
- Stretches out debts over 3-5 years
- Freezes interest on debt
- Protects business from closure
- You can write off some debt
You’ll make one monthly payment to your insolvency practitioner, who will divide this contribution among your creditors. If you keep up with your payments, creditors cannot take legal action against you.
You’ll need the backing of 75% of your creditors to enter into a CVA. Our team will help you to draw up a proposal that is affordable for you and attractive to creditors.
Creditors’ Voluntary Liquidation
If your business cannot realistically pay its Corporation Tax bill, you need to consider your personal interests. Continuing to trade may result in you becoming personally liable for company debts.
This is where a Creditors’ Voluntary Liquidation comes in:
- Relieves pressure from creditors in as little as 14 days
- Allows you to uphold your legal duties
- Shields you from misfeasance and wrongful trading charges
- Fees are usually covered by liquidation itself, saving personal cost
Entering a CVL gives you peace of mind, letting you concentrate on your future without the worry of acquiring company debts.
Speak to an Expert
If you’re struggling with Corporation Tax debt, speak to an insolvency practitioner.
Our expert team can assess your situation and guide you to the solution that’s right for you. You may find it’s possible to work out an agreement with HMRC, or you may need the assistance of a more formal corporate insolvency solution.
To discover the best route for your company, get in touch to book a free, no-obligation consultation today.
