I can't pay corporation tax. What can I do? I am worried that HMRC will not give me time to pay it.
What is Corporation Tax?
Corporation tax is the tax that a business pays on its profits. The actual rate varies from 20% to 21% depending on the level of profits. As with so many taxes, it is complex and it's unnecessary to go into details here. However it should be remembered that it is the duty of the directors to file accounts and report profits accurately so the correct amount of tax can be levied. Your accountant should file a CT600 return within 12 months of your year end. Again if your accountant fails to do this properly it is still your responsibility.
George Osborne announced in the 2016 budget that corporation tax is to be cut by 17% (although this won't happen for a while).
What should you do if you can't pay Corporation Tax in time?
If you are worried you can't pay it in time, you need to be aware of the payment deadlines so you can act accordingly. You need to pay corporation tax by nine months and one day after your corporation tax period ends (if you have taxable profits up to £1.5 million). If you have taxable profits over this amount, you need to pay the tax earlier and usually in four parts.
More usually, companies that are in financial distress run up other taxes such as VAT arrears and PAYE arrears and may not have actually made a profit so corporation tax arrears are less common. It all depends on the profile of your business and the circumstances. Perhaps you do not need to charge VAT and you do not directly employ anyone. It is usually a good idea to file and pay any corporation tax as soon as you know how much you owe in case the money is not there later on.
If you can't pay corporation tax, HMRC will always be willing to listen to businesses that are struggling and the first thing to do is to talk to them and put your case in writing. If this is the first time you're contacting HMRC about this issue, you can contact their Business Payment Support Service. Do not ignore demands and notices as penalties will start to mount up. They may well agree to a "time to pay" deal whereby they will allow you to pay off the arrears over 6-12 months. However do not promise to pay more than you can afford otherwise it will fall over and HMRC may move to wind up the company. Please call us for no obligation advice as we have years of experience of dealing with HMRC. You can call us on 08009700539 or email email@example.com
There is also the issue of the overdrawn director's account. If the business has been making profits in the past, then drawing on dividends at a 10% tax rate has been perfectly acceptable. However, if the business starts losing profit, directors may still take out those dividends without paying the increased tax rate of up to 25%. This leads to taxes being unpaid and an overdrawn director's account.
HMRC will just as aggressively go after corporation tax owed than PAYE or VAT owed and they can use all the usual remedies such as distraint, statutory demands or winding up petitions. If you can't pay corporation tax, PAYE or VAT and you receive these sorts of threats, then call us immediately and we can help.
CVAs and Corporation tax
Will I lose tax losses if I go into a CVA? It's very complicated from an accounting point of viewWhere a company entering into a CVA has accumulated trading losses for tax purposes, the continued availability of such losses in future periods is likely to be a crucial aspect to the successful implementation of the arrangement.
Assuming the company continues to trade throughout the CVA process, its unrelieved trading losses may be carried forward for offset against future profits arising from the same trade. If you want to know more then please have a look through the CVA and tax losses guide kindly put together by Keith Rushen of Robinson Rushen, Chartered Accountants and Chartered Tax Advisors.
This guide has been prepared from current legislation and HMRC guidance. You are recommended to seek professional advice before taking or refraining from any action on the basis of the contents of this guide.
If you have any questions on the finer points then feel free to call Keith Rushen on +44 (0)20 7486 2378 or email firstname.lastname@example.org
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