Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.
Corporation tax is the tax that a company pays on its profits. The actual rate varies from 19% to 25% (as of April 2024), depending on the level of profits. As with many other taxes, it is complex, so it is 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.
If you are worried you can’t pay Corporation Tax on time then you should contact HMRC. 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. You need to be aware of the payment deadlines so you can act accordingly. You need to pay 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 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 you pay the tax in instalments so that you 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 help@ksagroup.co.uk
If you do not file your accounts by the required date, which is 9 months after the accounting period ends, the following penalties occur :
| Period you are late by | The penalty at the basic rate | The penalty if you have already failed the deadline, 3 consecutive periods |
| Missing the filing deadline | £100 | £500 |
| 3 months | £100 | £500 |
| 6 months | 10% of the total unpaid tax amount | 10% of the total unpaid tax amount |
| 12 months | 10% of the total unpaid tax amount | 10% of the total unpaid tax amount |
There is also the issue of the overdrawn director’s account. If the business has been making profits in the past then taking drawings is quite normal. This over time creates a position where the director(s) becomes a debtor to the company. So, these are essentially loans to the directors. How are these repaid? They are usually repaid when dividends are paid to the shareholders (usually the directors) either within the accounting year or at the end of it. The accountant will advise that the company has made a profit and has reserves from which dividends can be paid. On receipt of these dividends the directors then make sure the loan is personally repaid and therefore there is no debtor in the accounts.
However, if the company has not made sufficient profits and/or has insufficient reserves, then dividends cannot be paid. Thus at the end of the year the company will show “other debtors” within their annual accounts. This means that the directors (or other recipients of the drawings) OWE that money to the company. They will generally be taxed upon it personally.
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.
If the company cannot pay then it is likely to be insolvent. Insolvency may not be the end of the company.
This is simply where the company comes to an agreement to spread the payments over an extended time. Often directors can get 6-12 months by simply negotiating with HMRC direct. However as insolvency practitioners we can get 2 years, or even more, for the company to pay. This will need professionally put together forecasts and a full statement of affairs to be presented to the creditors.
A CVA or Company Voluntary Arrangement is a powerful and legally binding agreement with an insolvent company’s creditors which allows a proportion of its unsecured debts to be paid back over time. This is between 3-5 years. To be approved, 75%, of the creditors, by value, who voted need to support the proposal. This is a bit more work than a time to pay arrangement and is a formal process overseen by an insolvency practitioner, although directors remain in contol. However, it can give a company a very good chance to survive.
Administration or liquidation are a more terminal solution in that the company is likely to stop trading and the assets sold to pay back the creditors. If the company has no future, even with some debt relief, then liquidation is the best option. This protects the directors from accusations of wrongful trading by stopping the losses of creditors getting worse. Any Corporation tax will be written off.
Will I lose tax losses if I go into a CVA? It’s very complicated from an accounting point of view.
Where 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. See the page on CVAs and tax losses.