A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Corporation tax arrears - what happens if you can't pay?
Corporation tax has a peculiar sting: it falls due nine months and a day after the year end, taxing profits the business may long since have spent - and an unpayable CT bill is often the moment a director discovers that a profitable-on-paper year masked a cash position that was quietly failing.
In this guide you'll learn how HMRC pursues corporation tax arrears, the interest and penalty position, how Time to Pay works for CT, and what an unpayable bill usually signals about the company's wider health.
Because CT arrives so long after the profits it taxes, it's a good idea to treat the bill as a diagnosis as much as a debt - the question is rarely just "how do we pay this" but "where did the cash go".
What happens if the company misses the payment?
Interest runs from the due date automatically; late filing of the return adds fixed and escalating penalties on top - so file on time even when you can't pay, because non-filing compounds the cost and signals disorder.
Enforcement then follows HMRC's familiar escalation: letters, debt management contact, field visits, enforcement against assets - and for sustained arrears, the same winding up petition route that makes HMRC the most frequent petitioner in the courts.
CT ranks as an ordinary unsecured claim in an insolvency (unlike VAT and PAYE, which carry preferential status) - a technical difference that shapes HMRC's negotiating posture more than its persistence.
Can I get Time to Pay for corporation tax?
Yes - CT arrears are routinely included in Time to Pay arrangements, typically over six to twelve months, on the standard conditions: a credible explanation, affordable instalments evidenced by a forecast, and current liabilities kept up to date meanwhile.
The affordability test deserves particular honesty with CT, because next year's bill is already accruing while you pay off last year's - an arrangement that works only if the business ignores the next liability is a scheduled failure.
What does an unpayable CT bill usually mean?
One of three things, each with a different answer.
The profits were real but the cash went somewhere identifiable - capital spending, debt repayment, or drawings; if drawings, check the director's loan account position now, because unfunded drawings against paper profits is exactly how DLA problems are born.
The profits were real but thin, and CT is simply the creditor that arrived last - a working capital problem that Time to Pay or finance can legitimately bridge.
Or the year since those profits has gone badly, and CT is one of several fires - VAT, suppliers, maybe payroll - in which case the honest conversation is the viability one, not another payment plan.
Are directors personally liable for corporation tax?
Ordinarily no - CT is a company debt, and the usual limited liability rules apply.
The exceptions target patterns rather than misfortune: the anti-phoenix rules that can transfer tax liabilities to directors who use repeated insolvencies to shed tax debts, and the general conduct routes - wrongful trading, unlawful dividends drawn against profits that were never really distributable - that an unpayable CT bill sometimes sits alongside.
For the ordinary director of a single struggling company who engages with HMRC honestly, corporation tax arrears are a company problem to be managed, not a personal one to fear.
What should I do now?
File the return regardless; work out where the cash went, honestly; test whether instalments are genuinely affordable alongside everything else - and if they're not, have the wider conversation before HMRC's escalation makes it for you.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - one confidential conversation with an ICAEW-licensed IP covers the CT bill, the wider position it sits in, and the realistic route through both.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 8th Floor, 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, tax, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.