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Corporation tax: What happens if you file or pay late?


What are corporation tax late filing penalties?

Corporation tax late filing penalties are applied when companies fail to file their Company Tax Return by the official deadline. Even if it is only one day late, you will receive a fine of £100 from HMRC. Penalties then increase over time, and can damage your company’s reputation with HMRC. If the situation is not well-managed, it can even cause your business to fail.

There is not a set day when every company must file its tax return; instead each company must submit their return 12 months following the end of their own accounting period. The filing can either be done by yourself or by your accountant, however, the ultimate responsibility for ensuring this is submitted on time and that the information contained is accurate, lies with you as the director of the company. Remember that you must still file a tax return even if you have no corporation tax to pay or have made a loss for the year.

So what penalties do you face for late filing, and what can you do to bring the situation back under control if you have already fallen behind?

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Late filing penalties for corporation tax

As we said earlier, an initial penalty is applied if the tax return is even a single day late. From then on the following penalties come into force:

  • 1 day late: £100 penalty
  • 3 months late: A further £100 penalty
  • 6 months late: 10% of the unpaid amount (as estimated by HMRC)
  • 12 months late: A further 10% of any unpaid tax

If you have missed the deadline three consecutive times, the financial penalties increase to £500 each for filing your tax return one day late and three months late, and the 10% surcharge applies to any unpaid tax after 6 months and 12 months.

If your tax return is more than 6 months late, HMRC will estimate how much corporation tax they think your company owes. This process is known as a ‘tax determination’ and there is no appeals process. Instead you must pay the amount requested; the amount can be ‘displaced’ if you file your tax return and pay your actual corporation tax liability, along with any penalties and interest due.

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Interest charges on late or unpaid corporation tax

If you do not pay your corporation tax on time or in full, HMRC will charge you interest on a daily basis for the amount outstanding. Interest will be levied automatically and apply from the first day of missed or incomplete payment. HMRC interest rates for late payment are set at the Bank of England base rate plus 2.5%.

How HMRC deals with late filing and payment

If the payment deadline has passed, you need to contact HMRC as soon as possible otherwise they may take legal action against your company. You will be asked about various aspects of your company, including its level of assets and liabilities, income and expenditure, to help them decide whether or not you can pay straight away.

If they feel that your company cannot pay the arrears straight away, but that given a little more time you can meet your liability for corporation tax, you may be able to negotiate a Time to Pay arrangement.

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What is a Time to Pay (TTP) arrangement?

This is an instalment plan that generally lasts around six months, but can be shorter or longer in duration depending on each company’s circumstances. When negotiating the terms of a Time to Pay arrangement, it is crucial to ensure that you can afford the instalments for the whole term.

If you renege on this type of agreement, HMRC are likely to demand the debt in full, and take legal action if the money is not forthcoming immediately. It can be a delicate balance, therefore, between offering enough as a monthly payment to persuade HMRC to allow additional time to pay, while also ensuring that you are not over-stretching your finances and can definitely meet the repayments as agreed.

You will also need to provide documentary evidence to support your offered repayment figures; if HMRC has any doubt as to your ability to keep up with the proposed payment plan then they will refuse your application and no extension will be granted.

Need to speak to someone?

If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
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Professional help with negotiations

Real Business Rescue has a long and successful track record of dealing with HMRC including negotiating Time to Pay arrangements on behalf of clients. Our involvement removes much of the stress for directors, and can help your company recover from a temporary financial setback.

We are also able to help directors who are struggling with various creditors, including HMRC, who want to consider the options available for either saving or closing down their company. This could involve legally-binding negotiations with a number of creditors by way of a Company Voluntary Arrangement (CVA), or an orderly wind down of an insolvent company through a Creditors’ Voluntary Liquidation (CVL).

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