Can't Pay Corporation Tax? A UK director's guide

Corporation tax is the company's own tax

Corporation tax is the UK's tax on company profits. It is calculated by reference to the company's taxable profits for an accounting period and paid to HMRC by the company itself. Unlike VAT (collected from customers), employee NICs (deducted from wages), or CIS (withheld from subcontractors), CT is not collected from any third party — it is the company's direct liability.

This distinction matters because it shapes HMRC's view of late payment. VAT and PAYE non-payment involves money the company collected on HMRC's behalf and used for other purposes — a serious compliance failure with trust dimensions. CT non-payment involves the company failing to set aside enough cash to pay its own tax bill — commercially undesirable but morally different. HMRC's enforcement priority on CT reflects this: the same case officers, the same procedural framework, but materially different urgency and flexibility.

Annual cycles, not quarterly or monthly

CT operates on annual cycles. The standard pattern: the company's accounting period ends; the CT600 corporation tax return must be filed within 12 months; CT payment is due 9 months and 1 day after the end of the accounting period. So a company with a 31 December year-end has CT due on 1 October the following year and a CT600 due on 31 December the following year.

For larger companies (those with augmented profits exceeding £1.5 million), the Quarterly Instalment Payments regime applies — CT is paid in four instalments through the accounting period rather than 9 months and 1 day after the year-end. For very large companies (augmented profits over £20 million), CT is paid earlier still under the very large company QIPs regime.

The annual cycle compounds differently from the quarterly VAT or monthly PAYE cycles. A single missed CT payment is often substantial in absolute terms (because it represents 12 months of company tax) but does not recur monthly or quarterly. Companies typically have one CT bill per year per accounting period — missed CT therefore appears as a single large arrears item rather than the regular drip of VAT/PAYE arrears across multiple periods. The practical implication is that CT arrears are often less indicative of cash flow distress than VAT/PAYE arrears — a single large bill missed once is consistent with timing pressure rather than systemic insolvency.

CT is unsecured in any subsequent insolvency

This is one of the most consequential differences between CT and the trust taxes. Since 1 December 2020, HMRC's secondary preferential creditor status applies to VAT, employee NICs, employer NICs, PAYE, and CIS deductions — ranking HMRC above unsecured creditors and floating charge holders for those taxes in any subsequent insolvency procedure. Corporation tax was deliberately excluded from the secondary preferential creditor status.

The practical effect: in any CVL, administration, or compulsory liquidation, HMRC ranks as an ordinary unsecured creditor for unpaid CT. CT arrears are paid alongside trade creditors pro rata after secured creditors, preferential creditors (employees up to caps), and the secondary preferential class. For companies entering insolvency with both CT arrears and VAT/PAYE arrears, the recoveries are materially different: HMRC recovers preferentially on the trust taxes and pro rata with trade creditors on CT.

This affects strategic positioning in any subsequent procedure. CT arrears do not prejudice trade creditor recoveries the way VAT/PAYE arrears do; CT arrears do not give HMRC the structural negotiating advantage in CVA proposals that the secondary preferential status gives them on VAT/PAYE. Where CT is the principal HMRC component, the company's position with the wider creditor body is typically less strained than where VAT/PAYE is dominant.

Limited director personal exposure

Corporation tax arrears do not trigger any structured director personal exposure mechanism. Specifically:

• There is no Personal Liability Notice equivalent for CT. The PLN regime under section 121C SSAA 1992 applies only to unpaid Class 1 employee NICs — not to corporation tax.
• There is no joint and several liability mechanism for CT non-payment in the way Finance Act 2003 creates for VAT fraud.
• Corporation tax-specific director liability in narrow circumstances exists (transfer pricing breaches, certain anti-avoidance provisions) but does not apply to ordinary CT arrears.

Director personal exposure on CT arrears is therefore limited to the general mechanisms that apply to any corporate distress: wrongful trading under section 214 IA 1986 where the company was insolvent, misfeasance claims by a subsequent liquidator under section 212 IA 1986, and the indirect impact of director loan account positions on liquidation outcomes. None of these is CT-specific.

The absence of structured personal exposure changes the practitioner conversation. On VAT or PAYE distress, director-level engagement is part of the substantive advice because PLNs and joint-and-several liability are real. On CT distress standalone, the conversation is typically more company-focused — the question is what to do about the corporate position, with personal exposure as a secondary consideration.

The normal due date

For most companies, CT is due 9 months and 1 day after the end of the accounting period to which it relates. The accounting period typically aligns with the company's financial year. A company with a 31 March year-end has CT due on 1 January the following year; a company with a 31 December year-end has CT due on 1 October the following year.

This timing matters because it means CT is paid in arrears — 9 months after the period in which the profits arose. Companies in distress often find that the CT bill arrives at a time when the underlying profits have already been spent on operating expenses, debt service, or director drawings. The disconnect between the period of profitability and the date of payment is a common source of CT arrears — the company was profitable when the tax accrued but is no longer in a position to pay when it falls due.

Quarterly Instalment Payments for larger companies

Companies with QIPs obligations follow a different timetable. A company is "large" for QIPs purposes where its augmented profits exceed £1.5 million in an accounting period, or where it was a QIPs company in the previous accounting period. The £1.5 million threshold is divided where there are associated companies — group structures with multiple companies each share the threshold.

Under standard QIPs, CT is paid in four instalments:

• First instalment: 6 months and 13 days after the start of the accounting period.
• Second instalment: 3 months after the first.
• Third instalment: 3 months after the second (typically just after the accounting period end).
• Fourth instalment: 3 months and 14 days after the end of the accounting period.

The QIPs framework requires the company to estimate its CT liability in advance and pay accordingly. Companies that under-estimate face interest on the shortfall. QIPs management is operationally demanding, and QIPs companies in distress often have quite specific QIPs-related arrears patterns — typically missed third or fourth instalments where the year-end position turned out worse than expected.

Very large companies

For very large companies (augmented profits over £20 million in an accounting period), an accelerated QIPs regime applies. CT is paid in four instalments commencing earlier in the accounting period — the first at 2 months and 13 days after the start of the period, with subsequent instalments at three-month intervals. Very large companies pay all CT for the period before the period ends, which substantially increases the cash-flow demands of the QIPs framework.

Filing the CT600

The CT600 corporation tax return must be filed within 12 months of the end of the accounting period — a longer period than the payment date. A company can file the CT600 after the CT is due; conversely, a company can pay the CT before the CT600 is filed.

Late filing of the CT600 attracts its own penalties (separate from late payment penalties): £100 fixed penalty if filed up to 3 months late; a further £100 if more than 3 months late; tax-geared penalties (10% of unpaid CT, then 20% if 18+ months late) where the return is also seriously late. Companies in distress sometimes prioritise CT payment over CT600 filing, which is generally the wrong order — filing the CT600 demonstrates compliance, while late payment alone is a less serious compliance signal.

Profitable trading consumed by other obligations

The most common cause of CT arrears is the disconnect between profit recognition and cash availability. The company traded profitably during the accounting period (so CT is due) but the cash that supported those profits has been used for: paying down debt, making director drawings, funding working capital expansion, paying dividends, investing in fixed assets, or simply absorbing operating costs higher than budgeted.

By the time the CT bill arrives 9 months after year-end, the cash that funded the underlying profits is gone. Companies in this position typically have profitable trading at the management accounts level but limited cash availability — a classic working capital problem rather than a fundamental insolvency issue. TTP is usually the right response, sometimes alongside refinancing or working capital adjustments to prevent recurrence.

Year-end CT bill larger than expected

Some CT arrears reflect surprise at the size of the bill rather than inability to pay any CT. The company may have under-accrued throughout the year, may have made one-off transactions with significant tax consequences, or may have under-estimated the impact of changes (CT rate changes, loss of reliefs, capital allowance treatment) on the final bill.

Where the CT bill is materially larger than expected, the response is usually a combination of partial payment and TTP for the balance — HMRC will typically accept this combination where the company engages and demonstrates the underlying issue was estimation rather than insolvency. Persistent under-estimation across multiple years is a separate issue that warrants accountancy review rather than just CT engagement.

Disputed assessments and contested liabilities

CT is sometimes the subject of HMRC enquiry or dispute. HMRC may have raised an assessment the company disputes; specific transactions may have contested tax treatment; transfer pricing or thin capitalisation positions may be under review. Where the underlying liability is genuinely contested, the CT debt is technically due (HMRC assessments are due unless successfully appealed) but the company has a substantive case to make.

Disputed CT positions should be actively pursued through HMRC's enquiry and appeal process. Continuing to argue the position informally without formal appeal can result in the assessment becoming final while the company assumes it is still being contested. CT disputes are typically more technically complex than VAT or PAYE disputes — specialist tax advice alongside any insolvency input is usually appropriate.

Group relief and intra-group complications

For group structures, CT arrears can arise from intra-group complications: group relief surrender failures, consortium relief breakdowns, transfer pricing adjustments, or simply disagreements between group companies about which entity should bear the tax. Group structures with multiple loss-making and profit-making companies typically have complex tax planning around CT — when that planning fails or assumptions change, the tax position can move materially.

Late payment interest

Interest accrues on unpaid CT at HMRC's published late-payment interest rate from the day after the CT was due. The rate is updated periodically — currently linked to the Bank of England base rate plus a margin — and applies daily on the outstanding balance until payment is made or formal arrangement is agreed.

There is no separate "CT late payment penalty" framework comparable to the new VAT late payment penalty regime or the graduated PAYE penalty system. Late payment of CT attracts only late payment interest, not flat or graduated penalties. This is one of the most consequential differences between CT and the trust taxes — a company that misses CT by 6 months pays interest on the unpaid amount but does not face the cumulative 10–15% penalty exposure that equivalent VAT or PAYE arrears would attract.

Late filing penalties on CT600

Late filing of the CT600 attracts separate penalties:

• £100 fixed penalty if the return is up to 3 months late.
• Additional £100 if more than 3 months late.
• 10% tax-geared penalty on the unpaid CT if the return is 6 to 12 months late.
• Additional 10% tax-geared penalty if the return is more than 12 months late.

The tax-geared penalties are substantial in amount but apply only where filing is severely late. Companies in distress should generally file the CT600 even where payment is impossible — filing protects against the late filing penalties while late payment is dealt with separately through TTP or other arrangements.

No graduated penalty regime for late payment

The absence of a graduated late payment penalty regime for CT is structurally significant. Compare:

• VAT late payment: 2% after 15 days, 4% after 30 days, daily late payment interest from day 31. Cumulative cost on £50,000 over 6 months: approximately £5,000.
• PAYE late payment: graduated penalty rising from 1% to 4% by number of defaults in the tax year, plus 5% at 6 months and 5% at 12 months.
• CT late payment: late payment interest only. No flat or graduated penalty. Cumulative cost on £50,000 over 6 months: approximately £1,500–£2,000 in interest.

This means CT arrears are materially cheaper to carry than VAT or PAYE arrears in absolute terms. Companies juggling tax obligations with limited cash often (correctly) prioritise VAT and PAYE over CT for this reason — the penalty cost of falling behind on CT is substantially lower than on the trust taxes. The strategic implication is that CT arrears alone are typically a manageable position; CT arrears alongside other tax arrears typically reflect deeper distress where the question is no longer about which tax to prioritise but whether continued trading is appropriate.

Stage 1 — Reminders and demands

HMRC issues automated reminders within weeks of the CT due date for unpaid amounts. The reminder identifies the missed payment, the amount due, and the consequences of continued non-payment. CT reminders are typically less aggressive in tone than VAT reminders — reflecting the lower enforcement priority — but the underlying message is similar: pay or engage.

Stage 2 — HMRC Debt Management contact

Where reminders are unsuccessful, the case transfers to HMRC Debt Management. A Debt Management officer is assigned and the company receives correspondence and often phone contact. CT cases at Debt Management stage typically have substantial flexibility on TTP terms — longer arrangements (12–24 months) are commonly agreed where the company's position supports them.

Stage 3 — Field Force visits

Where Debt Management contact does not produce engagement, the case can escalate to HMRC Field Force. CT-specific Field Force activity is materially less common than VAT or PAYE Field Force activity — reflecting the lower enforcement priority. Where Field Force does engage on CT, it is typically because the CT arrears coincide with other issues (parallel tax arrears, pattern of non-engagement, prior failed TTPs) rather than CT in isolation.

Stage 4 — Distraint

HMRC distraint is available as an enforcement remedy for CT arrears. In practice, distraint is less commonly used for CT than for VAT or PAYE — partly because the enforcement priority is lower, partly because CT debtors often have wider business structures that make distraint operationally complex, and partly because HMRC typically prefers the petition route for substantive CT debts where engagement has failed.

Stage 5 — Statutory demand and winding-up petition

HMRC's ultimate enforcement remedy for CT is a Winding Up Petition. The framework is the same as for any HMRC debt: statutory demand for £10,000 or more (post-1 April 2022 threshold), 21-day period, petition to court. CT-driven HMRC petitions are less common than VAT or PAYE petitions but do occur, particularly in cases involving substantial CT amounts (over £50,000) where HMRC has progressed through the earlier stages without engagement.

Where HMRC has petitioned for CT debt, the company is typically eight to twelve weeks from compulsory liquidation. Pre-emption with CVL or administration in this window is materially preferable to allowing the petition to result in compulsory liquidation. CT-driven HMRC petitions almost always reflect underlying insolvency — if the company could pay the CT, it would have done so by the petition stage.

Five factors combine to make CT enforcement structurally lighter than VAT or PAYE enforcement:

• Trust character. CT is the company's own tax; VAT and PAYE involve money collected from third parties on HMRC's behalf. The moral framing is different and HMRC's enforcement priority reflects this.
• Penalty regime. CT carries late payment interest only; VAT carries the new graduated penalty regime; PAYE carries the graduated penalty regime plus the 6-month and 12-month additional penalties.
• Insolvency ranking. CT is unsecured; VAT, PAYE, employee NICs, employer NICs, and CIS rank as secondary preferential. HMRC's recovery prospects on CT in insolvency are weaker, which reduces the rationale for aggressive pre-insolvency enforcement.
• Personal exposure. CT does not trigger the structured personal liability mechanism (PLN) that PAYE does. Director-level enforcement leverage is materially weaker.
• Cycle frequency. CT is annual; VAT is quarterly; PAYE is monthly. HMRC's monitoring intensity reflects the cycle frequency.

The combined effect is that CT distress in isolation is genuinely a less urgent matter than VAT or PAYE distress. This does not mean CT arrears can be ignored — they cannot — but the urgency calibration is different and the strategic options are typically broader. Where directors face CT arrears alone with VAT and PAYE current, the standard response is engagement with HMRC and TTP application, often with longer terms than VAT or PAYE TTP would allow.

Why CT TTP is more flexible than VAT or PAYE TTP

HMRC's approach to CT TTP applications is structurally more flexible than its approach to VAT or PAYE TTP. The same factors that make CT enforcement lighter — trust character, penalty regime, insolvency ranking, personal exposure, cycle frequency — translate into greater willingness to agree CT TTP, longer terms when agreed, and softer conditions on continued performance.

• Standard CT TTP terms are typically 12 months as a baseline; 24 months is commonly available where the financial position supports it; longer arrangements (up to 36 months in exceptional cases) are sometimes agreed.
• HMRC's analysis of CT TTP applications is typically less searching than VAT or PAYE applications — the financial information requirements are similar but the threshold for acceptance is materially lower.
• Conditions on continued performance are typically less onerous — HMRC's expectation is that the company will pay the next year's CT on time, but the level of monitoring is lower than for VAT or PAYE.
• Variation requests during the TTP period are typically agreed more readily where the company is engaging proactively.

Typical CT TTP terms

• Length: 12 to 24 months. Up to 36 months in exceptional cases. Materially longer than VAT (6–12 months) or PAYE (6–12 months) standard terms.
• Coverage: the specific CT arrears identified in the application. The next year's CT is generally not covered, but the longer TTP timeline often spans into the next CT cycle.
• Monthly instalments: equal payments calculated from total arrears divided by agreed period, plus interest accruing during the period.
• Conditions: continued compliance with CT600 filing and continued payment of next year's CT when due. Late filing or non-payment of next year's CT typically triggers immediate review.

The dedicated Time to Pay Arrangement pillar covers the application process generally; this section addresses CT-specific considerations only.

What HMRC looks for in a CT TTP application

• Realistic plan to pay both the arrears and the next CT cycle as it falls due. The cash flow forecast must demonstrate the company can fund both.
• Engagement timing. Pre-emptive engagement (around the CT due date) is treated significantly better than reactive engagement after months of non-payment.
• Compliance history. CT-specific compliance history matters — CT600 filing record and payment history. Patterns of repeated CT default attract tougher conditions but typically still lead to TTP rather than rejection.
• Cause analysis. Honest explanation of why CT was not paid — cash flow timing, larger-than-expected bill, customer payment delays — is treated better than vague accounts.
• Wider HMRC position. Where the company has parallel VAT or PAYE arrears, HMRC will assess the CT TTP in the context of the wider position.

No structured personal liability mechanism

Unlike PAYE (which carries the PLN regime under section 121C SSAA 1992) or VAT (which carries joint and several liability for fraud under Finance Act 2003), corporation tax has no structured mechanism for transferring corporate liability to directors personally. There is no equivalent statutory provision making directors personally liable for unpaid corporate CT in ordinary circumstances.

This absence is a material protection for directors. CT arrears alone do not put directors in the personal-stake-on-the-line position that PAYE or fraud-context VAT arrears do. Directors of companies with CT-only HMRC distress can typically focus on the corporate response without significant director-level exposure considerations.

Wrongful trading where CT arrears reflect insolvency

Wrongful trading under section 214 of the Insolvency Act 1986 applies to CT arrears in the same way it applies to any other corporate liability — directors who continue to trade an insolvent company face personal exposure where they knew or should have known there was no reasonable prospect of avoiding insolvent liquidation.

CT arrears alone are typically weaker evidence of insolvency than VAT or PAYE arrears — the annual cycle and lighter enforcement mean a single missed CT bill is consistent with cash flow timing rather than fundamental insolvency. But persistent CT arrears across multiple years, or CT arrears alongside other indicators of distress, can support a wrongful trading case. The evidential weight of CT arrears in any subsequent wrongful trading inquiry depends on the wider context.

Misfeasance claims and dividend timing

Misfeasance claims under section 212 IA 1986 can arise from CT arrears in specific scenarios: where directors made dividend payments that depleted cash needed for CT payment; where directors took drawings that exceeded the CT-allowable amount in a way that prejudiced the company's ability to pay CT; or where directors made specific decisions that diverted cash earmarked for CT to other purposes.

The classic CT-specific misfeasance scenario involves dividend payments. UK company law requires dividends to be paid out of distributable profits. A company that pays dividends without sufficient distributable profits, or that pays dividends in circumstances where the CT on those profits cannot be paid, exposes directors to misfeasance claims. The practical implication is that directors should be careful about dividend timing in any year where CT payment may be uncertain.

Director loan account interactions

Many owner-managed UK companies have substantial director loan account balances — amounts owed by directors to the company arising from drawings in excess of declared salary or dividends. Director loan accounts have specific tax interactions with corporation tax under the section 455 CTA 2010 regime: where a director loan balance is outstanding 9 months and 1 day after the end of the accounting period (the same date as the CT due date), the company pays a tax charge of 33.75% (post-6 April 2022) of the outstanding balance under section 455. The charge is repayable to the company when the loan is subsequently repaid.

Where a company has both CT arrears and director loan account issues, the position can become complex. The section 455 charge is itself a CT-related obligation; failure to pay it adds to the CT arrears. In subsequent insolvency, the director loan account balance is recoverable from the director by the liquidator — a director who has drawn substantial amounts from the company while CT was unpaid faces personal exposure on the director loan recovery alongside any wrongful trading or misfeasance considerations. See the Director's Loan Account & Section 455 spoke for the full statutory framework, anti-avoidance rules, and insolvency-specific treatment.

CT alongside VAT or PAYE arrears

The most reliable signal that CT arrears reflect insolvency rather than illiquidity is the parallel position on VAT or PAYE. Where the company has clean VAT and PAYE records but CT arrears, the position is typically a working capital problem (the CT cash was used for other operational priorities) and TTP is the appropriate response. Where the company has VAT or PAYE arrears alongside CT, the wider position usually drives the strategic response — the trust taxes are more reliable indicators of distress, and CT alongside them confirms the picture.

Specific patterns to watch for:

• CT arrears with current VAT and PAYE: typically illiquidity, TTP appropriate.
• CT arrears plus one or two months of PAYE arrears: borderline; needs assessment of whether the company is genuinely viable.
• CT arrears plus multiple months of PAYE arrears or multiple quarters of VAT arrears: typically insolvency; formal procedure usually appropriate.
• CT arrears plus active HMRC enforcement on VAT or PAYE (Field Force, security demands, distraint): late-stage distress, urgent professional engagement required.

Persistent CT arrears across multiple years

CT arrears across multiple consecutive years are a separate distress signal independent of the parallel VAT/PAYE position. A company with CT arrears for two or three consecutive years — even with current VAT and PAYE — is typically operating with structural cash flow problems that the company has not addressed. The annual CT cycle gives 9 months of warning; persistent CT default suggests something deeper than timing.

Multi-year CT arrears typically also involve cumulative interest exposure that can be material. A company with three years of unpaid CT each at £80,000, with interest accruing across the period, can easily face £300,000+ of HMRC exposure on CT alone — enough to support a winding-up petition by HMRC and to dominate the creditor body in any subsequent procedure.

Strategic options when CT is the trigger

Where CT distress is the trigger that has brought the company's wider position to attention, the strategic options follow the same framework as any HMRC distress:

• Time to Pay where the company is illiquid but viable. CT TTP is typically more flexible than VAT or PAYE TTP and is the standard first-line response.
• Refinancing where the company has equity or asset value that can be deployed to clear the CT position.
• Company Voluntary Arrangement where the underlying business is viable but legacy debt across multiple creditors is unsustainable. CVA addresses CT alongside other creditor debt over a 3–5 year period; the unsecured CT position means HMRC ranks pro rata with trade creditors rather than preferentially.
• Administration where rescue is needed and the moratorium against creditor enforcement is essential.
• Creditors' Voluntary Liquidation where the underlying business is not viable. CVL closes the company in an orderly way under director control.

Established service businesses

CT distress in established service businesses (consulting, professional services, technology services) typically reflects working capital constraints rather than fundamental viability issues. The business model generates profits but the cash conversion cycle is long; CT arrives 9 months after year-end at a point where the cash that funded those profits has been used for operating costs. CT TTP is typically the right response. These businesses are usually good candidates for longer TTPs (24+ months) because the underlying viability is solid.

Property and investment companies

Property and investment companies often have CT distress reflecting timing mismatches between income recognition and cash receipts — rental income recognised on accruals, capital gains on disposal, or revaluation gains all create CT charges that may not align with cash availability. Property companies often have substantial asset bases that can be refinanced to clear CT, making refinancing a more frequently appropriate response than for trading companies.

Professional practices (incorporated)

Incorporated professional practices (law firms, accountancy practices, medical practices structured as limited companies) often have CT distress reflecting partner-driven dynamics: dividend or salary distributions to partners that have depleted cash needed for CT. Professional practices typically have limited tangible assets and significant work-in-progress — making refinancing more difficult and TTP more important. The professional reputation considerations also mean these businesses are typically motivated to engage proactively with HMRC.

Owner-managed businesses

Owner-managed businesses with director-shareholder structures often have CT distress alongside director loan account issues. The director-shareholder has been drawing from the company in excess of declared salary or dividends; the section 455 charge applies; the underlying CT and section 455 positions combine. These cases require careful unpicking — the right response often involves restructuring the director loan position alongside CT engagement, sometimes with formal procedure if the wider position warrants it.

This pillar sits beneath the HMRC Tax Debt umbrella as the corporation-tax-specialist sub-pillar. It links upward to the umbrella for context, sideways to TTP as the first-line solution, and into corporate procedure pillars where formal procedure becomes appropriate.