Corporation Tax is tax on the taxable profits of a business; and as such is only due if a company is profitable. However, being profitable does not mean the business is cash positive which is why corporation tax debts can become a problem.
Corporation tax is payable 9 months after the end of a financial year. 9 months is a long time in a company’s history and the business may well have hit hard times and the ability to pay corporation tax on time or at all might be severely constrained.
It is very common for SMEs to experience corporation tax payment difficulties as the bill comes as an additional expense in one month.
What is the correct way to deal with this problem?
It is important to contact the HMRC right away if you expect to be unable to pay your corporation tax on time.
This situation will immediately require you to provide some information to the HMRC and open up some options. However, this particular debt will lie alongside all other debts and you will find it helpful to talk this over with one of our advisers.
This article assumes this is the first time this particular problem has arisen. If you have already had problems you will already have contacts and processes in place with the HMRC.
The HMRC will want to understand why you cannot pay in full and on time; they will also want to understand what steps you have taken to resolve this problem and why they have proved unsuccessful.
They will want to know what you can pay now and how you will repay the rest.
The HMRC can extend the payment period and will want to do this after an assessment of your particular case details. This may involve supplying additional information in order for them to make an agreement.
The HMRC will want to make you pay future payments by direct debit as this puts them in control and they can find out early if any repayment is not going to be successful.
However, you need to see this in your full context of cash requirements which is why you should seek advice – maximising the repayment period and terms from HMRC will be a part of your overall plan to resolve your financial difficulties and whilst HMRC will want to only consider their position you need to consider the whole picture.
With the help of advice and depth of experience of cases like yours you are more likely to get the best result in terms of time to pay. The key thing to recognise is that this is a very common problem and professional help is available.