If you can't pay corporation tax on time, HMRC will start charging daily interest immediately and may follow up with debt collection action if the bill stays unpaid — but you have options, including a Time to Pay arrangement, before things escalate. The key is to act early rather than wait for HMRC to contact you first.
Corporation tax is due nine months and one day after the end of your company's accounting period, regardless of when you file the return. Missing that payment date is common, especially when cash flow is tight, and it does not automatically mean serious trouble — but how you respond in the following weeks matters.
This guide walks through what happens after the deadline passes, what it costs you, when arrears tip into a wider solvency question, and where a regulated specialist can help.
What happens if you miss the corporation tax deadline
Nothing happens instantly on the day itself, but HMRC's systems flag the account as overdue and interest starts accruing from the next day. Filing your Company Tax Return (CT600) is a separate obligation from paying the bill — you can file on time and still miss payment, or vice versa.
- Interest begins accruing daily from the day after the payment deadline.
- HMRC may send a reminder letter or payment demand if the balance stays outstanding.
- Persistent non-payment can lead to debt collection contact, and eventually formal enforcement.
If you're also behind on other HMRC liabilities such as PAYE or VAT, it's worth reading more broadly about what happens when you owe HMRC and can't pay, since the options and escalation pattern are similar across tax types.
Interest and penalties on unpaid corporation tax
Unlike VAT or PAYE, corporation tax does not carry a late-payment penalty for simply paying late — HMRC's main cost lever is interest, charged daily on the outstanding balance until it's cleared. The rate moves with the Bank of England base rate, so it can rise or fall over time.
Penalties do apply, but they're mostly tied to late filing rather than late payment: missing the Company Tax Return deadline triggers an automatic penalty, which increases the longer the return stays outstanding. If HMRC believes a return understates the tax owed, further penalties for inaccuracy can follow.
For a fuller breakdown of how these charges stack up over time, see our guide to corporation tax late payment penalties.
Can you agree a Time to Pay for corporation tax?
Yes. HMRC can agree a Time to Pay arrangement — an instalment plan that spreads what you owe over an agreed period, usually up to twelve months, sometimes longer depending on the circumstances. This is the most common route for companies with a genuine, temporary cash-flow gap.
To be considered, you'll typically need to show:
- The company can afford the proposed instalments going forward.
- The arrears are a short-term issue, not a sign of ongoing insolvency.
- Other tax obligations (VAT, PAYE) are being kept up to date or included in the plan.
Interest still runs on the outstanding balance during a Time to Pay arrangement, but it stops the debt escalating to formal enforcement while you're compliant with the plan. Our detailed guide to HMRC Time to Pay arrangements covers how to apply and what HMRC expects.
How HMRC escalates corporation tax arrears
If a company doesn't engage, doesn't pay, or defaults on an agreed plan, HMRC has a structured escalation path. It doesn't usually move straight to the most serious step.
- Reminders and demands — automated then manual contact asking for payment or proposals.
- Debt collection agency referral — HMRC sometimes outsources collection at this stage.
- Distraint or County Court action — HMRC can take control of goods or pursue a judgment.
- Statutory demand — a formal written demand for payment within 21 days, often a precursor to insolvency proceedings.
- Winding-up petition — if the debt remains unpaid, HMRC (as a creditor) can petition the court to wind up the company, with the petition later advertised in The Gazette.
Each stage gives you a further opportunity to engage, pay, or agree terms — escalation is rarely instant, but it does move faster the longer a company stays unresponsive.
When corporation tax arrears mean the company is insolvent
Owing corporation tax you can't currently pay isn't automatically insolvency. But it can be a signal worth taking seriously, particularly where:
- The company can't pay its debts as they fall due, including trade creditors, not just HMRC.
- Liabilities exceed assets on a fair valuation (balance-sheet insolvency).
- Arrears keep growing month on month with no realistic route to clear them.
Under the Insolvency Act 1986, directors have specific duties once a company is, or is likely to become, insolvent — including a duty to consider creditors' interests. Recognising the signs early gives you more options, including restructuring or a formal insolvency process, rather than fewer.
Your options and where advice fits
What makes sense depends on whether the arrears are a temporary blip or part of a wider pattern. Broadly, the options directors consider are:
- Time to Pay — spread the corporation tax bill if the underlying business is sound.
- Wider restructuring advice — if HMRC arrears sit alongside other debts, a broader review of the company's position may be needed.
- Formal insolvency options — where the company genuinely can't recover, a regulated insolvency practitioner can explain routes such as administration, company voluntary arrangements, or liquidation.
Harbourfirst is an introducer, not an advisor — we don't give insolvency or legal advice, and we don't act for you. What we do is connect directors with regulated insolvency practitioners and solicitors who can assess your specific figures and explain which route fits.
Frequently asked questions
Can I set up a payment plan for corporation tax?
Yes, HMRC can agree a Time to Pay arrangement to spread corporation tax arrears in instalments, usually over up to twelve months, provided the company can demonstrate it can afford the payments.
Do I still need to file my tax return if I can't pay?
Yes. Filing and paying are separate obligations. You should still file your Company Tax Return by the deadline even if you can't pay the bill, to avoid a separate late-filing penalty on top of the interest already accruing.
What interest rate does HMRC charge on unpaid corporation tax?
HMRC charges daily interest linked to the Bank of England base rate, applied from the day after the payment deadline until the balance is cleared. The exact rate changes periodically, so it's worth checking current figures on gov.uk.
Will HMRC take enforcement action straight away?
No. HMRC typically starts with reminders and payment demands, and only moves to enforcement — such as distraint, court action, or a winding-up petition — if the debt stays unpaid and unresolved over time.
Does unpaid corporation tax mean my company is insolvent?
Not necessarily. Arrears alone don't equal insolvency, but they can be a warning sign, especially if the company can't pay other debts as they fall due or liabilities exceed assets.
This article is general information, not legal, financial or insolvency advice, and your circumstances may differ. If you'd like to talk it through, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry.