Key takeaways

• Interest starts immediately:
  Bank of England base rate plus 2.5% from the day after the deadline
• There are no automatic fixed penalties for late payment:
  But filing your CT600 late does attract fixed fines
• HMRC can escalate to enforcement action:
  Including winding up proceedings for serious non-payment
• Time to Pay is not a general instalment option:
  It is for businesses in genuine financial difficulty and involves HMRC scrutiny
• A corporation tax loan is usually the cleaner route:
  Pays HMRC in full on time with no HMRC involvement in your cash flow situation

Corporation tax is one of the few business obligations where the deadline is fixed, the amount is known well in advance, and there is limited flexibility from HMRC when payment is missed. Yet for many scaffolding and construction companies, an annual lump-sum bill arriving at the wrong point in the cash flow cycle can put genuine pressure on the business, even when trading is strong.

This guide explains exactly what happens when a limited company cannot pay its corporation tax: the HMRC consequences, how the situation escalates if left unaddressed, and the practical options available before, during and after a missed payment.

When is corporation tax due?

Quick answer
Corporation tax must be paid 9 months and 1 day after the end of your company’s accounting period. This is earlier than the deadline to file your CT600 Company Tax Return, which is 12 months after the period end. Many directors do not realise payment is due three months before filing.

Understanding this timing is important because the consequences of missing the payment deadline and the consequences of missing the filing deadline are different. You can owe interest on late payment while still filing on time, or owe fixed filing penalties while having already paid the tax. The two obligations are separate.

What HMRC does when corporation tax is paid late

Interest starts immediately

Quick answer
HMRC charges interest from the day after the payment was due with no grace period. Interest accrues daily at the Bank of England base rate plus 2.5% (approximately 6.5% annually at current rates) until the full balance is paid.

Unlike some commercial lending where interest might be charged monthly or on a fixed date, HMRC’s interest accrues every day on the unpaid balance. This means the cost grows continuously from the moment the deadline passes, not in discrete steps. The longer payment is delayed, the higher the total interest cost.

For the current late payment interest rate, see HMRC interest rates for late payment at gov.uk.

No automatic fixed penalty for late payment

Unlike VAT, where a penalty points system applies to late returns, there is no automatic fixed penalty purely for paying corporation tax late. The financial consequence is the daily interest charge, which can accumulate significantly over time but does not start as a lump-sum fine.

This distinction matters: businesses that miss the payment deadline but are not significantly in arrears do not face an immediate large penalty. However, the interest cost is real and grows continuously, and the absence of a headline penalty can create a false sense that the situation is not urgent.

CT600 filing penalties

The deadline to file your Company Tax Return (CT600) is 12 months after the end of your accounting period, three months after the payment deadline. Late filing attracts fixed penalties regardless of whether the tax has been paid:

• £100 if filed up to 3 months late
• £200 if filed more than 3 months late
• Additional 10% of unpaid tax if filed 6 months late
• Further 10% of unpaid tax if filed 12 months late

These penalties compound with the payment interest, and the tax-based penalties (at 6 and 12 months) can be substantial for businesses with significant tax liabilities.

HMRC enforcement escalation

If corporation tax remains unpaid and HMRC receives no satisfactory response from the business, the situation escalates through a series of stages:

1. Initial payment reminders and notices
2. Formal demand for payment
3. Referral to HMRC’s Debt Management and Banking team
4. Instruction of enforcement agents to collect the debt
5. County Court Judgment (CCJ) or winding up petition in serious cases

Important
A winding up petition from HMRC for unpaid corporation tax is a genuine enforcement tool, not just a threat. It can affect the company’s credit profile and its ability to raise finance. HMRC does pursue this route for businesses with large, persistent unpaid balances, and receiving a winding up petition is a serious matter that requires immediate professional advice.

Time to Pay arrangements: when HMRC does help

Quick answer
HMRC’s Time to Pay (TTP) arrangement allows businesses in genuine financial difficulty to pay tax in instalments. It is not a standard option for routine cash flow management. HMRC still charges interest on the outstanding balance, and agreeing a TTP involves HMRC scrutinising your finances.

A Time to Pay arrangement is negotiated directly with HMRC and involves a detailed discussion of the business’s financial position. HMRC will want to understand why payment cannot be made, what the business’s prospects are, and how it proposes to repay the outstanding amount. This process takes time and puts your tax affairs under closer HMRC attention.

• TTP is for financial distress:
  Designed for businesses that genuinely cannot pay, not for businesses that would prefer to spread the cost.
• Interest still applies:
  HMRC charges interest on the outstanding balance even under a TTP arrangement. A TTP does not freeze the interest clock.
• Compliance record matters:
  HMRC considers your filing and payment history when deciding whether to agree. Persistent late payment makes a TTP less likely to be approved.
• HMRC scrutiny:
  Agreeing a TTP puts your tax affairs under closer HMRC attention, which is a different risk profile from a commercial loan.

To contact HMRC about a payment difficulty, see what to do if you cannot pay your tax bill at gov.uk.

What to do if you are approaching or have missed a deadline

Act immediately: even a few days helps

The earlier you address a cash flow shortfall relative to the deadline, the more options you have and the lower the total cost. Applying for a corporation tax loan a week before the deadline is straightforward. Even post-deadline, a loan stops the interest clock and resolves the debt. The key is not to leave it.

Talk to your accountant

Your accountant can confirm the exact amount and deadline, check whether the CT600 is on track to be filed on time, and advise whether a TTP or a commercial loan is more appropriate for your specific situation. They can also estimate whether you are likely to owe more or less than the figure you have been working from, which matters if the loan amount needs to be confirmed.

Do not simply not pay

The worst outcome is missing the deadline without any action. Interest begins immediately and continues to compound. Even a partial payment while the remainder is being arranged reduces the balance on which interest accrues. If you cannot pay the full amount, paying what you can and arranging finance for the balance is significantly better than paying nothing.