The short answer
If your company cannot pay its corporation tax, contact HMRC early to ask about a Time to Pay arrangement spreading the debt over an affordable period. Unpaid corporation tax accrues interest and, if ignored, can lead to enforcement action. Note that corporation tax is an unsecured debt — unlike VAT, PAYE and employee NICs, it is not one of the taxes for which HMRC gained secondary preferential status in December 2020.
Corporation tax becomes payable nine months and one day after the end of your accounting period, and a cash-flow gap at that point is common. HMRC’s preference is to agree a realistic payment plan with a viable company rather than push it into insolvency. This guide sets out your options, the consequences of inaction, and how corporation tax ranks if the company cannot be saved.
Unpaid corporation tax at a glance
- Due date 9 months and 1 day after the accounting period
- First option Time to Pay arrangement with HMRC
- If unpaid Interest accrues; enforcement can follow
- Ranking in insolvency Unsecured (not preferential)
- Contrast VAT and PAYE are secondary preferential
- Key advice Engage with HMRC early
When corporation tax falls due
For most companies, corporation tax is due nine months and one day after the end of the accounting period, with the return (CT600) filed within twelve months. Larger companies pay in quarterly instalments. If the cash is not there when the bill lands, the worst response is to ignore it — interest runs and HMRC’s patience shortens the longer it waits to hear from you. Because the payment deadline comes before the filing deadline, many companies know what they will owe well in advance; using that lead time to plan, and to approach HMRC early if there is a shortfall, makes a Time to Pay arrangement far more likely.
Time to Pay — your first option
HMRC may agree a Time to Pay (TTP) arrangement, letting the company clear corporation tax over an affordable schedule. To improve your chances:
- Contact HMRC as early as possible — ideally before the due date.
- Have your figures ready: what you can pay now, and how you will clear the rest.
- Stay current on other taxes — a new default can collapse the arrangement.
- Treat TTP as a bridge over a temporary gap, not a fix for ongoing insolvency.
HMRC agrees Time to Pay arrangements at its discretion, and there is no automatic right to one. It is more likely to say yes where the company has a good compliance history, the difficulty is genuinely temporary, and the proposed schedule is realistic and short. It is far less likely where the company has broken a previous arrangement or is simply insolvent. Be honest in your proposal: an over-optimistic plan that collapses leaves you worse off than a modest one you can actually keep to.
Interest and enforcement
Unpaid corporation tax attracts interest from the due date until it is paid. If the debt is left unaddressed, HMRC can escalate to enforcement — reminders and demands first, then debt-collection activity, taking control of goods, county court action, and ultimately a winding-up petition for persistent non-payment, just as with other tax debts. HMRC does not usually jump straight to a petition, but it will get there if it is ignored, and a petition that is advertised can cause your bank to freeze the company’s account — often the point at which trading becomes impossible. See HMRC winding-up petition for how that process works and winding-up petition for the wider procedure.
Where corporation tax ranks if the company fails
This is a key distinction. Since 1 December 2020, HMRC became a secondary preferential creditor — but only for taxes the company collects on its behalf: VAT, PAYE, employee National Insurance contributions and CIS deductions. Corporation tax is not on that list. It remains an ordinary unsecured debt, ranking alongside trade creditors.
| Tax | Ranking in insolvency |
|---|---|
| VAT | Secondary preferential (since Dec 2020) |
| PAYE and employee NICs | Secondary preferential (since Dec 2020) |
| CIS deductions | Secondary preferential (since Dec 2020) |
| Corporation tax | Ordinary unsecured |
This distinction matters in practice. Because corporation tax ranks alongside trade suppliers as an ordinary unsecured debt, it is paid only after fixed-charge creditors, the costs of the liquidation, preferential creditors (including employees and the “collected” taxes above), the prescribed part and floating-charge creditors. In an insolvent company there is frequently nothing left by the time the unsecured tier is reached, which is why HMRC fought to make VAT and PAYE preferential — and why corporation tax, left out of that change, often goes substantially unpaid in a liquidation.
If the company cannot recover
If corporation tax is one of several debts the company simply cannot service, the responsible step is to seek advice from a licensed insolvency practitioner about an orderly closure such as a creditors’ voluntary liquidation, rather than trading on and increasing creditor losses. Continuing to trade while insolvent can expose directors to personal liability — see director personal liability.
Struggling with a corporation tax bill?
A licensed insolvency practitioner can help you weigh Time to Pay against a formal route and approach HMRC constructively. A short, confidential call clarifies your options.
Frequently asked questions
Can I pay corporation tax in instalments?
Possibly, through a Time to Pay arrangement with HMRC if the company is viable and you make contact early. You will normally need to keep current on your other tax obligations while clearing the arrears.
Is corporation tax a preferential debt in liquidation?
No. Corporation tax is an ordinary unsecured debt. Only VAT, PAYE, employee NICs and CIS deductions gained HMRC secondary preferential status in December 2020 — corporation tax was not included.
What happens if I just don’t pay?
Interest accrues from the due date and HMRC can take enforcement action, escalating through debt collection and court action to a winding-up petition for persistent non-payment. Engaging early avoids most of this.
Are directors personally liable for corporation tax?
Generally no — it is a company debt. But personal liability can arise in specific situations, such as certain HMRC penalties, or where wrongful trading or a personal guarantee is involved. Take advice if you are concerned.
Sources & further reading
- HMRC — If you cannot pay your tax bill on time (Time to Pay)
- GOV.UK — Corporation Tax: pay your bill and deadlines
- HMRC — protecting HMRC in insolvency (secondary preferential status)
- The Insolvency Service — guidance for company directors
This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.