What Are the Penalties for Late Corporation Tax Payment

Corporation Tax deadlines often catch companies off guard because they do not follow the same timetable as the company’s accounts filing deadlines with Companies House. The tax is usually due before the accounts are even filed, which creates confusion for first time company owners. Understanding the consequences of late payment helps you stay ahead of the deadlines and avoid unnecessary costs.

When Corporation Tax Is Due

Corporation Tax is normally due nine months and one day after the end of your company’s accounting period. For example, if your year end is 31 March, your Corporation Tax must be paid by 1 January of the following year. There is no flexibility built into this date. HMRC expects the money to be paid on time even if your accounts are not yet finalised.

In my opinion this is one of the biggest misunderstandings for new companies. Filing deadlines and payment deadlines are not the same. You can submit your Company Tax Return later, but you must pay on time.

What Happens the Day Your Payment Is Late

If your Corporation Tax payment is late by even one day, HMRC starts charging daily interest. This interest is not a penalty in the traditional sense, but it is an additional cost that keeps increasing until the tax is paid. The rate changes periodically, but HMRC usually sets it several percentage points above the Bank of England base rate, making it far more expensive than most commercial borrowing.

The interest keeps running until the full amount is paid. HMRC does not negotiate on interest and does not cancel it, even for genuine mistakes. From their perspective the tax was owed, it was paid late and the company gained a cashflow advantage, so interest is automatically applied.

How Formal Penalties Apply

Although interest begins immediately, formal penalties are applied only in particular situations. HMRC will issue penalties if you file your Company Tax Return late, but not for a late payment alone. The payment itself attracts interest, while the return attracts penalties.

However if payment is significantly overdue, HMRC may treat it as a compliance failure. That usually leads to:

• payment demands

• penalty notices for the late return if that is also outstanding

• debt collection action

• penalties for failure to keep adequate records if issues persist

If the return is filed late, HMRC issues fixed penalties which escalate the longer the delay continues. A late payment almost always goes hand in hand with a late return, which is why companies often feel the financial pressure of both.

In my opinion this distinction is rarely explained clearly. People often say there are penalties for late payment, but the real cost is daily interest and the knock-on effect of filing penalties if the return is also late.

How HMRC Enforces Non-Payment

If the tax remains unpaid for a longer period, HMRC becomes more assertive. They may write to you, call you or issue a formal notice demanding payment. If the amount is still not settled, they can instruct debt collection agencies, ask your bank for information, or in severe cases take legal action against the company.

Company directors are not personally liable for Corporation Tax, but persistent non-payment can raise concerns about whether the company is being run responsibly. If the company becomes insolvent, unpaid Corporation Tax can become part of the insolvency process.

How Interest Is Calculated

Interest is calculated daily on the amount owed. There is no minimum charge and no cap. If a company owes £10,000 and pays one month late, interest builds up every day until the balance is cleared.

The interest rate changes with HMRC policy, but it is always higher than the interest HMRC pays you if they owe you a refund. The system is designed this way to discourage late payment. From a practical point of view, the interest is an allowable business expense, but that rarely offsets the cost of paying late.

In my opinion companies underestimate the impact of daily interest. It does not feel severe at first, but if payment is delayed by weeks or months, the cost grows quickly.

Can You Appeal Late Payment Interest

Unlike penalties, interest cannot usually be appealed. HMRC only cancels interest in extremely rare situations such as:

• a proven HMRC banking failure

• incorrect information provided directly by HMRC about your due date

• system errors on HMRC’s side

If the mistake is on the company’s side, even if reasonable, the interest still applies.

In my opinion this is why companies must treat the Corporation Tax payment date with absolute seriousness. There is almost no flexibility once the deadline passes.

What If You Cannot Pay on Time

If your company knows it cannot pay on time, the best approach is to contact HMRC before the payment deadline. HMRC may agree to a Time to Pay arrangement which spreads the cost over instalments. Interest still applies, but HMRC is far more cooperative when the company contacts them early rather than after the deadline passes.

If you ignore the problem, HMRC is far stricter. They may refuse payment plans, escalate debt collection and apply pressure until the balance is paid.

In my opinion early communication is almost always the difference between a manageable outcome and unnecessary stress.

Why Companies Miss the Deadline

The most common reasons are:

• misunderstanding the nine months and one day rule

• waiting for the accountant to finalise accounts

• assuming the deadline matches the filing deadline

• cashflow issues

• forgetting to register for Corporation Tax on time

• incorrect use of Government Gateway services

Most of these problems are easily avoided with early planning. Many businesses set aside estimated Corporation Tax throughout the year to avoid a sudden bill. That simple habit prevents late payment interest and protects cashflow.

Conclusion

The penalties for late Corporation Tax payment take the form of daily interest, rather than fixed fines. The cost grows the longer the payment remains overdue and HMRC enforces non-payment through increasingly firm action. Filing the return late attracts its own penalties, which often occur alongside late payment.

In my opinion the easiest way to avoid issues is to treat the Corporation Tax deadline as a priority long before the year end. Set aside funds, understand your due date and speak to HMRC early if cashflow becomes tight. With a little planning, late payment penalties can be avoided entirely.