An important part of running a business is ensuring that your company keeps up to date with its taxes. UK companies need to pay a range of taxes, from Corporation Tax on profits to Value Added Tax (VAT) on products and services sold.

Failing to pay your company’s taxes can have a range of consequences. Should your company fall behind on its taxes, it faces the possibility of action from HMRC, including the possibility of a winding up petition being issued.

In this blog post, we’ll explain the taxes your company will need to pay and look at what happens if your company fails to pay its Corporation Tax, VAT, PAYE and other taxes on time. Before we get into that, let’s talk about Making Tax Digital…

How Making Tax Digital helps you to pay your taxes on time

Making Tax Digital (MTD) came into practice for businesses above the VAT threshold in 2019. Its purpose is to help make it easier for individuals and businesses to get their tax right and keep on top of affairs i.e., paying what’s due on time.

Rather than keeping paper records and submitting VAT or personal tax returns manually to HMRC, digitalising the process offers a more integrated approach to your tax admin. It can reduce the opportunity for manual data entry errors to occur and reduce the amount of time you spend on this area of your business. Knowing exactly what your tax liabilities are and when they fall due can help you manage your tax repayments.

From April 2026, Making Tax Digital for Income Tax comes into place for the self-employed and landlords with annual business or property income of more than £50,000 (based on 2024/25 earnings).

Does your company need to register for VAT?

Most UK businesses are required to pay Value Added Tax (commonly known as VAT) on the products and services they sell. Almost all goods and services sold in the UK are subject to VAT, although there are some exceptions.

Items such as books and newspapers aren’t subject to VAT. Nor are some children’s products such as clothing and shoes. Motorcycle helmets are also subject to a zero-rate VAT, meaning that the rate your business charges to customers is 0%.

You can learn more about the different rates of VAT at Gov.uk. If your company has more than £90,000 in annual income from sources subject to VAT, it must register with the government for VAT.

What happens if you don’t pay VAT on time?

As your company conducts business, it will need to make VAT payments to HMRC on a regular basis. If you keep up to date with your VAT payments, you’ll never need to pay more than the base amount of VAT that your company’s sales are subject to.

Fall behind on your VAT payments, however, and you could face a number of fines and penalties. In January 2023, default surcharges were replaced by a new penalty system for submitting VAT returns late or late payment of VAT.

For late submission of a VAT return late, you’ll receive a penalty point until you reach the penalty point threshold. When you reach the threshold, you’ll receive a £200 penalty. You can check the amount of penalty points you’d receive here.

For late payment of a VAT return, late payment penalties and late payment interest (LPI) apply. Although no late penalty is applied if you pay your VAT bill within 0-15 days of the payment due date, late payment interest will be charged on tax outstanding after the due date. LPI is calculated as simple interest at a rate of 4% above the Bank of England base rate.

What happens if you don’t pay PAYE on time?

When your company pays its employees, it needs to deduct income tax and National Insurance (commonly referred to as NI) from their salary. Your company then needs to pay this – known as PAYE, or Pay As You Earn – to HM Revenue and Customs.

PAYE payments are made to HMRC on a monthly basis, letting your company easily calculate how much of its employee salaries are paid to the government and keep its books up to date.

Just like your company faces the possibility of being penalised if it falls behind on its VAT payments, you can be charged a penalty and interest on the income tax your company owes to HMRC.

Your company’s first failure to pay PAYE on time won’t count as a default, but any of its subsequent payments will. HMRC charges a percentage-based penalty calculated by how many times your company defaults on its PAYE payments in any tax year.

You can view a table of PAYE penalties online. If your company only pays back some of its overdue PAYE, it could also face additional penalties that further increase the cost of paying income tax and national insurance contributions behind schedule.

If your company receives a PAYE late payment penalty, you have several options to pay HMRC and clear its balance.

Receiving an Accelerated Payment Notice (APN)

It’s come to light that a growing number of UK-based companies have engaged in off-shore tax avoidance schemes that reduced the amount of Corporation Tax they needed to pay to HMRC.

If your company has used an off-shore tax avoidance scheme in the past, it could be issued with an Accelerated Payment Notice – a notice requiring that you pay HMRC for unpaid Corporation Tax or face the possibility of liquidation if you are unable to settle the liability.

HMRC can be extremely aggressive in targeting businesses that fall behind on their tax payments. In some cases, businesses with serious HMRC arrears have faced the possibility of their assets being seized in order to recover funds owed to HMRC.

If your company receives a warning letter regarding unpaid taxes, it’s important to take action immediately. HMRC warnings often provide little time to look over your company’s financial situation, making immediate action necessary.

Successfully repaying HMRC tax arrears

While HMRC can be very aggressive in recovering money that its owed, it ultimately wants to achieve the ideal solution for the government and for your business. After all, your continued business means a continued source of revenue for HMRC.

Because of this, many HMRC arrears can be solved using a solution known as a Time To Pay (TTP) arrangement. If your company is severely strapped for cash, a Time To Pay arrangement lets it repay its tax arrears to HMRC over a period of time.

TTP arrangements generally last for six to 12 months, giving your company enough time to review its finances and make the changes required to raise cash to pay back unpaid VAT, PAYE and other taxes.

Does your business have overdue VAT, PAYE or other taxes?

If your company has fallen behind on its tax payments, it’s important that you take action now to avoid coming under pressure from HMRC. Failing to pay your taxes can result in financial penalties and the possibility of litigation.

We’ve helped many UK companies pay back late taxes and clear their HMRC arrears without facing court action. Call the team on 0808 196 8676 and we can discuss the options which might be available to you.

If you’re in arrears with any other creditor(s) we can help with that too. It’s important that you face these obstacles rather than hope that they will go away. You could be putting your business into further problems.