Corporation Tax does not simply disappear when a company enters liquidation. Instead, there is an important distinction between tax relating to the period before liquidation and Corporation Tax that may arise while the company is being wound up.
For directors, this means an unpaid Corporation Tax bill can form part of the company’s insolvency, while the liquidator may still need to deal with tax returns, accounting periods and taxable transactions after appointment. You do not normally need to clear the company’s Corporation Tax debt before discussing a Creditors’ Voluntary Liquidation.
Company owes Corporation Tax it cannot afford to pay?
You don’t necessarily need to clear the Corporation Tax bill before discussing liquidation. We can review the company’s HMRC debts, wider liabilities and trading position and explain whether a CVL is appropriate.
What Happens to Corporation Tax When a Company Enters Liquidation?
Corporation Tax can arise both before and during liquidation, but the two amounts are treated differently.
Tax relating to the period before insolvency forms part of HMRC’s claim against the company. Once the insolvency practitioner has been appointed, Corporation Tax arising on matters such as chargeable gains or interest earned by the estate can instead be treated as an expense of the insolvency.
That distinction matters because an insolvent company can have an existing Corporation Tax debt while also generating a separate tax liability during the process of realising its assets.
Corporation Tax Before and During Liquidation
| Before liquidation | During liquidation | |
|---|---|---|
| Existing tax debt | Forms part of HMRC’s insolvency claim | New Corporation Tax may arise separately |
| Accounting period | Ends immediately before winding up begins | A new accounting period starts when winding up begins |
| Typical source | Trading profits before liquidation | Chargeable gains, interest or other taxable income |
| Who deals with it? | Position passed to the liquidator | Liquidator deals with tax arising during the winding up |
| How is it treated? | Pre-insolvency creditor claim | May be an expense of the liquidation |
Do You Have to Pay Corporation Tax Before a CVL?
Not necessarily. A limited company may enter liquidation precisely because it cannot pay debts such as Corporation Tax. If the company is insolvent and there is no realistic way to catch up, the unpaid tax can form part of HMRC’s claim in the liquidation alongside other company debts.
That is different from a business which is fundamentally viable but has temporarily fallen behind. In those circumstances, there may still be ways of dealing with Corporation Tax arrears before formal insolvency becomes necessary.
The wider financial position is therefore important. A company struggling with Corporation Tax, VAT, PAYE, suppliers and borrowing may need a different solution from one experiencing a short-term tax payment problem.
Where HMRC debt has become part of a broader inability to pay creditors, the options for closing a limited company with HMRC debts may need to be considered.
Liquidation does not end the company's tax obligations overnight
Entering liquidation changes how Corporation Tax is dealt with, but it does not mean outstanding returns, records or tax liabilities can simply be ignored.
The liquidator needs enough information to establish the company's pre-liquidation tax position and deal with any Corporation Tax arising while the company is being wound up.
Keep accounting records, previous CT600 returns, HMRC correspondence and the company's Unique Taxpayer Reference available.
What Happens to the Corporation Tax Accounting Period?
Liquidation creates an important break in the company’s Corporation Tax accounting periods. Under section 12 of the Corporation Tax Act 2009, the existing accounting period ends immediately before winding up starts. A new accounting period then begins when the winding up starts. Subsequent accounting periods normally last for 12 months, or end sooner if the liquidation is completed.
For a voluntary winding up, the legislation treats the winding up as starting when the company passes the resolution to wind up.
For example, imagine a company normally prepares its accounts to 31 December but its shareholders pass a winding-up resolution on 15 October. The existing Corporation Tax accounting period ends immediately before the winding up begins, with a new liquidation accounting period starting from that point.
That does not mean directors need to calculate the new periods themselves before seeking advice. It does mean the company’s accountant and insolvency practitioner need access to accurate financial information.
What Happens to Outstanding CT600 Returns?
Outstanding Company Tax Returns can still need attention after liquidation begins. The liquidator will review the company’s Corporation Tax position, identify which returns are required and deal with the relevant filings. HMRC may require a full CT600 where there is a risk of tax being lost, although it can agree the tax position using management accounts in appropriate cases.
Directors can make that process considerably easier by preserving:
- previous CT600 returns
- management and statutory accounts
- Corporation Tax calculations
- the company’s UTR
- HMRC statements and correspondence
- details of anything still awaiting submission
- access to records held by the company’s accountant
An overdue return does not mean directors should postpone an insolvency discussion indefinitely. The same principle applies to overdue company accounts before liquidation: incomplete filings and missing underlying records are not the same thing.
If the company is insolvent, tell the insolvency practitioner what remains outstanding and make the available records accessible.
Can Corporation Tax Still Arise After the Company Stops Trading?
Yes. Ceasing normal trading does not necessarily mean the company will never incur another Corporation Tax liability. During liquidation, taxable amounts can arise from matters such as:
- chargeable gains on the disposal of assets
- investment income
- interest received
- taxable trading income if limited trading continues
- other taxable receipts arising during the winding up
A company being wound up remains subject to Corporation Tax filing and payment requirements for taxable profits arising during that period. Asset disposals can also produce chargeable gains. This is one of the reasons the tax position can continue after day-to-day business activity has stopped.
What Happens if the Liquidator Sells Company Assets?
Company assets may need to be realised to generate money for the liquidation estate. If property, machinery, vehicles or other assets are sold and the disposal creates a chargeable gain, Corporation Tax can arise from that gain. Tax on capital gains realised by the insolvency practitioner is treated as an expense of the insolvency.
This tax treatment sits alongside the practical process of identifying ownership, obtaining valuations and arranging sales. Our separate guidance explains what happens to company vehicles and equipment in liquidation.
A company can therefore have both:
- an old Corporation Tax balance from trading before insolvency; and
- a new Corporation Tax liability resulting from something the liquidator does after appointment.
They are not treated as the same type of claim.
Can Trading Losses Reduce the Corporation Tax Position?
Potentially. Where a business made taxable profits in earlier periods but suffered losses towards the end of trading, terminal loss relief may affect the final Corporation Tax position.
HMRC’s current insolvency guidance allows qualifying trading losses from the final 12 months of trading to be carried back against profits from the previous three years, subject to the normal conditions. Claims generally need to be made within two years of the end of the period in which the loss arose.
That doesn’t mean every insolvent company will be due a repayment or reduction. The company’s trading history, dates, previous profits and nature of the losses all matter. The liquidator and the company’s tax advisers may therefore need to consider whether relief is available when establishing the final Corporation Tax position.
Where Does Corporation Tax Rank Among Creditors?
HMRC is a preferential creditor for certain taxes, but not every HMRC debt receives preferential status. VAT and certain amounts deducted from employees or other taxpayers, including PAYE Income Tax and employee National Insurance contributions, can rank as secondary preferential debts.
Corporation Tax is specifically excluded from that category. Pre-insolvency Corporation Tax is therefore normally treated as a non-preferential HMRC claim rather than receiving the same priority as VAT or qualifying PAYE deductions.
That distinction can affect the amount ultimately available to HMRC where the company has limited assets. Our guide explaining who gets paid first in liquidation looks at the wider order in which creditor claims are dealt with.
Can’t pay HMRC or other creditors?
An unpaid Corporation Tax bill may be one part of a wider insolvency problem. We can review the company’s HMRC debts, assets, cash flow and other liabilities and explain whether continued trading, restructuring or a CVL is realistic.
Does a Director Have to Personally Pay the Corporation Tax Debt?
Usually, no. A limited company’s Corporation Tax liability is a company debt. Directors do not normally become personally responsible simply because the company cannot afford to pay it. Corporation Tax is specifically listed among debts that can belong to the company rather than the individual director.
There are, however, exceptions. Personal liability can potentially arise in particular circumstances, including certain cases involving wrongdoing or HMRC joint and several liability notices. These powers can apply in situations involving tax avoidance or evasion, repeated insolvency and non-payment, or facilitating avoidance or evasion.
For most directors considering a normal CVL, though, an unpaid Corporation Tax bill does not automatically transfer into their own name. The wider implications for directors when closing a company with debt depend on the company’s circumstances and the director’s conduct before insolvency.
What Should Directors Prepare Before a CVL?
A complete tax position is not required before you first speak to an insolvency practitioner, but good records can make the liquidation much easier to deal with.
Find the company's UTR
Keep the company's Unique Taxpayer Reference available. The liquidator may need it when dealing with HMRC.
Gather recent CT600 returns
Provide copies of submitted Company Tax Returns and supporting calculations where available.
Identify anything outstanding
Tell the insolvency practitioner if a CT600 or other tax filing has not yet been completed.
Keep HMRC correspondence
Retain statements, demands, penalty notices and other Corporation Tax correspondence.
Preserve the accounting records
Do not dispose of bookkeeping data, bank records or accounting information simply because the company is closing.
Flag recent or planned asset sales
Sales of property, vehicles, machinery or other assets can affect the Corporation Tax position.
Make accountant-held records accessible
If an external accountant holds key information, give the insolvency practitioner their details and explain what records they have.
Does your company have Corporation Tax it can’t pay?
Tell us a little about the company’s debts, trading position and creditor pressure. Anderson Brookes can help you understand whether liquidation or another option is appropriate.
Corporation Tax and Liquidation FAQs
Does Corporation Tax disappear when a company goes into liquidation?
No. Corporation Tax relating to the period before insolvency forms part of HMRC’s claim in the liquidation. Corporation Tax can also arise separately during the winding up.
Do I need to pay Corporation Tax before putting my company into liquidation?
Not necessarily. If the company is insolvent and cannot afford the bill, unpaid Corporation Tax can form part of the liquidation rather than having to be cleared first.
Do outstanding CT600 returns still need dealing with?
Yes. The liquidator will establish which returns are required and deal with the company’s Corporation Tax position using the available accounting information.
Does a new Corporation Tax accounting period start in liquidation?
Yes. The previous accounting period ends immediately before winding up begins, and a new one starts when the winding up begins. Liquidation accounting periods then normally run for up to 12 months.
Can selling company assets during liquidation create Corporation Tax?
Yes. A chargeable gain or other taxable profit arising from asset disposals can create a Corporation Tax liability during the winding up.
Is HMRC a preferential creditor for Corporation Tax?
No. Corporation Tax is not included among HMRC’s secondary preferential debts. Taxes such as VAT and qualifying PAYE deductions are treated differently.
Can a director become personally liable for unpaid Corporation Tax?
The debt normally belongs to the company. Personal liability can arise in particular circumstances, but liquidation itself does not automatically transfer the Corporation Tax bill to the director.
Can losses before liquidation reduce Corporation Tax?
Potentially. Qualifying terminal trading losses can sometimes be carried back against earlier profits, subject to the relevant conditions and deadlines.
Can’t Pay Corporation Tax? Get Advice Today
An unpaid Corporation Tax bill does not always mean the company needs to close. If the business remains viable, there may still be options for addressing temporary arrears. Where Corporation Tax sits alongside wider debts that the company can no longer realistically pay, however, it may be time to consider formal insolvency options.
At Anderson Brookes, we can review the company’s HMRC position, other creditor debts, assets and trading circumstances and explain whether a Creditors’ Voluntary Liquidation or another route is appropriate. You do not need to clear the Corporation Tax bill or complete every outstanding filing before speaking to us.
Call Anderson Brookes on 0800 1804 935 for free, confidential initial advice.