Can I Borrow Money to Pay Corporation Tax?
Yes, a business can potentially borrow money to pay its Corporation Tax bill, although not all business lenders will accept tax payments as a permitted borrowing purpose.
Corporation Tax is generally payable on a company's taxable profits. However, the timing of the payment can create cash-flow pressure, particularly where profits have been reinvested in the business or working capital is tied up in stock, equipment or outstanding customer invoices.
A company can therefore be profitable on paper while having insufficient cash available to settle a substantial Corporation Tax liability.
In these circumstances, a business loan, overdraft or an arrangement with HMRC may provide a way to manage the payment.
However, borrowing to pay Corporation Tax only makes commercial sense if the company can afford the additional repayments without creating further financial difficulties.
When is Corporation Tax due?
For most UK limited companies, Corporation Tax is normally due nine months and one day after the end of the company's Corporation Tax accounting period.
For example, a company with an accounting period ending on 31 December 2025 would normally need to pay its Corporation Tax by 1 October 2026.
However, larger companies may be required to pay Corporation Tax through quarterly instalments, including payments before the end of the accounting period.
The deadline for filing a Corporation Tax return is separate from the payment deadline.
For most companies, the Company Tax Return is due 12 months after the end of the accounting period, meaning the tax normally needs to be paid before the return is due.
Understanding these deadlines is important when planning the company's cash flow.
Why might a profitable company struggle to pay Corporation Tax?
Profit and cash flow aren't the same thing.
A company might generate £200,000 of taxable profits during a financial year but not have the corresponding cash available when its Corporation Tax becomes due.
For example, the business may have:
invested in additional stock;
purchased equipment;
expanded its premises;
recruited employees;
experienced delays collecting customer invoices;
repaid existing borrowing; or
distributed cash to shareholders.
Some of these activities may involve accounting or tax adjustments, but the underlying point remains: accounting profitability doesn't necessarily mean that cash is sitting in the bank.
This is why Corporation Tax can sometimes create a significant working-capital requirement.
Can I use a business loan to pay Corporation Tax?
Potentially.
Some lenders may consider Corporation Tax payments as a legitimate business funding requirement, particularly where the company is established and financially sound.
Other lenders may restrict or exclude tax-related borrowing.
Where borrowing is available, the lender will generally want to understand:
amount of Corporation Tax payable;
when payment is due;
why the company needs external finance;
current cash flow;
existing debt repayments;
recent financial performance; and
whether the proposed borrowing is affordable.
A lender is likely to distinguish between a profitable company experiencing a temporary timing mismatch and a business that is struggling to meet its financial obligations more generally.
How does a Corporation Tax loan work?
A Corporation Tax loan is generally a business loan used to finance a tax liability rather than a fundamentally different type of lending product.
For example, suppose a company has a £48,000 Corporation Tax bill.
Instead of paying the entire amount immediately from its cash reserves, it might consider borrowing £48,000 over 12 months.
The principal element of the repayments would average £4,000 per month, before interest and fees.
This spreads the cash requirement over a longer period.
However, the company must consider whether it can support those monthly repayments alongside:
operating expenses;
existing borrowing;
VAT;
PAYE;
other taxes; and
future Corporation Tax liabilities.
The borrowing doesn't reduce the underlying tax liability. It simply changes how the payment is financed.
How much can I borrow to pay Corporation Tax?
There isn't a universal formula.
The amount available will depend on the lender's criteria and the financial strength of the company.
A lender may consider:
Turnover: Is the proposed loan reasonable relative to the company's scale?
Cash flow: Is sufficient cash available to support repayments?
Profitability: Is the company generating sustainable profits?
Existing debt: How much is already committed to other lenders?
Bank conduct: Are balances stable and existing repayments being maintained?
Trading history: How established is the company?
Purpose: Does financing the tax bill make commercial sense?
The amount of tax due doesn't automatically determine the amount a company can borrow.
A business with a £75,000 Corporation Tax liability may only be able to support £40,000 of additional borrowing.
Equally, a larger financially strong company may be able to support a more substantial facility.
Can I get an unsecured business loan to pay Corporation Tax?
Potentially.
Some unsecured business lenders may consider tax payments as an acceptable use of funds.
Because an unsecured business loan doesn't involve taking security over a specific asset, lenders are likely to place considerable importance on the company's financial position and ability to repay.
A lender may assess:
current turnover;
cash generation;
liquidity;
existing finance repayments;
credit history;
recent bank conduct; and
trading history.
Personal guarantees may also be required.
A company with strong profits, consistent cash flow and modest existing borrowing may present a stronger proposition than one with substantial debts and deteriorating liquidity.
Could I use a business overdraft instead?
Yes.
An overdraft can be suitable where the funding requirement is genuinely short term.
For example, suppose a company has a £30,000 Corporation Tax liability due but is expecting a substantial customer receipt three weeks later.
An overdraft might allow the company to make the tax payment and then reduce the borrowing once the customer pays.
This could be more efficient than taking a longer-term business loan if the cash requirement is only expected to last a few weeks.
However, overdrafts are subject to bank limits, pricing and other terms.
If the company needs to spread the payment over several months or years, a term loan may provide greater repayment certainty.
What if I cannot afford to pay Corporation Tax?
If the company cannot pay its Corporation Tax liability when due, it should contact HMRC promptly.
HMRC may agree to a Time to Pay arrangement, allowing the business to repay the outstanding liability through instalments.
The availability and terms of an arrangement depend on HMRC's assessment of the company's circumstances and ability to pay.
The business may need to provide information about:
income;
expenditure;
available cash;
assets;
outstanding liabilities; and
proposed repayment capacity.
Time to Pay isn't automatic, and HMRC will expect the company to meet the terms of any arrangement agreed.
For some businesses, this may be a more appropriate solution than taking on commercial borrowing.
Is an HMRC payment arrangement cheaper than a business loan?
It may be considerably cheaper, depending on the commercial loan's terms.
HMRC normally charges interest on overdue Corporation Tax.
A commercial business loan can involve interest, arrangement fees and other costs.
A business should therefore compare the total cost of each option rather than simply focusing on the monthly payment.
For example, a company should consider:
Consideration | HMRC Time to Pay | Business loan |
Repayment structure | Agreed with HMRC | Contractual loan schedule |
Interest | HMRC late payment interest | Commercial lending rate |
Fees | Depends on circumstances | May include arrangement fees |
Security | Not normally structured as a secured business loan | Security or guarantees may be required |
Availability | Subject to HMRC agreement | Subject to lender approval |
Main consideration | Managing the overdue tax liability | Affordability and commercial viability |
A business loan isn't necessarily the better option simply because it allows HMRC to be paid immediately.
In particular, replacing an HMRC liability with expensive short-term borrowing can sometimes make the company's cash-flow position worse.
What happens if I pay Corporation Tax late?
HMRC generally charges late payment interest where Corporation Tax isn't paid by the relevant deadline.
Interest is normally calculated daily from the date the tax becomes overdue until it is paid.
The applicable rate can change over time.
Late payment interest is separate from penalties that may arise for other failures, such as submitting a Corporation Tax return late.
Persistent non-payment can ultimately lead to debt recovery or enforcement action by HMRC.
Businesses should therefore avoid ignoring an outstanding Corporation Tax liability.
If payment difficulties are anticipated, early communication with HMRC can help establish the available options.
Can I borrow to pay overdue Corporation Tax?
Potentially, although overdue tax liabilities can make an application more difficult.
A lender may want to understand:
how long the Corporation Tax has been overdue;
amount outstanding;
whether HMRC has taken recovery action;
whether a payment plan exists;
why the tax wasn't paid;
whether other tax liabilities are overdue; and
whether the company's financial position has improved.
The lender is likely to distinguish between a temporary cash-flow issue and a continuing inability to meet financial obligations.
Some lenders may consider overdue tax liabilities, while others exclude them under their credit policies.
What if the company was profitable last year but is now making losses?
This can create a particularly difficult situation.
Corporation Tax is generally calculated by reference to profits from an earlier accounting period.
A business may therefore owe tax on a profitable year even though its current trading position has deteriorated.
For example, a company might have generated substantial profits in one year but subsequently lost a major customer.
By the time its Corporation Tax payment becomes due, the company may have much less cash available.
A lender considering the application will generally want to focus on current repayment capacity rather than simply relying on the historical profits that created the tax liability.
Borrowing may be inappropriate if the company is now operating at a persistent loss without a credible recovery plan.
Can I borrow to pay Corporation Tax if I already have business loans?
Potentially.
Existing borrowing doesn't automatically prevent further finance.
However, a new lender will consider the total financial commitments of the business.
Suppose a company has:
£6,000 of existing monthly loan repayments;
a £36,000 Corporation Tax liability; and
a proposed new loan requiring £3,500 per month.
The company would then need to support £9,500 of monthly loan repayments, alongside its normal operating costs and future tax obligations.
The lender needs to be satisfied that the business can generate sufficient cash to maintain those commitments.
Strong turnover alone isn't enough if the company's cash flow is already heavily committed to debt repayments.
Does borrowing to pay Corporation Tax affect my business credit score?
Taking a business loan may affect the company's credit profile, depending on the lender's reporting practices and the information available to credit reference agencies.
However, the fact that the loan proceeds are used to pay Corporation Tax doesn't automatically determine that effect.
Similarly, an overdue Corporation Tax liability doesn't necessarily appear directly as a conventional credit default.
However, tax arrears can still affect a lender's assessment, particularly where they lead to recovery action, court proceedings or other evidence of financial difficulty.
A lender may also identify potential tax-related issues through accounts, management information or bank statements.
Does security help when borrowing for Corporation Tax?
Potentially.
Providing suitable security can reduce a lender's potential loss if the borrower defaults.
Some lenders may therefore consider a secured facility where unsecured borrowing is unavailable or insufficient.
However, security doesn't remove the need for affordability.
If the company cannot reasonably support the proposed repayments, taking security over property doesn't solve the underlying problem.
The primary expectation should remain that the business repays the loan from its normal operations.
Is it sensible to borrow to pay Corporation Tax every year?
Continually borrowing to meet normal Corporation Tax liabilities can indicate a more fundamental working-capital problem.
Corporation Tax is generally a predictable expense for a profitable company.
Although the final amount may not be known until accounts and tax computations are prepared, businesses can usually estimate their likely liability during the year.
If a company repeatedly needs external borrowing simply to settle its annual tax bill, it may need to review:
cash-flow forecasting;
tax provisioning;
shareholder distributions;
capital expenditure;
existing debt repayments; and
overall working-capital management.
Borrowing may be appropriate for a particular temporary requirement.
It is less attractive where it becomes a recurring necessity simply to meet routine tax obligations.
How can I avoid Corporation Tax cash-flow problems?
There are several practical steps businesses can take.
Set aside cash for Corporation Tax
Rather than waiting until the payment deadline, businesses can regularly reserve cash based on estimated taxable profits.
The appropriate amount should reflect the company's expected tax liability rather than simply applying a percentage to turnover.
Prepare regular management accounts
Up-to-date accounts help identify profitability and potential Corporation Tax liabilities before the statutory year-end process is completed.
Forecast future tax payments
A cash-flow forecast should incorporate expected Corporation Tax payments alongside VAT, PAYE, wages, suppliers and existing loan repayments.
Review dividends and other distributions
Directors should consider future tax liabilities before distributing substantial cash from the business.
Plan major investment expenditure
Equipment purchases, expansion and other investment can significantly affect liquidity.
These decisions should be made with an understanding of upcoming tax obligations.
Review the company's funding structure
Where working-capital requirements are substantial, an appropriate overdraft, revolving credit facility or term loan may help provide a more sustainable funding structure.
The objective should be to avoid treating predictable tax liabilities as unexpected emergencies.
When might borrowing to pay Corporation Tax make sense?
A business loan may be worth considering where:
the company is established and financially sound;
the Corporation Tax liability is known and legitimate;
there is a temporary mismatch between cash availability and the payment deadline;
the business can comfortably afford repayments;
future tax liabilities can still be met;
the proposed funding structure matches the company's cash flow; and
the overall financing cost is commercially justified.
For example, borrowing may be reasonable where a profitable business has temporarily tied up cash in stock or receivables and expects sufficient future cash generation to support the loan.
The key is that the underlying business remains financially sustainable.
When should I avoid borrowing to pay Corporation Tax?
Additional borrowing may be inappropriate where:
the company is experiencing persistent losses;
existing loans are already unaffordable;
HMRC arrears are continually increasing;
the business is missing repayments to other lenders;
borrowing is repeatedly required to meet routine tax obligations;
cash flow remains negative; or
there is no credible source of repayment.
In these circumstances, another loan could provide temporary relief while increasing the company's overall financial pressure.
A more fundamental review of the company's financial position may be necessary.
Applying for business finance with Adelpha Capital
Adelpha Capital provides business finance to established UK SMEs.
We consider the purpose of borrowing alongside the company's wider financial position, including turnover, profitability, cash flow, recent bank conduct, trading history and existing financial commitments.
Where funding relates to Corporation Tax or another tax liability, the circumstances and commercial rationale are particularly important. Not all tax-related borrowing requests will meet our lending criteria.
Our assessment focuses on whether the proposed borrowing is appropriate and whether the business can sustainably support the repayments alongside its existing commitments and future tax obligations.
If your company has a working-capital requirement, you can apply online or contact the Adelpha Capital team to discuss your funding needs.