New research suggests that many UK SMEs are finding tax bills difficult to manage. But a Corporation Tax problem does not always mean that a company is unprofitable. Often the real problem is the gap between accounting profit and cash in the bank.

• Are 52% really struggling?
• Paper profit vs. cash
• Avoiding an annual crisis
• If you still cannot pay
• The real answer
• Questions we get asked

A company can look profitable in its accounts and still struggle to pay its Corporation Tax bill.

To many business owners that feels illogical. If the business has made a profit, surely the money should be in the bank? Right?

Well, after more than 20 years of working with owner-managed businesses I can say that this is one of the most common and most misunderstood cash-flow problems that we see.

Sometimes the profit is tied up in invoices that customers have not yet paid. Sometimes it is sitting in stock on a warehouse shelf. In other cases the money was available at the end of the company’s financial year but was spent during the following months, before the Corporation Tax deadline arrived.

This is why I believe Corporation Tax should never be considered only when the annual accounts are finally prepared. By then some of the most important decisions may already have been made.

Are 52% of UK SMEs really struggling to pay tax?

A survey published by specialist finance provider Premium Credit in July 2026 reported that 52% of participating UK SMEs were finding it difficult to meet their tax liabilities.

The finding is concerning but, in my opinion, it needs to be reported accurately. I have seen a lot of discussions online and that’s why I decided to address it here to give a bit more clarity: this was research commissioned and published by a provider of tax finance, but it is not an HMRC statistic.

The published 2026 release does not state the sample size or methodology, and the provider’s 2024 research reported a much lower figure of 8% of SMEs currently struggling to pay tax bills. The two results should therefore not be treated as directly comparable without further methodological information. The three published figures for Corporation Tax, VAT and both taxes also total 54%, rather than the headline 52%; that may reflect rounding or the construction of the survey questions. Unfortunately — and this is where it’s worth paying more attention — the release does not explain the difference.

Nevertheless, the pressures described in the research are recognisable. Employer’s National Insurance increased to 15% and the secondary threshold reduced to £5,000 from April 2025. The Employment Allowance was increased at the same time, which can offset some or all of that cost for eligible employers, though the effect varies substantially from business to business. The National Living Wage increased again to £12.71 an hour from April 2026. Alongside materials, rent, energy, borrowing and other overheads, these costs can reduce the cash remaining in any business even when their turnover looks healthy.

The current Corporation Tax regime also means that companies with profits above £250,000 generally pay the 25% main rate, while the 19% small profits rate applies at £50,000 or below. Marginal Relief applies between those limits. The thresholds can be reduced where a company has associated companies, so once again this is where structure matters too.

For me, however, the most useful question is not whether the national figure is exactly 52%. Instead small business owners should ask a different question:

Why can a profitable company find itself without enough cash when Corporation Tax becomes due?

Profit on paper is not the same as cash in the bank

Unlike eligible unincorporated businesses that may use the cash basis, limited companies generally prepare their accounts under UK accounting standards using accrual accounting, otherwise known as invoice accounting. To explain it simply, income and expenditure are recognised in the period to which they relate, and not simply when the money enters or leaves the bank account.

HMRC explains that a company’s trading profit is normally calculated first in accordance with generally accepted accounting practice and is then adjusted where tax law requires a different treatment.

That distinction can produce perfectly correct accounts and a genuine Corporation Tax liability while leaving the company short of cash.

1. The customer has not paid, but the sale may still form part of the profit

Imagine that a company completes work and raises a substantial invoice shortly before its year end. The invoice belongs to that accounting period, even if the customer pays several months later.

The accounts may therefore include the sale and the resulting ‘profit’ while the cash remains in trade debtors. The company can face Corporation Tax relating to that profit before it has successfully collected all the money from its customers.

This does not mean every unpaid invoice must remain taxable indefinitely. A genuinely irrecoverable debt may need to be written off or an appropriate impairment recognised, depending on the facts and applicable accounting rules, but it’s worth remembering that an invoice is not automatically excluded merely because payment is late.

2. The profit may be sitting on the shelves

Stock creates another common misunderstanding.

Over the years I have often heard business owners say: “I’ll buy some stock before the year end and that purchase will reduce my profit, so there’s going to be less CT to pay.” They assume that because the money has left the bank, the full amount will automatically reduce the taxable profit. However, that is not necessarily the case.

A business may spend £50,000 buying goods, but if a large proportion remains unsold at the year end, the value of that closing stock is normally shown as an asset. In effect, the cost of the unsold goods is added back when calculating the cost of goods sold, rather than the whole £50,000 being treated as an expense for that year.

This is something many business owners struggle to understand: spending the money does not always mean that the business has incurred the full accounting expense. A higher closing-stock figure reduces the cost of goods recognised as sold during the period and can therefore increase the reported gross profit.

The cash has left the bank, but its value is now represented by boxes, materials or products still held by the company. I sometimes call this profit “stacked on the shelves”.

This becomes especially difficult where stock is slow-moving and the business expected to sell it much sooner. Stock must, of course, be valued correctly. If goods are damaged, obsolete or expected to sell for less than their cost, a write-down may be appropriate — but this must be supported by evidence and proper accounting judgement.

This is an important lesson for growing businesses: rapid growth can consume cash just as easily as a downturn. A profit and loss account, balance sheet, stock report and cash-flow forecast must be considered together. In an abnormal market directors should also test what would happen if demand or selling prices returned to normal much sooner than expected.

3. The profitable year has been followed by a much weaker period

For most companies with taxable profits of up to £1.5 million, Corporation Tax is due nine months and one day after the end of the accounting period. The limit may be reduced for short accounting periods or where there are associated companies.

That delay can create a false sense of security. A company may finish a strong year with surplus cash but then experience six or nine difficult months. Customers may be lost, margins may fall or an unexpected cost may arise. By the time the tax relating to the earlier profitable year becomes due, its cash surplus may already have been used to support current trading.

Preparing the accounts near the filing deadline can make this risk worse. The statutory deadline for filing accounts and the date Corporation Tax must be paid are not the same. Waiting until nine months after the year end to understand the result can leave almost no time to plan for a liability that is already due or about to become due.

Some business owners deliberately delay preparing their year end accounts because they believe this will also delay the Corporation Tax payment or postpone the need to pay their accountant. This can be a costly mistake. Corporation Tax is due based on the accounting period, regardless of whether the accounts or tax return have already been submitted, and late payment can result in interest and penalties.

Preparing the accounts promptly gives the owner clarity and time to plan, even if the tax itself is not yet due.

4. Dividends have been taken without allowing for Corporation Tax

Accounting software can display an apparent profit, but that figure may not yet include all year-end adjustments or the Corporation Tax charge.

Occasionally directors see the figure in Xero, QuickBooks or another bookkeeping platform and assume that the whole amount is available for dividends. But dividends can only be paid from available profits, and the company’s tax and other liabilities must be considered.

The situation can become serious where the bookkeeping itself contains errors. For example, wages might have been posted to a Balance Sheet control account instead of the profit and loss account. Once the accountant reconciles payroll and posts the correcting journals, the final profit may be very different from the figure the director had been monitoring.

Software is extremely useful, but the number on a dashboard is only as reliable as the records and accounting treatment behind it. A live bookkeeping profit is not automatically the same as final taxable profit, distributable reserves or cash available to withdraw.

An annual deadline should not create an annual crisis

Most smaller companies are required to settle their Corporation Tax balance with HMRC by the payment deadline. That does not mean directors must wait until the deadline and allow one payment to unexpectedly remove a large part of their working capital.

The better solution begins much earlier.

Prepare the annual accounts promptly

We encourage clients to provide their records as soon as possible after the year end. Early accounts do more than satisfy Companies House and HMRC. They tell the directors what has happened while there is still time to make informed decisions.

If the business knows its likely Corporation Tax bill several months in advance, it can protect the money, improve debt collection, control drawings and dividends, and prepare a realistic cash-flow plan.

Estimate Corporation Tax during the year

Directors should not need to wait for completed annual accounts to obtain a reasonable estimate. Accurate bookkeeping, management information and periodic reviews can indicate the direction of profit and the likely tax exposure.

The estimate will sometimes change, particularly after stock adjustments, depreciation, capital allowances, accruals and other year-end work. That is why it should be reviewed rather than treated as a fixed number calculated once.

Create a separate tax reserve

For some owners the most effective solution is also the simplest: a separate savings account for Corporation Tax.

An estimated amount can be transferred regularly instead of leaving all available cash in the main trading account. The percentage should be based on the company’s circumstances, not an arbitrary rule, because accounting profit, taxable profit and the applicable Corporation Tax rate may differ.

We have seen clients begin to view their businesses differently once future tax is separated from genuinely available working capital. The bank balance becomes more meaningful because money needed for HMRC is no longer mistaken for spare cash.

Review debtors and stock — not only the profit and loss account

If profit is tied up in unpaid invoices, stronger credit control may be more valuable than simply trying to generate more sales. If cash is tied up in stock, the business should understand stock turnover, ageing, expected selling prices and purchasing decisions.

Taking on more work is not always an immediate cash-flow solution. New work can require more wages, materials and credit for customers before it produces money in the bank.

Discuss dividends before taking them

At Business Help UK Group, we do not believe an accountant should simply wait for a client to ask the right question. We occasionally pick up the telephone because a conversation at the right time can prevent an expensive mistake.

Even when a company is only halfway through its own financial year, we aim to speak to shareholders before 5 April. That allows us to consider whether taking dividends before the end of the personal tax year may be financially beneficial, but only after reviewing the company’s available profits, Corporation Tax position, cash requirements and the shareholders’ individual circumstances.

What if the company still cannot pay?

If a viable company genuinely cannot pay its Corporation Tax by the deadline, it should act before the position escalates.

HMRC may agree a Time to Pay arrangement, usually involving monthly payments. It is considered case by case, it is normally kept as short as possible and does not reduce the tax owed. Interest continues to apply to amounts paid after the deadline, even where an arrangement has been agreed. The company must also demonstrate that it can meet the arrangement and keep up with other taxes falling due.

Commercial Corporation Tax finance is another possibility. A finance provider may pay HMRC in full while the company repays the borrowing over an agreed period. This preserves immediate liquidity, but it also creates debt and adds interest, fees and potentially other obligations.

It may be appropriate for a sound business facing a genuine timing mismatch, but it should not be used repeatedly to disguise falling profitability, excessive withdrawals or poor financial control.

Before borrowing, directors should compare the total cost and terms, understand any security or personal guarantees and consider whether the next tax liability will arise before the first one has been repaid.

The real answer is visibility

A Corporation Tax bill should not be a surprise generated nine months after the year end. By that stage, the company has already earned the profit, made spending decisions and possibly paid dividends.

The earlier directors understand the likely figure, the more options they retain.

Good tax planning does not make a genuine liability disappear. It helps prevent the company from accidentally spending the money first. It also identifies cases where profit is trapped in debtors or stock, bookkeeping figures are misleading, or the current trading position has changed so significantly that urgent cash-flow planning is needed.

At Business Help UK Group our role is not limited to filing accounts and calculating tax after the event. We get to know our clients, how they make decisions and where greater discipline or more regular information may help. That can mean preparing accounts early, reviewing bookkeeping, estimating Corporation Tax, discussing dividends, examining cash flow or recommending a separate tax reserve.

Frequently asked questions

Why does my company owe Corporation Tax when there is no money in the bank?

Corporation Tax is based on taxable profit and not the closing bank balance. Cash may be tied up in unpaid customer invoices or stock, used to buy assets, spent during a later trading period, used to repay borrowing or withdrawn from the company. The accounts and cash flow must be reviewed together.

Do unpaid customer invoices count towards Corporation Tax?

Under accrual accounting, sales are generally recognised in the accounting period in which they are earned, even if the customer pays later. A genuinely irrecoverable debt may require different accounting treatment, but an overdue invoice is not automatically excluded from profit.

Why does closing stock increase profit?

Unsold stock is normally carried as an asset rather than treating its full purchase cost as an expense in that year. A higher closing-stock value can increase gross profit. Stock must be valued under the applicable accounting rules and written down where evidence supports impairment, obsolescence or a lower net realisable value.

When is Corporation Tax due?

For a company with taxable profits of up to £1.5 million, Corporation Tax is normally due nine months and one day after the end of its accounting period. Different rules, including quarterly instalment payments, apply to larger companies, and the thresholds may be affected by associated companies.

Can a company pay Corporation Tax monthly?

Most smaller companies do not have a standard monthly Corporation Tax payment schedule with HMRC. A company can build its own monthly tax reserve or make payments towards its liability before the deadline. If it genuinely cannot pay on time, HMRC may agree a Time to Pay arrangement. Commercial tax finance may also spread the cash cost, but borrowing carries additional costs and risks.

Should directors rely on the profit shown in Xero or QuickBooks before taking dividends?

Not without checking that the bookkeeping is complete and accurate and that all relevant liabilities and adjustments have been considered. Dividends must be supported by sufficient distributable profits, and cash availability should be reviewed separately.