Corporation Tax Appeals: Challenging An HMRC Decision On Your Company's Tax

HMRC has questioned your company's corporation tax. Maybe an enquiry letter has landed, asking about a particular figure on the CT600. Maybe it's a discovery assessment reopening a year you thought was closed. Maybe a late-filing penalty arrived that's bigger than you expected—or a bill for tax on your overdrawn director's loan account that you didn't know existed.

Here is the thing to understand before you do anything else: the rules for companies are not the income-tax rules. If you've read our other articles—or anything online—about self-assessment penalties, section 29 discovery, or the 31 January deadline, set that knowledge aside. Companies self-assess corporation tax under their own self-contained code, Schedule 18 to the Finance Act 1998. It is the company analogue of the Taxes Management Act 1970, but nearly every deadline, gateway and penalty is different. For companies, it's different.

This guide is the map. It tells you which of the four common letters you're holding, which Schedule 18 provision it sits under, and—most urgently—how to read the 30 days clock that may already be running.

When HMRC Questions Your Company's Tax

Almost every corporation tax dispute starts with one of four documents. Identify yours first, because each one points to a different part of Schedule 18 and each one carries its own deadline.

• A notice of enquiry (Schedule 18, paragraph 24)—HMRC has formally opened a check into your company tax return. Nothing has been decided yet.
• A discovery assessment (paragraph 41)—HMRC has reopened a year after the enquiry window closed, having "discovered" what it believes is underpaid tax.
• A penalty notice—most often for late filing (Schedule 18 itself), or for an inaccuracy or a failure to notify (separate schedules that apply to everyone).
• A bill on a director's loan—a charge under section 455 CTA 2010 on a loan your company made to you as a director-shareholder.

HMRC's letters do not always say plainly which power they're using. Look at the statutory reference near the top or in the closing paragraphs—"paragraph 24, Schedule 18, Finance Act 1998", for example—rather than the heading. Once you've identified the letter, the rest of this guide tells you where it fits and what to do.

Why Companies Are Different (Schedule 18 FA 1998)

The single most important fact about corporation tax is buried in two different deadlines that catch directors out constantly: you pay before you file.

You file the company tax return (the CT600) within 12 months of the end of the accounting period (Schedule 18, paragraph 14). But you must pay the corporation tax within 9 months and 1 day of the end of that period—the day after nine months have passed (section 59D(1) TMA 1970). The money is due three months before the return. A director who thinks "I've got a year" is already late on payment and accruing interest on the unpaid tax. This is the most common and most avoidable corporation tax mistake.

Here is how the corporation tax machinery contrasts with the income-tax rules you may have read about:

That last row is the headline trap, and it has its own section below: the points-based late-filing regime in Schedule 55 FA 2009—the one covered in our self-assessment penalties guide—does not apply to corporation tax at all.

Instalment Payments For Larger Companies

Most small and owner-managed companies pay their corporation tax as a single lump on the 9 months and 1 day date. But larger companies pay earlier, in quarterly instalments. A "large" company—taxable profits over £1.5 million—pays in four instalments; a "very large" company—profits over £20 million—pays even earlier. Both thresholds are divided by the number of associated companies. So a company in a group of four (itself plus three associated companies) hits the "large" threshold at £375,000, not £1.5 million—a trap for group structures. If you might be in instalments, check the GOV.UK instalments guidance early, because the first payment can fall due before the accounting period has even ended.

If HMRC Opens An Enquiry

A notice of enquiry under paragraph 24 is HMRC's formal opening of a check into your company tax return. It does not mean HMRC has concluded anything—it preserves HMRC's ability to investigate and, at the end, to amend the return. HMRC must give the notice within 12 months of the day the return was delivered (the window runs differently for late returns, amended returns and certain large groups). Only one enquiry is allowed per return, except after an amendment.

This is the corporation tax twin of the income-tax process in our HMRC enquiries and closure notices guide—but the references are different. The opening notice is paragraph 24, not section 9A TMA. The closure notice is paragraph 32, not section 28A.

During the enquiry, HMRC can amend your self-assessment to prevent a loss of tax. At the end, HMRC issues a closure notice under paragraph 32. Since the Finance (No. 2) Act 2017, there are two kinds: a partial closure notice, which completes one specific matter while the rest of the enquiry continues, and a final closure notice, which ends the whole enquiry. The closure notice states HMRC's conclusions and amends the return under paragraph 34 to give effect to them.

If the enquiry drags on, you are not powerless. Under paragraph 33A, the company can apply to the First-tier Tribunal for a direction requiring HMRC to issue a partial or final closure notice within a specified period. The tribunal can order HMRC to close. This is the company's main lever against an enquiry that has stalled, and it shifts the burden onto HMRC to justify keeping the enquiry open.

If HMRC Issues A Discovery Assessment

If HMRC missed the 12 months enquiry window but later forms the view that your company underpaid, its only route in is a discovery assessment under paragraph 41. This is the corporation tax equivalent of the section 29 TMA power covered in our discovery assessments guide—but, like everything else here, the restrictions live in Schedule 18, not the TMA.

Where you have delivered a return, HMRC cannot make a discovery assessment freely. Paragraph 42 restricts the power, and HMRC must get through a gateway:

• Paragraph 43—the insufficiency was brought about carelessly or deliberately by the company, someone acting on its behalf, or a partner; or
• Paragraph 44—a hypothetical officer "could not have been reasonably expected, on the basis of the information made available", to be aware of the insufficiency before the enquiry window closed.

Be precise about which is which: the careless-or-deliberate condition is paragraph 43; the hypothetical-officer test is paragraph 44. They are easy to confuse, and HMRC's letter should tell you which one it is relying on. And note that carelessness "by a person acting on the company's behalf" covers your accountant or agent—so if your adviser made the careless error, it can still count as the company's carelessness, both for the longer time limit and for a penalty. You may have a separate complaint against the adviser, but that does not undo the company's liability to HMRC. Separately, paragraph 45 bars a discovery assessment where the figure followed the practice generally prevailing when the return was made. The structure mirrors the income-tax gateways in section 29(4)/(5)/(6) TMA—see discovery assessments and the Wilkes case analysis for how the income-tax version works.

The time limits sit in paragraph 46: 4 years ordinarily, 6 years where the loss was brought about carelessly, and 20 years where it was brought about deliberately. The clock runs from the end of the accounting period—not, as for income tax, from the end of a tax year.

Accounts Beat Discovery

The practical lesson is the same one that runs through the income-tax discovery cases: full, accurate statutory accounts filed with the return are a company's best defence against a late discovery assessment. The paragraph 44 hypothetical officer is taken to have some accounting knowledge. If the relevant figure appeared in the accounts that went in with the CT600, HMRC may struggle to show the officer "could not reasonably have been aware" of it.

In a 2021 First-tier Tribunal case, a recognised but unrealised gain on a loan note appeared in several places in the company's statutory accounts—including the statement of total recognised gains and losses—but not in the corporation tax return. The tribunal held that a hypothetical officer with some accounting knowledge could reasonably have been expected to be aware of the resulting insufficiency. The discovery assessment was invalid and the appeal was allowed. It is the company-side equivalent of the hypothetical-officer reasoning in Wilkes and the income-tax discovery line: what you disclosed with your return does double duty as a discovery defence later.

Corporation Tax Penalties—The Trap

This is where reading about income tax will actively mislead you.

Late Filing (Schedule 18, Not Schedule 55)

The points-based late-filing penalty regime in Schedule 55 FA 2009—and the newer points regime in the new penalty regime now rolling out for income tax—does not apply to corporation tax. Late filing of a company tax return has its own self-contained regime in Schedule 18, in two parts.

The flat-rate penalty (paragraph 17) is £200 if the return is delivered within three months of the filing date, and £400 if it is more than three months late. Those figures rise to £1,000 or £2,000 for a third successive failure (where the company files late three accounting periods in a row).

These amounts doubled for returns with a filing date on or after 1 April 2026, under section 265 of the Finance Act 2026. For filing dates before 1 April 2026 the figures were £100 / £200, rising to £500 / £1,000 for a third successive failure. Crucially, the trigger is the filing date, not the accounting period—so most companies filing through 2026 onwards will be on the new, higher figures.

The tax-related penalty (paragraph 18) bites on top of the flat-rate penalty where the return is more than 18 months late. It is 10% of the unpaid tax if the return is delivered within two years of the end of the period, and 20% of the unpaid tax if it is later still. These percentages were not changed by the Finance Act 2026—only the flat-rate figures doubled. On a company with a real tax liability, the tax-geared penalty is usually the painful one.

Inaccuracy And Failure To Notify

Two penalty regimes that do apply to companies—exactly as they apply to everyone—sit outside Schedule 18. A careless or deliberate inaccuracy in a company tax return attracts a Schedule 24 FA 2007 inaccuracy penalty; a failure to tell HMRC the company is chargeable to corporation tax attracts a Schedule 41 FA 2008 failure-to-notify penalty. The behaviour bands, the disclosure reductions, and the suspension rules are the same as for any taxpayer—we cover them in HMRC penalties explained, the new penalty regime, and reducing HMRC penalties. The "deliberate" test is subjective, as the Supreme Court confirmed in our Tooth case analysis.

One point matters specifically to directors: under Schedule 24 paragraph 19, HMRC can pursue a company officer personally for the deliberate portion of an inaccuracy penalty where the inaccuracy is attributable to that officer. The company's penalty can become your penalty.

Interest

Late-paid corporation tax carries interest under section 87A TMA 1970, currently at 7.75% (the Bank of England base rate plus 4%). Interest runs from the 9 months and 1 day payment date—which, remember, is three months before the filing deadline. There is no automatic late-payment penalty for ordinary corporation tax in the way Schedule 56 hits income tax; the pressure point is interest, plus the paragraph 18 tax-geared penalty if the return is also late. For how interest is calculated, see interest on unpaid tax.

These charges stack. A company that owed £20,000 and filed its return 19 months late could face the £400 flat penalty, a tax-geared penalty of 10% of the unpaid tax (£2,000 here), and interest at 7.75% running from the 9 months and 1 day payment date—on top of the £20,000 tax itself, and before any separate inaccuracy penalty.

Director's Loans—The Owner-Managed Flashpoint (s.455)

The most common corporation tax dispute in a small company has nothing to do with trading profit. It is the director's loan account.

If your company is a close company (broadly, one controlled by five or fewer participators, or by its directors—which covers most owner-managed companies) and it lends money to you as a participator, or to an associate of yours, the company is charged tax under section 455 CTA 2010. The classic trigger is an overdrawn director's loan account: you've drawn more out of the company than you've put in or been paid as salary or dividend. The charge bites on the loan still outstanding at the end of the accounting period—your overdrawn balance—not on every pound that passed through the account during the year.

The s.455 rate tracks the dividend upper rate in section 8(2) ITA 2007. It is 33.75% for loans or advances made up to 5 April 2026, rising to 35.75% for loans or advances made on or after 6 April 2026 (the Finance Act 2026 raised the dividend upper rate, and s.455 follows it automatically). The higher rate applies only to new loans from 6 April 2026—it is not retrospective on a balance already outstanding. The charge is due 9 months and 1 day after the end of the accounting period in which the loan was made, alongside the company's corporation tax.

The crucial feature of s.455 is that it is refundable. It is not really corporation tax—it is a temporary deposit that comes back when the loan is cleared.

Getting The Money Back (s.458) And The Deferral Trap

Relief is given under section 458 CTA 2010 when the loan is repaid, released or written off. But the timing has a trap. If you clear the loan late—more than nine months after the end of the accounting period in which it was made—the refund is deferred. Under section 458(5), the relief cannot be given until 9 months and 1 day after the end of the accounting period in which the repayment, release or write-off happened. So the company can be out of pocket on the s.455 charge for a long time, even after you've repaid.

Don't Try To "Bed And Breakfast" It

A tempting trick is to repay the loan account just before the nine-month deadline and redraw it shortly afterwards—repaying on paper to trigger the refund without really clearing the debt. The legislation catches this. Under section 464ZA CTA 2010, where £5,000 or more is repaid and £5,000 or more of new loans are made within 30 days, the repayment is matched against the new loan, not the old one—so the old loan stays charged. A parallel "arrangements" rule catches repayments of £15,000 or more where there were arrangements to redraw. (These rules were moved into sections 464ZA and 464ZB by the Finance Act 2025, with effect from 30 October 2024; you may see older guidance referring to sections 464C and 464D, which no longer have effect.)

Your Tax Versus The Company's Tax

This is where directors get confused, so keep it crisp:

• Section 455 is the company's charge—refundable, due alongside corporation tax, and the focus of a corporation tax appeal.
• Section 415 ITTOIA 2005 is your charge. When a director's loan is released or written off, you, the individual participator, are taxed on the amount as if it were a dividend. That is your personal income tax, appealed on your own self-assessment—not a corporation tax appeal.

A write-off can therefore trigger a double hit: the company keeps its s.455 deposit tied up until relief is due, and you pay income tax personally under s.415. The recent tribunal cases on write-offs are mostly about the individual's s.415 charge, and they turn on whether the loan was really released. In England v HMRC [2023] UKFTT 313 (TC), a settlement that released most of a director's loan fixed the s.415 charge to the year the agreement was executed, not when the final instalment was paid. In Powell v HMRC [2025] UKFTT 528 (TC), moving an overdrawn loan to a new creditor company by novation was still a taxable "release"—shuffling the debt around a group does not clear it. By contrast, in Quillan v HMRC [2025] UKFTT 421 (TC), an overdrawn loan that a liquidator deliberately did not write off—reserving the right to pursue the director—was held to be neither released nor written off, so no s.415 charge arose (a first-instance decision that HMRC is reported to be appealing, so treat it as an illustration rather than settled law). These cases apply the foundational Court of Appeal authority Collins v Addies [1992] STC 746: substituting a debtor or creditor while the debt stays outstanding is a taxable release, not a repayment.

How To Appeal A Corporation Tax Decision

The route is broadly the familiar tribunal route—but the appeal hooks are in Schedule 18.

What you can appeal. A closure-notice amendment is appealed under paragraph 34. A discovery assessment (and an s.455 charge assessed as if it were corporation tax) is appealed under paragraph 48; a discovery determination comes in through paragraph 49 to paragraph 48. Penalties carry their own appeal routes in the relevant schedule.

How. You give notice of appeal in writing to HMRC within 30 days—of the closure-notice amendment (paragraph 34(4)) or of the assessment (paragraph 48(2)). The standard review-and-tribunal machinery in Part 5 TMA 1970 then applies: you can ask for or accept a statutory review, which a different HMRC officer completes within 45 days, or you can notify the appeal straight to the First-tier Tribunal (Tax Chamber). Filing is free (£0), online or by Form T240. See understanding HMRC appeal rights, HMRC internal review, how to appeal to the tax tribunal and writing grounds of appeal for the mechanics—they work the same way for corporation tax.

Burden of proof. On an appeal against an assessment, the company generally bears the burden of displacing it—the same principle as section 50(6) TMA 1970, applied to corporation tax: the company has to show the assessment is wrong or excessive. But where HMRC alleges careless or deliberate behaviour—to reach a longer time limit or to charge a penalty—HMRC bears the burden on that. See writing grounds of appeal for how to use the split.

Pay or postpone. Disputed corporation tax remains due unless it is postponed. There is no postponement paragraph in Schedule 18—corporation tax postponement runs through section 55 TMA 1970, as explained in postponing payment during appeal. Interest keeps accruing on any amount that is not postponed.

"It's not fair" is not a ground. The First-tier Tribunal is a creature of statute. It has no general fairness or judicial-review jurisdiction, so a complaint that is only about HMRC's conduct—rather than whether the tax is legally due—does not found an appeal there. That route is a complaint to HMRC, then the Adjudicator, then judicial review. Our Hok case analysis explains the limit.

Onward. If the First-tier Tribunal decides against you, an appeal to the Upper Tribunal lies on a point of law only—see Upper Tribunal appeal, the Edwards v Bairstow error-of-law analysis, and after your tax tribunal decision.

Do you need an accountant? A straightforward appeal—say, a late-filing penalty where you have a reasonable excuse—can be run by a director in person, and the tribunal is used to unrepresented appellants. The more technical disputes, such as a discovery gateway or the mechanics of an s.455 charge, are where professional help tends to earn its keep. You can also lodge the appeal yourself to stop the 30 days clock and take advice afterwards. A tribunal appeal typically takes typically 6-12 months to reach a decision.

What To Do Now

1. Identify the letter. Is it an enquiry notice (paragraph 24), a discovery assessment (paragraph 41), a penalty, or an s.455 charge? The statutory reference in the letter tells you. Each points to a different part of this guide.

2. Calendar the 30-day clock. You have 30 days to appeal a closure-notice amendment, an assessment or a penalty notice in writing—and the clock runs from the date on the letter, not the day you opened it, so a letter that sat in the post or an unread inbox has already eaten into your time. Miss the 30 days and you're into a late-appeal application, which the tribunal does not grant as a matter of routine.

3. Pull the company's records. Get the CT600, the computations, the statutory accounts that were filed with the return, and—if a director's loan is in issue—the loan-account ledger. If your accountant prepared the return, ask for their working papers. What you disclosed with the return is the foundation of any discovery defence.

4. Separate the company's tax from your own. If a director's loan write-off is involved, the company's s.455 position (a corporation tax appeal) and your personal s.415 charge (your own self-assessment appeal) are two different cases with two different appellants. Don't let them blur.

5. Consider a statutory review first. It is free, it doesn't cost you the tribunal, and a fresh HMRC officer completing the review within 45 days sometimes resolves a clear error without formal proceedings. See HMRC internal review.

Key Legislation And Resources

Legislation

• Schedule 18 FA 1998—the corporation tax self-assessment, enquiry, discovery and penalty code
• Paragraph 14, Sch 18—filing date (12 months after the accounting period)
• Paragraph 17, Sch 18—flat-rate late-filing penalty
• Paragraph 18, Sch 18—tax-related late-filing penalty
• Paragraph 24, Sch 18—notice of enquiry
• Paragraph 34, Sch 18—amendment by closure notice and appeal
• Paragraph 41, Sch 18—discovery assessment
• Paragraph 48, Sch 18—appeal against an assessment
• Section 59D TMA 1970—corporation tax payment date (9 months and 1 day)
• Section 55 TMA 1970—postponement of disputed tax pending appeal
• Section 50(6) TMA 1970—burden of proof on amount
• Section 455 CTA 2010—loans to participators charge
• Section 458 CTA 2010—relief on repayment, release or write-off
• Section 464ZA CTA 2010—"bed and breakfast" matching rules
• Section 8 ITA 2007—dividend upper rate (drives the s.455 rate)
• Schedule 24 FA 2007—inaccuracy penalties (apply to companies)
• Schedule 41 FA 2008—failure-to-notify penalties
• Section 87A TMA 1970—interest on late-paid corporation tax
• Corporation Tax (Instalment Payments) Regulations 1998, SI 1998/3175—quarterly instalment thresholds
• Section 265 FA 2026—doubling of the flat-rate late-filing penalty from 1 April 2026

Key Cases

• Powell v HMRC [2025] UKFTT 528 (TC)—novation of a director's loan was a taxable "release" under s.415
• Quillan v HMRC [2025] UKFTT 421 (TC)—loan neither released nor written off where the liquidator reserved the right to pursue (first instance; HMRC reportedly appealing)
• England v HMRC [2023] UKFTT 313 (TC)—s.415 release fixed to the year the settlement agreement was executed
• Collins v Addies [1992] STC 746—foundational Court of Appeal authority on "release" versus "repayment"

HMRC Guidance

• Corporation Tax overview—filing, paying and deadlines
• Pay your Corporation Tax bill—payment date and methods
• Corporation Tax: paying in instalments—large and very large company thresholds
• Penalties for late filing—the Schedule 18 late-filing regime
• Company Taxation Manual CTM61505—loans to participators (s.455)
• Enquiry Manual EM3213—corporation tax discovery (Schedule 18 paras 41-45)
• Appeal to the tax tribunal—how to appeal a CT decision to the First-tier Tribunal

On This Site

• R&D tax credit appeals—the same Schedule 18 machinery applied to R&D relief
• SDLT appeals—a structural sibling; another self-contained, non-TMA code
• HMRC enquiries and closure notices—the income-tax s.9A / s.28A process to contrast
• Discovery assessments—the income-tax s.29 TMA equivalent
• Wilkes v HMRC—the hypothetical-officer and information-disclosed line
• Tinkler v HMRC—discovery validity and procedural defects
• Self-assessment penalties—the Schedule 55/56 regime that does not apply to CT
• The new penalty regime—the FA 2021 points system (income tax and VAT, not CT)
• HMRC penalties explained—Schedule 24 and Schedule 41 frameworks
• Reducing HMRC penalties—disclosure reductions and suspension
• Tooth v HMRC—what "deliberate" means
• Interest on unpaid tax—how late-payment interest is calculated
• Understanding HMRC appeal rights—your options after an appealable decision
• HMRC internal review—the free statutory review step
• How to appeal to the tax tribunal—the filing route
• Writing grounds of appeal—structuring your case and using the burden split
• Postponing payment during appeal—s.55 TMA for corporation tax
• Hok v HMRC—why "it's not fair" is not a tribunal ground
• Upper Tribunal appeal—the onward route on a point of law
• Edwards v Bairstow—the error-of-law gateway
• After your tax tribunal decision—written reasons, set-aside, and onward appeals
• Late appeal to the tax tribunal—if you missed the 30-day window
• Tax dispute timeline—where corporation tax disputes sit in the wider HMRC journey

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.