Wondering How to Pay Corporation Tax?
Paying your corporation tax is a critical responsibility for UK businesses. Knowing how to pay your corporation tax accurately and on time is essential to avoid penalties and maintain good standing with HMRC. In this guide, we’ll outline the steps you need to take to ensure you know how to pay your corporation tax, explore the options available, and offer advice to help you manage your tax obligations with ease.
What Is Corporation Tax?
Corporation tax is the tax your company pays on its profits. This applies to limited companies, certain clubs, co-operatives, and other unincorporated associations in the UK. Unlike personal income tax, you don’t receive a bill for corporation tax; it’s up to your business to calculate, report, and pay the correct amount.
Key Points to Remember:
- Corporation tax must be paid within nine months and one day after the end of your company’s accounting period.
- Late payments can incur penalties and interest.
- You must also file a Company Tax Return (CT600) to declare your profits and tax due.
How to Pay Corporation Tax
1. Calculate Your Corporation Tax Liability
Before making a payment, you need to determine how much tax your business owes. This involves:
- Preparing accurate financial accounts for the tax year.
- Identifying taxable profits by deducting allowable expenses and reliefs.
- Using HMRC’s online tools or consulting your accountant to calculate the tax amount due.
2. Register and Access Your Online HMRC Account
To pay corporation tax, you need access to HMRC’s online portal. If you haven’t already:
- Register for corporation tax when you set up your company.
- Activate your HMRC online services account.
- Use your Unique Taxpayer Reference (UTR) to link your company to your account.
3. Choose a Payment Method
HMRC offers several ways to pay your corporation tax. Choose the one that best suits your business:
- Direct Debit – Set up a Direct Debit through your HMRC online account. This option allows automatic payments, ensuring you never miss a deadline.
- Bank Transfer or BACS- Make payments directly from your business bank account using your sort code, account number, and your 17-character Corporation Tax payment reference
- Online or Telephone Banking- Use your bank’s online or telephone banking services to make one-off payments. Ensure you include your payment reference to avoid delays.
- Debit or Corporate Credit Card- You can pay by debit or credit card, though HMRC charges a fee for corporate credit card payments.
- Cheque by Post- For businesses that prefer traditional methods, send a cheque payable to “HM Revenue and Customs Only”, along with your payment reference, to HMRC’s address.
4. Verify Payment Submission
After making your payment, check your HMRC account to confirm that it has been received and applied to the correct period. Keep a record of the transaction for your financial records.
Managing Corporation Tax Payments
Corporation tax payments can sometimes create financial strain, especially for small businesses. If your business is facing challenges, it’s important to consider the right option for your needs. Let’s compare two common solutions: a corporation tax loan and HMRC’s Time to Pay arrangement.
1. Benefits of a Corporation Tax Loan
A corporation tax loan allows you to spread the cost of your tax bill over a manageable period. Here’s why it may be the better choice:
- Preserve Cash Flow: A tax loan helps maintain working capital, so your business can keep operating smoothly without sacrificing essential funds.
- Fast and Flexible Funding: Loans can often be arranged quickly and tailored to your repayment needs, providing immediate relief without long-term strain.
- Protect Your Credit Profile: Unlike HMRC’s payment plan, a tax loan doesn’t signal financial difficulties to other lenders, preserving your ability to secure additional funding in the future.
- Lower Costs: With competitive rates, a tax loan may save you money compared to the interest charged by HMRC on outstanding balances.
2. Drawbacks of HMRC Time to Pay Arrangements
While HMRC offers Time to Pay arrangements for businesses in financial difficulty, they come with significant disadvantages:
- Added Interest: HMRC charges interest on any deferred amounts, which can increase the overall cost of your tax liability.
- Negative Perception from Lenders: Entering a payment arrangement with HMRC may flag financial instability to other lenders, making it harder to secure loans or credit for up to 12 months.
- Limited Flexibility: HMRC’s terms may not always align with your business’s cash flow needs, adding pressure to your operations.
At First Oak Capital, we understand the challenges of covering corporation tax payments. If you need a corporation tax loan, we can help you secure the funding you need quickly and efficiently. Contact us today to explore your options and keep your business on track.
