Corporation Tax Loans – 2023
IMPORTANT UPDATE: Starting from April 1, 2023, the Corporation Tax main rate for non-ring fenced profits will rise to 25% for profits exceeding £250,000. Additionally, a Small Profits Rate (SPR) will be introduced for companies with profits of £50,000 or less, enabling them to maintain a 19% Corporation Tax rate. Companies with profits between £50,000 and £250,000 will benefit from a marginal relief, which reduces the main rate, resulting in a gradual increase in the effective Corporation Tax rate.
Understanding Corporation Tax Loans: Key Features and Benefits
Ensuring timely tax bill payments is crucial for businesses, but sometimes, these payments may arrive at inconvenient moments. In the current economic environment, many businesses might find that making monthly payments over a predetermined term provides an essential cash boost. This allows them to allocate existing funds elsewhere within the organization, potentially benefiting from interest tax relief on the facility.
Read on to learn more about corporation tax loans.
What is corporation tax?
Simply put, corporation tax is a direct tax that businesses must pay as soon as they start generating profits and then on an annual basis. The government sets the corporation tax rate, which, as of 2022, is a flat 19% on all profits (excluding ring fence profits subject to different rates). To pay corporation tax, businesses must calculate tax-adjusted trading profits as a percentage of their taxable profits, rather than relying solely on net profit figures.
All limited companies must pay Corporation Tax annually, with both small and large companies paying a flat 19% rate. However, within the company size thresholds, ‘marginal reliefs’ exist to potentially reduce a business’s Corporation Tax payment. These reliefs include:
- Creative Industry
- Research & Development
- The Patent Box
- Disincorporation Relief
- Marginal Relief
- Terminal, capital, property income losses, and trading losses
Visit the government website for the most recent corporation tax rates and guidance on calculating your corporation tax.
When is corporation tax due?
Corporation tax, unlike self-assessment tax bills, is not due simultaneously for all businesses. Instead, it is calculated and paid annually around a company’s ‘corporation tax accounting period,’ typically aligning with the company’s financial year. Consequently, businesses must:
- Register for corporation tax within three months of starting to trade (dormant companies are exempt).
- Maintain accurate accounting records and prepare a Company Tax Return to determine the Corporation Tax amount.
- Pay Corporation Tax by the deadline (nine months and one day after the previous financial year’s accounting period).
- File the Company Tax Return before the deadline (12 months after the accounting period covered).
If the period exceeds 12 months for financial statement purposes, two tax returns must be submitted.
How is corporation tax paid?
Several payment methods are available, but businesses must ensure payments reach HMRC before the deadline. Options include CHAPS, online banking, telephone banking, direct debit, and BACS. Payment arrival times vary depending on the chosen method, ranging from same-day arrival to up to five working days.
What if you can’t afford to pay your corporation tax bill?
Late corporation tax bill payments can result in severe penalties, with charges beginning from the day the payment is late and accruing interest over time. Therefore, meeting payment deadlines is essential. Persistent late payments may prompt HMRC to take further action, potentially leading to compulsory business closure.
If you cannot pay your tax bill or anticipate a delayed payment, contact HMRC as soon as possible. In some instances, HMRC may offer a Time To Pay (TTP) arrangement, enabling businesses to pay back owed taxes in installments. However, TTP is intended as a one-time support measure, and continuous late payments may result in HMRC demanding full payment of the outstanding amount.
To be eligible for the TTP payment plan, businesses must:
- Have no other HMRC payment plans set up.
- Have no other tax debts outstanding.
- Owe less than £10,000.
Alternatively, businesses might consider applying for a corporation tax loan.
Why consider a corporation tax loan?
Obtaining a commercial loan to cover corporation tax bills can be a cost-effective way to manage cash flow and resources, reducing the impact of expensive late payment fines. A corporation tax loan incurs interest but allows businesses to spread their bill over 6 to 12 months through fixed monthly or quarterly payments. The loan can be secured or unsecured.
Common reasons for using a tax loan include:
- Spreading the cost of a tax bill, preserving capital and spending power, which can promote competitiveness, growth, and expansion.
- Maintaining a stable and fluid cash flow to seize new opportunities and/or cover unexpected costs or income reductions.
- Avoiding the risk of substantial HMRC penalties for late or non-payments.
Interested in a tax loan for your business?
We can assist businesses like yours in obtaining the most suitable funding options and facilities, quickly and efficiently, while taking into account their short-term goals and long-term aspirations.
If you are interested in spreading your corporation tax bill over time to retain capital and better manage your budget, contact us today.
We will evaluate your business’s unique circumstances and collaborate with you to determine if a corporation tax loan or another financial solution is the right choice.
Partnering with a cash flow loans specialist
Business finance specialists such as the team at First Oak Capital can help you find the right asset and cash flow finance products for your business’s needs. Get in touch with our team at 0800 066 3677 or get a quote to get started today!
