Skip to main content

Should Your Business Pay Its Corporation Tax Ahead of Time?

As the owner of a limited liability company, you aim to grow and profit while seeking tax deductions and fulfilling your and your company’s tax obligations.

What exactly is corporation tax? The UK imposes Corporation Tax on the profits of limited companies, including foreign ones with a UK branch. Specifically, a UK-based company pays corporate tax on worldwide profits, whereas a foreign company pays corporate tax on UK-derived profits only.

tax payments
Getting your tax payments in order can save you a lot of stress!

The Corporation Tax rate for the financial years 2020/21 and 2021/22 stands at 19%. Companies can avoid Corporation Tax only if they incur a loss or cease trading activities.

Operating businesses must file a company tax return, although they need to keep accounting records for tax and annual accounts purposes regardless.

Paying the Corporation Tax bill to HMRC early can prevent hefty late penalties and earns interest from HMRC for early payment.

Why Should You Pay It Early?

Paying your Corporation Tax early earns you “credit interest” from HMRC at an annual rate of 0.5%. HMRC pays this interest from your payment date to the deadline, starting no earlier than six months and 13 days after your accounting period begins.

For example, for an accounting period from 1st January 2021 to 31 December 2021, you can pay Corporation Tax between 13th July 2021 and 1st October 2022 to earn 0.5% annual credit interest for this period. HMRC calculates this interest based on an estimate as the business year has not concluded.

Remember, you must report this interest income in your company accounts as it is taxable.

Better Early Than Late

You have nine months and one day to pay your Corporation Tax. Being even a day late incurs a fine, so it’s best not to provoke HMRC. Early payment avoids the temptation to misuse the owed funds.

payment with card
Paying on time ensures you avoid a fine!

What If You Made A Mistake?

Contacting HMRC promptly is crucial if you need to report Corporate Tax errors, given their notorious difficulty to reach during busy times. Quick action is essential to resolve issues and prevent HMRC penalties.

Are There Any Disadvantages To Paying Your Corporation Tax Early?

The primary drawback of early Corporation Tax payment is the potential for cash flow issues and lost reinvestment opportunities, possibly forfeiting higher profits elsewhere.

Thus, while early Corporation Tax payment won’t enrich you or guarantee business growth, it can bring peace of mind regarding your tax affairs.

Final Say

It’s safest to talk to an accountant who can give you guidance based on your situation. If you’re a Count client then you’ve got unlimited access to our group of accountants who can assist you with any queries you may have.

If you’re not yet a client, then why not get in touch to see how we could help your business.

Start with Count today

Signing up for Count is easy. We think once you experience truly stress-free financial processes, you won’t want to go back.