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When is The Best Time to Pay Corporation Tax?

As the owner of a limited liability company, you strive to grow and make a profit, while also being mindful of any tax deductions available and the taxes that you and your company must pay.  

So what is corporation tax? Corporation Tax is the tax placed on the profits of limited companies in the UK, including foreign ones that have a branch in the country. 

Read Now: Sole Trader or Limited Company: What’s The Difference?

putting money in a wallet
Corporation tax is important to understand.

To further elaborate, a firm that’s headquartered in the UK pays corporate tax on its profits from the UK and around the world, while an overseas company with branches in the UK only pays corporate tax on the profits it earns from its UK ventures. 

The Corporation Tax rate for the 2020/21 and 2021/22 financial years is 19%. A company is only excused from paying Corporation Tax if it registers a loss or if it does not engage in trading activities.  

Only businesses that are operating are obliged to present a company tax return. Nevertheless, for reasons of tax and yearly accounts filing, these firms need to maintain accounting documents. 

You could always pay the Corporation Tax bill to HMRC early as this would help you avoid any hefty late penalties and would give you the added reward of getting paid interest from HMRC for early repayment. 

Why Should You Pay It Early?  

HMRC pays you an interest known as “credit interest” at the annual rate of 0.5% as a bonus for paying your Corporation Tax in advance. HMRC will typically pay interest from the date you pay your Corporation Tax to the payment cut-off date. The earliest HMRC will pay you interest is six months and 13 days after the start of your accounting period. 

For instance, if your accounting period begins on 1st January 2021 and ends on 31 December 2021, you can pay your Corporation Tax any time between 13th July 2021 (which is six months and 13 days after the start of your accounting period) and 1st October 2022 (which is HMRC’s deadline for payment). 

A firm could be given an annual credit interest of 0.5% for the period 13th July 2021 to 1st October 2022. HMRC only approximates the Corporation Tax for this period because the business year has not finished yet. 

Please be aware that the interest revenue needs to be included in your company accounts and is taxable. 

Better Earlier Than Later 

Even Though you have nine months and one day to pay your Corporation Tax fees, if you are one day late, you still need to pay a fine, so don’t risk angering the HMRC. Paying in advance means you won’t be tempted to spend the money you owe to the taxman. 

paying with a credit card

What If You Made A Mistake? 

As we all know, HMRC are notoriously challenging to reach when they’re busy, so if you need to report any Corporate Tax errors you’ve made, it’s safest to get in touch with them as soon as possible. In the unlikely situation that something goes wrong, you need as much time as possible to solve the problem to avoid getting a dreaded penalty from HMRC. 

Are There Any Disadvantages To Paying Your Corporation Tax Early? 

The main downside of paying your Corporation Tax early is that you may have a shortfall in cash flow, and you won’t have the option of reinvesting the funds into your business, possibly even losing out on greater profits elsewhere.  

Therefore, paying your Corporation Tax will not make you rich or necessarily help your business grow, but you may feel warm in your heart when you know that your tax matters are in order. 

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

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