Understanding how to pay corporation tax is crucial for compliance and avoiding penalties. As a limited company owner, you need to grasp the essentials of paying corporation tax to keep your business running smoothly and legally.
In this guide, we’ll break down the entire process, from filing your tax return to making your HMRC payments. We’ll also answer some frequently asked questions to clear up any confusion and help you stay on top of your tax obligations. Knowing how to pay corporation tax not only ensures compliance but also lets you focus on growing your business without unnecessary stress.
Let’s make the complexities of corporate tax manageable and straightforward. With the right knowledge and tools, paying corporation tax can be a seamless part of your business routine, leaving you free to concentrate on what you do best.
Understanding corporation tax liability
First, understand what corporation tax is and how your liability is calculated. Corporation tax is a tax on your limited company’s profits, whether from trading or investments.
This includes income from selling goods or services, rental income, and earned interest. You need to calculate your taxable profits, essentially your total income minus any allowable expenses. Allowable expenses can include salaries, rent, utility bills, marketing costs, and other business-related costs. The HMRC has extensive explanations to help determine allowable expenses.
Corporation tax rates
The current UK corporation tax rate is 19%, applicable to all companies, regardless of size or industry. To learn more about how to pay HMRC corporation tax visit the gov.uk website.
Tax accounting period
Another vital factor is the tax accounting period. This period, covered by your company’s financial accounts, determines your corporation tax deadline and usually aligns with your financial year. New businesses might have two accounting periods in their first year.
Understanding this early helps with tax planning. Use this UK government – corporation tax rate information to stay up-to-date. You can also learn more about making your tax payments via a Direct Debit through the government website as well.
When to pay corporation tax
Your corporation tax payment deadline depends on your company’s taxable profits. See the breakdown below.
Taxable profits up to £1.5 million
If your company’s taxable profits fall under this category, your corporation tax payment is due 9 months and 1 day after your accounting period ends.
Taxable profits over £1.5 million
Companies with taxable profits exceeding £1.5 million pay corporation tax in instalments. Different rules and deadlines apply based on the following taxable profit brackets:
- Between £1.5 million and £20 million – see details at: UK government – large company corporation tax
Over £20 million – refer to this resource: UK government – very large company corporation tax
Nil corporation tax payments
Companies with ‘nil to pay’ for the accounting period must inform HMRC. Ignoring this, assuming no action is needed due to no Corporation Tax due, could lead to future issues.
Inform HMRC that your Corporation Tax payment is not due by completing and submitting a ‘nil to pay’ form to HMRC, or send your payslip with ‘NIL due’ marked clearly back to HMRC.
How to pay corporation tax: your options
HM Revenue & Customs offers various corporation tax payment methods. Always pay HMRC by the set deadline to avoid interest charges. However, making early Corporation Tax payments to HMRC will make them pay you interest.
It’s best to pay on time. Below are convenient methods for paying your corporation tax; choose what suits your business best.
1. Online payments: fast and secure
HMRC provides a secure and easy way to make your corporation tax payment through their website, accessible 24/7. Payments are usually credited to your account within a couple of days, providing a buffer if a deadline is approaching.
This is highly recommended for those who prefer managing their taxes online. Online banking is a popular method for paying taxes, especially for those who run a small business. Debit cards are widely used as well when it comes to paying business tax.
2. Direct debit: set it and forget it
Setting up a Direct Debit is a reliable and straightforward way to make on-time Corporation Tax payments to HMRC. Payments usually clear three working days after debiting from your business account.
For newly set-up Direct Debit instructions, it will take five working days. The main benefit of Direct Debit is its automated payments, allowing you to focus on other business tasks. It is also helpful to know your taxable profit in order to know how to proceed with Direct Debit.
3. Bank transfer: tried and tested
Many business owners find a traditional bank transfer reassuringly familiar; this is where your Corporation Tax payslip is needed as it contains important HMRC information. It indicates whether your payment should be made payable to HMRC Cumbernauld or HMRC Shipley.
To approve your Corporation Tax payment using bank transfers, you have options depending on speed and cost. Bacs bank transfers typically take three working days.
Faster Payments, online and telephone, and CHAPS (most banks and building societies offer same-day CHAPS payment service, usually with a fee) are other options. Online and telephone transfers, if done via Faster Payments, usually reach HMRC’s account by the next working day. Online or telephone banking using Faster Payments or CHAPS guarantees same-day or next-day payment, although CHAPS might incur charges depending on your banking provider.
4. Debit or credit card: convenience comes at a price
While HMRC no longer accepts postal Corporation Tax payments, paying by debit or credit card offers flexibility; you can pay by corporate credit card online. However, small processing fees may apply with this payment method.
For instance, corporate card providers might charge between 1.4% to 2%. It’s best to check with your credit card provider beforehand to understand potential HMRC payment fees. The corporate credit card you use may have varying fees, so be sure to clarify before using it to pay.
5. Payment at your bank or building society
Another option for making your Corporation Tax payments to HMRC is at your local bank or building society, but only if they offer this facility, as these payment services vary. Not all banks are registered for Corporation Tax payments on HMRC’s behalf, so always check before going in person. These payments take three working days to clear. Make your payments before your banking provider’s cut-off time to avoid incurring a late payment.
Also, note the variations depending on your chosen payment method. Before initiating the bank transfer be sure that your bank account has sufficient funds.
Meeting corporation tax deadlines: avoid the crunch
Meeting corporation tax deadlines is vital for avoiding penalties and stress. As business owners, it’s easy for these deadlines to slip. Fortunately, several strategies can help you stay on track.
Mark your calendar and plan ahead
The UK government’s website has a wealth of corporation tax information and outlines payment deadlines. Note your specific payment deadlines (these vary based on the profit threshold) in advance. Planning ahead avoids last-minute scrambles often associated with tax deadlines.
Online HMRC account: Your tax hub
You have an HMRC online account for viewing up-to-date information, acting as a central tax hub to keep track of everything. You can even take a government survey on the website to provide feedback on their online services.
This includes notifications of further payments required. Plus, it’s an excellent way to quickly confirm HMRC’s receipt of your payment. The account offers peace of mind regarding your tax compliance status.
Seek help when needed
Limited companies in the UK face numerous taxes, each with potentially confusing deadlines. Thankfully, HMRC provides plenty of resources on GOV.UK.
These cover various topics, providing easy-to-understand explanations on payments, returns, rates, and more. If unsure, seek professional advice from a qualified accountant to discuss your Corporation Tax responsibilities; they can ensure you meet obligations and avoid issues.
Simplify corporation tax for your business with Ltd Companies
Does managing corporate tax sound overwhelming? Ltd Companies is here to simplify the process. Our experienced team understands the intricacies of how to pay corporation tax and ensures your business stays compliant with UK tax laws.
We handle everything from preparing and filing your tax return to making timely HMRC payments, taking the stress out of paying corporation tax.
With Ltd Companies by your side, you can focus on growing your business while we take care of your corporate tax obligations efficiently and accurately. Let us help you overcome the complexities of corporate tax with ease and confidence.
Conclusion
There you have it, your comprehensive guide on how to pay corporation tax. While it’s not a walk in the park, it’s far from impossible. It boils down to understanding the rules and planning.
HMRC is committed to simplifying this process, offering resources such as a dedicated phone service for how to pay corporation tax. The HMRC website also contains a wealth of information, presented clearly. And, of course, there’s always the option of seeking personalised help from a qualified accountant.
FAQs About How to Pay Corporation Tax
FAQ 1: How do I pay my Corporation Tax to HMRC?
Numerous methods exist for paying your corporation tax to HMRC. Some examples include online payments, Direct Debit, bank transfers (including online and telephone banking, Faster Payments, CHAPS), debit/credit card payments, and in-person payments at some banks or building societies. For detailed information, consult the gov.uk guide.
FAQ 2: Can you pay Corporation Tax by bank transfer?
You can pay Corporation Tax via bank transfer, with Faster Payments (usually completed by the next working day), CHAPS, or Bacs being the common ways to do so. Select the correct recipient — HMRC Cumbernauld or HMRC Shipley. Your HMRC Corporation Tax payslip provides these banking instructions.
FAQ 3: How is Corporation Tax paid in the UK?
Corporation tax in the UK is payable through various methods, including online payments via the HMRC website, Direct Debit setup, bank transfers, and payments at a branch if the bank or building society offers the service. Debit and corporate credit cards are also options.
FAQ 4: Do I pay Corporation Tax to Shipley or Cumbernauld?
Specific instructions on your Corporation Tax payslip detail the location for sending your Corporation Tax payment — HMRC Cumbernauld or HMRC Shipley.
