Corporation Tax and the Benefits of Paying it Early

Corporation tax is a tax on earnings made by limited liability companies. This also comprises foreign corporations with a branch office in the United Kingdom. For the tax years 2021/22 and 2020/21, the current rate is fixed at 19%. 

A UK-based firm pays Corporation Tax on both its domestic and international profits, whereas a foreign corporation with a UK branch office only pays Corporation Tax on its domestic profits.

Corporation Tax is not payable if a business makes a loss or ceases to trade. The accounting records, on the other hand, will need to be kept in order to prepare the annual accounts and any tax documents that may be required. If your business is open for business, you'll need to file a tax return.

Why should I pay Corporation Tax early?
HMRC (HM Revenue & Customs) gives you credit interest if you pay your Corporation Tax early; you are eligible for a 0.5% credit interest should you pay your Corporation Tax early. HMRC will normally pay interest from the time you pay your Corporation Tax until the deadline for payment. HMRC will pay interest six months and thirteen days after the beginning of your accounting period.

Additionally, it is advised that your business’ interest income must be accounted for in your business's books as this is taxable.

How can I pay Corporation Tax?
There are many ways to pay Corporation Tax and that includes:

  • Online or by telephone banking;
  • CHAPS (Clearing House Automated Payment System);
  • Bacs;
  • Direct Debit;
  • Online by Debit or Corporate Credit Card;
  • Bank or Building Society.

Keep in mind that your business cannot pay Corporation Tax by post. 

Ensure that you pay HM Revenue and Customs on time. If you do not pay on time, they may charge you interest. As mentioned previously, if you pay your tax early, they will pay you interest of 0.5%.

If a mistake has occurred, we would advise you to inform HMRC as soon as possible. 

What happens if I don’t pay Corporation Tax?
If you are unable to pay corporation tax, HMRC is willing to hear from struggling firms, and the first step is to speak with them and put your case in writing. You can contact HMRC's Business Payment Support Service if this is your first time contacting them about this issue as well. 

HMRC will not provide an exception for non-payment of Corporation Tax due to the pandemic in most cases, as the very existence of a Corporation Tax bill indicates that the company made a profit and can pay.

Can I get a refund if I have paid more than what is owed?
If your business or organisation overpays Corporation Tax, HMRC will refund the excess and may possibly pay interest of 0.5%. 

To do this, you must complete a Company Tax Return to inform HMRC that your business is eligible for a Corporate Tax Refund (also known as repayment) and how you would like to be paid. 

HMRC will immediately return what you owe into your bank account if you enter your bank details (account number and sort code) on your Company Tax Return. If this is not the case for your own business, then HMRC can repay the amount due in many ways including:

  • Other taxes your business owes;
  • Your next corporation tax bill or for a late filing penalty.

You'll receive repayment confirmation in your company tax system if any part of your repayment is utilised to cover HMRC debts. After you've paid the tax you owe, you'll be refunded the balance. After you've paid the tax you owe, HMRC will return the total amount left for the refund. 

Are there any disadvantages of paying Corporation Tax early?
We have highlighted the advantages of paying this specific tax early but there are also disadvantages of paying early. 

As we have mentioned, it is always advised to pay your Corporation Tax on time but within the context of paying them too early may be disadvantageous in the sense that your business’ cash flow may be interrupted as this money could have been invested in a profitable place. 

Contact Persona Finance now for more expert advice and information about Corporation Tax at [] or for other business/ accounting services.
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