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How do I pay my Corporation Tax

How Do I Pay My Corporation Tax?

Are you wondering, how do you pay your corporation tax? Do you know why a company gets subject to corporation tax? To understand the UK’s corporation tax rates, we need to identify what type of company is subject to corporation tax.

Corporation tax is the estimated tax that a company pays each year as corporate income tax.

Corporation Tax in the UK is an intelligent way to tax businesses. It has seen a lot of changes over the years, with HMRC playing a significant role in making changes. However, VAT is taken less seriously, so you may consider increasing your rates to attract more customers and increase sales.

Nonetheless, it is an issue that should be addressed by maintaining open lines of communication with them. We’ve compiled this complete guide to Corporation Tax to ensure you’re correctly informed.

Let’s get started:

What is Corporation Tax?

Corporation tax is a tax on the annual profits of UK-resident companies and branches of foreign companies. The UK Corporation Tax rate for all limited corporations is 19% and has been maintained since April 2016.

Corporation Tax is payable on the annual income of all taxable UK limited corporations. But Corporation Tax duties can also extend to unincorporated organisations such as co-operatives, trade and housing groups, and members clubs or associations.

The company’s directors are responsible for ensuring that Corporation Tax returns are filed with HMRC, and all taxes are paid on time. While many businesses employ tax specialists to prepare Corporation Tax returns, the legal obligation remains with the company’s directors.

Types of Corporations

A corporation is a type of business entity owned by its shareholders (owners). Corporations are taxed in one of two ways.

C corporation

They are generally taxed on their income, and owners are taxed on these earnings when they are distributed in payments or when the shareholder sells the stock.

S corporation

They are typically taxed on their income, and shareholders are taxed on their proportionate share of the S corporation’s taxable income regardless of whether distributions are made.

When am I required to pay Corporation Tax on my business?

The deadline for paying Corporation Tax varies according to the income earned by your business. If your taxable profits are less than £1.5 million, you have nine months and one day from the end of the accounting period to pay the Corporation Tax payable. 

Generally, the accounting period refers to the financial year in which your organisation operates. If your taxable profits exceed £1.5 million, you must pay HMRC in instalments. You can do it every three months after the first instalment.

How to Pay Corporation Tax?

HMRC accepts payment of Corporation Tax in a variety of ways. If you miss a deadline, you will be responsible for the interest on the unpaid balance.

However, if you pay your Corporation Tax early, HMRC will pay interest to your business.

Corporation Tax may be paid electronically, in person at the Post Office, or through your bank. It is dependent on how quickly you require HMRC to clear your payment. You must always mention your 17-digit Corporation Tax reference number for the accounting period you are paying.

Suppose you wish to pay your Corporation Tax on the due date. You must make payment using the Clearing House Automated Payment System (CHAPS), online, or by phone (Faster Payments). Most high street banks that provide online business accounts will accept same-day transactions to HMRC.

Payments are typically received by HMRC the same day or the following day, including weekends and bank holidays. 

CHAPS payments are often received by HMRC the same business day if sent within your bank’s processing timeframes. If you need to pay corporation tax within three working days, you can use BACS bank transfers, Direct Debit, or online payment using a credit or debit card. This electronic system makes payments directly from one bank account to another.

If you pay at a Post Office or a bank, the same period applies. If you pay at a bank or Post Office, you must provide your Corporation Tax payslip sent by HMRC.

If you intend to set up a Direct Debit for this and future Corporation Tax payments, it will take five days to reach HMRC and process.

HMRC will update your account with your current payments within a few days of paying HMRC, depending on your payment method. You may verify if your account has been updated with your payment by logging into your online HMRC account.

What Happens if I Am unable or avoid paying my Corporation Tax?

If you pay Corporation Tax late, insufficiently, or not at all, HMRC will assess interest on your business. Interest is charged daily starting the day after the tax is due. This usually is nine months and one day after the end of your accounting period.

HMRC charges daily interest at 2.75 % on late payments of taxes and overdue penalties. Interest is charged on all overdue amounts from the date they become due and payable until the payment is made. 

Previously, HMRC applied the fee after the end of the tax year; however, all interest costs are now applied immediately upon receipt of full payment.

If you cannot pay your company tax, HMRC will quickly report the situation to the Enforcement Team. They’ll begin sending payment demands to your address.

Because Statements of Account do not include detailed interest calculations, it is worthwhile to make payments as quickly as possible and keep an eye on the balance you owe.

If you are aware that you will be unable to fulfil the tax deadline, you should contact HMRC’s helpline immediately.

It is critical to understand what HMRC will ask when you speak with them, and so you must consult with your accountant before this interaction.

HMRC will want current management accounts and cash flow predictions for estimated tax payment. To determine how much of the tax liability you can pay immediately and how long the remaining balance may take to pay.

FAQs

Is it possible for me to pay Corporation Tax from my account?

When paying your corporation’s tax bill, you have three payment options: business credit card, business debit card, or personal debit card. The primary reason you should utilise a company card is that it simplifies accounting administration.

Can you pay corporation tax in instalments in the United Kingdom?

Corporation tax is required annually, and for businesses with profits of less than £1.5 million, it should be paid in one lump sum. Corporation tax is usually paid in four instalments by businesses with profits above £1.5 million.

Conclusion

It is preferable to resolve business income tax issues as soon as possible, whether you have a large or small business.

Corporation Tax is a legal requirement if your business is registered as a limited company. Following submitting your accounts to HM Revenue & Customs (HMRC), you must pay Corporation Tax on any profits earned during the financial year.

The UK corporation tax system seems complicated, but it is pretty simple to know how to pay corporation tax. UK company owners should understand the responsibilities of paying corporation tax and the consequences of not paying. It is essential to know everything about your corporation’s tax information.

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