Late payment of corporation tax and other taxes attract additional interest. Starting August 2023, the late payment interest rate rose to 7.75%. HMRC, on the other hand, incentivises early payment by 0.5%. It is crucial for businesses to promptly pay corporation tax to avoid interest.
This article gives a quick introduction to UK business tax, covering how to pay corporation tax online, what to do if a company expects they cannot pay on time, and other relevant information.
Quick Guide to Corporation Tax
Does a sole trader pay corporation tax? Sole traders and business partners do not, as they pay income tax via self-assessment. Only the following entities must pay corporation tax in the UK:
- Limited companies
- Overseas companies with a UK subsidiary
- Co-operatives, clubs, or community groups
Payment deadlines depend on the business’ total taxable profits. Small businesses, with taxable earnings up to £1.5 million, have nine months and one day after the end of their accounting period to pay corporation tax. For instance, if their accounting period concludes on 31 March, their payment deadline is on or before 1 January.
Payments must be made before filing the corporation tax return. On the other hand, larger companies, with incomes between £1.5 million and £20 million and more, usually pay in instalments divided into 4 quarterly payments.
Beginning 22 August 2023, the interest rate on late payment of corporation tax is at 7.75%. Businesses must ensure they always pay tax on time. If they anticipate they cannot pay by the deadline, HMRC offers leniency for businesses in special circumstances through time-to-pay arrangements (discussed further below).
For more information about HMRC penalties on business tax, check out our article on corporation tax reliefs and penalties.
Our Corporation Tax Calculator UK is also a useful tool for small businesses to get a rough estimate of their corporation tax liability.
How to Pay Corporation Tax Online UK
There are three ways to pay corporation tax online, and they are as follows:
- Direct debit
- Online bank transfer
- Debit or corporate credit card online
In every online payment method, businesses must secure an updated 17-character corporation tax payment reference number relevant to the accounting period they are paying. This number changes every accounting period and is provided directly by HMRC.
The quickest method of payment is online bank transfer via:
- Faster Payments
- CHAPS
Given the payment is made on a business day, payments through Faster Payments and CHAPS are processed on the same day or the next. Bacs is another option, but it takes three working days at most.
HMRC will provide information on which account the business must pay into, whether Cumbernauld or Shipley. If uncertain, they can opt for HMRC Cumbernauld. Here are the details:
| Account Name | Sort Code | Account Number |
|---|---|---|
|
HMRC Cumbernauld |
08 32 10 |
12001039 |
|
HMRC Shipley |
08 32 10 |
12001020 |
For direct debit or credit card online payments, companies can amend their HMRC pay corporation tax online account. Once authorised, the direct debit payment will take 3 working days.
Check out our easy guide for beginners on how to pay corporation tax for other means of paying corporation tax.
What to Do If You Cannot Pay on Time
HMRC offers tax leniency to businesses in difficult situations, such as when they face insolvency and financial challenges, through corporation tax payment plan or time to pay (TTP) arrangement. This allows them to spread their corporation tax liability on instalments from 6 to 12 months.
Using time-to-pay arrangements must be properly planned, as once businesses enter into the agreement, HMRC expects them to keep paying both previous and future tax arrears on time. Not being able to keep up with the payments despite using the instalment method may attract heavier penalties from HMRC. It is highly recommended to consult tax experts before applying for TTP.
Frequently Asked Questions
Large companies in the UK, with incomes between £1.5 million and £20 million, pay via electronic instalments. If they have a 12-month accounting period, they can pay in 4 equal instalments.
Limited companies must pay corporation tax to HMRC every year within nine months and one day after the end of their accounting period. If they do not have corporation tax to pay, they must inform HMRC and file tax returns, nevertheless.
There are many ways to reduce corporation tax in the UK, such as claiming R&D reliefs, investing in plant and machinery, not missing out on tax filing and payment deadlines, and more. Businesses must work with tax professionals to effectively curb their tax obligations.
One day late payment incurs a penalty of £100; three months more, an additional £100; six months more, a 10% additional penalty of the total corporation tax bill, and one year after, another additional 10% penalty of the total bill (including accumulated interests).
The ‘accounting period’ for corporation tax refers to the duration covered by a company’s tax return. This period cannot exceed 12 months and typically aligns with the financial year covered by the company’s or association’s annual accounts. However, it may differ in the year the company is established.
Why Legend Financial for Your Tax Returns
To streamline your corporation tax affairs, Legend Financial is here to provide one of the most top-notch advisory services in the UK. We have assisted a lot of businesses from all niches for over ten years, providing businesses of all sizes with tax, accounting, business development, and financial services.
Our offices span around the UK, so you can trust us to provide you with both online and in-person presence and support. We do not just guide you on how to pay corporation tax online, but we also aim to curb your business tax liability and more. Talk to our corporate tax accountant today!
