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If you miss your corporation tax payment deadlines, HMRC will charge interest on the outstanding amount. This interest keeps on accumulating the longer the payment is overdue. This article will decode the interest on late payment of corporation tax and give you tips on how to avoid late filing. It’s crucial to understand these penalties to fully appreciate the importance of timely payments.
What is Interest on Late Filing of Corporation Tax?
Late, missing, or insufficient payment of corporation tax all come with their own set of penalties. Interest is charged on these penalties by HMRC, and it is called “late payment interest on corporation tax.” The interest starts automatically from the day after the payment deadline and is similar to how businesses charge interest on overdue invoices.
From 25 February 2025, HMRC’s official rate of interest will be 7.0%.
How is This Interest Rate Determined?
The interest rate for late payment of tax is set by HMRC and is linked to the Bank of England’s base rate UK. When the base rate changes, HMRC adjusts its interest rates accordingly.
The HRMC interest rate (2024/2025) for late payment of corporation tax is base rate plus 2.5%
Tip: There is also a repayment interest that compensates those who overpay. From 25th February 2025, this will be set at 3.50%.
Challenging an Interest Charge
Whilst interest charge cannot be formally appealed since it is automatic, you can submit an interest objection and request a review. There is no guarantee that your objection will be upheld, but submitting a well-supported case will increase your chances of a fair reconsideration.
When Do You Need to Pay Your Corporation Tax?
The deadline for paying corporation tax depends on your company’s accounting period. Generally, you must pay your taxes nine months and one day after your accounting period ends.
For instance, if your accounting period ends on 31 March, your corporation tax payment is due by 1 January 2025. However, if your company’s taxable profits exceed £1.5 million, you will pay in quarterly instalments instead of a single payment.
Quarterly Instalment Payments (QIPS) for Larger Businesses
The QIPS plan for larger businesses helps HMRC collect tax progressively throughout the year rather than in one lump sum. Payments are spread over four instalments within the accounting period. The first payment is due after six months and 13 days and subsequent payments are made at three-month intervals.
For businesses with profits over £20 million, payments are due even earlier. These payments start in the third month of the accounting period.
Corporation Tax Late Payment Penalties (Latest)
Businesses must meet their tax obligations, including VAT, NICs, capital gains tax, and PAYE, on time to avoid late payment interest. You must still file a tax return even if you have no corporation tax to pay or have made a loss for the year. If you miss the filing deadline three times in a row, penalties rise to £500.
If your tax return is over 6 months late, HMRC will estimate your corporation tax (a tax determination) with no appeal option. You must pay this amount, but you can replace it by filing your return and paying the correct tax (with any penalties and interest).
| Time After Due Date | Penalty |
|---|---|
|
1 day |
£100 |
|
3 months |
Another £100 |
|
6 months |
10% penalty on your estimated unpaid corporation tax bill |
|
12 months |
Another 10% of any unpaid tax |
If corporation tax remains unpaid, HMRC can issue a winding-up petition, leading to compulsory liquidation.
How Late Tax Payments Lead to Insolvency
Repeated late tax payments can push your company toward insolvency, a state where its financial obligations are no longer met. In such cases, a Company Voluntary Arrangement (CVA) can help restructure debts and avoid forced liquidation.
As part of AML (Anti-Money Laundering) regulations, non-compliance with tax obligations can raise red flags for financial misconduct. So, it is crucial that your company should prioritise tax payments and explore debt management such as TTP arrangement to avoid insolvency.
5 Tips to Avoid Late Tax Payments
Proactive planning and being organised are key to avoiding late tax payments and penalties. With a few smart strategies, you can maintain financial stability and keep your business running smoothly.
- Update records regularly, not just at year-end. Use cloud-based accounting software for tracking income and expenses.
- Work with a corporate tax advisor for guidance. Stay aware of all tax deadlines to file timely.
- Set aside money in a separate tax savings account. Include taxes in your business budget to avoid shortfalls.
- Conduct regular financial reviews to spot issues early. Assign clear responsibilities for handling tax payments.
- If you anticipate difficulties in paying on time, contact HMRC for a QIPS agreement as early as possible
It is important to learn from past mistakes and understand why payments were late. Follow the above steps to make timely arrangements for filing your corporation taxes and stay updated on changes in tax laws.
Frequently Asked Questions About Late Tax Interest
Is interest on late payment of corporation tax allowable?
Interest on overdue corporation tax is usually an allowable deduction against your business profits, reducing your overall corporation tax liability. However, it must be a genuine business expense, and accurate records are crucial.
What happens if I overpay my corporation tax?
If you overpay your corporation tax, HMRC will issue a repayment to your company. They will also apply the overpayment to future tax liabilities.
Do I get credit interest if I pay corporation tax early?
No, HMRC does not pay credit interest on early corporation tax payments.
What is the Late Payment of Commercial Debts Interest Act 1998?
The Late Payment of Commercial Debts (Interest) Act 1998 allows businesses to charge other business customers’ interest on overdue accounts and to obtain compensation. It is a legal framework for charging interest on late payments for commercial debts.
Never Miss a Tax Deadline with Legend Financial
Missing tax deadlines can lead to penalties, cash flow issues, and financial stress. Without proper planning, your business will be dealing with unexpected tax bills, leading to compliance risks. Legend Financial helps businesses like you stay on top of their tax obligations. Our proactive tax planning services help you avoid penalties and interest on late payment of corporation tax.
Partner with Legend Financial. Book a call with us today!
