If you are the owner of a limited business in the UK that is making a profit, the corporation tax is something that must be paid. It is one of the most crucial taxes you will have to pay, even though it may cause pain for many company owners.
Not only because it is an essential source of income for the UK government but also because of the significant penalties that may be levied against you if you made a payment late or miscalculated the amount due to the tax.
Especially for new businesses, managing this procedure may be difficult since it is often subject to adjustments and reforms, which occur regularly. We have explained ‘A Complete guide on how to pay Corporation tax UK’ so that you may better understand taxation.
What is corporation tax UK?
Limited corporations must primarily pay corporation tax UK as part of their annual tax obligations. In contrast to sole proprietorships, little businesses are exempt from paying income tax and national insurance.
However, limited firms are subject to paying corporation tax on the earnings of their operation after deducting any allowable costs. After wages and any other allowed business expenditures have been paid out of the earnings of a limited company, but before dividends have been taken out, corporation tax is charged to those profits.
What is the UK’s corporation tax rate?
The primary rate of paying corporation tax UK is currently fixed at 19 percent, which applies to all firm earnings. The rate will stay unchanged at its current level for the next two years, contradicting an earlier promise made by the government to lower it to 17 percent beginning in April 2020.
If your taxable gains are more than two hundred fifty thousand pounds after April 2023, you will be subject to an upper ceiling of twenty-five percent of those profits. You will be subject to a lower limit rate of 19 percent of your earnings less than £50,000.
This rate applies only if the previous threshold was met. If your earnings fall anywhere in the middle of the lower and higher limits, you will be subject to a marginal tax rate equivalent to 26.5 percent. Still, you will also be eligible for marginal relief.
Who pays corporation tax UK?
All UK limited corporations are required to pay corporation tax UK.
Even though they are not corporations, the following organizations could be required to pay it:
- Clubs, organizations, and organizations with members
- Associations for trade
- Housing co-operatives
- People working in groups to do business (such as co-operatives).
You won’t pay corporation tax if you operate as a single proprietor or partnership. Instead, you will use a self-assessment tax return to pay income tax on your earnings.
Even if the business engages an accountant to do its calculations, the company director is still responsible for ensuring the corporation tax return has been filed on time and the tax bill has been paid.
When does corporation tax need to be paid?
You have until nine months and one day following the end of your accounting period to make the payment for your Corporation Tax. Your accounting period is often the same as your fiscal year, depending on when your firm was established. You can have two accounting periods in the same year.
How to pay corporation tax?
You may pay your corporate tax due in several ways. HMRC must receive the funds before the due date regardless of your method to avoid a penalty.
Your payment must reach HMRC on the last business day before if your payment due date occurs on a weekend or a holiday. The following are the general payment deadlines for HMRC:
- CHAPS, internet, or telephone banking, are available for same-day or next-day payments
- A three-working-day window Bacs, direct debit, online credit or debit card payments at your bank or building society, and direct deposit
- If you’ve never established a direct debit previously, allow five working days.
- You must have the money on hand since you can no longer pay using a personal credit card.
What happens if your corporation tax payment is late?
The late payment of taxes by corporations is not subject to any penalty. What does have consequences, though, is failing to submit your tax returns on time. It is still necessary to submit your taxes on time, even if you cannot pay the required amount.
If you cannot pay the whole amount by the due date, you should get in touch with HMRC so that alternative payment arrangements may be agreed upon. For instance, financing options may be investigated, or HMRC could consent to a Time to Pay arrangement.
What happens if I cannot pay my corporation tax bill?
If you cannot pay your due tax, this will require you to contact HMRC. It will include all pertinent information about your account, the amount owed, and the appropriate phone numbers to contact.
Don’t disregard this since doing so will speed up the escalating process. Call HMRC and be open and honest about your financial situation. Push for the finest conditions they are willing to provide for your limited business and propose a payment schedule.
However, if you disregard their warnings, you should prepare for an escalation process that may include more threatening letters, a possible notice of enforcement action, or third-party bailiffs.
Additionally, late filing fees are subject to interest charges. In the end, HMRC may issue you a winding-up petition (if the debt is at least £750), which might result in the insolvency of your business.
What options do I have if I cannot afford corporation tax?
You must weigh your alternatives at this early stage and contact us for qualified counsel. The Company has a variety of alternatives, some of which may include the following:
Taxes Loss
If a corporation is having trouble with cash flow, it often has suffered trade losses during the current accounting period. You can be eligible for relief from corporation tax if your business has unpaid corporation tax from prior accounting periods and is now experiencing a loss in trade.
You may get this loss relief by balancing it against other gains or profits made during the same accounting period, or you can carry the tax loss forward and apply it to earnings made over the previous 12 months.
Tax Finance
It can be feasible to receive tax financing to cover the tax burden if there is insufficient cash flow to cover the corporate tax obligation. The lender is likely to demand security against corporate assets or directors’ personal guarantees.
Although this is a possibility, it may be costly since the firm would have to show that its cash flow will grow to repay the tax loan, in addition to the lender’s interest rate.
10 Ways to reduce corporation tax-
1. Avoid skipping deadlines
Certain tax reliefs, such as capital allowances, patent box relief, and R&D tax reliefs, are often available to businesses two years after the end of an accounting period. Before it’s too late, businesses should check to see whether they have claimed all of the reliefs to which they are entitled.
2. Invest in equipment and plants.
The “Annual Investment Allowance”, which enables a firm to claim immediate tax reduction on acquisitions of certain business assets up to a predetermined level, is available to companies. The AIA was raised to £1 million on January 1, 2019, allowing businesses who invest in qualified products to deduct a sizable portion.
3. Remember to submit all business costs.
Although it may seem apparent, don’t forget to include any costs in your accounting records. Directors sometimes spend money on the company’s behalf without properly documenting their costs in the financial records.
4. Director compensation
Business owners should utilize their allowance wisely by combining their dividends and paying to minimize their tax liability.
5. Contributions to a pension
Companies may often deduct pension payments made on behalf of workers or directors from their earnings. To get relief, payments must be paid before the end of the accounting month.
6. Perks for working from home
When you work from home, HMRC will let you deduct some of your living expenses to cover the extra expenditure of heating and lighting the workspace. Additionally, there may be higher fees for services like insurance, phone calls, and internet access. Starting, an employer contribution of £4 per week is okay.
7. Support for creative industries
Several attractive tax breaks are available for the video game industry and other creative businesses. One of eight tax reliefs available to qualified businesses in the creative sectors, the video games tax relief (VGR) entitles them to lower Corporation Tax rates.
8. File all applicable loss relief claims
Make sure your company is using any loss reliefs that are offered. A firm may experience several losses, but under specific conditions, those losses may be carried back to a prior year, carried forward against future earnings, or even surrendered to another group company.
9. Training and subscription fees
The firm may cover training and subscription fees without the benefiting employee paying income tax, provided they are related to the business’s operation. The expenses may be tax-deductible for the business, allowing for tax-free employee development.
10. Investing in an Employee Party
An annual work party may cost up to £150 per head and be tax deductible for both the employer and the employees. This may be tax-efficient to thank employees while fostering a positive work environment.
Corporation Tax Reliefs
Various additional corporate tax reliefs may reduce your company’s tax obligation.
R&D tax reduction
Research and development (R&D) expenses that qualify for tax relief are exempt from corporate taxes. To be eligible for R&D relief, you do not necessarily need to work on cutting-edge technologies.
With this R&D tax break, you may exclude these expenses from your trading revenue and claim up to 130 percent (a total of 230 percent) as a company tax break that can be subtracted from trading earnings.
Corporation tax relief allows loss-making businesses to raise their losses, which they may offset against current or future earnings or claim as a cash tax credit. For big businesses, the regulations are a little different.
Patent Box plan (Intellectual Property)
Companies who have revenue that is due to qualifying patients that they either own or get an exclusive license to commercial may take advantage of a tax break known as the “Patent Box,”
It reduces the amount of corporation tax that they are required to pay on such income by 10%. Within two years after the conclusion of the accounting period whereby the earnings pertain, you must submit an election in your tax return.
FAQ-
Can Corporation Tax be paid online?
Yes, you have the option to pay online. A charge is associated with your transaction when you pay using a corporate credit card or debit card. There will be no compensation for the expenses incurred. There is no charge assessed when you pay using a personal debit card.
Can I pay my Corporation Tax from my personal account?
When it comes to the payment of corporate tax payments, you should be aware that HMRC ceased taking personal credit cards as of the 13th of January in 2018.
How do I find my Corporation Tax reference number HMRC?
Your reference number may be found here:
- on any reminders, you get from HMRC or on your “notice to produce your tax return.”
- Select the appropriate period for your business under “View Corporation Tax Statement” in the HMRC online account.
Do I need to file a corporate tax return if had no income?
If you get a “notice to provide a Company Tax Return” from HM Revenue and Customs, your business or organization must submit one ( HMRC ). Even if you have a loss or no Corporation Tax to pay, you must still submit a return.
Do sole traders pay Corporation Tax?
In the UK, corporation tax will apply to all limited companies. Corporation tax is not due by sole proprietorships or partnerships that conduct business.
How do I pay my limited company tax UK?
Corporation Tax payments may be made online, in-person at a bank, or via the mail. If a same-day payment is necessary, the Corporation Tax bill may be paid through CHAPS, online, or over the phone.
Conclusion
When it comes to paying corporate tax, it is in everyone’s best interest to be as organized as is humanly possible to prevent being surprised. If you follow the advice we have provided above about paying corporation tax UK, you should have all of the information needed to file your tax return and make your payments promptly.
