Running a successful Limited Company means you will have to pay Corporation Tax annually on your company’s profits.
When you reach the end of your Limited Company’s financial year, you have nine months and one day from the end of your accounting period to pay your Corporation Tax on your profits. The quickest way to pay HMRC is online at the HMRC website, but there are multiple ways to pay.
What is Corporation Tax?
Corporation Tax is the tax payable to HMRC calculated from the profit your Limited Company makes in a financial year. When you start trading as a Limited Company, one of the first actions you must take is to register for Corporation Tax with HMRC.
As soon as you buy, sell, advertise, rent a property or employ a member of staff, you have officially started trading and have three months to register for Corporation Tax. If you register late, you are likely to be fined.
As well as paying Corporation Tax on your trading profit, you must also pay tax on investments and any profits made on selling assets such as land, property, or machinery.
The current rate of Corporation Tax in 2022 is 19%.
When Does Corporation Tax Have to be Paid? When is the Deadline?
Corporation Tax must be paid within nine months and one day of the end of your financial year. Your financial year is calculated when you start trading – Companies House will start it from the last day of the month that your company was set up.
When your financial year ends, you’ll need to calculate your Limited Company’s profits, prepare your annual accounts and complete a Corporation Tax Return. Be warned – this isn’t a process for the untrained eye and is best left to a professional accountant or tax expert.
Once you have completed your Corporation Tax Return, you will know how much to pay HMRC, who will tell you the exact deadline for paying. You can also view the deadline in your Government Gateway account if you register for one with HMRC.
You actually need to file your company’s tax return after the Corporation Tax has been paid. Therefore, the tax return will have a later deadline of 12 months after the end of your financial year.
How To Pay HMRC Corporation Tax
Paying HMRC your Corporation Tax bill is relatively simple and today is most commonly done via the HMRC website. You can pay using the following methods:
- Online/Telephone banking
- Online at the HMRC website via debit or credit card (corporate – not your personal card)
- CHAPS
- BACS
- Direct Debit
- At your bank or building society
If your company has made more than £1.5 million in profit, it will be required to pay the Corporation Tax due in installments. The dates for these payments depend on your company’s size and the accounting period’s length.
What is the Corporation Tax Rate in the UK?
The Corporation Tax rate in the UK in 2022 is 19% and is the same for all businesses. Previously in 2016, the rate was 20%, and before that, it depended on how much profit your company made.
Corporation Tax is set to rise in the future. In 2023 Corporation Tax will increase to 25% for businesses that make more than £250,000 in profit.
Small businesses that make less than £50,000 in profit will still only pay 19%, though, and businesses with profits between £50,000 and £250,000 will be able to claim marginal relief on their Corporation Tax (a gradual, tapered increase in the tax rate).
What Are The Penalties for Not Paying On Time?
The penalty for not paying your Corporation Tax on time is known as ‘late payment interest.’
This means HMRC will charge your company interest on the payment owed if it is not paid on time. The interest is now charged at 3.5% per day, as of 24 May 2022.
The interest you have to pay can be declared as a company expense and is tax-deductible for the purposes of calculating your next Corporation Tax Return.
What Corporation Tax Allowances are Available?
When calculating how much profit you must pay tax on, Corporation Tax Allowances are costs to your businesses that you can deduct from your profits.
They effectively enable you to lower the tax you must pay.
Corporation Tax Allowances include expenses such as mileage, accommodation, and employee salaries. There is a long list of allowances available, but they must be wholly for business use – that cannot be partly for personal use. This is known as a benefit.
There are a few expenses that do not qualify – such as business entertaining – but you can be eligible for allowances for charity or sponsorship payments.
You cannot claim for equipment that your business buys and keeps in the business – such as vehicles or machinery. Instead, you may be able to claim capital allowances. In most cases, you can claim the full cost of the equipment – but different types of expenditure qualify for different capital allowances.
You won’t be able to claim for items leased or used for entertaining – for example, a yacht bought by the company to entertain clients.
What Corporation Tax Reliefs are Available?
Corporation Tax Reliefs are also available to companies, designed to reduce Corporation Tax for qualifying companies. They include:
- Research & development. This is an increasingly popular form of relief. If your company has conducted important research or developed a new innovative product, then it may qualify for tax relief if it can be shown that you have advanced science or technology.
- Profit from patents, known as the Patent Box. If you have generated profit from patented profits or services, you may be able to reduce your Corporation Tax to 10% on these profits.
- Staff party. If you provide a staff party in the summer or Christmas at the cost of up to £150 each, this is tax-free for staff and deductible for the company.
- You can also claim relief on losses that your business makes.
- Change of structure – if you change from a Limited Company to a Sole Trader or Partnership, you could qualify for tax relief.
Final Notes on How and When to Pay Corporation Tax
Paying Corporation Tax is one of the cornerstones of running a Limited Company and the main tax that a business must pay annually, within nine months, and a day of the end of your company’s financial year.
A well-run business will be prepared for this annual cost and will be aware of tax-deductible expenses, allowances, and reliefs that can reduce the cost of Corporation Tax. If you need advice on how to make the most of these and bring the amount you need to pay down, Future Strategy is well-placed to advise you.
