Corporation Tax is the tax levied on the profits of limited companies.  This can include any foreign company if it has an office branch in the UK too.  For the 2018/19 tax year the current rate is 19%.

 

A limited company based in the UK will have to pay Corporation tax on all of its UK and worldwide profits.  A foreign company with an office branch in the UK will only pay Corporation tax on any profits it makes from UK operations.

A company will pay no Corporation tax if it is making a loss or is no longer trading.  However, the company will still need to keep accounting records in order to prepare the annual accounts and any tax records needed. If the company is trading, only then will it need a company tax return.

Our Milton Keynes accountants can help you with understand your Corporation tax, just send us a message and we will give you a call!

Why Pay It Early?

If you decide to pay your Corporation tax early, HMRC pays you interest (currently 0.5%).  They usually will pay this from the date you pay to the actual Corporation tax deadline. The earliest HMRC will be willing to pay interest from is six months and 13 days after the start of your accounting period.

For example, if your accounting period started on the first day of the year (1st January 2018) and ended on 31st December 2018, then you could pay your Corporation tax anytime from 13th June 2018 as this is six months and 13 days after the start of your business’ accounting period.  This can be paid anytime up until 1st October 2019 as this is HMRC’s deadline for payments.

The amount of Corporation Tax you paid would have to be an estimate if paid before as your company year would still be in progress.  HMRC can pay you interest for the entire period of when you pay until the deadline at 0.5% of your estimated annual rate.

The interest income needs to be included in your company accounts which is then therefore taxable.

Paying Early Is Better Than Paying Late

You are given a total of nine months and one day after your year ends to pay your Corporation Tax bill, so be aware that if your payment is even a day late, there are penalties so don’t take the risk.  Paying early means you aren’t tempted to use this money elsewhere in your business.

Mistakes

As you can imagine, HMRC get extremely busy all year round, particularly when taxes are due.  If you think there’s an error in your Corporation tax, get in contact with them as soon as possible.  You’ll want to be able to fix the error as soon as you can and hopefully prevent any fines you could potentially receive from HMRC.

Disadvantages Of Paying Early

Whilst there are benefits to paying your Corporation tax early, there are some cons too.  For example, if you pay early there is a loss of cash flow and you lost the opportunity to invest funds back into your business with this.  You could also miss out on potential higher returns elsewhere.

Don’t pay early thinking it’ll make your company grow or become more wealthy, do it so that you have one less thing to worry about!

Want advice from a specialist accountant? Contact our Milton Keynes accountants for some expert advice to help you make the right decision for your business.