As a small business owner in the UK, managing your tax obligations efficiently is key to keeping your business running smoothly. One of the most important taxes for businesses is corporation tax. With HMRC increasing the interest rate for late payments, it’s crucial to pay your corporation tax on time. This guide explains how to pay your corporation tax online, what to do if you can’t meet the deadline, and more.
Quick Guide to Corporation Tax
Corporation tax applies to limited companies, certain co-operatives, and some other entities, but it doesn’t affect sole traders or business partners, who pay income tax via self-assessment. Here’s a quick rundown of who needs to pay:
- Limited companies
- Overseas companies with a UK subsidiary
- Co-operatives, clubs, or community groups
Corporation tax payment deadlines vary depending on the size and profits of the business. Small businesses, those with taxable profits of up to £1.5 million, have nine months and one day after the end of their accounting period to pay. For example, if your accounting period ends on 31 March, your payment would be due on or before 1 January.
For businesses earning over £1.5 million but under £20 million, payments are generally made in quarterly instalments. However, all payments must be made before filing your corporation tax return.
Since 22 August 2023, the late payment interest rate has increased to 7.75%. Businesses should aim to pay on time to avoid these high rates. If a business cannot pay on time, HMRC may offer time-to-pay (TTP) arrangements in special circumstances, which allow businesses to spread their tax payments over several months.
How to Pay Corporation Tax Online in the UK
There are three main ways to pay your corporation tax online:
- Direct Debit
- Online Bank Transfer
- Debit or Corporate Credit Card
Regardless of the payment method, businesses must use a 17-character corporation tax reference number provided by HMRC. This reference number is unique to each accounting period and changes with each one.
The fastest method for paying corporation tax is through an online bank transfer, using options like Faster Payments or CHAPS. Payments made via these methods are typically processed the same day or the next working day, as long as they are made on a business day. BACS is another option, though it can take up to three working days to process.
HMRC will specify which account your payment should go to. If you’re unsure, you can use the HMRC Cumbernauld account:
Account Name: HMRC Cumbernauld
Sort Code: 08 32 10
Account Number: 12001039
Alternatively, you can pay via HMRC Shipley:
Sort Code: 08 32 10
Account Number: 12001020
For payments via direct debit or credit card, businesses can modify their payment details on their HMRC account. Direct debit payments typically take around three working days to process.
What to Do If You Can’t Pay on Time
If your business is facing financial difficulties and cannot pay corporation tax on time, HMRC offers the time-to-pay (TTP) scheme. This allows businesses to spread their corporation tax payments over 6 to 12 months, easing financial pressure.
However, it’s important to use this option carefully. Once you enter a TTP agreement, you must keep up with both previous and future payments. Failure to do so could result in additional penalties from HMRC. Before applying for TTP, it’s wise to consult with a tax professional to ensure the plan is set up properly and you can adhere to the payment schedule.
Conclusion
Paying your corporation tax on time is essential for keeping your business in good standing with HMRC. With several options available for online payments, businesses can easily manage their tax liabilities. If you’re struggling to pay on time, consider applying for a time-to-pay arrangement, but make sure to plan carefully to avoid further penalties. If you have any doubts, don’t hesitate to seek advice from a tax professional to ensure you’re meeting all of your tax obligations efficiently.
