Easy Guide for Beginners on How to Pay Corporation Tax

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A direct tax collected as a source of income from business entities by the government is referred to corporate/corporation tax. Corporation tax is indicted in reverence of accounting periods, and a period of accounting (12 months) is the one a company prepares its accounts for. It occurs when a company either commences or ceases trading or whenever it changes its accounting date.

Companies’ resident in the UK are chargeable to corporation tax on worldwide income and gains. Are you contemplating on how to pay corporation tax? This article will give you a thorough insight on the imperative concepts related to Corporation Tax and guide you on how to place a payment given the different methods set by the HMRC.

What are the Tax Rates, and When to Pay Corporation Tax?

The tax rates used are for the Financial Year, which starts from April 1 to following March 31.”

For 2021/22, the Corporation tax rate is set at 19%. Tax is charged on taxable income at the basic rate up to the basic rate limit, set at £37,700. Tax is charged at the higher rate on taxable income between the basic rate limit and the higher rate limit, set at £150,0001. 

You should pay your corporation tax return at some point between the date of your company year-end and your legal, due date. The statutory due date is either 12 months after the year-end, or three months once you receive a warning to deliver a profit from HMRC – any is latest. Nevertheless, it will be obligated to pay your corporation tax bill beforehand your return is due.

You will have to pay the corporation tax within nine months and one day after the closing of your accounting year. Let’s take an example, if your year of accounting ends on April 30, your corporation tax payment will be due on February 2 of the following year, though your tax return will be due after three months.

What methods can be used for Paying Corporation Tax?

Allow time for your payments to get through HMRC.”

If you know when to pay your corporation tax and how much do you owe to HMRC in tax, just remember you need is to allow time for your payment to get through HMRC. Otherwise, get ready to pay the penalty for being late. Following are the methods for paying your corporate tax2:

Same-day or next-day

  • Online or Telephone Banking
  • CHAPS

You will need to pay by CHAPS (system to pay time-critical payments on the same day), online, or telephone (Faster Payments) – online same-day transfers to HRMC will be supported by most high-end banks. You will either need to pay HMRC Cumbernauld or HMRC Shipley – your Corporation Tax payslip with tell you which one. If in doubt, pay HMRC Cumbernauld.

Sort number Account number
HMRC Cumbernauld
083210
12001039
HMRC Shipley
083210
12001020

Three working days

  • BACS
  • Direct Debit
  • Online by Debit or Corporate Credit Card
  • At your Bank or Building Society

BACS (Bankers Automated Clearing System) it takes around three working days for bank transfers, Direct Debit, or paying online with your credit or debit card usually. The same amount of time applies if you pay at the Post Office, a bank, or building society. If you pay at the Bank, Post Office, or building society, you will need the payslip sent by HMRC for your corporation tax.

Five working days

  • Direct Debit Card
If you are new to filing the return, you will need to set a new Direct Debit for corporation tax, which takes almost five days in order to process your payment to HMRC.

Who is liable to Corporation Tax?

Corporation Tax comprises of the gains your business makes from3:

  • Profits trading
  • Investments
  • Chargeable gains on selling assets

If your business is formed in the UK, it remunerates Corporation Tax on all its gains from the UK and overseas. Business is UK resident if;

  • Incorporated in the UK. Example Ltd or plc
  • Centrally managed and controlled from the UK. For example, Inc, which is incorporated overseas, but the majority of its directors are residents of the UK, including the board meetings held in the UK.

Your company will only pay corporation tax to HMRC only from its activities in the UK.

Penalties for being late on your Corporation Tax

Paying a company’s liability by quoting the full payment reference is obligatory to  the director itself.”

The HMRC would be onto you for paying the tax if you tried to quote the wrong or no reference in your liability. You can make amendments to this by communicating with the Collector of Taxes with all the details of your payment and your correct payment reference, and they will then reallocate your payment against your company’s liability. Interest on underpayment will still be due on you.

Following are the penalties for your novice behavior by the HMRC; 

a) For Late Tax Returns

Following penalties have been set by HMRC if you are late for filing the tax return:

  • £100 fine being late for one day
  • Another £100 fine for three months
  • After a period of six months, HMRC will evaluate your bill and add a 10% penalty onto what it considers your unpaid tax will be.

b) Late corporation tax payments

Interest will be charged on the amount you owe to HMRC or you have to pay the penalty if you are late in paying the tax. HMRC has the power to carry out an action to recuperate any money due, which includes:

  • Owed money will be deducted through your earnings or pension.
  • If you have assets in England, Wales, or Northern Ireland, they will be sold by the debt collecting organizations on the orders of HMRC.
  • HMRC will close down your business by taking money from your bank accounts and taking you to courts. Then, you will be filing for bankruptcy. 

Note: If you can’t afford to pay, HMRC suggests contacting them as soon as possible.

c) False information

If you file a company tax return and it’s found to be inaccurate, HMRC will definitely fine you. How much you have to pay depends on whether HMRC believes the mistake was deliberate, whether you tried to hide it, and whether you voluntarily admit to it before HMRC finds out. If HMRC decides:

How much you have to pay depends on whether HMRC believes the mistake was deliberate.”

  • If you admit your carelessness, you could be charged between 0-30% of your tax bill. If HMRC catches you, this penalty will range between 15-30%.
  • If you deliberately provided false information but it was not hidden, around 20-70% of the fine you will be facing. But, if HMRC uncovers your cleverness, this fine will be 35-70%.
  • If you deliberately hide your returns, you will have to pay a penalty of 100% profit.

Corporations don’t pay the corporation tax. Why? Because, a corporation is not an individual. It is a relationship between managers, workers, consumers and shareholders. Government can tax a relationship, but relationships don’t pay. So, it is imperative to stay updated regarding your financial matters because all you want is to earn a better livelihood. For which, you should be paying Corporation Tax in time.

If you have questions that were not addressed in this article, feel free to send us a message. It’d be our pleasure to answer your queries. If you are having difficulties in processing your corporation tax, Legend Financial has a team, prudent to giving best advice to our clients. Please book a schedule with one of our experts today by clicking the button below:

Works Cited 

Corporation Tax. (n.d.). Retrieved from Gov.uk: https://www.gov.uk/corporation-tax

Pay your Corporation Tax bill. (n.d.). Retrieved from Gov.uk: https://www.gov.uk/pay-corporation-tax

Seely, A. (2021, April 2). Corporate Tax Reform. Retrieved May 16, 2021, from House of Commons Library https://commonslibrary.parliament.uk/research-briefings/cbp-9178/

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