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A Step-by-Step Guide on How to Pay Corporation Tax

10th September, 2023

If you’re a business owner in the UK, you’ve likely heard the term “corporation tax” before. It’s a tax that limited companies need to pay on their profits.

Understanding how to pay corporation tax is an essential part of managing your finances and staying compliant with HM Revenue and Customs (HMRC).

In this blog post, we’ll be providing you with a step-by-step guide on how you can pay corporation tax. Read on for more.


1. Determine Your Corporation Tax Payment Deadline

The first thing you need to do is identify your corporation tax deadlines. For most UK businesses, this falls on the 9th month and 1 day after the end of your accounting period.

It’s crucial to be aware of this date to avoid late payment penalties. The penalty depends on how late you are. If your payment is up to 3 Months Late, HMRC charges an initial fixed penalty of £100, even if you don’t owe any tax.

If you pay it between 3-6 months late, you’ll face additional daily penalties of £10 per day, up to a maximum of £900.

For payments 6-12 Months Late, HMRC charges an extra penalty, which is either 5% of the tax you owe or £300 (whichever is greater).

If your payment is over a year late/ 12 months late, another 5% penalty is added, again based on the tax you owe.

To avoid these hefty penalties, it’s crucial to file your corporation tax return on time. At Haggards Crowther, we can ensure your payments are completed on time.


2. Determine How Much You Owe

Before you pay your corporation tax bill, you should figure out how much tax to pay. This involves calculating your company’s taxable profits.

You can do this by deducting allowable business expenses from your total income. If you’re unsure about what counts as an allowable expense, we recommend that you consult with a qualified accountant like Haggards Crowther.


3. Prepare Your Corporation Tax Return

In order to pay corporation tax, you need to file a corporation tax return with HMRC. This involves providing detailed financial information about your company. You’ll need to ensure you’re registered for corporation tax first.

You can submit your return online using HMRC’s online service or with the help of accounting software. Ensure that you are accurate and truthful in your declaration, as any discrepancies can lead to penalties.


4. Calculate Your Tax Liability

Once you’ve submitted your company tax return, HMRC will calculate the tax liability for your business based on the information you provided.

They will send you a Corporation Tax payslip, which outlines the amount you need to pay and the due date.


5. Pay Your Corporation Tax

Now that you know how much corporation tax you owe, it’s time to set up the payment. HMRC offers various payment options. Many people prefer to set up a direct debit. This makes it easier to pay what you owe, as it comes out of your account automatically on the due date.

Another easy way to pay HMRC is through online banking. You can use your bank’s online banking services to make a one-time payment to HMRC.

HMRC also allows you to pay your corporation tax through CHAPS or BACS. You can make a payment through the Clearing House Automated Payment System (CHAPS) or the Bankers’ Automated Clearing Services (BACS). This is usually the best option when paying large sums of money.

Finally, the most common option is via your debit card or credit card. Simply input your card details into HMRC’s portal and pay your tax bill. In some cases, you will be required to verify the payment via text message or through your online banking app.

However you decide to pay your corporation tax, ensure you make the payment by the specified deadline to avoid late payment penalties and interest charges.


6. Update Your Records

Once you have paid the corporation tax you owe, make sure that you maintain accurate records of the transaction and all supporting documents.

These records will be essential for future tax assessments and audits. Having your records all in one place will make your next corporation tax payment much easier.


7. Liaise With a Professional Accountant

As your business evolves, be sure to regularly review your financial situation and adjust your tax strategy accordingly.

Consult with a professional accountant like Haggards Crowther to optimise your tax planning and ensure you’re taking full advantage of available tax reliefs and allowances.

Paying corporation tax may seem complex, but by following these steps and seeking professional guidance when needed, you can navigate the process smoothly and ensure your business remains compliant with HMRC regulations.

Although you can prepare your own tax return, we always recommend that you seek the support of a professional. This is especially the case if you’re not completely confident in completing your corporation tax return.

At Haggards Crowther, our tax experts can provide you with all the tax advice and guidance you need. Likewise, if you’re a sole trader, we can assist with your Self Assessment Tax Return.

Whether it be regarding investment or managing losses and gains, we can be on hand to maximise your profits and ensure you avoid penalties. We can also review your company accounts to ensure you’re fully compliant, and everything is in order.

We’ll walk you through the entire process in an easy-to-understand manner, and be on hand to answer any questions you may have.

If you have any questions or need assistance with your corporation tax matters, don’t hesitate to reach out to Haggards Crowther, your trusted UK-based accountant.