Corporation Tax is the tax levied on the profits of limited companies. This includes foreign companies with a UK branch office. The current rate is set at 19% for the 2022/23 tax year.
A UK-based company pays Corporation Tax on its UK and worldwide profits, while a foreign company with a UK branch office only pays Corporation Tax on the profits it makes from its UK operations.
If a company makes a loss, or isn’t trading, it’ll pay no Corporation Tax. However, the accounting records will still need to be kept for preparing the annual accounts and any tax records needed. A company tax return is only needed if the company is trading. Read our handy article for full details on what you have to file, and when, as a limited company director.
Why should I pay Corporation Tax early?
HMRC pays you interest (the current rate is 0.5% as of 29/09/2009) known as ‘credit interest’ for paying your Corporation Tax early. HMRC will usually pay interest from the date you pay your Corporation Tax to the payment deadline. The earliest HMRC will pay interest is six months and 13 days after the start of your accounting period.
As an example, if your accounting period starts on 1st January 2022 and ends on 31st December 2022, you can pay your Corporation Tax any time between 13th July 2022 (which is six months and 13th days after the start of your accounting period) and 1st October 2023 (which is HMRC’s deadline for payment).
HMRC may pay you interest for the period 13th July 2022 to 1st October 2023 at the annual rate of 0.5%. The amount of Corporation Tax you paid would, of course, be an estimate as your company year was still in progress.
Please note the interest income needs to be included in your company accounts and is therefore taxable.
Early payment is better than late payment
Although you’re given nine months and a day after your company year end to pay your Corporation Tax bill, there are penalties to pay if you’re even a day late with your payment, so don’t risk the wrath of HMRC. Paying early means you’re not tempted to spend the money that you owe to the taxman.
What if I think there’s been a mistake?
HMRC are notoriously hard to get hold of when they’re busy, so if you need to inform HMRC of an error in your Corporation Tax, it’s best to get in contact with them as early as possible. In the (hopefully) unlikely scenario that something goes wrong, you’ll want as much time as possible to fix the issue, lest you receive a dreaded HMRC fine.
There’s further information on the Gov.uk website about interest and refunds of Corporation Tax.
What are the disadvantages of paying Corporation Tax early?
The main downside to paying your Corporation Tax early is the loss of cash flow and the opportunity of investing the funds back into your business, or even missing out on potentially higher returns elsewhere. So it’s not going to make you rich or really help your company grow, but maybe you’ll get a warm feeling inside from knowing that your tax affairs are all in order.
It’s best to speak to an accountant who can give you advice based on your situation, if you’re a Crunch client you’ve got unlimited access to your client manager and our team of accountants who can help you with any questions you might have. If you’re not yet a client, then why not get in touch to see how we could help your business? Alternatively, if you're a business owner looking for guidance, familiarise yourself with some of our handy resources, including our guide on paying corporation tax as a limited company.