Managing corporation tax payments is a non-negotiable aspect of running your business. Find out to plan for corporation tax and how the right financing can help you stay on top of payments.
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If you’re running a UK business as a limited company or unincorporated association, you will be subject to corporation tax. Planning, saving for and paying your corporation tax bill is a key part of keeping your business compliant and solvent, and the better you understand the process of corporation tax payments, the easier it will be to manage.
This article walks you through the ins and outs of corporation tax payments, from understanding instalment options and payment methods to navigating quarterly thresholds. We'll also discuss what to do if you can’t make your payments on time and how financing can support you.
Corporation tax is a levy imposed on the profits of limited companies operating in the UK, as well as some unincorporated organisations such as clubs and associations. It applies to:
Unlike personal tax, businesses do not receive a tax bill from HMRC. Instead, you’re responsible for calculating the amount owed, filing returns, and making payments by the deadlines.
The payment dates and rates will depend on the size of your business and your turnover.
Here's a breakdown of the current rates – note that these apply to your profits, not to your turnover.
If your company is part of a group or has associated businesses, taxable profits thresholds are divided between all associated companies, which could affect which tax rate applies to your business.
Businesses with large profits may need to consider quarterly instalments, while smaller businesses will typically make a single annual payment.
For small companies with taxable profits of up to £1.5 million, corporation tax is due 9 months and 1 day after the end of the accounting period—typically your financial year. For instance, if your accounting year ends on 31st March, your payment deadline would be 1st January the following year.
If your company’s taxable profits exceed £1.5 million, you may need to make quarterly instalment payments. Companies with profits between £1.5 million and £20 million make four payments during the accounting year. Companies exceeding £20 million in taxable profits, termed "very large companies," may face stricter schedules.
The threshold for quarterly payments applies to companies with associated businesses, which means profits are divided across connected entities. This is critical for groups of companies sharing ownership.
HMRC offers several ways to pay your corporation tax, depending on how quickly you want the payment to process.
Important: Late payments may incur interest charges (currently 2.75%) and penalties, so it's crucial to keep an eye on the deadlines.
Quarterly payments, or payments on account, require companies with substantial profits to make regular contributions towards their tax liability during the financial year. This system helps HMRC manage tax revenue more evenly and reduces the burden of a single large payment.
Businesses who are struggling to pay their Corporation Tax bill can contact HMRC to request a Time to Pay (TTP) arrangement, which allows the tax bill to be settled in instalments over an agreed period. However, approval is subject to HMRC's assessment of your financial position. If approved, repayments typically span 3–6 months.
Tax schedules don’t always coincide neatly with available cash flow in your business. Many companies face scenarios where they might struggle to pay corporation tax on time, especially for seasonal businesses or if unexpected expenses come up.
That’s where financing your tax bill with a tax loan can be a practical solution to avoid penalties and maintain good standing with HMRC, without depleting your cash reserves.
If you're looking to finance your corporatio ntax bill, an iwoca Flexi-Loan can provide your business with quick access to funds when you need it most. Here’s how it works:
Here are some additional factors to keep in mind when managing corporation tax:
Are redundancy payments allowable for corporation tax? Yes, they can qualify for tax relief, provided they meet HMRC’s rules. However, excessive or non-genuine payments may be disallowed.
HMRC pays interest on early corporation tax payments. If your business is cash-rich, this can be a useful strategy to offset other financial risks.
Dividends are paid out of post-tax profits, so they don’t directly reduce your corporation tax liability. However, they can impact profit distribution, indirectly affecting how much tax is payable.
Missed payments incur penalties, starting with a £100 fine for being one day late. Additional penalties and interest are applied for further delays, so it pays to act fast if you can’t pay.
While corporation tax is not typically payable monthly, businesses can use HMRC’s Time to Pay arrangement to spread payments. However, this should not replace regular budgeting for tax liabilities.
