Benefits of Paying Corporation Tax Early
Corporation Tax is the tax placed on the profits of limited companies in the UK, including foreign ones that have a branch in the country. The Corporation Tax rate for the 2020/21 and 2020/21 financial years is 19%.
A company is only exempt from Corporation Tax if it files a loss or if it does not participate in trading activities. Only companies that are trading are required to submit a company tax return. However, for purposes of tax and annual accounts filing, these companies must still keep accounting records.
Why is it important to pay Corporation Tax early?
HMRC pays companies a .5% credit interest if they pay their Corporation Tax early. The payment is made from the time the Corporation Tax is paid to the payment deadline, the earliest being six months and thirteen days after the accounting period commences.
For instance, if one company’s accounting period starts on 1st January 2019 and ends on 31st December 2019, Corporation Tax can be paid between 13th June, equivalent to six months and 13 days after the accounting period began, and 1st October 2020, which is the payment deadline.
A company may be paid an annual credit interest of .5% for the period 13th June 2019 to 1st October 2020. HMRC only estimates the Corporation Tax for this period because the company year has not ended yet.
The company accounts must include the interest income which is taxable.
Better Early Than Late
Companies have nine months and one day after the end of the financial year to pay Corporation Tax, but they are subject to penalties if they are one day late in making a payment. Therefore, it is extremely important to make sure paying Corporation Tax is not neglected.
What if there has been a mistake?
In cases where there are discrepancies in a company’s Corporation Tax, it is best to inform HMRC as soon as possible to give them more time to address and rectify the error, and to avoid possible fines due to late payment.
What are the disadvantages of paying Corporation Tax early?
One disadvantage of paying Corporation Tax early is not being able to use funds for investments that could promise bigger profits. This means that the company’s cash flow is affected and money that could be grown somewhere else is used to pay Corporation Tax instead.
Since not all companies are in the same financial situation, so it is still best to consult an accountant before making decisions. We understand that you only want the best for your business, so, if you have questions or concerns about Corporation Tax, you may contact us and have one of our accountants will assist you.