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What Is Corporation Tax Payment on Account?

corporation tax payment on account

Corporation tax payment on account simply means paying your corporation tax in instalments throughout the year, rather than as a lump sum. This is useful because it can help spread the cost of your corporation tax bill and make it more manageable. Dealing with any kind of business tax can be tricky so it’s important to understand the ins and outs of the tax system so that you can avoid making a mistake.

In this article, we will explain everything you need to know about UK corporation tax on account, including who is liable, how to pay it and when the instalments are due. We will also discuss the rates for different types of businesses and some of the penalties for underpaying or evading corporation tax.

What is Corporation Tax?

Corporation tax is a tax that UK-based companies and LLPs (limited liability partnerships) have to pay on their profits. It is designed to be a fair tax system so that businesses of all sizes contribute to the economy. The amount of corporation tax you will be liable for depends on how much profit your company makes in a financial year with higher earning businesses paying a higher rate.

How is Corporation Tax Calculated?

Your corporation tax bill will be based on your company’s taxable profits for the financial year. These are your total profits from all sources, minus any allowable expenses and losses. The current corporation tax rate is 19% but this rate is liable to change so it is very important that you stay up to date with the latest changes.

If you are unsure how much you owe, it is always advisable to speak to an account or contact HMRC directly. This will ensure that you pay the right amount on time and avoid any potentially costly fines or legal penalties.

What are Corporation Tax Instalments?

If your company is liable for corporation tax, you will need to make payments on account throughout the year. These instalments are advance payments towards your corporation tax bill and are usually due in two instalments. The first instalment is usually due in the first quarter of the financial year and the second is due in the third quarter.

What is Corporation Tax Payment on Account?

If your corporation tax bill is more than £1,000, you will need to make two payments on account during the year. These instalments are usually due in April and September and are based on your previous year’s corporation tax bill. The amount you need to pay will depend on how much corporation tax you owed for the previous financial year.

If your company is new or your corporation tax bill was less than £1,000 for the previous financial year, you will not have to make any payments on account. You will only be required to pay the full amount of corporation tax due at the end of the financial year.

how to pay corporation tax

Making a Corporation Tax Payment on Account

There are a few different ways to make a corporation tax payment on account. The most common method is to pay online via the government’s website. You can also set up a direct debit so that your payments are made automatically. Alternatively, you can pay by cheque or through your bank’s telephone banking service.

If you are self-employed or a sole trader, you will need to make your corporation tax payment through HMRC’s Self Assessment system. This can be done online, by phone or by post.

How to Calculate How Much Corporation Tax You Owe

To calculate your company’s taxable profit, you will need to complete a corporation tax return. This can be done online through the government’s website or by post. You will need to work out your total income for the financial year, minus any allowable expenses.

Once you have calculated your taxable profit, you will need to multiply this by the appropriate tax rate. For example, if your company made a taxable profit of £100,000 in the 2020/21 financial year, you would owe £21,000 in corporation tax at the 21% rate.

However, if you make the same profit during the 2022/2023 financial year, you will owe 19,000 because the corporation tax rate has been cut to 19%. This is why it is important to stay up to date on the current rate to make sure you don’t overpay. If this does occur, you can claim a refund from HMRC but this can be a complex process so it is better to make the correct payment in the first place.

What Expenses are Deductible for Corporation Tax?

Most business expenses are deductible for corporation tax purposes. This is because these things are essential for your business to operate and to encourage business owners to reinvest in their businesses.

You can claim tax relief on any expense that is ‘wholly and exclusively’ for business purposes. This may include:

  • Business premises rent or mortgage interest
  • Business insurance
  • Salaries
  • Training and development
  • Marketing and advertising
  • Business travel costs
  • Essential business equipment

What Happens if You Underpay Corporation Tax?

If you underpay your corporation tax bill, you will be charged interest on the outstanding amount. The amount of interest you will be charged depends on how much you owe and for how long you have owed it. In some cases, HMRC may also charge a penalty if they feel like you have deliberately underpaid your tax bill.

If you are struggling to pay your corporation tax bill, you should contact HMRC as soon as possible. They may be able to offer you a payment plan or some other form of assistance.

HMRC penalties for corporation tax evasion

Penalties for Corporation Tax Evasion

There are various potential penalties if you are convicted of evading or attempting to evade paying the correct amount of corporation tax. These include:

  • A fine – The amount will depend on the seriousness of the offence and your financial circumstances.
  • A prison sentence – This can be up to seven years for the most serious offences.
  • Disqualification from being a company director – This may be for a period of up to 15 years.

HMRC will also charge you interest on any unpaid tax and may require you to pay the full amount of corporation tax owed, plus any penalties.

If HMRC suspects you of corporation tax evasion, they will launch an investigation. This will usually involve:

  • Asking you to provide information and documents
  • Visiting your business premises
  • Interviewing you or your employees under caution

If you or your business is under investigation, it is always advisable to hire a lawyer who specialises in tax law. They will be able to give you expert advice and represent you in any meetings or court hearings. They will also be able to negotiate with HMRC on your behalf which will relieve you of the burden and allow you to continue running your business.

Can a Business be Shut Down for Evading UK Corporation Tax?

Yes, in some cases HMRC may close down a business that is evading corporation tax. This is known as ‘winding up’ the company.

Winding up a company is a serious matter and should only be considered as a last resort by HMRC. They will usually only do this if they believe that the company is unable to pay its tax bill and is deliberately trying to avoid paying corporation tax.

What is a Corporation?

In the UK, a corporation is a legal entity that is separate from its owners. This means that the business can enter into contracts, sue and be sued, and own property in its own name. There are various benefits to structuring your business as a corporation including:

  • Limiting your personal liability
  • Attracting investment
  • Being able to sell shares

However, there are also potential disadvantages to this business structure including:

  • Complexity
  • Increased costs
  • Less flexibility due to being bound by company law
  • Having to answer to shareholders
  • Giving up some control of your business

There are a few different types of corporations, the most common of which is a private limited company (PLC). Make sure you do your homework and fully understand all the pros and cons before deciding on your business structure. Remember that you can change the structure as your business grows and evolves but how you start out can be a defining factor in your chances of success.

How to Set Up a Corporation

If you want to set up a corporation, you will need to follow the steps below:

  1. Choose the right business structure for your company. You will need to decide whether you want to set up as a private limited company, public limited company, or unlimited company.
  2. Register your company with Companies House. You will need to provide them with your company name, registered address, and details of your directors and shareholders.
  3. Apply for a business bank account. This can be done online or in person at your chosen bank.
  4. Get the necessary permits and licenses. Depending on the nature of your business, you may need to apply for specific permits and licenses.
  5. Register for corporation tax with HMRC. You will need to provide them with your company name, registered address, and tax reference number.
  6. File your annual accounts and corporation tax return. This must be done within nine months of your financial year-end.

If you are setting up a corporation, it is important to seek professional advice to ensure you are doing everything correctly. This guide is intended to give you a general overview of the process but it is not exhaustive so it is always worthwhile to consult with an expert.

Other Taxes You May Need to Pay

As well as corporation tax, there are other taxes that your business may need to pay depending on its circumstances. These include:

  • Value Added Tax (VAT) – VAT is payable on all goods and services and is charged at each stage of the production process. The 2022 VAT rate is 20%.
  • PAYE (Pay As You Earn) – This is tax that is deducted from employees’ wages by their employer.
  • National Insurance Contributions (NICs) – These are contributions that employers and employees need to make towards state benefits such as the NHS and pensions.
  • Capital Gains Tax (CGT) – CGT is payable on the sale of assets such as property and shares. There are lower- and higher-rate brackets depending on the profits. The 2022 lower rate is 18% and the higher rate is 28%.
  • Stamp Duty Land Tax (SDLT) – SDLT is payable on the purchase of property and land. Stamp duty also has different rates depending on the value of the purchase so make sure you check these when you are buying land or property.

how to reduce your company's tax bill

How to Reduce Your Company’s Tax Bill

There are a number of ways in which you can reduce the amount of tax your business pays. These include:

  • Making use of tax-efficient investment products such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs).
  • Claiming capital allowances on items such as plant equipment and other machinery.
  • Making pension contributions for your employees.
  • Offsetting losses against future profits.
  • Ensuring you are claiming all the relevant tax reliefs and allowances.
  • Using a tax-efficient business structure such as a company limited by guarantee.

If you are concerned about the amount of tax your business is paying, seek professional advice to ensure you are taking advantage of all the available reliefs and allowances. They will be able to show you how to reduce your company’s tax bill and help you to minimise your liability in the future.

Final Thoughts

Corporation tax payment on account is a payment that is made twice a year by businesses that are liable for corporation tax. The payments are made in advance of the full corporation tax bill being due and are based on the company’s profits for the previous year.

Not every type of business is liable to pay corporation tax so it is important to choose the right business structure from the offset. If you are liable, you need to ensure that you make the right payments or the right time or you could be liable for legal penalties. If you are unsure about how much you need to pay, speak to a tax account or get in contact with HMRC and they will be able to advise you on the correct steps to take.

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