IMPORTANT NOTICE: From 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
What is a Corporation Tax Loan? Key Features and Benefits
Every business has to ensure that they pay their tax bill on time, but often this can arrive at an inconvenient time. Given the current economic climate, many businesses may find that making monthly payments over a fixed term provides them with a vital cash injection, giving them a competitive edge by allowing existing funds to be used elsewhere within your organisation. In some cases, the business may also benefit from interest tax relief on the facility.
Read on to discover more about corporation tax loans.
What is corporation tax?
In simple terms, corporation tax is a direct tax that businesses must pay as soon as they start making a profit and then on an annual basis thereafter.
The corporation tax rate is set by the government. In 2022, the main rate on all profits (except ring fence profits which are subject to different rates) are subject to a flat rate of 19%. The amount of Corporation Tax a business is required to pay is calculated as a percentage of that business’ taxable profits. It is not enough to simply look at net profit, there are several tax-adjusted trading profits that must be calculated to pay corporation tax.
All limited companies must pay Corporation Tax annually. Both small and large companies are required to pay a flat rate of 19%, but within the thresholds of company size, a system of ‘marginal reliefs’ exist which can reduce the amount of Corporation Tax your business ends up paying. These include:
- Creative Industry
- Research & Development
- The Patent Box
- Disincorporation Relief
- Marginal Relief
- Terminal, capital, property income losses and trading losses
Visit the government website for the latest corporation tax rates and more guidance on calculating your corporation tax.
When should corporation tax be paid?
Unlike self assessment tax bills, corporation tax is not due at the same time for all businesses. Corporation tax is both calculated and paid annually around your ‘corporation tax accounting period’, typically around the same time as your business’ financial year.
For this reason, businesses are not sent bills for corporation but are required to:
1. Register for corporation tax within 3 months of your business starting to trade (dormant companies are not required to register)
2. Maintain accurate accounting records and prepare a Company Tax Return which will help you work out how much Corporation Tax to pay
3. Pay your Corporation Tax by the deadline (nine months and one day following your accounting period from your previous financial year)
4. File your Company Tax Return before the deadline (12 months after the end of the accounting period covered).
If your period exceeds 12 months for financial statement purposes, two tax returns are required to be submitted.
How is corporation tax paid?
There are several options of methods for payment, but businesses must ensure they allow time for the payment to reach HMRC before the deadline. Options include CHAPS, online banking, telephone banking, direct debit, and BACS. Depending on the method of payment you choose, payments could arrive on the same day as they are sent or could take up to 5 working days.
What if you can’t afford to pay your corporation tax bill?
Failing to pay your corporation tax bill on time can carry serious penalties. Charges begin from the day your payment is late, and interest accrues over time, putting you in a worse financial situation, so it is essential to meet payment deadlines. Continued late payment of corporation tax can result in HMRC taking further action, in the worst-case petitioning for the compulsory closure of your business.
If you are unable to pay your tax bill or there is a chance that you will need to pay after your deadline, you need to contact HMRC as soon as possible. In some cases, HMRC may be able to offer you a payment plan referred to as a Time To Pay arrangement (TTP). This enables some businesses to pay back the tax they owe in instalments. However, TTP is intended as a one-off payment plan to allow extra support, but continuous late payments are likely to result in HMRC asking you to pay the outstanding amount in full.
In order to be eligible for the TTP payment plan, businesses must:
- Have no extra HMRC payment plans set up
- Have no other tax debts outstanding
- Owe less than £10,000.
Alternatively, businesses might consider taking out a corporation tax loan.
Why consider a corporation tax loan?
Using a commercial loan to pay corporation tax bills to reduce the impact of costly late payment fines can be a cost-effective way to utilise cashflow and resources. A corporation tax loan will incur interest, but it enables the business to spread their bill over 6 to 12 months through fixed monthly or quarterly payments. The loan can be secured or unsecured.
The most common reasons for using a corporation tax bill include:
- Spreading the cost of a tax bill, retaining capital and therefore spending power, which in turn can allow for increased competitiveness, growth and expansion.
- Maintaining a stable and fluid cash flow so they can take advantage of new opportunities and/or fund unexpected costs or drops in income.
- Avoiding the risk of high penalties from HMRC for late or non-payments.
IMPORTANT: Taking out any commercial loan should be approached with caution as if your business’ finances are not in a healthy condition, there is a risk of getting into more debt.
Interested in a corporation tax loan for your business?
We can help businesses like yours to obtain the best funding options and facilities, quickly and efficiently, whilst ensuring their short-term goals and long-term ambitions are considered in their financial strategy.
If you are interested in spreading the cost of your corporation tax bill over time to retain capital and enable you to manage your budget more effectively, get in touch with us today.
We will assess your business’ individual circumstances and work with you to decide if a corporation tax loan or another finance solution would be the right choice.
Complete the form below to send us an enquiry.