Spread the cost of your corporation tax bill

• What is a corporation tax loan?
• When should it be paid?
• How is it paid?
• Why use finance as an option?

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?

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.

When should a corporation tax bill 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 it 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.

Why use a commercial loan to pay your tax bill?

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.

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BS.202309.01.FS09