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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.
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:
Visit the government website for the latest corporation tax rates and more guidance on calculating your corporation tax.
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:
If your period exceeds 12 months for financial statement purposes, two tax returns are required to be submitted.
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.
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:
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:
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.
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.
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