Payment of Corporation Tax: Everything UK Businesses Need to Know

Managing taxes is a crucial aspect of running a business in the UK, and one of the most important tax obligations is the payment of corporation tax. Every limited company must pay corporation tax on its profits, and failing to meet deadlines can lead to penalties and financial complications.

This guide will help you understand corporation tax rates, deadlines, payment methods, and how to streamline tax compliance with efficient bookkeeping.

What Is Corporation Tax?

Corporation tax is a tax that businesses pay on their taxable profits. Unlike income tax, which applies to individuals, corporation tax is imposed on:

• Limited companies
• Foreign companies with a UK branch
• Clubs, co-operatives, and other associations operating as corporate entities

The current corporation tax rate in the UK is 25% for businesses with profits above £250,000. Companies earning under £50,000 qualify for a reduced small profits rate of 19%, while those in between pay a marginal relief rate.

Understanding your tax obligations ensures that you don’t overpay or face penalties for underpayment.

Key Deadlines for Corporation Tax Payment

The payment of corporation tax depends on the company’s accounting period.

1. For Small and Medium-Sized Businesses (Profits Under £1.5 Million)

• Corporation tax is due 9 months and 1 day after the company’s financial year-end.
• Example: If the financial year ends on December 31, 2024, the payment deadline is October 1, 2025.

2. For Large Companies (Profits Over £1.5 Million)

• Corporation tax must be paid in quarterly installments throughout the financial year.
• The first payment is due 6 months and 13 days after the start of the accounting period.

Late payments can result in interest charges, penalties, and potential HMRC investigations.

How to Pay Corporation Tax

There are multiple ways to make your corporation tax payment to HMRC:

1. Online or Telephone Banking (Faster Payments, CHAPS, BACS)

• Faster Payments: Processes within 24 hours.
• CHAPS Payments: Same-day transfer if completed before the bank’s deadline.
• BACS Payments: Can take up to 3 working days.

2. Debit or Corporate Credit Card

• Payments can be made directly via HMRC’s online portal.
• Be aware that corporate credit card payments include transaction fees.

3. Direct Debit

• Businesses can set up a direct debit to automate payments and avoid missing deadlines.

4. Bank or Post Office Payments

• Some businesses still prefer making payments in person using a corporation tax payment slip.

Keeping track of these payment methods ensures a hassle-free transaction with HMRC.

VAT Return Deadlines and Their Connection to Corporation Tax

Apart from corporation tax, businesses must also adhere to VAT return deadlines. If a business is VAT-registered, it must file VAT returns based on its accounting scheme.

1. Quarterly VAT Returns – The most common option, with a deadline one month and seven days after the quarter ends.
2. Monthly VAT Returns – Suitable for businesses reclaiming VAT regularly.
3. Annual VAT Returns – Filed once a year under the Annual Accounting Scheme, with advance payments required.

Late VAT returns can result in fines and surcharges, similar to corporation tax.

Penalties for Late Corporation Tax Payments

Missing the corporation tax payment deadline can result in:

1. Late Payment Interest

   • HMRC charges interest on overdue tax starting from the due date.

2. Fixed Penalties

   • Fines start at £100 and increase with continued delays.

3. Potential HMRC Investigation

   • Repeated late payments may lead to an audit.

Timely payments help businesses avoid unnecessary financial stress.

How Bookkeeping Outsourcing Helps with Tax Compliance

Managing corporation tax payments, VAT returns, and bookkeeping in-house can be overwhelming. Many businesses choose bookkeeping outsourcing to ensure financial accuracy and compliance.

Benefits of Outsourcing Bookkeeping

✅ Timely Tax Filings – No more missed deadlines.
✅ Cost Savings – Reduce expenses compared to hiring in-house staff.
✅ Error-Free Financial Records – Avoid tax miscalculations.
✅ More Time for Business Growth – Focus on strategic goals instead of tax admin.
✅ Access to Expert Accountants – Professional services without high costs.

Outsourcing bookkeeping ensures smooth financial operations while reducing compliance risks.

Conclusion

The payment of corporation tax is a crucial responsibility for UK businesses. Understanding tax rates, deadlines, and payment methods helps companies avoid penalties and stay compliant with HMRC regulations.

Additionally, businesses must keep up with VAT return deadlines and financial record-keeping. If managing tax compliance is becoming a challenge, outsourcing bookkeeping services can provide expert support, ensuring timely and accurate tax filings.

For hassle-free corporation tax management, consider professional bookkeeping outsourcing today!