How to pay corporation tax UK: A complete business guide

If you’re a business owner in the UK, you must pay corporation tax on your profits. Levied by HM Revenue and Customs, this tax applies to businesses of all sizes, be it small start-ups or veteran enterprises.

Understanding corporation tax and the process of paying it is crucial. After all, failure to record and pay this tax can lead to several penalties.

In this comprehensive business guide, we uncover everything you need to know about corporation tax UK including the registration process, deadlines, common mistakes and penalties so you can ensure your business stays in compliance with tax obligations. Ready to get started? Let’s go.

What is corporation tax UK?

In the UK, companies pay a tax on their profits, which includes income from capital gains, trading and any other investments. The tax is applicable to limited companies and foreign companies with any income generated in the UK.

At the time of writing, the corporate tax rate UK stands at 25% for companies with profits over £250,000, while small businesses with profits under £50,000 pay a reduced rate of 19%. Meanwhile, a tiered system is in place for businesses with profits sitting between £50,000-£250,000, with the tax rate gradually increasing from 19% to 25% as profits rise.

Corporation tax is due within 9 months and 1 day after the end of your company’s financial year or accounting period. You will also need to file a return (CT600) to report your taxable profits, calculate how much tax you have to pay, provide detailed financial information and verify your tax credits.

If you’re doing business in the UK, you must stay abreast of this information in order to manage your HMRC tax payments and returns on time.

Who needs to pay corporation tax UK?

Corporation tax UK is paid by the following types of organisations:

Limited companies

All limited companies (public and private) that are legally incorporated in the UK need to pay corporation tax.

Foreign companies

If you’re based abroad but operate part of your business in the UK, you must pay corporation tax for the profits generated through your UK activities.

Unincorporated associations and clubs

Different types of unincorporated associations, such as co-operatives, clubs or societies that run on profits and not on charity, may also be subject to corporation tax.

Other organisations

Certain bodies (like friendly societies), and other entities (such as mutual insurance companies) are also liable for corporation tax based on their profit generation.

Note: Solo traders and partnership businesses use self-assessment tax payments instead of corporation tax as they are not incorporated entities. Charitable organisations may also be exempt from corporation tax provided they meet specific criteria.

Steps to register with corporation tax with HMRC

To register for corporation tax with HMRC in the UK, your company must be registered with Companies House. Once this is done, you should register for corporation tax within 3 months of commencing trading.

1. Create a Government Gateway account

Go to the HMRC website and create a Government Gateway account.

To do this, you’ll need to provide some key details about your business including your company name, company number, details of your business activities, business address and director’s information.

Once you’re set up, HMRC will send you a unique reference number to the email address you provide.

2. Register for corporation tax

Once you’ve logged into your Government Gateway account, select ‘Corporation Tax’ and register from the page.

You’ll need to follow the prompts and provide key information such as your company number, trading start date, nature of your business and accounting period details.

3. Receive your Unique Taxpayer Reference (UTR)

Once you’re all set up, you’ll receive a 10-digit Unique Taxpayer Reference (UTR) number within 5-10 days. This will arrive via post to your registered company address.

4. Submit your returns

Now that you’re all registered, you’ll need to submit up-to-date corporation tax returns on an annual basis, no later than 12 months after your financial year end. Meanwhile, the actual payment is due 9 months and 1 day after the end of the accounting period.

Payments are typically made electronically and can be arranged via your HMRC account or by bank transfer.

Key deadlines for corporation tax payments

The deadlines for UK corporation tax depend on your company’s accounting period and the filing requirements. Let’s take a look at some of the key deadlines for UK corporation tax to keep in mind:

Corporation tax return (CT600) deadline

The deadline for your corporation online tax return is 12 months after the end of the accounting period of your company.

Corporation tax payment deadline

You must pay any corporation tax that’s due within 9 months and one day of the end of the company’s accounting period. If it’s not paid on time, you may be charged interest.

Filing the company’s accounts deadline

You must also file your annual accounts with Companies House. This must be done within 9 months after the end of your company’s financial year.

Payment and filing for large companies

Companies with profits over £1.5 million must pay their corporation tax in instalments. This starts 6 months and 13 days after the first day of your company’s accounting period. The deadlines for each instalment are as follows:

• First payment: 6 months and 13 days after the start of the accounting period.
• Second payment: 3 months after the first instalment.
• Third payment: 3 months after the second instalment.
• Fourth payment: 3 months and 14 days after the last day of the account period.

Available methods for paying corporation tax

Paying your corporation tax can be done in a number of different ways including:

Online or telephone bank transfer

This can be done in two different ways: by BACS (Bank Automated Clearing System), which takes 3 working days to process; and CHAPS (Clearing House Automated Payment System), which ensures same-day payment.

To make the payment, you need to log in to your company’s online banking account and make a payment to HMRC’s account details stated in the tax payment instructions. You’ll need to use your 17-digit Corporation Tax payment reference number for the payment.

Direct debit

If you want to automate your payments, you can set a direct debit for paying corporation tax, which is deducted on the date specified by you. To do this, you’ll first need to register with HMRC’s online services.

Once you’ve registered, you’ll be eligible to authorise the payments from your company’s bank.

Debit or corporate credit card

You can use your company debit or credit card for corporation tax payments, but it will incur some extra fees. To do this, log in to your HMRC online account and follow the prompts to make the payment.

There are no fees if you pay by a personal debit card.

Online banking

If you’d like to make an instant payment, select the ‘pay by bank account’ option and you’ll be directed to your online or mobile banking account to approve the payment.

You’ll need your 17-character Corporation Tax payment reference number to make the payment.

At your bank

If you have a paying-in slip from HMRC, you can also pay your corporation tax by visiting your local bank branch.

Don’t have a paying-in slip? You’ll need to pay via one of the methods listed above.

Paying corporation tax online via HMRC

Paying your corporation tax online is easy. Simply follow the steps below:

1. Register for online services with HMRC

First, register yourself with HMRC’s online services. You can do this by visiting the HMRC portal and creating an account.

2. Choose your preferred payment method

When it comes to paying taxes online, HMRC offers a variety of different options including:

• Bank transfer
• Direct debit
• Debit/credit card

You can choose any method that suits you.

3. Make your payment

Simply log in to your HMRC payment portal or online banking and enter the correct HMRC account details and your Unique Reference Number (URN). Only with the right URN can you ensure the right corporation tax payment.

Complete your transaction and keep the payment confirmation for your records.

Avoiding common corporation tax filing mistakes

If you stay organised and follow best practices, you can avoid common mistakes that people make while filing their corporation tax filing.

Here’s how you can avoid them:

• Keep accurate finance details: Report all your incomes and expenses correctly so that there are no mistakes in tax calculations and penalties.
• Meet all deadlines: As we covered above, there are different deadlines in place for various steps in the tax filing process. Make sure you do everything on time to avoid any penalties.
• Use your correct payment reference: One common mistake that people make is inputting the wrong UTR number when making payments. Double-check your Unique Taxpayer reference so that HMRC can process your payments correctly.
• File even when no tax is due: If you haven’t made a profit in your financial year and no tax is due, you still must file a corporation tax return.
• Stay up to date: There may be changes in tax laws related to allowances, credits or rates. Therefore, keep yourself updated for any changes to ensure compliance with the latest rules.
• Report any losses accurately: It’s very important to report your losses properly. You can either carry them forward or back to offset them against your profits. This will help you to minimise future tax liabilities.

Penalties for missing corporation tax deadlines

If, for any reason, you miss corporation tax deadlines, there will be penalties. These penalties encourage taxpayers to file their returns on time. Here’s an overview of potential penalties that you may face for failing to meet your UK corporation tax deadlines:

Penalty for late filing

Initial penalty: Even for a single day delay, you’ll automatically be charged a £100 penalty.

Additional penalties: if you delay your corporation tax payment further, the penalties charged are as below:

• 3 months after your deadline: There will be an additional £100 penalty for each 3-month period.
• 6 months after your deadline: In addition to the already applied penalty, HMRC may estimate your corporation tax and add a further penalty of 10% of the unpaid tax.
• 12 months after your deadline: There will be another 10% penalty of any unpaid tax 12 months later.

Penalty for late payments

Even if your corporation tax return is late by one day, you’ll be charged interest on the unpaid amount. This will be at the rate of 2.5% on top of the Bank of England Base Rate on any outstanding amounts due, however corporation tax rates can vary.

In addition to penalties, late filing and late payments can result in increased scrutiny from HMRC, which may trigger audits and investigations. Persistent late payments may also affect your company’s credit ratings. Therefore, it’s always a good idea to do all your tax filing and payments on time.

Essential records and documentation for corporation tax

You can avoid corporation tax penaltiies if you maintain all of your essential records required for filing. Here’s a list of what to keep track of:

• All financial statements including your profit/loss account, balance sheet and cash flow statements
• Accounting records including sales and purchase invoices for transactions, bank statements and receipts for business expenses such as office supplies, rent etc
• Tax-related documents, including UTR, VAT records and tax calculations
• Payroll records, including employee salary information, PAYE and national insurance contributions, as well as P60s and P11Ds for employee benefits
• Capital assets records for claiming allowances and R&D documentation
• Loan agreements and interest payment records
• Dividend vouchers and resolutions for shareholder payouts

Now that you know everything about corporation tax including how to file your return, make payments and avoid penalties, why not streamline your business operations with a TransferGo global business account?

Sign up to TransferGo Business today for no-nonsense transfers with competitive rates.