Corporation Tax: Late Payment penalties and interest charges explained

In this article, we have explained, what contractors should do if they think they'll not be able to pay their Corporation Tax (CT) on time?

As a Limited Company, if you make a profit in the year then your company will be liable for Corporation Tax (the current rate is 20%, which will reduce from 1 April 2017 to 19% and it’s expected to continue decreasing to 17% from 1 April 2020). 

Corporation Tax is calculated based on your taxable profits in the year, which will be determined by the profit before tax, adjustments will then be made for items such as depreciation, entertaining and capital allowances.  Once these have been considered, the company will then pay tax on these taxable profits to HMRC.

Deadline for submitting your Corporation Tax Return

The Corporation Tax Return will include details of the company turnover for the period, along with the profits before tax, any adjustments and the tax due to HMRC.

There are penalties for late submission of your Corporation Tax Return (CT600).  The deadline for submission is one year after the end of the return period. 

For example, if the return is for 1 April 2016 to 31 March 2017, this is due to HMRC by 31 March 2018.

The penalties for late submission are:

Deadline for paying your Corporation Tax 

As with all taxes, HMRC will charge for any late payment of tax too. 

Corporation Tax for small companies is due 9 months and 1 day after the accounting period.  So again, if your return is for 1 April 2016 to 31 March 2017, your taxes are due to HMRC by 1 January 2018.

If you pay late, HMRC will charge 3% per annum.

What if you can’t pay your taxes on time?

Ideally, you should be setting aside your Corporation Tax liability throughout the year.  Then there aren’t any nasty shocks when it becomes due.  It should always be one of your main considerations that the company is setting aside these liabilities, before taking Director Loan’s or Dividends from the business.

However if you are struggling to pay your tax liability, don’t bury your head in the sand!  The problem will not go away and it’s always best to let HMRC know as soon as possible if you can’t meet a liability, the last thing you want is the bailiffs showing up.

Call HMRC and discuss the option of ‘time to pay’ arrangements.  They can look at arrangements for up to 12 months, but this will depend on your individual circumstances and why the company does not currently have the funds to pay the taxes.  If this is due to you taking large loans from your business, they could come after you personally to repay the taxes due by your business.

If however you still are unable to repay your debt within 12 months, then further options might need to be considered such as liquidation.  However this should always be discussed with a professional first.

Don’t leave it to the last minute!

This is where a specialist contractor account can come in handy. They can help you stay on track, and with the help of online accounting software, they ensure that you never miss your tax deadline.

If you want to work with an accountant where nothing is too much trouble, give them a call today, they're all ears on 01425 471917, or email them on [email protected] .