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November 18th 2013 / BY: Wisteria

Corporation Tax Liability – Managing your cashflow

If your company/business makes profits that are liable to UK Corporation Tax, then as a director, it will be your responsibility to ensure that you pay this to HMRC on time. This article will provide advice on how you can plan ahead to pay Corporation Tax on time and benefit from doing so.

As well as paying any corporation tax, it is also your responsibility to file corporation tax returns. The dates which you must do these by are:

–          Payment of your Corporation Tax Liability is due 9 months and one day after the end of the accounting period

–          Filing of your Corporation Tax Return is due 12 months after the end of the accounting period

From the above, the payment of any liability is due before the return is filed online meaning it is important for businesses to plan ahead in order to be able to pay the corporation tax due.

Note: the deadlines above are only for those companies whose taxable profits are less than £1.5 million. There are specific rules that relate to those who have taxable profits over this threshold.

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It is important to make your corporation tax payments by the time it becomes due because failure to do so will incur penalties from HMRC. This will come in the form of ‘late payment interest’ which is issued by HMRC. This is accrued on the amount due to HMRC from the day after the tax should have been paid until the date you actually pay it. (Going forward, this ‘late payment interest’ is tax deductible unlike the ‘late filing penalty’).

On the contrary, if you pay your Corporation Tax liability before it comes due, then HMRC will issue your company with ‘credit interest’. This will be calculated based on the amount paid and how early you pay this. The tax treatment of this interest is that if HMRC pays this to your company, then it is taxable income as interest income and must be included in your company accounts and company tax return.

Many businesses make the error of thinking that whatever profit is made by the company is rightfully theirs without taking into consideration that there is corporation tax (in most cases at 20%) on this amount. Therefore, to plan ahead, you should always set aside 20% of your profits for the corporation tax liability.

For more information about tax planning and how best to ensure you have enough funds to pay your corporation tax liability, please contact Wisteria on 020 8952 0140 or email info@wisteria.co.uk where a corporation tax specialist will be more than happy to help you.