How to Pay Corporation Tax Without Missing Deadlines

A profitable year can still cause a cash-flow problem if the corporation tax bill has not been planned for. For many limited company directors, the question is not just how to pay corporation tax, but when the money needs to be ready, what reference to use and whether the figure has been calculated correctly in the first place.

Corporation tax is paid by limited companies on their taxable profits. It is separate from the tax you pay personally through PAYE or Self Assessment, so taking money from the business does not settle the company’s tax bill. Getting the timing right keeps your company compliant and avoids unnecessary interest or penalties from HMRC.

When does corporation tax need to be paid?

Most small and medium-sized companies must pay corporation tax nine months and one day after the end of their accounting period. If your company’s year end is 31 March, the payment deadline will usually be 1 January the following year.

That payment deadline often arrives before the deadline for filing the company tax return. Your CT600 return is generally due 12 months after the end of the accounting period, but waiting until then to work out the tax bill is rarely a good idea. It leaves little room to check the accounts, claim the right expenses or prepare the funds.

A company with an accounting period longer than 12 months has different filing and payment considerations, as do larger companies that may need to pay corporation tax in instalments. If your company is growing quickly, taking on larger contracts or making a significant profit, it is worth checking whether the standard payment timetable still applies.

Work out the amount before you pay

You should not simply pay a percentage of the money in the bank. Corporation tax is based on taxable profit, which is not always the same as the profit shown in your day-to-day bookkeeping.

Start with the company’s income for the accounting period and deduct allowable business costs. For a construction firm, that might include tools, protective equipment, vehicle costs, insurance, payroll, subcontractor costs and premises expenses. For a taxi business, fuel, repairs, licensing, accountancy fees and the business proportion of mobile phone costs may be relevant. The key point is that an expense must be incurred wholly and exclusively for the business, with special rules where there is personal use.

Some costs are treated differently for tax. Client entertaining is a common example: it may appear in the accounts but is usually not deductible when calculating corporation tax. Capital items, such as equipment, vans or machinery, may qualify for capital allowances rather than being deducted in full as an ordinary expense. Salaries and employer pension contributions can also affect the final position, provided they are properly recorded and paid under the relevant rules.

The corporation tax rate depends on the company’s profit level and, in some cases, associated companies. Broadly, profits up to the small profits threshold may be taxed at 19%, while profits above the main rate threshold are taxed at 25%, with marginal relief potentially applying between the two. The thresholds can be reduced where companies are associated, so it is not safe to assume a 19% rate simply because one company’s profits appear modest.

Good bookkeeping makes this stage far easier. If receipts, invoices, mileage, bank transactions and payroll records are up to date, the tax calculation can be reviewed well before the deadline rather than reconstructed under pressure.

How to pay corporation tax to HMRC

Corporation tax must normally be paid electronically. HMRC accepts several payment methods, including online or telephone banking, CHAPS, debit or corporate credit card, and Direct Debit where it has been set up in advance. The right choice depends on how quickly you need the payment to arrive and whether your bank applies a charge.

When making the payment, use your company’s 17-character corporation tax payment reference. This is usually made up of your 10-digit Unique Taxpayer Reference followed by a letter K. You can find it on HMRC correspondence and within your company’s online tax account.

Using the correct reference matters. It tells HMRC which company and accounting period the payment belongs to. A payment made with the wrong reference can sit unallocated, making it look as though the company has not paid on time even when the money has left the bank.

Allow enough time for the payment to clear. Faster payment methods can arrive quickly, but do not leave it until the final evening if a bank cut-off time, an incorrect reference or a technical issue could put the deadline at risk. Keep confirmation of the payment with your company records.

Do not confuse the payment deadline with the filing deadline

There are three separate jobs that directors often mix together: preparing statutory accounts for Companies House, submitting the CT600 corporation tax return to HMRC, and paying the corporation tax due. They are connected, but they do not always share the same deadline.

Your accounts provide the financial information behind the tax return. The CT600 reports taxable profits and adjustments to HMRC. The payment settles the liability. Missing any one of these can create a problem, even if the other two have been completed correctly.

Late corporation tax payments can attract interest. A late tax return can lead to penalties, which increase the longer it remains outstanding. Filing a return that is inaccurate can be just as costly if HMRC later finds that income was omitted or expenses were claimed incorrectly.

Put the tax money aside as you trade

The simplest way to avoid a difficult payment is to build corporation tax into your normal cash-flow routine. Each month, review the company’s estimated profit and transfer a sensible amount into a separate savings account. It is still company money, but it is no longer mixed into the pot used for wages, materials, fuel or drawings.

The amount to reserve depends on profit, the likely tax rate, planned investment and deductible costs. A company with steady work may set aside a regular percentage of profit. A business with seasonal income, delayed customer payments or large material costs may need a more tailored forecast. The aim is not to guess perfectly every month. It is to make sure the tax bill is not a surprise at the end of the year.

This approach is particularly useful for directors who take a mix of salary and dividends. Dividends can only be paid from available profits, and the company still needs enough cash to meet its own liabilities. Taking too much out of the business before allowing for VAT, payroll, supplier bills and corporation tax can create a preventable squeeze.

Check for reliefs before finalising the bill

Paying corporation tax promptly is essential, but paying more than is due is not good tax management. Before submitting the return, check whether your business has claimed the reliefs and allowances it is entitled to.

This may include capital allowances on qualifying equipment and vehicles, pension contributions, employer costs, trading losses, research and development relief where the conditions are met, or relief for certain charitable donations. The correct treatment depends on the facts, timing and supporting records. Claims should be made because they are valid, not because someone has seen a broad statement online that they might apply.

For property companies and landlords operating through a limited company, the position can be especially different from owning property personally. Finance costs, property improvements, repairs, rental income and future disposals all need to be considered in the right context. A quick calculation based only on rent received can give a misleading answer.

If you cannot pay on time

Do not ignore the bill or wait for HMRC to contact you. If the company cannot pay in full, contact HMRC as soon as possible to discuss the position. HMRC may agree a Time to Pay arrangement in suitable cases, allowing the debt to be cleared in instalments. It is not automatic, and interest may still apply, but early communication is usually better than silence.

Be ready to explain why the company cannot pay, what it can afford each month and how it will keep up with future taxes. A realistic arrangement is more useful than offering an amount that will fail after the first payment.

If cash is tight because customers are paying late, review credit control as well as the tax bill. Chasing overdue invoices, agreeing deposits for major jobs and issuing invoices promptly can make a direct difference to the company’s ability to meet its obligations.

Corporation tax is easier to manage when it is treated as a routine business cost rather than an annual emergency. Keep records current, estimate the liability before the deadline and protect the cash as you earn it. If the numbers are becoming unclear, getting practical support early can save a great deal of pressure later.