Corporation Tax is the main tax your limited company has to pay every year. You can use several methods to pay your Corporation Tax, which can take anything from a few seconds to five days. 

This guide will explain everything you need to know about how to pay Corporation Tax by covering the following:

  • What Corporation Tax is
  • The different methods you can use to pay
  • How long the methods take to process
  • How to tell HMRC no Corporation Tax is due
  • How Countingup can help with your taxes

What Corporation Tax is

Corporation Tax is one of the taxes businesses need to pay if they’re registered as limited companies. You pay the tax on the profits you made in a financial year. You can register for Corporation Tax here.

You can view Corporation Tax as an income tax for companies. However, unlike individuals paying income tax, companies don’t have a personal allowance that allows them to earn a certain amount before getting taxed. The current personal allowance for income tax is £12,570 for 2021/22.

Since companies don’t have a personal allowance, they have to start paying Corporation Tax as soon as they start making a profit. The current rate is 19% unless the business previously made losses. Learn more about Corporation Tax rates and reliefs.

The deadline to pay your Corporation Tax is 12 months after the end of the accounting period it covers.

How to pay Corporation Tax

Once you know when to pay your Corporation Tax and how much you owe, you can choose one of the following methods to make a payment to HMRC. However, some methods take longer than others to process, so make sure you plan for it and allow enough time.

Direct debit

You can set up a direct debit through your HMRC online account to pay your Corporation Tax. 

Use your 17-character Corporation Tax payslip reference, which you can find through your online account (choose ‘View account’ then ‘Accounting period’). HMRC also sends you a Corporation Tax payslip, where you can also find the payslip reference. 

A direct debit payment takes five working days to process the first time you set one up. Once HMRC authorises your direct debit, the payment takes three working days to process. Note that if you using the wrong reference number will delay the payment process. 

Payments will appear on your bank statements as ‘HMRC NDDS’.

Online or mobile bank account

You can also pay your tax bill using your online or mobile bank account. Payments are usually instant when using this method but can take up to two hours to show in your account. 

Make your payment by signing into your HMRC account and selecting ‘Start a payment’ followed by ‘Pay by bank account’. You’ll be directed to a page that allows you to sign in to your online or mobile bank account to approve your Corporation Tax payment. 

Note that you must have your online banking details ready to pay this way.

Online or telephone bank transfer

Another way you can pay your Corporation Tax is by using Faster Payments, CHAPS or Bacs. In case you’re not familiar with these terms, here’s what they mean:

  • Faster Payments are electronic payments you make either online or over the phone. 
  • CHAPS (Clearing House Automated Payment System) ​​is a same-day automated payment system used to process payments made within the UK.
  • Bacs (Bankers’ Automated Clearing System) is used to make payments directly from one bank account to another.

You find information about which account to send the money to on the back of the Corporation Tax payslip HMRC sends you. If you’re not sure which one to use, go with Cumbernauld. Use your 17-character Corporation Tax payslip reference for the accounting period you’re paying.

Faster Payments will usually reach HMRC on the same or the next day, including weekends and bank holidays. CHAPS payments tend to reach HMRC the same working day if you pay within your bank’s processing times. Bacs payments typically take three working days.

Through your bank or building society

If neither of these options works for you, you can choose to pay your Corporation Tax at a branch by cash or cheque. Allow three working days for the payment to reach HMRC.

Remember to bring the payslip HMRC sends you as you’ll need it to make the payment. Make your cheque payable to ‘HM Revenue and Customs only’.

Write your Corporation Tax payslip reference number for the accounting period you’re paying on the back of your cheque. 

If you don’t have a payslip, you’ll need to use one of the online methods.

How to tell HMRC that no Corporation Tax is due

What do you do if you’ve closed your accounts for the financial year and calculated that you don’t owe any Corporation Tax? 

In this case, you must tell HMRC that you have no tax to pay instead of assuming that knowing you don’t have to pay anything means you don’t have to do anything. 

Complete and return the ‘nil to pay’ form or send back your payslip reminder from the HMRC with the words ‘NIL due’ marked on it.

Stay on top of your taxes with Countingup

Countingup is a business current account that comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. Instant invoicing, automatic expense categorisation and cash flow insights mean that you can confidently keep on top of your business finances every day.

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags, or inaccuracies. It is seamless, simple, and straightforward!

Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a photograph of yourself. Download the app here.

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