As a business owner, one of your financial obligations is to pay corporation tax. This tax is levied on all companies that operate in the UK, and it is calculated based on your business profits. While it may be tempting to delay paying your corporation tax, it is important that you do not do so. In this article, we will be discussing why you should pay your corporation tax on time and what may happen if you fail to do so.
What is corporation tax?
Before we dive into the topic of time to pay agreements, let’s first define what corporation tax is. Corporation tax is a tax on a company’s profits. It is calculated based on the company’s income, minus any allowable expenses. The current rate of corporation tax in the UK is 19%. If your company makes a profit of £100,000 or less, you will need to pay corporation tax nine months and one day after the end of your accounting period. If your company makes a profit of more than £100,000, you will need to pay corporation tax four months and one day after the end of your accounting period.
Why pay your corporation tax on time?
There are several reasons why you should pay your corporation tax on time. Firstly, it is a legal requirement. Failing to pay your corporation tax on time can result in penalties and interest charges. The longer you delay paying your tax, the more you will owe in penalties and interest charges.
Secondly, paying your corporation tax on time can help you avoid cash flow problems. If you delay paying your tax, you may find yourself struggling to pay other bills or meet your financial obligations.
Finally, paying your corporation tax on time can help you maintain a good reputation with HM Revenue and Customs (HMRC). If you consistently fail to pay your tax on time, HMRC may take legal action against you or your company.
What is a time to pay agreement?
If you are experiencing financial difficulties and are struggling to pay your corporation tax on time, you may be able to make a time to pay agreement with HMRC. This is a formal agreement that allows you to pay your tax in instalments over a period of time.
To be eligible for a time to pay agreement, you will need to provide HMRC with evidence that you are experiencing financial difficulties. This evidence may include bank statements, cash flow forecasts, and profit and loss accounts. If HMRC agrees to a time to pay agreement, you will need to make regular payments to clear your tax debt.
It is important to note that a time to pay agreement is not a solution to avoid paying your tax. Rather, it is a way to manage your tax payments if you are experiencing financial difficulties.
In conclusion, paying your corporation tax on time is important for a number of reasons. Failing to pay your tax can result in penalties, interest charges, and damage to your reputation with HMRC. If you are experiencing financial difficulties and are struggling to pay your tax, you may be able to make a time to pay agreement with HMRC. However, it is important to remember that this is not a solution to avoid paying your tax, but rather a way to manage your payments if you are experiencing financial difficulties.