Any limited company is required to pay corporation tax. The tax, on profits earned throughout the year, is a legal obligation for all UK companies. While we understand why we must pay the tax liabilities, Business Rescue Expert, a leading UK insolvency practitioner company, is sharing advice on the arrangements in place for those unable to pay.
Corporation tax refers to tax that must be paid to HMRC. When a business is registered at Companies House, HMRC is immediately informed. Therefore, you are liable for tax liabilities. In response to registering your company, you will receive a form for corporation tax. Enclosed will also be information on filing your tax returns, along with your unique tax reference number. All companies will then have three months to ensure HMRC has all correct company information and respond.
What do I do next?
You must file your corporation tax return within 12 months of your business accounting period. It is the responsibility of the company director to do so, and the tax is payable on:
- Sales of company assets
- Profits from sales and rents etc.
- Income from saving deposits
If your business makes a profit of up to 1.5 million, taxes are owed to HMRC within nine months and one day from the end of your accounting period. You must always pay on time as failure to do so can result in financial penalties. Similarly, you must file your tax returns online. Only with reasonable excuse can you do the same by post.
What are the penalties
As a company director, it is your duty to ensure you maintain and manage budget, accounts and cash flow. A late return of even one day is subject to a penalty.
- One day past the corporation tax deadline: 100
- Three months past: additional 100
- Six months: HMRC will take it upon themselves to estimate your corporation tax, with the addition of a 10% penalty
- 12 months: another 10% included in your tax liabilities
As mentioned above, after six months, HMRC will send you a letter – ‘tax determination’ – that will state they have established what you owe, with 10% accrued for not paying sooner. You cannot appeal this notice and must pay the monies due. Only with a reasonable excuse can you attempt to appeal.
It’s also worth noting that failure to file three tax returns results in the 100 charges increased to 500.
How do you avoid the financial penalties?
Firstly, the primary method of avoiding financial penalties is to send your tax return on time. Simply stating that you ‘forgot’ is certainly not a valid excuse. When you do send it over to HMRC, ensure all info is correct. Accurate records are critical to the longevity of business, with details on company assets, liabilities, income, expenses and ‘stock in hand’ necessary. Keep these items safe and store the data for a minimum of six years.
Likewise, inform HMRC if you have not yet been sent a ‘notice to deliver company tax return’, but have taxable profits. You should also alert them if you are unsure how to file your return. A professional advice can always be beneficial during such circumstances. Tax accountant firms do operate in many places, offering their expertise, one among them is HLB Mann Judd Australasian Association for Tax Accountants Melbourne. As a final step, it is advisable to reach out to professionals outside your firm as well.
Cash flow issues
If you do have issues with cash flow and feel you may struggle to pay corporation tax, or even VAT and PAYE, you must speak to HMRC immediately, You may, possibly, be suitable for a time to pay arrangement, with the monies owed spread across a reasonable timescale. However, evidence is required to support your claim.
If your business also operates in another country – the United States for example – you will have to pay tax return for that country as well as here in the UK. There may be a minimum tax, and there may be a tax credit for any foreign income taxes already paid. This can become complicated at times which is why many companies opt to outsource foreign tax returns to a local company. Luckily there are special offers (e.g. https://www.raise.com/coupons/hr-block) that one can utilize to help save money in this regard.
Should you also make a mistake when filing your tax return, HMRC or the country’s tax regulation body needs to know. You may be able to reduce the penalty for the mistake, or even remove it completely.