If you are a self-employed contractor, the chances are that you would know about corporation taxes. However, if explained in simple language, corporation tax is the amount of tax that is levied on the profits that you make as a corporation. It is applicable for foreign companies with a branch in the UK too. The current rate of taxation is 19% for corporations in the UK in the years 2018/19.
It is vital to note that a company that is making profits needs to pay taxes, but a company that is in loss or is no longer in the trading business does not need to pay taxes. However, it is still necessary for the corporation to keep the records of the accounts and the taxes. So, one of the most common questions that arise here is related to the timing of paying the corporation tax. Should the corporate tax be paid early? If yes, what are the benefits?
Let’s check them out!
Get an Interest
One of the most significant advantages of paying taxes early is that HMRC rewards you for paying early. HMRC pays you an interest (which is 0.5% at the moment) from the date you pay the taxes till the corporation tax deadline. You can pay your taxes as early as six months and an additional 13 days after your company’s taxation period starts. However, you must note that the amount will only be an estimate in case your company’s financial is in progress. Also, you will need to add the interest that you receive from HMRC during this period, and it would be taxable too. Nevertheless, getting 0.5% is not a bad deal in the end as long as you weigh the pros and cons thoroughly.
Saves You from Penalties
You must note that you get almost nine months to pay your taxes. Therefore, any delays in paying taxes can lead to huge penalties and fines. You must be careful because being even a day late can cost you a lot of money. So, not paying the taxes early can be a bit risky. Moreover, if you don’t pay taxes, you might end up using that money somewhere else in your business, and that can be a reason for risks too because you do need to have the money to pay those taxes. Hence, you must think carefully about paying or not paying your corporate taxes early.
Enough Time to Rectify Mistakes
There is always a likelihood of error in your corporate tax. Therefore, you must always check everything carefully and make sure you fix the errors before HMRC levies hefty fines on you. If you pay the taxes early, you have ample time to find those errors and fix them. In case you do it in the end, you will not have enough time to fix them. This might result in huge fines from HMRC and would lead to an unnecessary loss in your income.
However, there might be cases when waiting for some time before paying the taxes is better. In other words, it might not always be beneficial for you to pay taxes in advance because it would mean losing out on the cash flow. So, in case an opportunity for investment arises, and you don’t have the cash flow, it would mean risking potential profit for the company. So, if you use your cash to pay taxes early, you might miss out on the potential high returns for your company. So, you must think wisely before making a choice. Remember that there can be circumstances under which paying taxes too early may not work out in your favour.
If you are confused about the pros and cons of paying taxes early, it is a good idea to learn more about the process. You can always get in touch with a competent tax consultant who has all the knowledge about the advantages and disadvantages of paying corporate taxes early. An expert consultant can also tailor the advice based on your company’s unique case and help you with your course of action accordingly. For tax matters, it is always better to have experts deal with the matter
So, if you are looking for advice from an expert, you can get in touch with Limelight Accountancy where smart accountants are at your disposal to help you go in the right direction. We will help you pay your taxes at the right time to ensure that you are compliant while not losing your cash flow too early. We have been in the field for a long time, and we have a pool of experts in our team who can help you by offering customised tax solutions for your company. It will help you and your company immensely. Therefore, get in touch with us to get all your tax-related questions answered promptly!