Benefits of Paying Corporation Tax Early

Corporation Tax is a tax on the profits of limited companies. Whilst it’s not compulsory, there are several benefits of paying corporation tax early, which we will discuss further in this article.

Avoiding interest and penalties

By paying your Corporation Tax early, you can avoid any interest and penalties that may be charged for late payment or underpayment of tax. This can help you save money and avoid unnecessary expenses. Companies have nine months and a day after the end of the company’s accounting period, and penalties will be due if a company is even a date late. Paying early also means the company is not tempted to spend the money on other areas of the business.

Improved cash flow management

Paying your Corporation Tax early can help you better manage your cash flow, as you can plan and budget for the payment in advance. This can help you avoid any unexpected cash flow issues and ensure that you have enough funds available to cover other expenses.

Enhanced reputation

Paying your Corporation Tax early can demonstrate that your business is responsible and financially stable, which can enhance your reputation with stakeholders, including investors, customers, and suppliers.

Potential tax savings

If you pay your Corporation Tax early you may be able to take advantage of certain tax deductions or credits that can reduce your overall tax liability. By paying early, you give yourself more time to assess and take advantage of these opportunities. HMRC pays “credit interest” for paying Corporation Tax early – the earliest HMRC will pay interest is six months and 13 days after the start of your accounting period. It is important to note that this interest income then needs to be included in company accounts and therefore taxable.

Reduced stress and anxiety

By paying your Corporation tax early, you can eliminate the stress and anxiety that can come with last-minute tax payments. HMRC can be difficult to get hold off immediately so if there are any issues, companies should plan on paying their Corporation Tax early and getting in touch with HMRC as soon as possible. This can help you focus on other important aspects of your business, such as growth and development.      

Potential disadvantages of paying Corporation Tax early

Whilst there are many benefits to paying early, there are some potential downsides that companies need to be aware of. The main drawback is the loss of cash flow which could have been an investment opportunity in other areas of the business. Whilst you will have peace of mind that your taxes are all in order, you will have to time it right for your business to ensure your business growth plans can still go ahead in tandem.

If you have any questions regarding your Corporation Tax and when is the best time to pay it then please get in touch with our Tax team.