For many company directors, the Corporation Tax bill is not the difficult part – it is the timing. You may have completed a profitable year, paid suppliers and staff, invested in equipment, and then realise the tax payment is due before you have filed your Company Tax Return. Understanding how to pay corporation tax helps you protect cashflow, avoid unnecessary interest and keep your business plans on track.
Corporation Tax is paid by limited companies on their taxable profits. It is separate from VAT, PAYE and your personal Self Assessment tax. The amount due depends on your company’s adjusted taxable profit, available reliefs and the accounting period covered by the return.
When is Corporation Tax due?
For most UK limited companies, Corporation Tax must reach HMRC nine months and one day after the end of the accounting period.
If your year end is 31 March, for example, your payment deadline will usually be 1 January of the following year. Your Company Tax Return is not normally due until 12 months after the accounting period ends. That difference catches out many directors: the tax may need paying up to three months before the return is filed.
Your accounting period for Corporation Tax is often the same as your financial year in the statutory accounts, but it is not always identical. A new company can have a first accounting period longer than 12 months, which HMRC splits into two periods for Corporation Tax purposes. A change in year end can also create a shorter period. It is worth checking the dates rather than relying solely on your Companies House filing date.
HMRC charges late-payment interest from the deadline if the tax is not paid in full. Filing the return late can bring separate penalties, even where you have already made the payment. Treat these as two related but distinct obligations.
The rates that affect your bill
The main Corporation Tax rate is 25% for companies with profits above the upper threshold. Companies with profits of £50,000 or less may qualify for the 19% small profits rate. Marginal Relief can reduce the effective rate for profits between £50,000 and £250,000.
Those thresholds are reduced where there are associated companies, so a business owner with more than one company should not assume the full limits apply. Certain periods, groups and circumstances can also affect the calculation. Your accounts and tax computation should establish the final amount before payment is made.
How to pay corporation tax to HMRC
Once you know the amount due, the practical payment process is straightforward. You will need your company’s 17-character Corporation Tax payment reference. It is usually your 10-digit Unique Taxpayer Reference followed by the letter K. Use the reference exactly as shown on your HMRC correspondence so the payment is allocated to the right company and period.
HMRC offers several payment methods, including online or telephone banking, CHAPS, Bacs, Direct Debit and payment by debit card or corporate credit card. The method you choose should reflect how close you are to the deadline and how your business controls payments.
Online banking is often the most convenient option for owner-managed companies, provided you allow enough time for the bank to process the payment. CHAPS can be useful for a same-day transfer on a working day, although your bank may charge for it. Direct Debit can work well if you want a planned payment process, but it must be set up in advance. Do not leave a first Direct Debit arrangement until the final day.
Payment dates can move where a deadline falls on a weekend or bank holiday. HMRC must receive cleared funds by the due date, not simply see that you initiated the transaction. Build in at least a few working days where possible, particularly around Christmas, Easter and year-end holiday periods.
Keep the payment confirmation alongside your tax computation and final accounts. It gives you a clear audit trail and makes reconciliation easier when reviewing your bookkeeping or responding to an HMRC query.
Plan for the payment before the deadline arrives
Corporation Tax is based on profit, not on the balance sitting in your bank account at year end. A company can therefore be profitable on paper while short of available cash because customers have not paid, stock has been purchased or funds have been used for growth.
The most effective approach is to estimate the liability during the year, rather than waiting for the annual accounts. Regular management information gives you an early view of profitability and allows you to set money aside gradually. Some businesses transfer a monthly amount into a separate savings account, while others include the expected tax payment in a rolling cashflow forecast.
Neither approach is automatically right. A separate account can prevent tax money being spent accidentally, but it should not stop you meeting essential commitments or responding to a genuine opportunity. The key is visibility. If a tax payment will put pressure on working capital, you need to know months in advance, not when HMRC’s deadline is days away.
It is also sensible to review likely adjustments to accounting profit. Depreciation, for example, is not usually deductible for Corporation Tax, while capital allowances may be available on qualifying equipment. Entertaining, staff costs, pension contributions, bad debts and research and development expenditure can all require careful treatment. Good bookkeeping is not just about producing tidy year-end records – it gives you a more realistic tax forecast throughout the year.
Large companies and payment by instalments
Most small and medium-sized companies pay Corporation Tax nine months and one day after the year end. However, companies with taxable profits above £1.5 million may need to pay by quarterly instalments. The limit can be reduced for associated companies, and different rules can apply to very large companies.
Instalment payments begin much earlier in the accounting period, so they need active forecasting and advice. If your company is growing quickly, winning larger contracts or operating through a group structure, check whether these rules may soon apply. Waiting until the accounts are complete may be too late to manage the payment schedule properly.
Common mistakes directors can avoid
A frequent mistake is using the wrong reference, such as a VAT number or Companies House number. HMRC may still receive the money, but matching it to your Corporation Tax account can take time.
Another is assuming dividends are a company expense. Dividends are paid from post-tax profits and do not reduce your Corporation Tax bill. Director salaries, employer pension contributions and certain business expenses may affect taxable profit, but they must be correctly recorded, commercially justifiable and supported by evidence.
Directors also sometimes delay accounts preparation because they expect the tax bill to be high. This usually makes matters harder. Earlier information gives you more options: you may be able to manage cash, review capital expenditure, correct bookkeeping errors or consider legitimate tax planning before the accounting period closes. Once the year has ended, flexibility is often reduced.
Finally, do not confuse paying an estimated amount with completing the compliance process. If your final tax calculation changes, you may need to make a balancing payment or claim a repayment. Your Company Tax Return still needs to be filed accurately and on time, with statutory accounts submitted separately to Companies House where required.
What to do if you cannot pay in full
Do not ignore the deadline. If your company cannot pay its Corporation Tax in full, contact HMRC as early as possible to discuss whether a Time to Pay arrangement may be available. HMRC will expect a realistic explanation of the position, evidence that the business can meet future obligations and a proposal for affordable payments.
An arrangement is not guaranteed, and interest can continue to accrue. It is therefore better viewed as a way to manage a temporary difficulty than as routine business funding. Before agreeing to repayments, prepare a cashflow forecast that includes VAT, PAYE, supplier commitments, loan repayments and director drawings. A plan that overlooks other liabilities can create a second problem only weeks later.
If your business is under pressure, timely advice can make a meaningful difference. RK & Co helps company directors turn up-to-date accounts and forecasts into practical decisions, so tax deadlines support sensible planning rather than becoming a last-minute shock. Setting aside time to review profit, cash and tax before your year end can give you more confidence to invest, grow and pay HMRC when the bill falls due.