Corporation Tax: Liabilities, Methods of paying and Penalties


The tax collected as a source of income from business entities by the government is referred to corporate/corporation tax. Corporation tax is paid by UK limited organizations and some different associations. It depends on the yearly profits that an organization makes.  

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All benefits are taxable; nonetheless, certain particular costs can be deducted, and there are allowances you can utilize to help lessen your tax liability. All UK limited companies are bound to pay corporation tax according to the UK’s finance act. Associations and sole traders don’t pay corporation tax, and rather they need to file tax returns and apply annual income tax to their income. There are notwithstanding, different associations that may have to pay corporation tax in spite of not being consolidated as limited companies. 

  • Housing associations 
  • Membership organizations 
  • Clubs and societies 
  • Co-operative 

This blog has been created on repeated questions asked from us by the taxpayers related to corporation tax, which includes: 

  1. Liability to Corporation Tax 
  1. When to pay Corporation Tax 
  1. Methods to pay Corporation Tax 
  1. Changes in corporate tax reforms  
  1. Late payment penalties 

Source: Easy Guide for Beginners on How to Pay Corporation Tax 

Liability to Corporation Tax 

A business is liable to corporation tax in the following scenarios, 

  • Chargeable gains on selling products 
  • Profit trading 
  • Investments 

Note: If you want to get a detailed note on being liable to corporation tax, just visit us at Legend Financial

When to Pay Corporation Tax? 

The corporation tax documenting deadline is diverse from other taxes. It must be paid before you file your organization tax return. This implies the date it should be paid relies upon your accounting or bookkeeping period. You need to settle your company tax nine months and one day after the end of your accounting period from the past monetary year. Assuming your accounting period ends December 31, your bill will be expected October 1. 

Methods to Pay Corporation Tax 

There are a few different ways to pay your company tax bill. Whichever strategy you pick, HMRC should get the cash by the deadline date to avoid a penalty. On the off chance that your payment deadline falls over the course of the end of the week or on a bank holiday, your payment should arrive at HMRC on the last working day prior. If you know when to pay your corporation tax and how much do you owe to HMRC in tax, just remember you need to allow time for your payment to get through HMRC.   

Following are the methods for paying your corporate tax: 

  1. Same-day or next-day 
  • Online or Telephone Banking 
  • CHAPS 
  1. Three working days 
  • BACS 
  • Direct Debit 
  • Online by Debit or Corporate Credit Card 
  • At your Bank or Building Society 
  1. Five working days 
  • Direct Debit Card 

Changes made in corporation Tax reforms 

On March 31, the Chancellor announced major reforms in corporation tax this year which are as follow; 

  • From April 2023, there will be an increase in tax rate for the companies with profits over £250,000. This tax rate will be increased to 23% which is not at 19%. 
  • The introduction of a different rate for companies with profits under £50,000, set at 19%, with a tightened rate to apply for organizations with profits over this limit however under £250,000. 
  • Another ‘super-derivation’ to permit organizations to guarantee a 130% first-year capital allowance for investment in qualifying new plant and apparatus resources, to apply from 1 April 2021 until 31 March 2023, and a half first-year stipend for qualifying special rate resources. 
  • A brief two-year expansion in ‘loss carry-back’ which permits organizations to counterbalance losses in the current year against taxable benefits in the previous year – from one year to three years. 

Late payment Penalties 

It’s important to understand the common mistakes that can lead to a penalty. You might get penalty by HMRC in the following cases 

  • Return errors 
  • Delayed payment 
  • Non-availability of proper records 
  • Late filing of tax return 

If you’re a limited company, your Corporation Tax return is due 12 months after the end of the accounting period it covers, and the deadline to pay your Corporation Tax bill is usually nine months and one day after the end of your accounting period 

Timeline after deadline Penalty 
One day 100 
Three months Another 100 
Six months HMRC estimate of your corporation tax plus 10 percent of total tax 
Twelve months Another 10 percent of unpaid tax 

Hope, we have been helpful in making you understand the basic concepts regarding corporation tax. If you have more queries just contact us at Legend Financial as we have a competent team to help you get through managing your finance and making new investments.