Corporation tax, also known as the corporate tax are the tax which are calculated on the profits of limited companies. The Limited companies include the foreign companies who have a branch in UK. The current tax rate is set at 19%. The accountant services UK provides helps you in calculating the correct taxes.
If we are talking about a UK based limited company then the corporation tax it has to pay will be calculated on the profits of UK as well as worldwide. But this is not the case with the foreign company which has a branch in UK. Such companies have to pay tax only for its UK based operations. A company is not liable to pay corporation tax if it isn’t trading or going through a loss. Anyway, it is important to maintain the accounting records as it will help to prepare annual accounts and any other tax record necessary. A company tax record is taken into consideration only when the company is actually trading.
Why Is It Important to Pay Corporation tax Early?
The HMRC has the benefit of paying interest, known to be as ‘credit interest’ to the people who clear their Corporation tax early. This is the kind of tax credit services. This credit interest is calculated by HMRC based on the days you have paid the interest before the deadline. The earliest you can pay your tax is from 6 months and 13 days calculated from the start of your accounting period. Let’s take an example. Suppose your accounting period has started from 1st January 2018 and ends on 31st December 2018, you are eligible to pay your Corporation tax whenever you want between 13th June 2018 and 1st October 2019 (this is the deadline set by HRMC for clearing the taxes). For this time period the HRMC will pay you credit interest at the rate of 0.5% annually. In this case, as your company’s trading will be in progress you will pay an estimated Corporation tax. Another important thing which you should remember is that you are supposed to include the interest income in your company accounts and hence it will be taxable.
Advantages of Corporation Tax
It is always better to pay corporate tax for business owners than paying individual income tax. Corporate tax has many benefits like you can get returns deducting medical insurance for the family. It also has added benefits like good retirement plans and some tax-deferred trusts. In accounting the corporation taxes, it becomes easier to deduct the losses. While a corporation have the opportunity of deducting the entire amount of losses, a sole proprietor is required to present proof of how he/she had planned to earn profit and only then can deduct the loss.
Early Payment Is Always Better Than Being Late
You are given a time period of 9 months and a day even after the year-end to clear your Corporation tax. If you fail to pay the amount within the mentioned period there are harsh penalties. Paying early ensures that you do not waste that money on something else.
Disadvantages of Paying The Corporation Tax Early
If you pay the tax early, that money is stuck. You cannot use it as an investment in your business and you even miss the opportunities of probable higher returns if invested somewhere else. So, it just gives you and your tax accountant a satisfaction that you have managed your tax affairs and does not help in either making you rich or help your company grow.