Want to know if paying your tax bill early is in your interest?
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We don’t have to remind you how important it is to pay your taxes on time, but you may be interested in knowing if you can pay your taxes earlier than the usual deadlines.
This post will discuss the pros and cons to paying Corporation Tax and Income Tax sooner than expected. We also explore the benefits and important factors to consider.
When a company submits its Company Tax Return, HMRC calculates the amount of Corporation Tax owed to it.
Limited companies that trade in the UK pay Corporation Tax. It is also applicable to foreign businesses with a branch office within the UK.
Corporation Tax will not be charged to a foreign company for profits made through its UK subsidiary.
Companies based in the UK must, however, pay tax on all profits, both within the UK and internationally.
For the tax year 2022/23, the current corporation tax rate is 19%
The business must calculate its profit or loss to determine how much Corporation Tax it owes. This information is used to prepare a Company Tax Return. Every business that receives a notice from HMRC to submit a Company Tax Return must do so.
The deadline to submit a Company tax return is 12 months from the close of the accounting period it pertains to.
Corporation Tax payments must be made within 9 months and one calendar day of the close of the accounting period.
If the company is insolvent or loses money, it won’t have to pay Corporation Tax. However, you will still need to send a Company Tax Return (HMRC) to HMRC. You could be penalised if they don’t know what’s happening.
Limited companies only have nine months and one calendar day to pay their Corporation Tax bill. However, there are benefits to starting it earlier. There are also potential downsides to every business decision.
Paying early has the obvious benefit of receiving credit interest. HMRC offers this on advance Corporation Tax bill payments. Current credit interest rates are 0.5%
HMRC will pay the interest when you pay your bill up to the standard payment deadline (9 months and one day after the close of the accounting period). HMRC will start paying credit interest six months and thirteen days after the end of the accounting period.
Companies may also pay their tax bill early to avoid penalties. There are some things you should consider if your company does plan to pay its tax bill early.
If you plan to pay your Corporation Tax bill in advance, the most important thing to consider is how it will affect your cash flow. You can’t use the cash in any other areas of your business if you have already paid your tax bill.
It is important to choose your timing carefully. You have 9 months and 1 day to pay the debt. Make sure you don’t leave yourself behind.
If you aren’t sure, look at your cash flow forecast and ask your accountant if it is wise to pay Corporation Tax early.
Also, businesses can receive credit interest if their tax bills are paid early. However, this interest is subject to income tax. It will be necessary to note it in your company accounts.
You will likely have to pay income tax if you receive income from the UK as a taxpayer. While income you get might come from self-employment or wages, income from other sources is also subject to income taxes.
There are a variety of grant types:
– The majority of pensions
– Rent income
– Untaxed income above £2,500 (such as tips etc.)
There are many tax allowances that can reduce your tax bill.
Personal Allowance: The first £12,570 of your earnings during a tax year will not be subject to tax.
Trading allowance: If your self-employment income is less than £1,000, you won’t have to pay any tax.
Dividend Allowance: The dividend allowance for 2022/23 is £2,000.
You can use more than one allowance in the same calendar year, which is really great news. You could, for example, earn £12,000 wages and get a £1,000 dividend pay out, without having to pay any tax.
The income tax brackets are used to calculate the amount of income that is subject to income tax. This means you will pay tax at the same rate for all income earned within a bracket and at a different rate if you have income from the next bracket.
You don’t have to earn more than the threshold for your next tax bracket. Only the income that is higher will be subject to the rate. This article explains more about tax rates and tax thresholds.
The majority of income tax is paid by the employer. They deduct it from their wages, and pay it to HMRC. You will need to file a Self Assessment tax return for most income types.
You have until:
31 October if you send a paper form via the postal mail
31 January is the deadline for online returns
No matter how you send your return, the payment deadline is 31 January.
A sole trader must file a self-assessment return on paper by 31 October 2022. They also need to pay any tax owed by 31 January 2023. Online filings must be made by the 31st January 2023.
If someone is making advance payments towards income tax bills (known as payments on accounts), there is an additional payment deadline of 31 July.
Your Self Assessment tax return can be submitted as soon as the tax years it is relating to ends. There are both positives and downsides to this.
Avoid the fearsome late payment penalty. You can avoid any penalties from HMRC by paying your tax bill early.
The money won’t be tempting to spend. You won’t be tempted to spend the money if you have settled your tax bill in advance.
More time for questions. HMRC is known for being busy as the deadline draws near. It is a good idea to contact HMRC at a quieter time if you feel you may need their assistance.
Any tax refunds will be processed sooner. If you file early, your refund will be sooner if you have overpaid tax.
A large tax bill won’t be a burden on your new year. You’ll be weighed down by the tax bill if you don’t pay it by the January 31st deadline. Some people prefer to have it done in advance.
Paying income tax early can have negative consequences
There are few cons to getting your income tax bill paid early. Here are some things to keep in mind:
Don’t rush! It can be tempting to rush your tax bill and tax return once you have read all the benefits. It’s important to not rush the process, as you might make mistakes or miss tax relief opportunities.
First, assess your cash flow. It is important to determine if you have the cashflow to pay off your debts. You might have to re-evaluate your priorities if you find something that requires investment sooner than the deadline.
If you want to discover how we can help your business, Quest also offers the following services: VAT, Payroll, Business Tax, Tax Services, New Business, Self Assessment, R&D Tax Credits, Tax Deadlines and Annual/Management Accounts.