Corporation tax payment plans can be a lifeline for businesses that need help spreading the cost of their tax liabilities. However, not every business owner fully understands how these plans work or how to access them.

Here, we’ll explain the key aspects of corporation tax payment plans, including who they’re for, how they can help your business and what to watch out for when managing your tax responsibilities.

What is a corporation tax payment plan?

A corporation tax payment plan allows businesses to spread the cost of their tax bill over a series of monthly instalments, rather than paying the full amount in one lump sum. These plans, facilitated by HMRC, are designed to support businesses facing short-term financial challenges.

For the 2024/25 tax year, the main rate of corporation tax is 25% for companies with profits over £250,000, while a lower rate of 19% applies to profits up to £50,000. Companies with profits between these thresholds may pay a marginal rate. With these rates in mind, it’s important to budget and plan ahead for your corporation tax obligations.

Who can use a payment plan?

Corporation tax payment plans are typically available to businesses experiencing temporary financial difficulties. To qualify, your business must demonstrate its inability to pay the tax owed in full by the deadline while proving its intention and ability to repay over time.

For instance, if your tax payment is due and your business is waiting on overdue invoices or experiencing a short-term dip in cashflow, HMRC may agree to a Time to Pay (TTP) arrangement.

How to apply for a corporation tax payment plan

Applying for a payment plan involves contacting HMRC directly, either online or over the phone. You’ll need to provide:

• your company’s name and tax reference
• details of your financial situation
• the amount you propose to pay each month.

HMRC will assess your application, reviewing your payment history and financial records. Businesses with a good compliance track record are more likely to have their requests approved.

If approved, HMRC will agree to a TTP arrangement, allowing you to pay off your tax in manageable instalments over an agreed period, usually up to 12 months.

Benefits of payment plans

Corporation tax payment plans can offer several advantages, including the following.

• Improved cashflow: Spreading payments helps businesses manage cash more effectively, particularly during challenging periods.
• Avoidance of penalties: By agreeing on a payment plan with HMRC, you can avoid late payment penalties, which start at 5% of the unpaid tax after 30 days.
• Business continuity: With less strain on your finances, you can focus on running your business rather than scrambling to cover tax bills.

Points to consider

While payment plans can ease financial pressure, it’s important to be aware of potential drawbacks.

• Interest charges: HMRC charges interest on late payments, currently at 7.25%, so you’ll pay slightly more over time compared to settling the bill in full.
• Credit implications: Missing agreed payments can affect your business’s credit rating and its relationship with HMRC.
• Eligibility: Payment plans aren’t guaranteed – HMRC will only approve arrangements for businesses with a clear, honest financial need.

Tips for managing corporation tax effectively

To minimise the need for payment plans and stay in control of your corporation tax obligations, we recommend the following practices.

1. Plan ahead: Forecast your tax liability using accounting software or professional advice, and set aside funds regularly.
2. Monitor cashflow: A strong grip on your cashflow can help you avoid surprises and ensure you have reserves for tax deadlines.
3. Work with an accountant: An accountant can provide tailored advice to optimise your tax position, avoid unnecessary costs and support long-term financial stability.
4. Communicate early: If financial difficulties arise, don’t wait until the deadline to contact HMRC. Early communication shows your commitment to resolving issues.

How we can help

At John Potter & Harrison, we’re committed to helping businesses take the stress out of managing their corporation tax obligations. Whether you’re a startup navigating your first tax year or an established company facing cashflow challenges, our team is here to provide the guidance and support you need.

Here’s how we can assist.

• Tax forecasting and planning: Understanding your tax obligations well in advance is key to staying on top of deadlines. We can help you forecast your tax liability and set up strategies to ensure you’re always prepared, even when unexpected expenses arise.
• Efficient tax returns: Preparing and submitting accurate corporation tax returns is essential to avoid penalties and errors. Our team ensures that your return is completed correctly and on time, so you can focus on running your business.
• Exploring payment options: If you’re facing financial difficulties, we can guide you through the process of applying for a Time to Pay arrangement with HMRC. We’ll help you present a strong case and manage your relationship with HMRC to give you the best chance of approval.
• Proactive advice: Every business has unique circumstances, and our advice is always tailored to suit your needs. We’ll work with you to identify opportunities to reduce your tax liability through legitimate reliefs, allowances and tax-efficient strategies.
• Cashflow management: Managing cashflow is critical for meeting tax deadlines. We’ll review your financial position, identify potential gaps and recommend practical steps to improve liquidity and keep your business financially healthy.
• Accounting software integration: We can help you set up and optimise accounting software to track your finances, simplify record-keeping and stay on top of your tax position in real time.

By partnering with us, you’ll gain more than just a compliance-focused accountant – you’ll have a trusted adviser who’s invested in your success. Our people-focused approach means we’re here to answer your questions, offer solutions and give you peace of mind that your tax affairs are in safe hands.

Get in touch with us today to see how we can support your business, no matter the challenge. Together, we’ll help you take control of your tax obligations and build a stronger financial future.