Filing returns and paying tax bills on time are accounting necessities. But what if you’re super-organised and have your returns filed well ahead of the deadlines, should you just go right ahead and pay what you owe early? Or is it best to leave it to the deadline? Here we look at the pros and cons of paying Corporation Tax and Income Tax bills earlier than the deadlines, as well as important factors to think about.
The submission deadline for a company tax return is 12 months after the accounting period to which it relates. A tax return is necessary even if the company didn’t make any profit or isn’t trading.
The payment deadline for Corporation Tax is 9 months and one day after the end of the accounting period.
Should you pay your Corporation Tax early? Here are the pros and cons.
Pros: If you pay your Corporation Tax early, you will receive credit interest of 0.5 per cent. This interest will be paid by HMRC from whenever the bill is paid, up to the standard payment deadline. It will, however, only be paid from six months and 13 days after the start of the accounting period to which it relates.
Another pro of paying early is that it simply ticks the job off the list. But you will need to consider the cons before you make the payment.
Cons: It is important to make sure that cashflow won’t be impacted by making the payment early. Once you’ve handed over the money, you won’t be able to get it back to use for anything else. Looking at your cashflow forecast is important so that you can be sure you won’t leave your company short.
It’s also wise to note that, whilst you’ll be eligible for credit interest if you pay your Corporation Tax bill early, that interest will be considered income and therefore subject to tax.
The submission deadline for a Self-Assessment tax return is 31st October for paper returns, and 31st January for online returns.
The payment deadline for any Income Tax owing is 31st January, regardless of how the return was submitted. If payments on account are required, these must be made by 31st July.
Should you pay your Income Tax early? Here are the pros and cons.
Pros: If you pay early, you will avoid the late payment penalty. What’s more, you won’t be tempted to spend the money on something else.
Another benefit of paying your Income Tax bill early is that, if you are eligible for any refunds, you’ll get them earlier. If you’ve overpaid tax during the year, then your refund will be issued sooner too.
Finally, settling your tax bill ahead of the festive period is a good idea so that you’re not left facing a hefty bill in January, when funds are often low.
Cons: In your hurry to get your tax bill paid early, you could end up making mistakes and possibly miss some of the potential tax relief advantages that are open to you.
Again, consult your cashflow forecast. Leaving yourself short of available cash may mean that you are unable to fund something else you need sooner than the tax bill is due.
Need help with your company or Self-Assessment tax returns?
At Office Assistants, we work closely with our clients to ensure their company and Self-Assessment returns are filed on time, and provide advice on an individual basis of the merits or downsides of paying Corporation Tax or Income Tax early.
If you’d like to discover how we could assist you on an ongoing basis, you are welcome to get in touch.