Nobody ever said running a small business was easy. In fact, according to a recent survey, 55% of such businesses in Britain fail to survive their first five years. At the same time, 44% of businesses cited paying HMRC their taxes as one of their biggest challenges.
So how can you protect your cash flow whilst ensuring that HMRC receive their corporation tax on time and in full?
The first thing to remember is to register your new company for corporation tax as soon as you’ve set it up. The law specifies that you need to do so, and obtain your ten-digit UTR (Unique Taxpayer Reference), within three months. You can then sign up for corporation tax via HMRC’s website.
Having done so, it’s vital that you keep accurate and timely accounts, so you can predict how large your first tax bill will be.
An unexpectedly large bill could be enough to send a fragile young business over the edge, meaning that you can never take too much trouble over your accounts. Finally, don’t forget the deadline for paying HMRC and make sure you pay your tax in full or report that you have no taxable profits.
What does corporation tax cover?
In simple terms, corporation tax covers any profits your company makes from trading, investments and capital gains, though there are fairly generous allowances for capital investments as well as running costs.
If the business is based in the UK, it will pay HMRC corporation tax on worldwide profits, whilst overseas companies with a presence in the UK will only pay tax on domestic profits.
What is the future of corporation tax?
In the 2015 budget, the Government announced a corporation tax rate of 19% for the 2017, 2018 and 2019 tax years.
In his 2016 Autumn Statement, the Chancellor stated that the rate would be reduced to 17% from 2020 onwards, giving Britain the lowest rate in the G20 and one of the lowest in Europe (only marginally above Ireland’s 12.5% rate).
But the fundamental question remains: what if you’re struggling to pay?
How to deal with a bill from HMRC you can’t pay
In many cases, businesses facing financial problems aren’t profitable in the first place, so corporation tax isn’t likely to be an issue (VAT is usually a much more pressing matter).
However, assuming that you’ve made profits but have cash flow problems, the first thing to do is to contact HMRC and explain the situation.
Their Business Payment Support Service will assist you in meeting your obligations, which could involve agreeing to instalments spread over six months or a year.
The most important thing to remember is that if you simply ignore the problem, it will get worse: if demands for payments are received without a response and deadlines are missed, HMRC will start adding substantial penalties.
It goes without saying that HMRC pursues unpaid tax aggressively, and that if you agree to a payment plan and then default you could be looking at liquidation.
Don’t forget to talk to Cashsolv
If you have an unpaid tax bill and don’t have any funds on hand, simply give Cashsolv a call. Not only can we help with arranging a Time to Pay agreement, but we’re the specialists in business finance, and with one of our emergency loans can have money inside your account within 24 hours.
To learn more about what we can do for you, please visit our business finance page.
Alternatively, if the worst comes to the worst – and we’ll try to ensure that it doesn’t – we have extensive experience of preparing Company Voluntary Arrangements, which allow you to restructure your finances whilst remaining in control of your business.