If you have a business that is turning a profit, you will be paying corporation tax and VAT. However, unanticipated bills or having to pay more than you expected can put stress on your cash flow and livelihood.
Missing payments and incurring late payment charges can unfortunately quickly add up, which is why some businesses turn to tax loans to pay their corporation tax bill and ease the pressure on their cash flow.
In this article, we will cover the different types of corporation tax loans, how you can access them, how to qualify, and other important information to consider before you decide to apply.
What Are Corporation Tax Loans?
Corporation tax loans are essentially a means of paying tax bills in a more affordable manner rather than as a lump sum. They break down a company’s corporation tax into monthly instalments at a fixed rate.
Types of corporation tax loans
There are also different types of corporation tax loans, coming as either secured or unsecured business loans. Your business is more than likely going to find one option more suitable for their needs than the other.
A secured corporation tax loan is where the business owner will provide the lender with security for the loan in the form of business assets. The assets may include property, equipment, vehicles or stock. This is so that if you cannot make the payments, the lender can take the assets as payment.
The reason for this is that the loan poses less risk for the lender. This is why secured loans are suitable for businesses that have a lot of assets but may have encountered financial difficulties and now have a poor credit rating. Ultimately, your lender will deem you a higher risk if you have a poor credit history.
If you do have a poor credit rating and aim to borrow through a secured loan, you are likely only going to be able to borrow a small amount or that which matches the worth of your assets.
On the other hand, an unsecured corporation tax loan will not require you to offer assets as security against the loan. Typically if you are applying for this type of loan, you’d need a high credit rating or only want to borrow a small amount of money. This makes you less of a risk for the lender.
In some instances, your lender may ask you to provide a personal guarantee which means that your personal assets are held as security. This means that if you miss payments or fail to pay them for whatever reason, your lender can take your assets. Therefore, be sure you research your lender and contract thoroughly before accepting.
As you can see, each loan type will be better suited to different businesses and financial circumstances.
How Can I Get a Corporation Tax Loan?
You can find numerous online lenders who provide corporation tax loans, but most banks do not offer this service. Therefore be sure to conduct in-depth research and check testimonials to ensure you are borrowing from a reputable company.
How to apply for a corporation tax loan?
When you find the lender that you wish to apply for, you will need to fill in an application form where you may be asked to provide some of the following:
- The name of your business.
- How long your company has been trading for.
- If you are a registered business in the UK.
- If you have a corporation tax bill from HMRC.
- Your average monthly turnover.
- How much you are aiming to borrow.
- Contact details such as your name, role in the business, phone number, and email address.
Following the submission of your application, you should be assigned an account or case manager who will discuss your application and your options.
Your case manager will then collect any necessary documents and process the application. Depending on the lender, you may receive a decision within 48 hours.
What is a Corporation Tax Loan Used for?
A corporation tax loan is used to help businesses pay their UK corporation tax bill more affordably. This is done by spreading the tax cost across monthly payments rather than as a lump sum.
Does My Business Qualify for a Corporation Tax Finance?
Each lender may have slightly different criteria compared to one another, but these usually include:
- The borrower is a registered business in the UK.
- They may only fund a tax bill over a certain amount of money.
- The borrower has a corporation tax bill from HMRC.
- The borrower has been trading for a certain amount of time.
What is the Difference Between a VAT Loan and a Corporation Tax Loan?
A VAT loan is another form of business finance companies may use to ease the pressure off of their cash flow.
Although similar to a corporation tax loan, VAT loans differ as they are used by businesses to afford to pay their quarterly VAT bills by their due date. Corporation tax and VAT loans are both often paid directly to HMRC. A corporation tax loan is used to pay corporation tax on your business.
What Are the Costs of a Corporation Tax Loan?
The costs of a corporation tax loan will vary drastically depending on the business loan type, your company, your situation, and your deemed risk. However, as mentioned previously, if you have good creditworthiness, the lender will likely offer you a competitive rate with no added security.
If you have a poor credit score, your lender will likely offer higher interest rates and require some security. Therefore, try to acquire a range of quotes from finance providers to identify the best solution for you.
What Are the Benefits of a Corporation Tax Loan?
There are many benefits businesses can enjoy from a corporation tax loan, including the following:
- An improved cash flow.
- Businesses can make the most of new opportunities or finance unexpected costs.
- Can avoid the risk of high charges for late or no corporation tax payments.
- There are flexible options available.
- The payments are made directly to HMRC.
What Are the Risks of Corporation Tax Loans?
Although there are some great benefits to these loans, they still come with risks. Namely, unsecured and secured loans have their own set of disadvantages.
The risks that come with secured loans include:
- Requires securing the loan against collateral.
- You are risking the asset you offer as security if you are unable to make the payments.
- They can take some time to arrange.
The risks that may come with unsecured loans include the following:
- They require a high credit score, so they won’t be suitable for those who have had financial difficulties.
- Usually have higher interest rates to compensate for the greater risk as there’s no collateral.
- Often only offer smaller amounts due to the higher risk to the lender.
Who Provides Corporation Tax Loans?
You can apply for a corporation tax loan through a number of finance providers, credit brokers and other online lenders.
These aim to spread the cost of your corporation tax bills across a more affordable payment plan, usually in instalments lasting 3 to 12 months.
Final Thoughts
Ultimately, if you feel you cannot afford your company tax bill, it is understandable that it may cause stress, constrain your cash flow, and lead to financial uncertainty.
The purpose of corporation tax funding is to relieve some of that pressure by allowing you to break down the tax into manageable monthly instalments.
As there are different types of business loans, it is important to do your research and look at which type of loan is best suited to your business, circumstances, and financial situation.
We hope that you have found this article informative and beneficial when considering a corporation tax loan.
FAQs
What is corporation tax?
A corporation tax bill is determined by the profits your business earns through trade and other taxable activities during the tax year. Corporation tax is paid at a 25% flat rate in the UK.
Limited companies, trade associations, housing associations, members-only clubs, and individuals not in a partnership but operating a business all have to pay corporation tax.
When am I required to pay corporation tax?
You must pay corporation tax before you submit your company tax return. The official deadline will vary depending on your company’s accounting period.
However, it is typically due nine months and a day after the close of your financial year if you are a private company, or six months after if you are a public company.
You must pay this to HMRC on time, especially as some payment methods may take longer to process. This is approximately how long each method takes:
- Same day payment – online banking, telephone banking, some bank transfers, Clearing House Automated Payment System (CHAPS)
- Approximately 3 working days – direct debit, BACS, corporate credit card, via the bank, via a building society
- Approximately 5 working days – direct debit (if it has not been set up)
Tax bills should be taken very seriously as the penalties can add up, especially if this is a recurring problem. The penalties HMRC can charge follow these stages:
- 1 day after the deadline – £100
- 3 months after the deadline – Another £100
- 6 months after the deadline – HMRC will estimate your bill and add a 10% penalty of the unpaid tax.
- 12 months after the deadline – You will be charged another 10% of any unpaid tax.
If you have missed your deadline three times, you will be charged:
- 1 day after the deadline – £500
- 3 months after the deadline – Another £500
- 6 months after the deadline – HMRC will estimate your bill and add a 10% penalty of the unpaid amount.
- 12 months after the deadline – You will be charged a further 10% of the unpaid tax.
To avoid an unwanted charge, you should try to set aside money to pay the bill during the financial year. This is especially the case as you may not receive reminders from HMRC. Furthermore, if you manage to pay your tax early, you may be paid interest.
What payment options can I use to pay corporation tax?
There are various payment methods you can use to pay tax to HMRC, including the following:
- Direct debit
- Online banking
- Telephone banking
- Corporate Credit Card
- BACS
- CHAPS
- At your chosen bank or building society.
Each payment method will have varying times it takes for HMRC to receive the bill, so be sure to check the above FAQ to ensure you don’t end up making a late payment.
What is HMRC’S TTP agreement?
There are serious repercussions for not paying your tax bill by the deadline. However, if you believe you will not be able to pay the bill beforehand or suspect you can only pay it after the date it’s due, the worst action you can take is doing nothing.
If you find yourself in this situation, you should contact HMRC immediately as they may be able to assist you. HMRC has a payment plan called Time To Pay (TTP) which is in place to help businesses facing financial difficulties pay back their tax bill in instalments.
TTP is intended to be a one-off solution to help support businesses, but repeatedly late payments may lead to HMRC asking you to pay the remaining amount in full.
If you are in a financially uncertain situation and are considering applying for TTP, the eligibility criteria is as follows:
- You owe less than £10,000
- You have no other outstanding tax debts
- You have no other HMRC payments plans.