For a business, sometimes unforeseen expenditures can arrive during an inconvenient time in the company. This is especially true when operating your business overseas. When those financial issues occur, it’s difficult to overcome them without some kind of assistance from an external source. Here we’ll examine what kind of help can be found when you’re running a business in the UK, and the tax laws that apply.
For corporation tax, the majority of businesses will be liable and responsible for those payments once that business begins to make a profit. And while every company has a duty to pay its tax, unexpected events can cause a tax bill to remain unpaid, leading to some potentially disastrous results for that business.
In some of these cases, securing a corporation tax loan can be an ideal way of paying HMRC on time while repaying the loaned amount across more affordable regular payments. The HM Revenue and Customs (HMRC) is a department of the UK responsible primarily for regulating taxes, wages, child benefits, and other elements of the financial sector. Below is a comprehensive guide to what businesses and individuals need to know about getting a corporation tax loan.
What is Corporation Tax?
Generally speaking, corporation tax is a bill that’s calculated by looking at the amount of income a business has earned via asset sales, trading, and other taxable business practices over the course of a tax year.
While the list below isn’t extensive, the following businesses may be liable for corporation tax charges:
- Limited companies
- Trade associations
- Members-only clubs
- Housing associations
- Groups operating as a business without a partnership
Corporation taxes are calculated by HMRC around 9 months after the end of the business accounting year, and if these taxes aren’t paid promptly, penalties will be enforced upon the business in question.
HMRC don’t send out official reminders or notices about a business’ corporation tax bill until those bills are overdue. In many cases, a business won’t be able to cover the costs of these bills, resulting in some companies running out of funds or even liquidating.
The Current Corporation Tax Rates
At the time of writing, the UK corporation tax rate stands at 25%. However, this rate of 25% also applies to any kind of business overseas with a UK-based office or branch. Of course, it’s only natural for the cash flow of a business to fluctuate based on several factors, which can make meeting these corporation tax payments challenging.
In an ideal world, funds can be put to one side in order to pay corporation tax bills on time and without issue. Unfortunately, unexpected costs and unpredictability over the course of a tax year can cause further strain and financial pressure, with any funds set aside usually being required to remedy those issues.
What Benefits can a Corporation Tax Loan Provide for a Business?
If a business is unable to pay any due corporation tax, business owners will almost immediately incur extra penalty fees, making the amount owed even more and putting a business at further risk. If these late payments aren’t resolved, HMRC may take more severe action that can result in the closure of a business.
Corporation tax loans have become an increasingly popular solution to this problem. These loans can provide businesses with many benefits, including the following below.
- Stability: Having more financial stability gives a business the opportunity to explore new opportunities and take advantage of unexpected chances that the company can capitalise on without having to worry about funds.
- Improved capital: This greater stability bolsters cash flow, which helps to keep all company finances in line. In turn, this helps a business ensure that the same issue won’t happen again when the next tax bill is due.
- Flexibility: The majority of corporation tax loans have several options for a repayment plan. A business can spread out the costs over 6 months, 12 months, or as a standard fixed monthly amount. Some places even offer quarterly repayment plans. This flexibility allows businesses of all sizes and in all kinds of situations to repay the loan with ease.
It’s worth noting that some companies can even claim capital allowances if the business has purchased assets used for business purposes, such as machinery, business vehicles, and company equipment. For some businesses, the government even offers tax relief initiatives that help to reduce the actual amount of corporation tax required to pay.
Individuals and companies may be able to claim for the following instances:
- R&D relief (Research and Development business relief)
- Relief for businesses in the creative industries (theatre, film, television, etc)
- Relief for losses from terminal, capital, or property income and trading
- Relief for patented inventions via The Patent Box
- Disincorporation relief for those closing a company and becoming a sole trader or ordinary business partnership
For more information on the other kinds of corporation tax relief available, check the HMRC website.
Know the Difference Between Secured and Unsecured Corporation Tax Loans
All corporation tax loans, regardless of how much a business has borrowed, will be defined as one of two kinds of loans – a secured corporation tax loan and an unsecured corporation tax loan.
Secured Corporation Tax Loans
Secured loans are generally more popular with businesses that have assets but limited cash funds. They may be a company in financial difficulty with a bad credit rating hindering them. For a secured corporation tax loan, a business will provide assets that can be used as collateral and assurance on the amount loaned out to the business. This collateral can range from stocks and property to a company’s machinery and vehicles.
Secured loans can sometimes be deemed high risk to a lender, especially if the business in question has a poor credit history. Therefore, the assets mentioned above can be used to help decrease that risk, as a lender can sell off these assets to get their money back.
Unsecured Corporation Tax Loans
Unlike secured loans, unsecured loans don’t need any business assets to be used as collateral to facilitate a loan. In general, loans of this nature are predominantly offered to businesses with a strong credit history or a company in need of just a small loan amount.
Despite the lack of collateral needed, there’s a good chance that a company will be expected to give a personal guarantee. A personal guarantee essentially means that an individual’s personal finances and assets are used as collateral instead.
Applying for a Corporation Tax Loan
Before choosing a lender for a corporation tax loan, it’s crucial for a business to narrow down what truly matters most. Before moving any further with a loan, a company should collect the following information to ensure the process runs as efficiently as possible.
- The minimum loan amount needed
- The timeframe of repayments for that loan
- Details about whether the business currently trades at a profit/loss
- A ballpark figure for a limit on repayment interests rates
Keeping the above information in mind can help individuals and businesses not only find the right lender for their business needs but also prevent a company from going too far into debt and exceeding the limits of the company means.
Once a corporation tax loan has been agreed upon, the majority of lenders will pay funds directly to HMRC on the behalf of the borrower, ultimately resolving the issue with the government quickly.
Paying Corporation Tax: The Future and Beyond
While companies may perceive a corporate tax loan as another financial burden, it provides the opportunity to reassess finances, plan ahead, and ensure that the issue doesn’t occur again. HMRC’s initiatives to provide support and relief for businesses, and a lender’s ability to e-sign a loan before paying it directly to HMRC are indicative of the future of a more simplified and streamlined corporation tax loan process.
This unified push into a more cohesive digital tax system has led to the government’s Making Tax Digital plans now aiming for a fully-digital corporation tax process by 2026 at the latest. And while those plans and consultations continue to progress, individuals have the opportunity to remain one step ahead of their future tax payments, and focus more on the success and future of a business, as opposed to worrying about missing important payments.
Embracing the Opportunity to Adapt and Grow
Regardless of which kind of industry you operate within or the specifics of the corporation tax loan you decide to apply for, there’s an opportunity to embrace what the above innovations can offer and apply them to your internal administrative processes.
Not only will doing so unify communication and procedures across all levels of your business, but you’ll also ensure that your company is equipped to work faster and more cohesively. By the time your next corporation tax bill arrives, your improved processes will make the entire process easier and more streamlined.
Securing a Corporation Tax Loan: Final Thoughts
For a small to medium enterprise, sometimes there’s just no way of guaranteeing financial stability over the course of the next tax year. And when it comes to something as important as keeping up with your corporation tax payments, sometimes securing a loan to help you out is the most sensible solution.
However, despite this lack of a guarantee with regard to your financial future, keeping on top of your asset sales and taxable business practices can help to give you a better idea of what may be coming your way when it’s time to pay your corporation tax.
Until then, securing that all-important loan can provide your company with the means to push forward, explore new ventures, or stay the course with a business plan that you’ve already planned out. In time, obtaining the right kind of corporation tax loan can set you on a clearer path that’s more focused on your bottom line while taking the bigger picture of your business goals into account, as well.