Paying Corporation Tax from the business bank account

Corporation Tax should be treated as a planned treasury event rather than a last-minute bank transfer. The company needs the correct accounting-period reference, enough available cash and a payment route that will reach HMRC by the deadline.

Put the Corporation Tax payment date into the cash forecast months in advance

For companies outside the instalment-payment rules, Corporation Tax is normally due nine months and one day after the end of the accounting period. The payment date is therefore often earlier than the Company Tax Return filing deadline. Do not wait until the return is due before deciding whether the company has enough cash.

Build the expected liability into the monthly or 13-week forecast and update it as profit estimates change. If the company expects a £120,000 bill, management should already know whether that money is ring-fenced or whether customer receipts, borrowing or reserve movements will be needed. The bank transfer is the final step, not the tax-planning process.

Use the 17-character payment reference for the exact accounting period being paid

HMRC says Corporation Tax payments need the company's 17-character payment reference for the accounting period being paid. The reference changes for each accounting period. It can be found on the notice to deliver a Company Tax Return, HMRC reminders or the company's HMRC online account.

This matters when HMRC has been saved as a beneficiary in online banking. The bank can remember the previous reference even though the company is now paying a new period. Replace the old reference before approval. HMRC warns that using the wrong reference can delay allocation or cause the payment to be used against another tax bill.

Choose the bank-transfer rail according to the time remaining

HMRC currently accepts bank transfers using Faster Payments, CHAPS and Bacs. Faster Payments usually reach HMRC on the same or next day, including weekends and bank holidays. CHAPS normally arrives the same working day when sent within the bank's processing times. Bacs normally takes three working days.

If the deadline is tomorrow and the company has not yet paid, Bacs is no longer the sensible route. If the payment is planned a week in advance, there may be no reason to incur a CHAPS charge. Use the payment rail to fit the deadline while still checking the company's own online and user-level payment limits.

Direct Debit needs lead time, especially the first time it is used

HMRC says a first Corporation Tax Direct Debit should be allowed five working days to process. Once a Direct Debit has already been authorised, subsequent payments normally take three working days. Direct Debit cannot be used for Corporation Tax payments above £20 million.

Do not set up a first Direct Debit two days before the tax deadline and assume HMRC will collect it in time. If the timing is too short, use another accepted payment method. Also check a Direct Debit that has not been used for two years or more, because HMRC advises confirming that the instruction is still active.

A large tax bill can exceed the business account's normal payment authority

HMRC tells businesses to check bank transaction limits and processing times. That is particularly important for companies whose Corporation Tax payment is much larger than an ordinary supplier transfer. A finance manager may be able to create a £600,000 payment but have approval authority of only £100,000.

Review the limit several days early and arrange the correct approver or CHAPS process if necessary. Avoid splitting the payment into multiple transfers purely to work around internal controls unless the bank and finance policy permit that approach. A tax deadline should not become the reason the company bypasses its own payment governance.

Match the bank payment to the Corporation Tax liability and HMRC account

Keep the tax calculation, payment reference, bank confirmation and HMRC accounting-period record together. In the ledger, the payment should clear the Corporation Tax liability rather than appearing as an unexplained tax expense on the payment date.

Check the HMRC online account after settlement where the payment was late, unusually large or used a corrected reference. If HMRC has allocated it against the wrong liability, its current guidance says the company can contact Corporation Tax general enquiries to ask for the payment to be moved. Detecting the allocation problem early is easier than investigating it after an interest notice arrives.