Funding a corporation tax bill explained

Why the bill lands in a lump

Corporation tax is charged on a company's taxable profit for its accounting period. For most smaller companies it is paid in a single payment, due nine months and one day after the year end — so a year ending 31 March is due by 1 January. There are no monthly instalments at this level (only very large companies pay in quarterly instalments), which is exactly what makes it awkward.

The profit the tax is based on was earned across the whole year and, in many businesses, has already been reinvested in stock, equipment, hiring or dividends by the time the bill arrives. So a payment calculated on last year's success lands nine months later, often in a quarter that has nothing to do with how trading is going now. A strong year can produce a bill that the current bank balance cannot comfortably absorb.

The size of the problem

From April 2023 the main rate is 25% on profits above £250,000, with a 19% small-profits rate below £50,000 and marginal relief tapering between the two. On £80,000 of profit, even after relief, you are looking at a five-figure payment due on a single day. For a company that does not set the money aside as it earns it, that is a genuine shock to cash flow.

The cleanest defence is to provide for it monthly — treat the tax as a cost accruing through the year rather than a surprise at the end. Our how to prepare management accounts guide shows how to keep a running estimate of the liability so it never blindsides you.

Options for spreading it

If the bill is bigger than the bank can take in one hit, you have a few routes. A Time to Pay arrangement with HMRC lets some companies spread the payment over a few months — worth asking for, though interest applies and it is granted at HMRC's discretion. A short-term tax loan from a commercial lender spreads the cost over an agreed term, keeping your working capital free for trading rather than tied up in a single tax payment.

Comparable to a VAT loan, a corporation-tax facility is sized to the bill and repaid over the months that follow. Credicorp lends to the company, with no personal guarantee, so funding the bill does not put your personal assets on the line. Compare structures in how to compare finance options.

Borrow or pay from reserves?

If you have cash sitting idle, paying the bill from reserves avoids any finance cost. But if clearing the tax in one payment would leave you unable to buy stock, make payroll or take on a profitable order, spreading it can be the better commercial call — the return on keeping cash working may outweigh the cost of the facility. Run both scenarios on the affordability calculator before deciding.

Whatever you choose, the long-term answer is provision: set aside a percentage of profit each month so next year's bill is already funded when it arrives. This guide is educational and not tax or financial advice — confirm rates, reliefs and any Time to Pay terms with your accountant or HMRC.