2 min read
Why corporation tax catches directors by surprise
Unlike VAT, which falls quarterly and on a predictable schedule, corporation tax is based on profitability — which is confirmed only after the accounting year closes and accounts are prepared. For fast-growing businesses, a strong trading year can produce a CT liability that is significantly larger than the prior year's, landing at a point when cash is already committed to growth investment.
Businesses that have invested heavily in the year — in equipment, people, stock or acquisitions — may have reduced their cash position precisely because they were trading well, creating a mismatch between taxable profit and available cash.
Quarterly instalment payments for large companies
Companies whose taxable profits exceed £1.5 million are required to pay corporation tax in four quarterly instalments during and after the accounting year. This regime changes the cash-flow profile significantly: the first instalment falls due six months and thirteen days into the accounting year — before the year has ended — based on an estimate of the full-year liability. Underestimating and catching up is a common cash-flow pressure point for rapidly growing companies passing the threshold for the first time.
Using a short-term facility to settle a CT liability
A short-term loan or revolving facility can bridge the gap between the CT due date and the point at which cash flow normalises. The facility is typically sized to match the CT liability and structured with repayment aligned to the business's expected cash receipts in the months following payment.
- Confirm the exact CT liability with your accountant before sizing the facility
- Check whether any research and development credits or capital allowances reduce the net liability
- Identify when the next cash inflows are expected — this sets the repayment window
- All cost and rate references here are illustrative and do not constitute an offer from Credicorp
R&D credits and timing: a note for tech and manufacturing businesses
Some limited companies have a significant R&D tax credit receivable that offsets the CT liability but is paid on a different timeline. HMRC processes R&D credit claims separately from CT returns, and delays in processing can mean the credit arrives after the CT payment falls due. A short-term facility can bridge this specific timing gap, with repayment expected when the credit is received. Directors should obtain confirmation from their accountant on the expected processing timeline before structuring a facility around it.
Frequently asked questions
Can we negotiate a Time to Pay arrangement for corporation tax?
HMRC's Time to Pay scheme is available for CT as well as VAT and PAYE. It is assessed on a case-by-case basis and requires the business to demonstrate genuine financial difficulty — it is not a general payment deferral option. A commercial bridging facility may be more appropriate for businesses that are financially healthy but face a short-term timing mismatch.
Does using a loan to pay corporation tax affect the tax calculation?
Interest paid on a commercial loan is generally deductible as a business expense for corporation tax purposes, which partially offsets the cost of the facility. The precise treatment depends on the structure and your company's specific position; your accountant should confirm the deductibility before you factor it into cost comparisons.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.