Budgeting for the tax bill and Interest on early payment of tax

Pay corporation tax early and get a better interest rate from HMRC than from banks.


1.0 Budgeting

A usual question is how to budget for the tax bill at the end of the year.

HMRC has helpfully created a calculator (Link) which can estimate the amount of money an individual should save to pay their tax bill.

2.0 Saving mechanism

Now the question arises how to save this money.

2.1 Self-Assessment (Income tax) – No interest is paid for early payment. So in case an individual client wishes to save for their tax bill it is advisable to save in a bank where they can earn some interest before tax is due. Remember to pay payment on account.

2.2 Corporation tax – Yes, interest is paid for early payment but the earliest date HMRC will pay interest is from 6 months and 13 days after the start of your accounting period. Currently HMRC is paying interest at the rate of 5% w.e.f 14 Aug 2023 (source). It is difficult to find a interest bearing account giving such good rate. Please note this interest income is taxable.

Source:

For Corporation tax