Last updated: 14 October 2026
Should you pay corporation tax early?
It can help, but only if the company has spare cash. Most small companies must pay corporation tax 9 months and 1 day after the end of their accounting period. You can pay any time before that. Paying early means you can’t spend the money on something else, but HMRC pays a modest interest rate on early payments, and it protects you against a cash shortfall at the deadline. If cash is tight, a Time to Pay arrangement is better than borrowing at high rates.
When paying early makes sense
- You have surplus cash that might otherwise be spent
- You want to avoid the temptation of using money set aside for tax
- You want to clear the liability before taking on a new commitment
- The repayment interest HMRC pays is similar to what the bank would pay you
When it doesn’t
- You need working capital for stock, wages or growth
- You have expensive debts, such as overdrafts or credit cards, which cost more than HMRC’s late payment interest
- You may need the money if profits change after the accounts are finalised
Interest on early and late payments
| Situation | Interest rate |
| Paid early | HMRC credit interest at the Bank of England base rate minus 1%, with a minimum of 0.5% (taxable) |
| Paid late | Late payment interest at the base rate plus 4% |
Large companies
Companies with profits over £1.5 million pay in quarterly instalments, starting in month 7 of the accounting period. Very large companies, with profits over £20 million, pay earlier still.
A simple tax reserve
- Open a separate savings account for tax
2. Each month, transfer about 25% of profit (19% for small profits)
3. Add VAT and PAYE amounts as they fall due
4. Pay HMRC from that account on or before the deadline
Example
A company with £80,000 profit owes £17,450 corporation tax (25% less marginal relief of £2,550). It moves about £1,455 a month into a tax account and pays HMRC 9 months after the year-end, earning interest on the balance while it waits.
Paying debts on time
If a supplier debt and a tax bill fall due at the same time, contact HMRC early to agree Time to Pay, rather than missing either. See paying a creditor instead of HMRC.
Planning mistakes to avoid
Spending money just to save tax rarely makes sense: a £10,000 purchase saves at most £2,500 in tax. Other mistakes are paying pension contributions after the year-end (they must be paid, not just accrued, to count) and forgetting associated companies, which reduce the £50,000 and £250,000 limits. Plan at least 2 months before the year-end so there’s time to act.
A further example
A company with profits of £60,000 makes a £10,000 employer pension contribution before its year-end. Profits fall to £50,000, which is taxed at 19%, saving £2,650 in corporation tax.
Frequently asked questions
Can I pay corporation tax in instalments voluntarily?
Yes. You can make payments on account at any time.
What reference do I use?
Your 17-character corporation tax payment reference for the accounting period.
Will paying early affect the tax due?
No. It only affects interest.
What if I overpay?
HMRC refunds the excess. See corporation tax refunds.
Related: corporation tax rates.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with corporation tax planning. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
