Paying Corporation Tax Early: How Higher Repayment Interest Can Benefit Your Business

May 2025
5 minutes

With HMRC increasing the interest paid on early Corporation Tax payments, many UK companies are rethinking their cashflow strategy. If your business is in a strong position, paying your Corporation Tax early could be more rewarding than ever before.

What’s Changed? HMRC’s Interest Rate on Early Payments

HMRC regularly adjusts interest rates to reflect changes in the Bank of England base rate. As of 28 May 2025, the repayment interest rate (also called ‘credit interest’) for early Corporation Tax payments has increased to 3.25%—a level not seen for many years.

This means HMRC will pay your company interest if you pay Corporation Tax before it’s due. While this might not sound like much, for companies with significant liabilities or surplus cash, it’s an attractive risk-free return—especially in today’s uncertain economic climate.

📌 Important: Corporation Tax is usually due 9 months and 1 day after the end of your accounting period.

Benefits of Paying Corporation Tax Early

There are several reasons why early payment could work in your favour:

1. Earn Interest from HMRC

HMRC will pay interest from the date of your early payment up to the due date.
Current repayment interest is 3.25% (as of May 2025), up from previous lower levels.
This rate is higher than many business savings accounts.

2. Improve Your Cashflow Planning

Reduces the risk of late payment penalties.
Offers more predictable budgeting.
Frees up mental space for directors focused on growth.

3. Demonstrates Strong Financial Health

Paying early sends a positive signal to investors and lenders.
Shows strong cash reserves and effective financial control.

Key Considerations Before Paying Early

While the benefits are appealing, it’s not a one-size-fits-all strategy. Consider the following:

Do you need the cash elsewhere? – Can the money earn a better return if reinvested in your business?
Do you have accurate tax estimates? – Overpaying without a clear forecast could tie up working capital unnecessarily.
Are your systems ready? – Ensure accounting software and internal controls are set up to manage early payments and reconcile interest income.

How to Pay Corporation Tax Early

Paying early is straightforward:

Calculate your expected Corporation Tax liability with your accountant.
Make a payment to HMRC using your 17-character Corporation Tax reference.
Track the payment in your accounting system.
Any repayment interest will be automatically calculated by HMRC and shown on your business tax account.

💡 Tip: Make sure your accounting records account for any interest income received from HMRC for early payments.

Frequently Asked Questions (FAQs)

1. Can I pay Corporation Tax in instalments?

Only large companies (those with profits over £1.5 million) are required to pay in instalments. Small and medium-sized companies usually pay in a single payment.

2. Will HMRC refund the interest separately?

HMRC calculates repayment interest automatically and applies it to your business tax account. It can be refunded or offset against future liabilities.

3. Can I claim early payment interest as income?

Yes, any interest paid by HMRC is considered taxable income and should be recorded in your accounts.

4. What happens if I overpay by mistake?

If you’ve overpaid Corporation Tax, HMRC will usually refund the difference. Interest may still apply, depending on the dates involved.

5. Is it worth paying early for small amounts?

For small balances, the interest gained might be negligible, but it can still improve budgeting and peace of mind.

Final Thought:

With the current HMRC repayment interest rate standing higher than most savings accounts, paying your Corporation Tax early is now a smart financial move for many UK businesses. As always, speak to your accountant before making early payments to ensure it aligns with your company’s broader financial strategy.

Appoint TaxQube to manage your taxes

We help taxpayers in the UK to ensure compliance with HMRC – It is a legal responsibility. If you need help in submitting your Tax reports or accounts preparation, please do feel free to get in touch with us by completing the contact us form.