Your business probably pays several different taxes to HMRC: corporation tax or income tax; VAT; and PAYE all at different intervals. If the tax payment is not correctly accounted for by HMRC and set against the right tax account for your business an erroneous tax debt may arise.
HMRC receives millions of tax payments each week and identifies who has paid what by the reference number attached to the payment. It is important to get this reference absolutely right when you initiate the payment through online banking or your tax could get lost in the system.
PAYE payments are particularly fiddly as they are made up of the HMRC accounts office reference in the format: 123AB 4567 8910 plus four digits to indicate the month and year the payment relates to. For example when paying the PAYE due for tax month 9 (December) in 2021-22 you should add 2209 to the end of the reference number, making the total reference 17 digits long.
Corporation tax payments also have a 17-digit reference number which is unique to your company and the year to which the tax relates. Do not use the same reference number to pay the tax for the year to 31 March 2021 as you used to pay tax for the period to 31 March 2020 as it will end up in the wrong account.
Setting up a direct debit works well for VAT as once in place it operates to take the correct VAT due each quarter. However a direct debit for corporation tax only works for one year due to the different reference numbers used for each period.
If your online bank does not allow you to include a 17-digit reference number with your payment you may have to change your business bank account.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: