It is more than likely that your business pays several different taxes to HMRC. Whether it may be corporation tax, income tax, VAT or PAYE, these are all typically paid at different intervals. This makes it essential to ensure that tax payments are correctly accounted for by HMRC and set against the right tax account for your business. Failing to do this may lead to a huge tax debt.
How To Avoid Paying Into The Wrong Account
Each week, HMRC receives millions of tax payments, so will identify who has paid what by using the reference number attached to the payment. It is vital to get this reference number right when initiating the payment through your online banking, as if this is incorrect, your tax could get lost in the system.
In some cases, you may find that your online bank does not allow you to include 17-digit reference numbers with your payments. Unfortunately, this will mean that you will have to change your business bank account.
Making PAYE Payments
When making payments, you will likely find that PAYE is the most tedious as these are made up of the HMRC accounts office reference in the format: 123AB 4567 8910. There will also be four extra digits to indicate the month, and year the payment relates to. For example, if you were paying the PAYE due for the tax month 9 (December) in 2021-22, you should add 2209 to the end of the reference number. Your total reference should always be 17 digits long.
Making Corporation Tax Payments
Along with PAYE, corporation tax payments will also have a 17 digit reference number. This will be unique to both your business and the year in which the tax relates to. To prevent payments from going to the wrong account, it is essential to ensure that your reference number for paying tax for the year to the 31st of March 2021 is not the same as the number used for the period to the 31st of March 2020.
When it comes to VAT payments, setting up a direct debit works well as once in place, it will automatically take out the correct VAT due each quarter. However, if you were to do this for corporation tax, it will only work for one year as different reference numbers will need to be used for each period.