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Corporation Tax: Summary of instalment payment regime

Small companies pay their corporation tax nine months and one day after the accounting year end. However, companies that are classified as ‘large’ or ‘very large’ are required to make quarterly corporation tax instalment payments. These instalments must be based on an estimate of the tax that will be due, and interest will be charged for any underpayment in each instalment.

The payment requirements are different depending on which regime a company falls under.

Let’s look at the definitions and obligations for these companies:

Large Company

For the purposes of the instalment regime, a company will be large if its profits are in excess of the annual threshold limit of £1.5 million. If a company has one or more 51% related group companies (either in the UK or overseas), then the threshold is reduced proportionately.

For example, if a company has 2 related 51% group companies, this threshold is shared between them. Therefore, the threshold for each would be £500,000 (£1.5m / (2+1)).

There are two important exemptions: the first is where the company has a tax liability of less than £10,000, and the second is where a company was not ‘large’ in the previous 12 months, and the total profits are £10 million or less.

This period of grace means that the quarterly payment regime will not apply in the first year a company becomes ‘large’, unless the taxable profits of the company exceed £10 million.

Quarterly instalments are payable for a 12 month accounting period on the 14th day of months seven and ten of the accounting period and months one and four of the next accounting period.

For example, instalments for a company with an accounting period of 31st December 2020 will be due on 14th July 2020, 14th October 2020, 14th January 2021 and finally 14th April 2021.

Very Large Company

For accounting periods starting on or after 1 April 2019 a company with annual profits above the £20 million threshold will be classified as ‘very large’. Again, this threshold is shared between all 51% in the worldwide group. Similarly, if the tax liability is £10,000 or less, no instalments are due.

However, there is no ‘period of grace’ exemption for ‘very large’ companies.

Quarterly instalments for ‘very large’ companies will be due some four months earlier than for the ‘large’ company regime, meaning payments will be due in months three, six, nine and twelve. So, for a company with a 31st December 2020 year end, the instalments will be due on 14th March 2020, 14th June 2020, 14th September 2020 and 14thDecember 2020.

If you need any assistance in calculating your payments on account, please let us know. 

To contact Karen Keeling please click here.