Corporation tax – quarterly instalment payments
If your company is caught by the quarterly instalment payments rules, we can help check whether the regime may apply to your company and assist you to comply with the requirements of the regime for your business.
Large companies are required to pay their corporation tax in four quarterly instalment payments. These payments are based on the company’s estimate of its current year tax liability.
Companies affected by quarterly instalment payments
A company is large if its taxable profits for the accounting period exceed £1.5 million.
Where a company has one or more 51% related group companies, the limit is reduced to the figure found by dividing that amount by one plus the number of related 51% group companies.
So, if a company has three 51% group companies the limit is reduced to £375,000.
A company does not have to pay its corporation tax by instalments in an accounting period if:
- its taxable profits for that accounting period do not exceed £10 million and
- it was not large for the previous year.
This gives companies time to prepare for paying by instalments.
The pattern of quarterly instalment payments
A large company with a 12 month accounting period will pay tax in four equal instalments, in months 7, 10, 13 and 16 following the start of the accounting period. So, for a company with a 12 month accounting period starting on 1 January, quarterly instalment payments are due on 14 July, 14 October, 14 January next and 14 April next.
Working out quarterly instalment payments
A company has to estimate its current year tax liability and then make instalment payments based on that estimate. This means that by month seven, a company has to estimate profits for the remaining part of the accounting period.
Interest and penalties
Interest is calculated only once a company has filed its tax return, or HMRC have made a determination of its corporation tax liability and the normal due date has passed.
The payments the company makes are compared to the amounts that ought to have been paid throughout the instalment period. If a company has paid too much for a period compared to the amount of corporation tax that was due to have been paid, it will be paid interest. If it has paid too little, it will be charged interest.
A penalty may be charged if a company deliberately fails to make instalment payments, or makes instalment payments of insufficient size.