In April, the related 51% group company rule was replaced by the associated company rule which could result in more companies meeting the requirement to pay their Corporation Tax in quarterly instalments.
Companies with profits for an accounting period at an annual rate of more than £1.5 million will normally have to pay their Corporation Tax in instalments. There are different rules for companies with profits over £20 million.
Under the new rule, the £1.5 million threshold is reduced by dividing it by the number of associated companies, plus your own company. For example, a company with 3 associated companies will each have a £375,000 threshold (£1.5m divided by 4). If any of these companies’ profit is greater than £375,000 they will need to pay their Corporation Tax in instalments.
A company is associated with another company if:
- one is under the control of the other
- both are under the control of the same person or persons
Control is usually defined by reference to ownership of share capital or voting power
When are the payments due?
For a company with a 12 month accounting period, the Corporation Tax payments will normally be 4 equal instalments due:
- 6 months and 13 days after the first day of the accounting period
- 3 months after the first instalment
- 3 months after the second instalment (14 days after the last day of the accounting period)
- 3 months and 14 days after the last day of the accounting period
For example, a company with a year end of 31st December 2023, the payments would be as follows:
- 14 July 2023
- 14 October 2023
- 14 January 2024
- 14 April 2024
If the accounting period is less than 12 months, the last instalment will be due 3 months and 14 days after the last day of the accounting period.
For an accounting period longer than 3 months, the first payment will be due 6 months and 13 days after the first day of the accounting period. If the accounting period is long enough, other payments will also be due at 3 monthly intervals after then.
Calculating the Quarterly Instalment
To calculate the quarterly Corporation Tax instalments, you will need to estimate your tax liability for the accounting period (net of all reliefs and set offs) and then make instalments based on that estimate.
For a 12 month accounting period, the total liability will be paid in 4 equal instalments. Each instalment is a quarter of the company’s total liability.
It is important to recalculate the tax liability as it is likely to vary as the accounting period progresses. If the liability is going to be higher than the original estimate you will need to make a top-up payment to cover the shortfall in previous instalments. These payments can made at any time, however, please be aware that interest may be payable if the instalment payments turn out to be lower than your actual liability.
If you have paid too much Corporation Tax (or should not have made a payment at all), you will normally be able to claim back the overpayment or leave it with HMRC and deduct the overpayment from future instalment payments.
How do you pay
The Corporation Tax must be paid electronically either online or using digital banking services.
What happens if you make a late payment?
HMRC will charge interest on late or underpaid instalments which will be calculated when your Corporation Tax Return is submitted.
HMRC will however pay the company interest if:
- You make instalment payments that turn out to be unnecessary
- You pay them early
- Your payment is too high
A penalty may be charged if you deliberately fail to make instalment payments or make instalment payments that are too small.
If you require any assistance or advice relating to the this, please do not hesitate to get in touch with your usual contact or email firstname.lastname@example.org