Under the instalment regime for larger corporation tax payers a company with taxable profits in excess of £1.5 million for two successive years has to pay its corporation tax by instalments from the second period for as long as profits remain above that limit.
There are some points to note, chiefly that the profit limit is divided by the number of active companies in the worldwide group. This means that even smaller group companies can be caught, although there is an exemption where taxable profits do not exceed £10,000. In contrast where profits exceed £10 million (adjusted for the number of group companies) the company falls into the instalment regime straight away.
In the original regime, corporation tax is payable in equal instalments in the seventh, tenth, thirteenth and fifteenth months after the start of the relevant year (adjusted for periods of less than 12 months). This clearly requires planning, both in terms of cash flow and to estimate the tax liability for the year.
For periods starting on or after 1 April 2019 there is a new profit limit to consider as this is when the accelerated instalment regime comes into force. Companies with taxable profits over £20 million will be required to pay their entire corporation tax liability during the period to which it relates. For a standard 12 month period, payments are due in months three, six, nine and twelve. Once again, the £20 million profit is divided by the number of active group companies, meaning that group companies could be brought into the regime at much lower levels of profit, although the £10,000 exemption continues to apply.
Companies need to plan ahead for this now. Late payment interest will be calculated from each due date (although HMRC pays interest on over payments) and there can be penalties for persistent late payers, so affected companies need to build this into their compliance processes. Ensors Corporate Tax team is here to help.