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Corporation Tax – You don’t have to be big to be large…

Is your company liable to make Corporation Tax payments by instalment?

The normal due date for payment of Corporation Tax is 9 months and 1 day after the end of the chargeable accounting period (CAP).  A CAP cannot exceed 12 months so if your accounting period exceeds 12 months you may have more than one CAP for tax purposes.

But that is not the end of the story…..you may find that as a standalone company your taxable profits would not exceed the upper profits limit of £1.5 million which would mean that you are not ‘large’ for corporation tax purpose.

However, the upper limit is apportioned accordingly for CAPs that are less than 12 months, and  if you have 51% related companies then this upper limit is divided by the total number of 51% related companies and so you may find you are ‘large’ for instalment payment purposes!!

How will this impact the Company? – The amount of each instalment payment is based on the profits for the current CAP even though the company at the time of making the first instalment is only half way through the accounting period.

How will the company know what its profits will be you ask? ……in short you won’t but HMRC expect you to make an educated guess based on forecasts using historical information and data relating to the company’s intentions for the coming year i.e. management accounts.

How is each instalment payment calculated? –  There is of course a formula for calculating each instalment …..HMRC love formulas.

When are instalment payments due? – The first instalment payment is due 6 months plus

13 days from the start of the CAP i.e. for a company with a 31 March 2018 year end the start date would be 01 April 2017 and the first instalment would therefore be due on 14 October 2017.

The next three instalments will each be due 14 January 2018, 14 April 2018 and 14 July 2018.

Sounds straight forward but in reality these figures will keep changing throughout the accounting period and so each quarter you will need to revisit the corporation tax liability calculation and adjust your next instalment accordingly to include a ‘top up payment’ where necessary.

For accounting periods that are less than 12 months there are slightly different rules regarding the number of instalments and when they are due.

The Positives? Whilst this will generate an additional administration burden there is some good news:

  • there are exemptions which may apply.
  • paying Corporation Tax in instalments will help spread the cash flow impact of a substantial Corporation Tax liability across the year in line with the income stream.
  • the year-end tax calculations will have been worked through in overview and this will alert your company to any adverse tax impact of specific transactions.

We can assist you with any aspect of this process, including bookkeeping services and support, management accounting and calculating the instalment payments so if you are concerned that this may apply to your Company and require any help or guidance please do not hesitate to contact us.