The quarterly instalment payment rules apply to larger companies with significant profits. They are designed to ensure that corporation tax is paid more regularly throughout the year rather than in a single lump sum at the end of the accounting period. Here’s an overview of the rules and how they might affect your company.
The quarterly instalment payment rules only affect companies with annual profits of at least £1.5 million, although this threshold is reduced pro rata by
- The length of the accounting period if less than 12 months
- the number of associated companies
When are the payments due?
Where a business’s profits exceed the threshold CT is paid in 4 instalments on the following dates. It’s worth noting that the first two fall within the accounting period, and all are in advance of the usual payment date of 9 months after the end of the accounting period.
1st instalment – 6 months and 13 days after the 1st day of the A.P.
2nd instalment – 3 months after the date of the 1st instalment
3rd instalment – 3 months after the second instalment (14 days after the end of the A.P.)
4th instalment – 3 months and 14 days after the last day of the A.P.
There are two important exceptions from the obligation to pay quarterly instalment even though the company profits exceed £1.5 million
- If the amount of its total annual tax liability is less than £10,000, or
- The annual rate of profit was no more than £1.5 million in any accounting period ending in the previous 12 months. In other words there is effectively a ‘year of grace’ before the rules kick in once profits have exceeded £1.5 million
Working Out The instalments Payments
The taxable profit for the year must be estimated from the most up to date management accounts available. This is then multiplied by 3 and divided by the number of months in the accounting period.
Each quarter you need to look back at previous payments to see whether they are now too high or too low. If too low you need to pay the uplift, if too high you can deduct the amount overpaid from the payment now to be made.
It is Important to have up to date management accounts info to estimate the quarterly payment reasonably accurately as HMRC will charge interest on payments which turn out to have been too low or which are made late. Equally interest will be paid on overpayments and early payments albeit at a lower rate than is charged for payments that are too low or late.