Corporation Tax changes: instalment payments regime

25 January 2019

This blog is a timely reminder of the current instalment payment regime in force for what are defined loosely as ‘Large’ corporation taxpayers.

This blog also reviews the changes to the instalment regime which will come into force for ‘Very Large’ companies, for accounting periods starting on or after 1 April 2019. The thresholds and instalment payment dates for such Very Large companies will be different. Instalment payments will be required to be made within the accounting period for which profits need to be projected and updated.

In both cases, the company must have regard to its projected profits and to monitor these as the accounting period progresses, and to make instalment payments by the due dates (plus any catch-up payments) to minimise interest and avoid penalties.

The first part of this blog rehearses the instalment regime as it impacts Large companies. The second part of this blog reviews the new instalment payment regime as it impacts on Very Large companies.

Large company- definition of the profit threshold

A Large company for the purposes of the current instalment regime needs to meet the profits threshold of £1.5 million in the accounting period to fall within it. If the Large company has one or more 51% related group companies, then the threshold is reduced proportionately. For example, if there are 3 related 51% group companies, the threshold is 1.5m/ (1+3), which equals £375,000.

Profits for the instalment purposes include dividend income, which may be tax exempt.

A company is not Large if its total tax liability for the accounting period is £10,000 or less. Therefore, if a company has an exempt dividend of say £10M, but has no other income in that period, the company falls outside the instalment regime, because its tax liability will be less than £10,000.

The threshold is further apportioned if the tax accounting period is less than 12 months.

A company is not Large if it was not Large in the 12 months immediately preceding the accounting period, and the total profits are £10M or less (known as the “period of grace”).

Large company- when instalments are due

The instalments are payable quarterly starting approximately six months into the accounting period and ending approximately three months after the end of the accounting period. For example in relation to the calendar year 2020, quarterly instalment payments will be due and payable on 14 July 2019; 14 October 2019; 14 January 2020; and finally, 14 April 2020.

For companies that are neither Large nor Very Large, the due date for payment of tax remains nine months after the end of the accounting period ends.

Very Large company- definition of the profit threshold

A Very Large company for the purposes of the new instalment regime will have a profits threshold of more than £20 million in the accounting period. The £20M threshold will be reduced proportionately depending upon the length of the accounting period and the number of related 51% group companies. As with Large companies, the exemption from the instalment regime will apply if the tax liability for the accounting period is £10,000 or less. The ‘period of grace’ exception will not apply.

Very Large company- when instalments are due

The payment dates are accelerated, as follows:

  • the first payment is due two months and 13 days after the beginning of the AP;
  • the second payment is due three months after the first;
  • the third payment is due three months after the second; and
  • the final payment is due three months after the third – this will be the 14th day of month 12 of the accounting period.

In other words, all payments will be made within the accounting period- unlike the instalment regime for Large companies.

Example

The payment dates are best illustrated by way of an example. This assumes a 12 month accounting period:

Accounting period from 1 January 2020 to 31 December 2020:

First instalment 14 March 2020 (two months and 13 days from the beginning of the accounting period).
Second instalment  14 June 2020 (three months after the first instalment).
Third instalment  14 September 2020 (three months after the second instalment).
Final instalment  14 December 2020 (three months after the third instalment.)

 

If in any doubt, please contact me or your local UHY tax advisor.