Navigating UK corporation tax payments

Published by Sam Jones on 8 January 2024

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Written by Yonis Mohamed at Kreston Reeves

As the tax landscape continues to evolve, staying abreast of essential statutory obligations is imperative for businesses of all sizes.

One obligation is the payment of Corporation Tax, a significant aspect of a company’s fiscal responsibilities. In this article, we’ll delve into the key dates for UK Corporation Tax payments, whilst also highlighting the recent increases in HMRC’s late payment interest rates.

Important dates for Corporation Tax payments

Understanding the deadlines for Corporation Tax payments is vital for businesses to maintain their financial compliance, regardless of size.

Small Companies: For smaller enterprises, the deadline for payment of corporation tax is nine months and one day after the end of their accounting period. For example, if the accounting period ends on 31 December 2023, the payment deadline would be 1 October 2024.

‘Large’ and ‘very large’ companies: Larger corporations need to pay their Corporate Tax liability by quarterly instalments, with the first payment being due before the period end has even passed, which can cause cashflow constraints. Entities are considered ‘large’ or ‘very large’ if their taxable profits exceed £1.5 million and £20 million respectively. These thresholds are divided by number of associated companies (including the company itself).

A company is an associated company of another if at any time during the accounting period either one of the two has control of the other or both are under common control. Control is determined by considering various factors in deciding whether two or more companies are associated.

For example, for accounting period ended 31 December 2023, the following quarterly instalment are due on the following dates:

Payment Payment due date for ‘Large’ companies Payment due date for ‘Very Large’ companies
First Payment 6 months and 13 days after the first day of the accounting period, i.e., 14 July 2023 2 months and 13 days after the first day of the accounting period, i.e., 14 March 2023
Second payment 3 months after the first instalment, i.e., 14 October 2023 3 months after the first instalment, i.e., 14 June 2023
Third payment (due after the end of the accounting period) 3 months after the second instalment (14 days after the last day of the accounting period), i.e.,14 January 2024 3 months after the second instalment, i.e., 14 September 2023
Final payment 3 months and 14 days after the last day of the day of the accounting period, i.e., 14 April 2024 3 months and 14 days after the last day of the day of the accounting period, i.e., 14 December 2023.

Failure to meet these payment deadlines can result in penalties and interest charges, making it crucial for businesses to mark these dates in their financial calendars and work with their advisors to determine what tax is due and when payments should be made.

It is important to note that the deadline for payment of Corporation Tax is before the deadline for filing the Tax Return. If the Tax Return has not been finalised, we would recommend that companies pay their Corporation Tax based on an estimated liability to prevent interest and penalties accruing.

Late Payment Interest: A Shift from 2.75% to 7.75%

We are all aware that interest rates have increased recently, and interest costs are a significant burden for most businesses. In line with the Bank of England base rate rises, the late payment interest rate for Corporation Tax has seen a sizable increase, now standing at 7.75%. This significant uptick marks a departure from the comparatively modest 2.75% interest rate that was in place in March 2020.

The 2.75% interest rate was considered manageable by businesses, and late payment penalties were not a major concern, especially as late payment of quarterly instalments were only levied interest at 1.1%. However, the current 7.75% rate (6.25% for quarterly instalments) demands enhanced attention, emphasising the importance of adhering to payment deadlines to avoid unnecessary financial strain.

Equally, HMRC will pay you interest at annual rate of 4.25% for paying corporation tax early which is known as ‘credit interest’. Those within the quarterly payment’s regime may wish to consider overestimating their earlier instalments until the taxable profits for the period can be determined accurately to minimise the impact of the late payment interest.

Conclusion

In summary, the UK Corporation Tax landscape has evolved, with late payment interest rates standing at 7.75%.  Businesses hoping to effectively navigate the current financial terrain must keep themselves informed about important dates and modify their financial plans accordingly. Remember, proactive financial planning and adherence to deadlines are the cornerstones of a resilient and thriving business.

Please do reach out to your Kreston Reeves contact here for further questions or clarifications on when your corporation tax liability is due.

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