Corporation tax – instalment payment changes

Published by Mark Whitear on 13 June 2019

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For accounting periods on or after 1 April 2019, there is a change to corporation tax instalments for companies deemed to be ‘very large companies’.

The new legislation is in addition to the current rules which we already have for ‘large companies’, which will remain in place. Those companies that meet the new ‘very large company’ criteria will now be required to pay their corporation tax four months earlier than large companies, so effectively means they will have to pay their CT liability in full in the year to which it relates.

What is a ‘Very large company?

  • A company is deemed to be ‘very large’ if its profits chargeable to tax are in excess of £20m. This is proportionally reduced for periods less than 12 months.
  • If the company has one or more related 51% group companies that are trading, the profit threshold is divided by the number of those companies plus 1.
  • If the total corporation tax liability is under £10,000 then no instalments will be due.
  • There is no period of grace, as there is with large companies which effectively gives them one year’s grace before they became ‘large’. Therefore companies are immediately ‘very large’ in the first year they breach the £20m profit level.

Based on the above criteria it is likely that the new legislation will mainly affect companies in very large groups, but it could also potentially affect companies who may have a one off large profitable sale or gain in the year.

Payment dates for a ‘very large company’

The payment dates, for a normal 12 month period will be as follows:

First instalment 2 months and 13 days after the start of the accounting period
Second instalment 3 months after the first instalment
Third instalment 3 months after the second instalment
Fourth instalment 3 months after the third instalment

As an example, for the year ended 31 December 2020 the payment dates would be as follows:

  • 14th March 2020
  • 14th June 2020
  • 14th September 2020
  • 14th December 2020

So, as stated above, the final payment date is before the end of the year.

These new payment dates mean that there will be three payment structures for companies, being:

Small companies The usual 9 months and a day after the year end
Large companies Instalments starting just over 6 months after the start of the year
Very large companies Instalments starting just over 2 months after the start of the year

What to do if your company is potentially affected by this change?

There is no grace period so if you believe your company falls into the above criteria, please speak to your Kreston Reeves contact, or Mark Whitear as soon as possible to avoid potentially missing payment dates, with resulting interest and potentially penalties.

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