Corporation tax payments by instalment – watch out for your cashflow

Lubbock Fine, 5 February 2018

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By Nikhil Oza, Senior Corporate Tax Manager
020 7490 7766

At the Summer Budget 2015, the Government announced changes to the quarterly instalment payments (QIPs) regime, which were then deferred following a second announcement at Budget 2016. The Corporation Tax (Instalment Payments) (Amendment) Regulations 2017 have now been published and come into force on 1 April 2019.

Current rules

Companies with annual taxable profits of over £1.5 million (or, if a member of one or more 51% groups, a proportion of this amount) pay Corporation Tax (CT) in instalments. For an accounting period (AP) of 12 months, companies are currently required to make payments in months 7 and 10 for the accounting period to which the liability relates, and months 1 and 4 of the next accounting period. Companies with taxable profits of £1.5 million or less will pay CT 9 months and 1 day after the end of the accounting period.

New rules

For accounting periods beginning on or after 1 April 2019, companies with annual taxable profits of over £20m (or if a member of one or more 51% groups, a proportion of this amount) (i.e. “very large companies”) will be required to make payments four months earlier than previously.

For a 12 month AP, payments will be due in months 3, 6, 9 and 12 of the AP to which the liability relates.

So for a 31 March 2020 year end, payments would be due on:

  • 14 June 2019,
  • 14 September 2019,
  • 14 December 2019, and
  • 14 March 2020.

And for a 31 December 2020 year end, payments would be due on:

  • 14 March 2020,
  • 14 June 2020,
  • 14 September 2020, and
  • 14 December 2020.

The key impact of these changes will be on cash flow. Not only will QIPs now be payable earlier on a regular basis, but in the first year the new regime will be applicable, the first instalment payment will be due before the final instalment of the previous accounting period subject to the old regime, and only two months after the third instalment.

Businesses should make sure they are prepared for the cash flow difficulties this may cause. In addition, forecasting taxable profits at such an early stage in the accounting period may cause issues for businesses, especially those with fluctuating profits.

Although it seems a way off, it is worth considering whether the new regulations might apply to your business (given that the first likely payment for companies with a March year end could be as early as 14 June 2019 as noted above) to enable you to plan effectively.

Please get in touch with Nikhil, if you would like to discuss the impact of the new rules on your business.