Understanding Quarterly Instalment Payments for Corporation Tax:
A Guide for Business Owners
As a business owner, you may need to pay your corporation tax in four quarterly instalments if your company is considered large.
A company is considered large if its profits for the accounting period exceed the upper relevant maximum amount (URMA) in force at the end of that period.
The URMA is currently set at £1.5 million, and the rate of corporation tax is 19% from 1 April 2017, reducing to 17% from 1 April 2020.
If your company is affected by the quarterly instalment payments, you’ll need to estimate your current year tax liability and make instalment payments based on that.
These payments will be due in months 7, 10, 13, and 16 following the start of the accounting period. However, the overwhelming majority of companies are not required to make these instalment payments and will instead pay their corporation tax nine months and one day after the end of their accounting period.
If your company has taxable profits exceeding the URMA, you may be subject to the instalment payments regime. Some companies may have many group companies and be treated as being large, even though their own corporation tax liability is relatively small. If the corporation tax liability is less than £10,000, there is no requirement to pay by instalments.
There are also special rules for growing companies. A company does not have to pay its corporation tax by instalments in an accounting period if its taxable profits for that accounting period do not exceed £10 million and it was not large for the previous year.
It’s essential to prepare budgets of expected profits whenever a company becomes large to determine whether the company will be large in the second year and what tax payments will have to be made in month seven of the second year.
If you think your company may be affected by the quarterly instalment regime, procedures will need to be set in place to estimate the liability.
Our team can provide you with assistance and any additional information required, so please do contact us.
Keep in mind that interest and penalties may be charged if your company fails to make instalment payments or makes instalment payments of insufficient size.