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Corporation Tax by Installment

By Taxwise

taxwiselogo

A company we act for had total profits for the year ending 31st January 2014 of £1.3million and for the year ending 31st January 2015 profits have increased to £1.6million. The company is still growing and profits expect to increase each year. When will the company need be required to pay corporation tax in instalments?

Corporation tax legislation contains an exemption to protect certain companies from having to make quarterly instalment payments.

Under these provisions a company does not have to make quarterly instalment payments if both:

  • its profits for the accounting period do not exceed £10 million,
    and
  • it was not large in the twelve months preceding the accounting period (except because of the operation of this exemption). 

In this case, as the company was a marginal rate tax payer in 2014 and not large, the company has an exemption from making payments in instalments for the year ending 2015.

For 2015 they will pay the tax due nine months and one day after the chargeable accounting period (CAP). As the profits are expected to increase each year, however, for the year ending 2016 the company will need to start paying by instalment. The first payment needs to be made on the 14th day of the seventh month after the start of the CAP. Each subsequent payment is then three months after the previous instalment and the final payment is three months and 14 days after the end of the CAP. For this client with the year end of the 31st January 2016, the instalments would be due on the following dates:

1st:  August 14th 2015
2nd: November 14th 2015
3rd: February 14th 2016
4th and final: May 14th 2016

Each payment is three months’ worth of the estimated corporation tax liability.

Published November 2015