Larger companies are required to pay tax quarterly
Although not a new measure, where a company has taxable profits in excess of £1,500,000 a year it is required to estimate and pay corporation tax quarterly during the year, rather than 9 months after the end of its accounting period.
Whilst there has been no change in the quarterly instalment limit, what has changed since 1 April 2023 is that the £1,500,000 threshold is now divided by the number of “associated companies” in the accounting period. Broadly this is defined as companies within the same 51% group or under common control. This is expected to bring more companies under the quarterly instalment regime.
Therefore, if a company has two other associated companies, if any of them has profits in excess of £500,000 (£1.5m divided by 3), quarterly instalment payments of corporation tax will be required. If that company has a 31 March 2024 year end, it needs to pay its estimated corporation tax liability according to the following schedule:
- 25% of its estimated liability by 14 October 2023
- 50% of its estimated liability by 14 January 2024
- 75% of its estimated liability by 14 April 2024
- 100% of its corporation tax liability by 14 July 2024
If this was the first period quarterly instalment payments were made it would represent a significant acceleration of paying the corporation tax due, as previously the above company would be required to pay the tax by 1 January 2025.
Profit forecasts may well be required in order to compute the quarterly payments.
Note, if the payments are made late HMRC will charge late payment interest on any outstanding balance. The current interest charge for any late payments is set at 6.25%.
Please note there is a one year “grace period” that applies for the first year the quarterly instalment threshold is breached.
It may be worth considering minimising the number of associated companies to avoid this cash flow disadvantage.
For further information on tax, please contact us on 023 8046 1244 or email James Flood.