Business tax – guidance

Corporation Tax: paying in instalments

Find out who has to pay Corporation Tax in instalments, how to calculate and make a payment, and when it should be paid.

Overview

If your company’s profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period electronically, in instalments.

Who has to pay Corporation Tax in instalments

Generally ‘large’ companies must pay their Corporation Tax electronically by instalments. A large company is one whose profits for the accounting period in question are at an annual rate of more than the ‘upper limit’ - currently £1.5 million - in force at the end of that period. There are some exceptions.

Exceptions

Your company doesn’t have to pay by instalments for an accounting period - even though its profits exceed the upper limit - if either:

  • the amount of its total liability for the accounting period is less than £10,000 (or where the accounting period is less than 12 months, less than an annual rate of £10,000)
  • its profits for the accounting period don’t exceed £10 million and either of the following applies:
    • at any time during the previous 12 months it didn’t exist or didn’t have an accounting period
    • for any accounting period which ended in the previous 12 months, either its annual rate of profit didn’t exceed the upper limit or its annual rate of tax liability didn’t exceed £10,000

If either of these conditions apply then the company must pay its tax in full by the normal payment due date.

Accounting periods beginning before 1 April 2015

If your company has associated companies, for accounting periods beginning before 1 April 2015, the £1.5 million and £10 million thresholds are reduced by dividing the annual rates by the number of associated companies plus one. This new figure is the annual threshold for your company.

Example

A company has 5 associated companies. Its profits for the 12 month accounting period ending 30 November 2009 are £300,000 and its Corporation Tax liability is £55,000.

£1.5 million divided by 6 (that is: 5 + 1) = £250,000

The company is a large company for this accounting period. Even though its profits are less than £1.5 million, they exceed the adjusted annual threshold of £250,000 and its tax liability is greater than £10,000.

A company is associated with another company if:

  • one is under the control of the other
  • both are under the control of the same person or persons

Control is usually defined by reference to ownership of share capital, or voting power. A company may be an associated company no matter where it is resident for tax purposes.

Accounting periods beginning on or after 1 April 2015

For accounting periods beginning on or after 1 April 2015, the associated companies rules have been replaced by a 51% group test.

If the company has related 51% group companies, the £1.5 million and £10 million thresholds are reduced by dividing the annual rates by the number of related 51% group companies plus one. This new figure is the annual threshold for your company Company A is a related 51% group company of company B if:

  • A is a 51% subsidiary of B
  • B is a 51% subsidiary of A
  • A and B are 51% subsidiaries of the same company

‘A’ is a 51% subsidiary of ‘B’ if more than 50% of its ordinary share capital is beneficially owned (directly or indirectly) by ‘B’.

Example

A company has 4 related 51% group companies. Its profits for the 12 month accounting period ending 30 April 2016 are £400,000 and its Corporation Tax liability is £80,000

The annual adjusted threshold is: £1.5 million divided by 5 (that is: 4 + 1) =£300,000

Although the profits for the accounting period are below £1.5 million, the profits exceed the adjusted annual threshold of £300,000. As the tax liability also exceeds £10,000, the company is large for the accounting period.

When instalment payments have to be paid

The dates when you’ve to pay your instalment payments of Corporation Tax, and the number of payments, depend on the length of your accounting period. For accounting periods of 12 months, you’ll normally pay your Corporation Tax in 4 quarterly instalments, 2 of which are due before the end of your accounting period.

Accounting periods of 12 months

If your company has a 12 month accounting period, you’ll have to pay in 4 equal instalments due:

  • 6 months and 13 days after the first day of the accounting period
  • 3 months after the first instalment
  • 3 months after the second instalment (14 days after the last day of the accounting period)
  • 3 months and 14 days after the last day of the accounting period

This applies to accounting periods ending after 30 June 2002.

Example

Instalment payment dates for an accounting period 1 January 2009 to 31 December 2009

Payment Payment due date
First payment 14 July 2009
Second payment 14 October 2009
Third payment (due after the end of the accounting period) 14 January 2010
Final payment 14 April 2010

Accounting periods shorter than 12 months

If your company has an accounting period shorter than 12 months, your last instalment will be due 3 months and 14 days after the last day of your accounting period.

If your accounting period is longer than 3 months, the first payment will be due 6 months and 13 days after the first day of the accounting period.

If your accounting period is long enough, other payments will also be due at 3 monthly intervals thereafter.

Example

Instalment payment dates for an accounting period 1 January 2009 to 31 August 2009

Payment Payment due date
First payment 14 July 2009
Second payment due after the end of the accounting period 14 October 2009
Final payment 14 December 2009

Example

Instalment payment dates for an accounting period 1 January 2009 to 31 March 2009

Payment Payment due date
All Corporation Tax is due in a single instalment 14 July 2009

Ring fence companies

If your company is liable to Corporation Tax and supplementary charge on profits from ring fence activities (UK Continental Shelf oil-related activities that under UK law constitute a separate trade) then you’ll pay any Corporation Tax due on non-ring fence profits in instalments using the normal rules. However, you’ll also have to pay the Corporation Tax and supplementary charge on your ring fence profits in a maximum of 3 equal instalments due:

  • 6 months and 13 days after the first day of the accounting period
  • 3 months after the first instalment
  • 14 days after the last day of the accounting period

This applies to accounting periods ending after 30 June 2005. For 12 month accounting periods ending after 30 June 2005 but before 1 July 2006, instalments are 25%, 25% and 50% of the ring fence liability.

Example

Ring fence instalment dates for an accounting period 1 January 2009 to 31 December 2009

Payment Payment due date
First payments of both ring fence tax and other Corporation Tax 14 July 2009
Second payments of both ring fence tax and other Corporation Tax 14 October 2009
Third (final) payment of ring fence tax, and third payment of other Corporation Tax 14 January 2010
Final payment of other Corporation Tax 14 April 2010

Example

Ring fence instalment dates for an accounting period 1 January 2009 to 31 May 2009

Payment Payment due date
All ring fence tax is due on this date 14 June 2009
First payment for other Corporation Tax 14 July 2009
Second (final) payment for other Corporation Tax 14 September 2009

The date the third instalment would be due (14 June 2009) falls before any of the other payment due dates, then all the ring fence tax is due is payable on 14 June 2009.

Calculate instalment payments

Step 1: estimate your company’s total liability

To calculate your instalment payments, you first to estimate your Corporation Tax liability for the accounting period, including any tax due on:

Then deduct all reliefs and set-offs to arrive at your company’s total liability, as you would when calculating your Corporation Tax due on your Company Tax Return. Use this figure to calculate your instalment payments.

Step 2: calculate the amount of each instalment

For a 12 month accounting period you pay your total liability in 4 equal instalments, each a quarter of your company’s total liability.

For accounting periods of 3 months or less make one single payment of your company’s total liability.

For accounting periods longer than 3 months but less than 12, all instalments except the last will be 3 times your company’s total liability divided by the number of months in the accounting period.

The last instalment will be your company’s total liability less the payments made so far.

Example

Calculating instalment payments for a company with an accounting period 1 January 2009 to 31 August 2009 and Corporation Tax to pay of £900,000

Calculation step Result
Company’s total liability £900,000
Months in the accounting period 8
3 × company’s total liability ÷ months in the accounting period 3 × £900,000 ÷ 8 = £337,500
Smaller of company’s total liability and 3 × company’s total liability ÷ months in the accounting period £337,500
First and second instalment payments £337,500
Third and final payment £900,000 - (2 × £337,500) = £225,000

Step 3: revise your estimate and adjust your payments

Your estimate of your Corporation Tax liability may change as the accounting period progresses. This may even happen after your last instalment payment. So you’ll need to recalculate each instalment payment based on the revised figure.

If you think your liability is going to be greater than your earlier estimates, you’ll have to make one or more ‘top-up’ payments to cover the shortfall in your previous instalments. You can make additional payments at any time. Be aware that you may have to pay interest if you’ve made instalment payments that turn out to be lower than your actual liability.

If you later find that you’ve paid too much (or shouldn’t have made a payment at all), you’ll normally be able to claim back your overpayment. Alternatively, you can leave the overpayment with HM Revenue and Customs (HMRC) and deduct the overpayment from future instalment payments. You might receive interest on overpayments of instalment payments and on payments made early.

Calculate instalment payments for ring-fence companies

If your company is liable for Corporation Tax and supplementary charge on profits from ring fence activities, calculate instalments for Corporation Tax due on non-ring fence profits using the normal rules. You’ll also have to calculate your instalments for the Corporation Tax and supplementary charge on your ring fence profits as follows.

Step 1: calculate your ring fence amount (RFA)

Estimate the ring fence Corporation Tax and supplementary charge payable for the accounting period (RFA).

Step 2: calculate your instalment payments

For a 12 month accounting period you pay your total liability in 3 equal instalments, each one a third of RFA.

For accounting periods of 4 months or less you make one single payment of your total liability (RFA).

For accounting periods longer than 4 months but less than 12 your payments are the smaller of the balance of RFA unpaid or 4 times RFA divided by the number of months in the accounting period.

The above rules apply for accounting periods ending on or after 1 July 2006. If you want to check calculations for accounting periods ending after 30 June 2005 but before 1 July 2006, you use the formula:

3 × RFA ÷ the number of months in the accounting period for shorter periods.

Step 3: revise your estimate and adjust your payments

Your estimate of your Corporation Tax liability may change as the accounting period progresses. This may even happen after your last instalment payment. So you’ll need to recalculate your instalment payments based on the revised figure.

If you think your liability is going to be greater than your earlier estimates, you’ll have to make one or more ‘top-up’ payments to cover the shortfall in your previous instalments. You can make additional payments at any time. Be aware that you may have to pay interest if you’ve made instalment payments that turn out to be lower than your actual liability.

If you later find that you’ve paid too much (or shouldn’t have made a payment at all), you’ll normally be able to claim back your overpayment. Alternatively, you can leave the overpayment with HMRC and deduct the overpayment from future instalment payments. You might receive interest on overpayments of instalment payments and payments made early.

Groups of companies

Group companies can choose to offset an amount overpaid by one company against an amount unpaid by another company in the group.

HMRC also offers Group Payment Arrangements, which allow groups to make instalment payments on a group-wide basis. You can nominate one company in the group to pay the instalments on behalf of the group, rather than company by company.

Make an instalment payment

You must make all Corporation Tax and related payments electronically. Related payments include interest charged on overdue Corporation Tax and penalties for not filing your Company Tax Return on time.

Pay your instalment payments electronically online using:

  • Direct Debit
  • debit or credit card via the BillPay service
  • your own bank or building society’s internet banking service

Pay electronically but not online using:

  • Bacs Direct Credit
  • your own bank or building society’s telephone banking service
  • CHAPS
  • Bank Giro
  • participating Post Offices

Interest and instalment payments

Interest charged by HMRC

HMRC charges interest on late and insufficient instalment payments. If you’ve to pay this interest, it is tax deductible for Corporation Tax purposes. This interest is known by HMRC as debit interest, to distinguish it from interest on normal late payments.

This interest is only calculated and charged when you submit your Company Tax Return.

Interest paid to you

If you make instalment payments that turn out to be unnecessary, you pay them early or your payment is too high, HMRC will pay your company interest. Any interest paid will be calculated from the later of the first instalment date or the point where an overpayment arises. The interest paid by HMRC is itself taxable for Corporation Tax purposes. This interest is only calculated and charged retrospectively, once the liability for the period is established, normally when you submit your Company Tax Return.

The rate for this interest is different from the rate of interest charged on late payments and underpayments. This interest is known by HMRC as credit interest.

Example

A company with no ring fence liability has an accounting period from 1 January to 31 December. It reviews the estimate of its final liability at regular intervals and, when appropriate, adjusts its instalment payments (or, if necessary, makes top-up payments) in order to minimise any interest charge. It delivers its Company Tax Return showing a final tax liability of £120 million.

Company’s estimate of its liability Payments made based on estimated figures (with date payment made) Actual liability based on final liability Date due
£80 million £20 million (14 July) £30 million (instalment payment 1) 14 July
£110 million £35 million (14 October) £30 million (instalment payment 2) 14 October
£130 million £10 million (top-up payment) (1 November)    
£140 million £40 million (14 January) £30 million (instalment payment 3) 14 January
£120 million £15 million (14 April) £30 million (instalment payment 4) 14 April

In this example, interest is due as follows.

Dates Total paid to date Actual liability to date Details of interest due
14 July to 13 October £20 million £30 million Debit interest due on £10 million from 14 July to 13 October
14 October to 31 October £55 million £60 million Debit interest due on £5 million from 14 October to 31 October
1 November to 13 January £65 million £60 million Credit interest due on £5 million from 1 November to 31 January
14 January to 13 April £105 million £90 million Credit interest due on £15 million from 14 January to 13 April
14 April £120 million £120 million No further interest will be charged or credited

Penalties on instalment payments

A penalty may be charged if you deliberately fail to make instalment payments, or deliberately make instalment payments that are too small.