Policy paper

Corporation Tax: instalment payments by very large companies

Published 21 November 2017

Who is likely to be affected

Companies with annual taxable profits over £20 million in an accounting period. Where a company is part of a group, the £20 million threshold is reduced proportionately according to the number of companies in the group.

General description of the measure

For accounting periods beginning on or after 1 April 2019, companies with annual taxable profits of over £20 million (or, if a member of one or more 51% groups, a proportion of this amount as described below) will be required to make payments 4 months earlier than currently. For a 12 month accounting period, payments will be due in months 3, 6, 9 and 12 of the period to which the liability relates.

Policy objective

This measure ensures that the largest companies pay tax closer to the point at which they earn their income and is consistent with the government’s strategy for tax administration.

It also brings the UK’s system for payment of Corporation Tax (CT) much more into line with those already in operation in other G7 countries.

Background to the measure

This measure was first announced at Summer Budget 2015 on the 8 July 2015 commencing for accounting periods beginning on or after 1 April 2017. Following representations on draft secondary legislation, at Budget 2016 on 16 March 2016, it was announced that commencement would be deferred for 2 years in order to allow businesses more time to transition to the new payment schedules. The measure is now effective for accounting periods beginning on or after 1 April 2019.

This tax information and impact note (TIIN) updates the TIIN published on 2 December 2015.

Detailed proposal

Operative date

The measure will apply to accounting periods beginning on or after 1 April 2019.

Current law

The current law can be found in the CT (Instalment Payments) Regulations 1998 (SI 1998/3175). 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 CT in instalments. For an accounting period 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.

Proposed revisions

The current law will be amended by Statutory Instrument.

For accounting periods beginning on or after 1 April 2019, companies with annual taxable profits exceeding £20 million in an accounting period will be required to pay instalments of CT 4 months earlier. For a company with a 12 month accounting period, instalments will be due in months 3, 6, 9 and 12 of the period to which the liability relates.

Where the company is a member of one or more 51% groups, the threshold of £20 million will be divided by the number of related 51% group companies plus 1. For example, if a company has 3 related 51% group companies, the threshold is £5 million (£20 million/(1+3)). This is the same way in which the threshold of £1.5 million for entering the instalment payment regime is apportioned. A company is a related 51% company of another if either company is a 51% subsidiary of the other, or both are 51% subsidiaries of a third company.

For companies with annual taxable profits of £20 million or less, payment dates will not change. For a 12 month accounting period, companies with taxable profits in excess of £1.5 million but £20 million or less will continue to make instalment payments in months 7 and 10 of the accounting period to which the liability relates, and months 1 and 4 of the next 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.

Payment dates for bank levy and CT and the supplementary charge for ring fence profits and adjusted ring fence profits of oil and gas companies will not be subject to the changes.

Summary of impacts

Exchequer impact (£m)

	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
New payment due dates from April 2017 (announced at Summer Budget 2015)	-35	-30	-20	-20	-20
Defer start date to April 2019 (announced at Budget 2016)	+35	+30	-15	-10	negligible

These figures are set out in Table 2.2 of Spring Budget 2017 as ‘Corporation Tax: bringing forward payments for large groups’ and ‘Corporation Tax: defer bringing forward payment for large groups for 2 years’ and have been certified by the Office for Budget Responsibility. More details can be found in the original policy costings document published alongside Summer Budget 2015 and Budget 2016 respectively.

The Exchequer impacts are lower than those in the previous TIIN which was published for this measure on 2 December 2015. This is due to the National Accounts methodology for accounting for CT changing in February 2017.

For more information on this change, refer to ‘Improvements to accruals methodology for Corporation Tax, Bank Corporation Tax Surcharge and the Bank Levy’, ONS, February 2017.

Economic impact

This measure is not expected to have any significant macroeconomic impacts. The costing takes into account a small behavioural response as a result of changes in the affected companies’ cash flow.

Impact on individuals, households and families

This measure is not expected to have an impact on individuals, families and households.

Equalities impacts

This measure is not expected to have an impact on any equalities issues.

Impact on business including civil society organisations

This measure will have an impact on a small number of large businesses whose annual profit exceeds £20 million or a proportion of this amount where the business is a member of one or more 51% groups. This is estimated to be less than 1% of companies. The measure will have a cash flow impact on these businesses as they transition onto the new payment schedule.

This measure is expected to have a negligible impact on business’ administrative burdens. Affected businesses will incur a negligible one-off cost to make amendments to their accounting and CT payment system, which will often be helped by software updates. It’s not expected there will be any on-going costs. There is no impact on civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

The additional costs for HMRC for implementing this change are estimated at £1.625 million for the IT changes. Other costs are considered to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected on tax receipts.

Further advice

If you have any questions about this change, contact Clare Dunne on
Telephone: 03000 585961
Email: clare.e.dunne@hmrc.gov.uk

Declaration

Mel Stride MP, Financial Secretary to the Treasury has read this TIIN and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.