Policy paper

Corporation Tax: payments for very large companies

Published 2 December 2015

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 2017, 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 four 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 announced at summer budget on the 8 July 2015.

Detailed proposal

Operative date

The measure will apply to accounting periods beginning on or after 1 April 2017.

Current law

The current law can be found in the CT (Instalment Payments) Regulations 1998 (SI 1998/3175.)

Proposed revisions

The current law will be amended by Statutory Instrument (published in draft form alongside this document.) 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.

For accounting periods beginning on or after 1 April 2017, companies with annual taxable profits exceeding £20 million in an accounting period will be required to pay instalments of CT four 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 the following will not be subject to the changes:

• bank levy
• CT and the supplementary charge for ring fence profits and adjusted ring fence profits of oil and gas companies

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	-	+ 4,495	+ 3135	+ 140	+ 60

These figures were set out in table 2.1 of Summer Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside summer budget 2015.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing also takes into account a small behavioural response as a result of changes in companies’ cash flow and their ability to estimate their CT liability earlier than usual in the quarterly payments cycle.

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 affects a relatively small number of companies, whose annual profit exceeds £20 million or a proportion of this amount where the business is a member of one or more 51% groups. The measure will have a cash flow impact on these businesses as they transition onto the new payment schedule. They will also incur a negligible one-off cost to make amendments to their accounting and CT payment system, which will often be helped by software updates. Ongoing administrative requirements are not affected by this measure.

This measure is expected to have a negligible impact on the administrative burden faced by businesses and civil society organisations.

There is no small or micro business impact.

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, please contact Clare Dunne on Telephone: 03000 585 961 or email clare.e.dunne@hmrc.gsi.gov.uk.

Declaration

David Gauke MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.