More than often directors and owner managed businesses considered corporations taxes issues are tasks of their accountants to deal with and they considered corporation tax is just one of the company compliance cost and payable nine months after the year end.
Today, we should consider tax implications in all business decisions because taxes have significant impact on the company’s cash flow. Let take one of the HM Revenue and Customs scheme to discuss – Quarterly Instalment Payments.
Quarterly Instalment Payments
A company with an accounting profit of more than £1.5 million is classified as large company and is required to pay its corporation tax in advance in four installments within a twelve-month period.
However, there is an exception to help growing companies. Where a company’s taxable profit exceeded £1.5 million but less than £10 million for the first time in its trading year, the company will not have to pay its corporation tax by quarterly instalments.
Where there are associated companies, that £10 million threshold will be divided by one plus the number of associates at the end of the previous accounting period.
What businesses should be aware of this HMRC rule?
Businesses dealing in properties are most likely to be caught by this rule unexpectedly. If they do not have accounting system in place to monitor their profits, the likelihood that they will only find out that they have to pay in advance its corporation taxes by instalments are when their financial statements and corporation tax returns are prepared and submitted to HMRC.
Followed by letters from HMRC informing the penalties due on the corporation tax liabilities that should have been paid by quarterly installments but failed to do so.
Will penalty interest be imposed on unpaid instalments?
Yes. HMRC will issue penalty interest based on the corporation tax liability payable (per CT600) for the accounting period in question. You may appeal to their decisions if you are in the opinion that the company should not be paying its corporation tax by instalments.
The unpaid installment payment carry interest at a special rate of approximately 8.25% p.a. from the due date to the date of payment.
When to make quarterly instalment payments ?
Instalments are due at the intervals of three months commencing 6 months and 13 days from the start of the accounting period and culminating 3 motnhs and 14 days from its end. Therefore, for 12 month accounting period there will be 4 installments.
For a company with a 12 month accounting period starting on 1 January, Quarterly Instalment Payments will be due on 14 July, 14 October, 14 January and 14 April.
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