Corporation Tax Payment Administration: Part 1

If you operate a limited company in the UK, the company will be liable to pay corporation tax (hereafter termed CT) on its total taxable profits (or TTP). However, the date when the amount of CT is due is more sophisticated than many realise with additional requirements in place for “large” and “very large” companies or those operating as part of a group structure regardless of dividends paid between companies. Where 1 company exercises control over another, broadly be seen as holding 51% or more shares in another company, it is likely to be deemed as related unless the subsidiary is dormant.

But let’s start simple. Assuming your company earns TTP under £1.5 million and isn’t part of a group and prepares accounts for a standard 12-month accounting period. In this case, provided it doesn’t receive any “Exempt ABGH distributions” (seen as dividends from non-group companies situated anywhere in the world), it will have a period of 9 months and 1 day from the end of its chargeable accounting period to pay its CT.  

However, if the company’s TTP is under £1.5 million but it receives Exempt ABGH Distributions which lift the adjusted profits above the £1.5 million limit, the company may be liable to pay its corporation tax in installments. The £1.5 million limit is termed as the large companies’ threshold. The exception to the requirement to pay by instalments exists if the company wasn’t classified as large in the previous accounting period and it’s TTP are under £10 million for the current accounting period or it’s CT liability for the current year is under £10,000.

Let’s assume neither of the exceptions apply. So how would your company now go about paying its CT liability. In this case, payments are required in instalments to HMRC before the 14th of each of months 7, 10, 13 and 16 of the company’s chargeable accounting period. This implies that 2 payments will actually be required before the company’s accounting period even finishes. This can present a challenge as the company’s accounts are far from finalized and therefore it is unaware of it’s prospective CT liability. Nevertheless, the company is required to compute its best estimate of the expected CT and transfer 1/4th of this amount to HMRC on each of the first 3 dates.

For e.g., your company’s year ended 31 Dec 2021 and its TTP is expected to cross £1.5 million. The company will be required to make payments on 14 July 2021, 14 Oct 2021, 14 Jan 2022 and 14 April 2022.

In the following articles, we will explore what happens where a company’s chargeable accounting period is shorter than 12 months or where the company belongs to a group of companies.

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