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Corporation tax payments – ‘My first time’

For many companies, investing the time and effort to get their business off the ground can lead them to accumulating substantial trading losses in the first few years.

However, once the business becomes profitable, and brought forward trading losses have been used up, the company will find themselves in a tax paying situation. For businesses with no experience of paying any UK corporation tax, the ‘how and when’ to pay can sometimes be confusing.

The deadline for a UK company required to pay its corporation tax liability depends on the size of its tax adjusted profits in its accounting period.

The tax liability for any company with taxable profits can either be due:

  1. Nine months and one day after the accounting period end
  2. In four quarterly payments, based on forecasted profits for the accounting period. The first payment would be due 6 months and 14 days from the beginning of the accounting period

The default payment regime would be the former option.

On the later, it is only ‘large’ companies that are required to pay their tax in instalments. A company is considered large if it’s tax adjusted profits for their accounting period exceed £1.5 million.

This limit is divided by the number of related (active) companies.  For example, If Company A is a 100% subsidiary of Company B, it is a related company for instalment purposes. Therefore the £1.5 million threshold will be divided by two. As such, if profits chargeable to corporation tax for company A are above £750,000, the company would be considered large for instalment purposes.

There are two exceptions where instalments are not required even when a company is large:

  1. Where the tax due is under £10,000 or
  2. The company was not large in the previous accounting period and the profits chargeable to tax in the current period are less than £10 million (divided by the number of related companies)

In addition, for accounting periods beginning on or after 1 April 2019, very large companies with annual taxable profits of over £20 million will be required to make accelerated payments (in instalments), which begin four months earlier than the first payment deadline.

In almost all cases, the profits chargeable to corporation tax will not be the same as the profit per the statutory accounts and as the tax is due before the tax return filing deadline, companies should keep a close eye on their tax position. In addition, the increasing size of a company/group can have many other significant tax ramifications.

Please contact a member of the tax team should you wish to discuss any of the above in further detail.