Changes to the quarterly instalment regime

There have been changes to the quarterly instalment regime for companies classified as ‘very large’. But this is not necessarily as large as you might think.

The very large company quarterly payment regime for Corporation Tax was originally intended to begin in 2017 but was then deferred by two years. That time has passed and the regime has come into force for accounting periods starting on or after 1 April 2019.

Related companies

These changes are designed to accelerate the quarterly Corporation Tax payments regime for UK companies where taxable profits are more than £20m per annum. £20m might sound like a lot but where companies are related, the £20m threshold is reduced by dividing £20m by the number of related companies. For these purposes, companies are related if one company has an interest in the other that is greater than 50%. Where a UK company is part of a group it is likely to be related to all other group companies both in the UK and overseas.

For example, a corporate group with 37 related companies will mean that any of those UK companies with taxable profits over £540,000 will be caught by the changes.

Quarterly payments

Quarterly payments of Corporation Tax for very large companies are accelerated by four months relative to the usual Large Company Regime. This means a company classified as very large with an accounting period commencing 1 April 2019 and ending 31 March 2020 will have a first Corporation Tax payment date of 14 June 2019. All companies classified as large will then pay their final quarterly payment for the year ending 31 March 2019 on 14 July 2019. 

This can have a significant impact on the company’s cash flow as there is a period of 5 months in which they have to make 4 instalment payments. 

The table below sets out the payment dates for a company with a March year-end:

Payment dates Y/E 31 March 2019 Y/E 31 March 2020
14 October 2018 x  
14 January 2019 x  
14 April 2019 x  
14 June 2019   x
14 July 2019 x  
14 September 2019   x
14 December 2019   x
14 March 2020   x

Mixed groups, comprising large and very large companies, will, therefore, make eight payments a tax a year – four quarterly payments for the large companies and four for the very large companies.

The main impacts for very large companies affected by the new regime are cash flow and a risk of exposure to late payment interest. Late payment interest on underpaid quarterly instalment payments will automatically be calculated upon the submission of the Corporation Tax return. If a company deliberately fails to make instalment payments or deliberately underpays them, HMRC also has the power to levy penalties and they have said they will use those for companies which continually fail to comply.

If you own a company that is part of a group you may need to revisit your cash flow forecasts for the coming months. For further advice please get in touch with a member of our tax team on 01903 234094.