Can you pay corporation tax in instalments?

Paying corporation tax in instalments can offer valuable financial flexibility for businesses managing their cash flow. By spreading payments throughout the year, companies can ease the burden of large tax bills and maintain better control over their finances. In this blog, we’ll explore how instalment payments work and the eligibility criteria.

What is corporation tax?

Corporation tax is a tax imposed on the profits of companies and other business entities. It applies to income from trading, investments, and the sale of assets. 

This applies to any business registered as a limited company. 

When is corporation tax due?

Corporation tax is typically due nine months and one day after the end of your company’s accounting period. For example, if your company’s accounting period ends on December 31, the corporation tax would be due by October 1 of the following year.

Large corporations

Larger corporations are required to pay corporation tax in quarterly instalments.

A company is considered large for a corporation tax accounting period if its taxable profits are more than £1.5m but not more than £20m.

Where a company first generates profits of more than £1.5m, its requirement to pay quarterly instalments will normally be deferred to the following accounting period.

If the Company has associated companies, then the above thresholds are divided by the number of associated companies. These rules potentially catch a number of companies previously considered small for corporation tax purposes. 

Large companies with a 12 month corporation tax accounting period

Companies that fall under this category will need to pay Corporation Tax:

• Six months and 13 days from the start of the accounting period;

• Three months after the first instalment;

• Three months after the second instalment; and

• Three months and 14 days from the end of the accounting period.

Payments for a group of companies

If your company is part of a wider group of companies, you can instead pay Corporation Tax under a Group Payment Arrangement. This requires a Corporation Tax payment number from HMRC.

Calculating corporation tax

HMRC corporation tax instalments are calculated based on your estimated corporation tax liability for the accounting period.

What if I cannot pay my Corporation Tax?

HM Revenue and Customs will charge interest on late and underpaid instalment payments from the due date for the instalment.

Penalties may be payable for deliberately failing to make instalment payments or deliberately making payments that are underpaid.

If any assistance is required with corporation tax matters, please contact your local Perrys office, or you can find out more information from HMRC.