Payment on Account: Corporation Tax Quarterly Instalments
Most companies pay corporation tax 9 months after their year-end. But "large" companies must pay in quarterly instalments during their accounting period.
Who Must Pay Instalments?
The Threshold
You pay in instalments if your taxable profits exceed £1.5 million in a 12-month period.
Important: This threshold is divided by the number of associated companies + 1.
Examples
| Scenario | Threshold |
|---|---|
| Standalone company | £1.5 million |
| 1 associated company | £750,000 |
| 2 associated companies | £500,000 |
| 4 associated companies | £300,000 |
"Very Large" Companies
From April 2019, "very large" companies (profits over £20 million) have earlier instalment dates.
Payment Dates
Large Companies (£1.5m - £20m)
| Instalment | Due Date |
|---|---|
| 1st | 6 months + 13 days from period start |
| 2nd | 9 months + 13 days from period start |
| 3rd | 14 days after period end |
| 4th | 3 months + 14 days after period end |
Example: 31 March Year-End
Period: 1 April 2024 - 31 March 2025
| Instalment | Due Date |
|---|---|
| 1st | 14 October 2024 |
| 2nd | 14 January 2025 |
| 3rd | 14 April 2025 |
| 4th | 14 July 2025 |
Very Large Companies (Over £20m)
| Instalment | Due Date |
|---|---|
| 1st | 2 months + 13 days from period start |
| 2nd | 5 months + 13 days from period start |
| 3rd | 8 months + 13 days from period start |
| 4th | 11 months + 13 days from period start |
Calculating Instalments
Basic Method
Each instalment = 25% of estimated annual tax liability
``` Instalment amount = Estimated CT liability ÷ 4 ```
Estimating Your Liability
At first instalment:
- Period is only half-complete
- Use best estimate based on:
At subsequent instalments:
- Update estimate with latest figures
- Adjust remaining instalments accordingly
Example Calculation
Expected profit: £2,000,000 Tax rate: 25% Expected CT liability: £500,000
Each instalment: £500,000 ÷ 4 = £125,000
If Estimates Change
| Scenario | Action |
|---|---|
| Profits higher than expected | Increase remaining instalments |
| Profits lower than expected | Reduce remaining instalments |
| Final liability differs | Balancing payment/refund due |
Short Accounting Periods
For periods under 12 months, the number of instalments may reduce:
| Period Length | Number of Instalments |
|---|---|
| 3 months or less | 1 |
| 4-6 months | 2 |
| 7-9 months | 3 |
| 10-12 months | 4 |
Interest Charges
Underpayment Interest
HMRC charges interest if instalments are:
- Paid late, OR
- Underestimated
When Interest Applies
Interest is calculated from each instalment due date to:
- Actual payment date, OR
- The normal due date (9 months + 1 day)
Avoiding Interest
Method 1: Overestimate slightly Method 2: Update estimates regularly Method 3: Pay instalments early
Example: Underestimation Interest
Estimated liability: £400,000 (£100,000 per quarter) Actual liability: £600,000
Underpaid each quarter: £50,000 Interest charged: From each instalment date at prevailing rate
First Year Above Threshold
Transitional Rule
If your profits exceed £1.5m for the first time, you might not need to pay instalments if:
- Previous year's profits were below £1.5m, AND
- Current year's profits don't exceed £10m
When You Definitely Pay
You must pay instalments (no exemption) if:
- Profits exceed £10m in the year, OR
- You were already paying instalments, OR
- You exceeded threshold before but dipped below
Associated Companies Impact
Threshold Division
The £1.5m and £20m thresholds are divided equally:
| Number of Associates | Large Threshold | Very Large Threshold |
|---|---|---|
| 0 | £1.5m | £20m |
| 1 | £750k | £10m |
| 3 | £375k | £5m |
| 9 | £150k | £2m |
Who Counts as Associated?
Companies under common control:
- Subsidiaries
- Sister companies
- Companies controlled by same individuals
Practical Tips
Tip 1: Review Estimates Quarterly
Update your tax estimate at each instalment date using:
- Latest management accounts
- Revised forecasts
- Known adjustments
Tip 2: Document Your Estimates
Keep records of:
- Basis for estimates
- Information available at time
- Why changes were made
Tip 3: Consider Cash Flow
Instalments mean paying tax during the year, not after. Plan for:
- Cash flow impact
- Credit facilities if needed
- Timing of major expenditure
Tip 4: Watch for Threshold Changes
If profits might exceed or fall below thresholds:
- Monitor associated company changes
- Watch for acquisition/disposal impact
- Consider timing of transactions
Frequently Asked Questions
What if I don't pay instalments when required?
HMRC will charge interest as if instalments were due, even if you paid all tax by the normal deadline.
Can I choose not to pay instalments?
No. If you meet the criteria, instalments are mandatory. Not paying results in interest charges.
What if my estimate is completely wrong?
Significant underestimation leads to:
- Interest charges
- Possible enquiry
- No penalties (instalments are estimates)
How do group relief claims affect instalments?
Group relief changes your final liability. Adjust estimates when you know group relief will be claimed.
Are there penalties for late instalments?
No penalties—only interest. But interest rates are substantial at current levels.
Summary
| Aspect | Details |
|---|---|
| Threshold | £1.5m profits (divided by associates + 1) |
| Number of instalments | 4 (for 12-month period) |
| Each instalment | 25% of estimated liability |
| Interest | Charged on underpayments from due dates |
| Exemption | First year above £1.5m (if below £10m) |
Related guides:
- CT600 Filing Guide
- CT600 Interest Charges
- Associated Companies