For accounting periods beginning on or after 1 April 2019 'very large corporates' are required to pay their corporation tax liability via instalments and have to make payments four months earlier than they did previously meaning all payments are now required to be made in the same year.
For companies defined as 'very large' with year ends of 31 December 2020 the first payment is due this week on the 14 March 2020. It should be noted that this payment is due a month before the final instalment of the previous accounting period (i.e. assuming it was 31 December 2019, under the former regime this instalment is due 14 April 2020).
The full payment date schedule under the new rules for a 31 December 2020 year end would be as follows:
The definition of a very large corporate is a company whose annual taxable profits exceed £20 million (prorate for periods of less than 12 months). This threshold is divided by the number of 51% related companies within a group. It is likely that a number of smaller UK companies are caught by these new rules where they are part of a large worldwide group.
The first companies affected were those with 31 March 2020 year ends with their first payment due by 14 June 2019. For those corporates it should be noted that their final payment for that year is due very shortly on the 14 March 2020, unless they have an accounting period of less than a year.
The rules remain the same for companies with annual profits of £20 million or less (prorated as above for a shorter accounting period and number of 51% related companies) with a requirement to pay via instalments. In this case a company with a 12 month accounting period is still required to make payments from the start of the relevant accounting period in months seven, ten, thirteen and sixteen.
These new measures aim to bring the payment of the corporation tax liability for the largest companies closer to the point at which they earn their income bringing the UK’s system more in line with those already in operation in other G7 countries.
The key impact of these changes for companies classed as very large under the new rules will be on cash flow with instalments payable earlier on a regular basis, and a number of payments being due close together in the year of transition.
It is important for businesses to ensure they are ready for the cash flow impact of these new rules with particular consideration required when forecasting taxable profits at such an early stage in the accounting period. This could be especially challenging for businesses with fluctuating annual profits.
If you would like any assistance in understanding or managing the corporation tax obligations of your business please do contact your local Crowe tax team.