If your company's profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period electronically, in instalments.
This guide will explain how and when to make instalment payments, how to calculate the amount to pay and what happens if you underpay or pay late.
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Generally 'large' companies must pay their Corporation Tax electronically by instalments. Here a large company is one whose profits for the accounting period in question are at an annual rate of more than the 'upper limit' - currently £1.5 million - in force at the end of that period. But there are some exceptions.
Your company does not have to pay by instalments for an accounting period - even though its profits exceed the upper limit - if either of the following two conditions apply:
If either of these conditions apply then the company must pay its tax in full by the normal payment due date.
Find out who is liable for Corporation Tax
If your company has associated companies (see the definition below), the £1.5 million and £10 million thresholds are reduced by dividing the annual rates by the number of associated companies plus one. This new figure is the annual threshold for your company.
A company has five associated companies. Its profits for the 12-month accounting period ending 30 November 2009 are £300,000 and its Corporation Tax liability is £55,000.
£1.5 million divided by 6 (that is: 5 + 1) = £250,000
Here, the company is a large company for this accounting period. Even though its profits are less than £1.5 million, they exceed the adjusted annual threshold of £250,000 and its tax liability is greater than £10,000.
Associated companies definition: a company is associated with another company if one is under the control of the other, or if both are under the control of the same person or persons. Control is usually defined by reference to ownership of share capital, or voting power. A company may be an associated company no matter where it is resident for tax purposes.
The dates when you have to pay your instalment payments of Corporation Tax, and the number of payments, depend on the length of your accounting period. For accounting periods of 12 months, you'll normally pay your Corporation Tax in four quarterly instalments, two of which are due before the end of your accounting period.
If your company has a 12-month accounting period, you'll have to pay in four equal instalments due as follows:
This applies to accounting periods ending after 30 June 2002.
Read about the rules if you need to check an old calculation
Payment |
Payment due date |
|---|---|
first payment |
14 July 2009 |
second payment |
14 October 2009 |
third payment (due after the end of the accounting period) |
14 January 2010 |
final payment |
14 April 2010 |
If your company has an accounting period shorter than 12 months, your last instalment will be due three months and 14 days after the last day of your accounting period.
If your accounting period is longer than three months, the first payment will be due six months and 13 days after the first day of the accounting period.
If your accounting period is long enough, other payments will also be due at three-monthly intervals thereafter.
Payment |
Payment due date |
|---|---|
first of three payments |
14 July 2009 |
second payment due after the end of the accounting period |
14 October 2009 |
final payment |
14 December 2010 |
Payment |
Payment due date |
|---|---|
all Corporation Tax is due in a single instalment |
14 July 2009 |
If your company is liable to Corporation Tax and supplementary charge on profits from ring fence activities - that is, UK Continental Shelf oil-related activities that under UK law constitute a separate trade - then you'll pay any Corporation Tax due on non-ring fence profits in instalments using the normal rules. However, you'll also have to pay the Corporation Tax and supplementary charge on your ring fence profits in a maximum of three equal instalments due as follows:
This applies to accounting periods ending after 30 June 2005. For 12-month accounting periods ending after 30 June 2005 but before 1 July 2006, instalments are 25 per cent, 25 per cent and 50 per cent of the ring fence liability.
Payment |
Payment due date |
|---|---|
first payments of both ring fence tax and other Corporation Tax |
14 July 2009 |
second payments of both ring fence tax and other Corporation Tax |
14 October 2009 |
third (final) payment of ring fence tax, and third payment of other Corporation Tax |
14 January 2010 |
final payment of other Corporation Tax |
14 April 2010 |
Payment |
Payment due date |
|---|---|
all ring fence tax is due on this date* |
14 June 2009 |
first payment for other Corporation Tax |
14 July 2009 |
second (final) payment for other Corporation Tax |
14 September 2009 |
*In this example, as the date the third instalment would be due (14 June 2009) falls before any of the other payment due dates, then all the ring fence tax is due is payable on 14 June 2009.
To calculate your instalment payments, you first need to estimate your Corporation Tax liability for the accounting period, including any tax due on:
Then deduct all reliefs and set-offs to arrive at your company's total liability, exactly as you would when calculating your Corporation Tax due on your Company Tax Return. You can now use this figure to calculate your instalment payments.
Find out how to calculate the Corporation Tax you need to pay
Directors' loan accounts and Corporation Tax explained
For a 12-month accounting period: you pay your total liability in four equal instalments, each one a quarter of your company's total liability.
For accounting periods of three months or less: you make one single payment of your company's total liability.
For accounting periods longer than three months but less than 12: all instalments except the last will be:
3 × your company's total liability ÷ the number of months in the accounting period
The last instalment will be your company's total liability less the payments made so far.
Calculation step |
Result |
|---|---|
Company's total liability |
£900,000 |
months in the accounting period |
8 |
3 × company's total liability ÷ months in the accounting period |
3 × £900,000 ÷ 8 = £337,500 |
smaller of company's total liability and 3 × company's total liability ÷ months in the accounting period |
£337,500 |
first and second instalment payments |
£337,500 |
third and final payment |
£900,000 - (2 × £337,500) = £225,000 |
Your estimate of your Corporation Tax liability may change as the accounting period progresses. This may even happen after your last instalment payment. So you'll need to recalculate each instalment payment based on the revised figure.
If you think your liability is going to be greater than your earlier estimates, you'll have to make one or more 'top-up' payments to cover the shortfall in your previous instalments. You can make additional payments at any time. You should be aware that you may have to pay interest if you've made instalment payments that turn out to be lower than your actual liability - see the section in this guide on interest on instalment payments.
If you later find that you've paid too much (or shouldn't have made a payment at all), you'll normally be able to claim back your overpayment. Alternatively, you can leave the overpayment with HM Revenue & Customs (HMRC) and deduct the overpayment from future instalment payments. You might receive interest on overpayments of instalment payments and on payments made early - see the section in this guide on interest on instalment payments.
If your company is liable for Corporation Tax and supplementary charge on profits from ring fence activities, then you calculate instalments for Corporation Tax due on non-ring fence profits using the normal rules. However, you will also have to calculate your instalments for the Corporation Tax and supplementary charge on your ring fence profits as follows:
Estimate the ring fence Corporation Tax and supplementary charge payable for the accounting period (RFA).
For a 12-month accounting period: you pay your total liability in three equal instalments, each one a third of RFA.
For accounting periods of four months or less: you make one single payment of your total liability (RFA).
For accounting periods longer than four months but less than 12: your payments are the smaller of the balance of RFA unpaid or 4 × RFA ÷ the number of months in the accounting period.
The above rules apply for accounting periods ending on or after 1 July 2006. If you want to check calculations for accounting periods ending after 30 June 2005 but before 1 July 2006, you use the formula:
3 × RFA ÷ the number of months in the accounting period for shorter periods.
Your estimate of your Corporation Tax liability may change as the accounting period progresses. This may even happen after your last instalment payment. So you'll need to recalculate your instalment payments based on the revised figure.
If you think your liability is going to be greater than your earlier estimates, you'll have to make one or more 'top-up' payments to cover the shortfall in your previous instalments. You can make additional payments at any time. You should be aware that you may have to pay interest if you've made instalment payments that turn out to be lower than your actual liability - see the section in this guide on interest on instalment payments.
If you later find that you've paid too much (or shouldn't have made a payment at all), you'll normally be able to claim back your overpayment. Alternatively, you can leave the overpayment with HMRC and deduct the overpayment from future instalment payments. You might receive interest on overpayments of instalment payments and payments made early - see the section in this guide on interest on instalment payments.
Group companies can choose to offset an amount overpaid by one company against an amount unpaid by another company in the group.
HMRC also offers Group Payment Arrangements, which allow groups to make instalment payments on a group-wide basis. You can nominate one company in the group to pay the instalments on behalf of the group, rather than company by company.
Find out more about Group Payment Arrangements
You must make all Corporation Tax and related payments electronically. Related payments include interest charged on overdue Corporation Tax and penalties for not filing your Company Tax Return on time.
You can pay your instalment payments electronically online using:
You can also pay electronically but not online using:
HMRC charges interest on late and insufficient instalment payments. If you do have to pay this interest, it is tax deductible for Corporation Tax purposes. This interest is known by HMRC as 'debit interest', to distinguish it from interest on normal late payments.
This interest is only calculated and charged when you submit your Company Tax Return.
Read about debit interest charged on late instalment payments
Find current and historical rates of interest for underpaid quarterly instalments
If you make instalment payments that turn out to be unnecessary, you pay them early or your payment is too high, HMRC will pay your company interest. Any interest paid will be calculated from the later of the first instalment date or the point where an overpayment arises. The interest paid by HMRC is itself taxable for Corporation Tax purposes. This interest is only calculated and charged retrospectively, once the liability for the period is established, normally when you submit your Company Tax Return.
The rate for this interest is different from the rate of interest charged on late payments and underpayments. This interest is known by HMRC as 'credit interest'.
Find current and historical rates of interest paid by HMRC on overpaid instalment payments
More about credit interest in the Company Taxation Manual
A company with no ring fence liability has an accounting period from 1 January to 31 December. It reviews the estimate of its final liability at regular intervals and, when appropriate, adjusts its instalment payments (or, if necessary, makes top-up payments) in order to minimise any interest charge. It delivers its Company Tax Return showing a final tax liability of £120 million.
Company's estimate of its liability |
Payments made based on estimated figures (with date payment made) |
Actual liability based on final liability |
Date due |
|---|---|---|---|
£80m |
£20m (14 July) |
£30m (Instalment payment 1) |
14 July |
£110m |
£35m (14 October) |
£30m (Instalment payment 2) |
14 October |
£130m |
£10m (top-up payment) (1 November) |
|
|
£140m |
£40m (14 January) |
£30m (Instalment payment 3) |
14 January |
£120m |
£15m (14 April) |
£30m (Instalment payment 4) |
14 April |
In this example, interest is due as follows:
Dates |
Total paid to date |
Actual liability to date |
Details of interest due |
|---|---|---|---|
14 July to 13 October |
£20m |
£30m |
Debit interest due on £10m from 14 July to 13 October |
14 October to 31 October |
£55m |
£60m |
Debit interest due on £5m from 14 October to 31 October |
1 November to 13 January |
£65m |
£60m |
Credit interest due on £5m from 1 November to 31 January |
14 January to 13 April |
£105m |
£90m |
Credit interest due on £15m from 14 January to 13 April |
14 April |
£120m |
£120m |
No further interest will be charged or credited |
A penalty may be charged if you deliberately fail to make instalment payments, or deliberately make instalment payments that are too small.
Read more about penalties on instalment payments
