Instalment Payments of Corporation Tax by large companies - Introduction

The Instalment Payments system applies to accounting periods ending on or after 1 July 1999.

From 1999, large companies started to pay their Corporation Tax in instalments. These payments are based on the company's estimate of its tax liability for the current accounting period, including tax due under, Sections 419 ICTA 1988 (loans to participators), S501A (ring fence trades) and Section 747 (controlled foreign companies).

The legislation governing Instalment Payments is by Regulations in, Statutory Instruments 1998 No. 3175 as modified by subsequent Statutory Instruments 2000 No. 892, and 2005 No. 889.

A company will not have to pay its Corporation Tax by instalments in an accounting period if:

  • its profits for that accounting period do not exceed £10 million, and, apart from this rule
  • it was not large in the 12 months before that accounting period.

If a company has associated companies, the threshold is reduced by dividing £10 million by the number of associated companies plus one. This new figure is the threshold for that company. The threshold is also proportionately reduced for accounting periods of less than 12 months.

This gives companies time to prepare for paying by instalments, rather than finding unexpectedly that they have to do so as soon as they become large.

If a company's net tax liability is less than £10,000, then that company will not have to pay by instalments. This means that companies in large groups do not have to make instalment payments if their own liability is small. The limit was £5000 for accounting periods that ended before 1 July 2000.

Definition of a large company

Broadly, a company is large if its annual rate of profits for an accounting period exceeds the Upper Relevant Maximum Amount (the URMA limit) in force at the end of that period and it therefore pays its tax at the main rate. URMA is currently £1.5 million and the main rate of Corporation Tax is 30%. Where there are associated companies this limit is reduced by dividing the URMA limit by the number of associated companies plus one.

Definition of an associated company

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.