A new quarterly instalment payments regime for very large businesses will commence for accounting periods beginning on or after 1 April 2019.
The Corporation Tax (Instalment Payments) (Amendment) Regulations 2017 were published in November 2017 but the impact will not be felt until this April. Businesses affected by these changes are likely to have been very focused recently on preparations for Brexit and Making Tax Digital and these changes to the quarterly instalment payments (QIPs) regime could easily be overlooked. In summary, for accounting periods beginning on or after 1 April 2019, very large companies will be required to make payments four months earlier than currently. For a 12-month accounting period, payments will be due in months 3, 6, 9 and 12 of the period to which the liability relates.
Only ‘very large companies’ are affected by the changes and these are defined in the regulations as companies whose annual taxable profits exceed £20 million. This threshold is adjusted if the company is a member of a group or has an accounting period shorter than 12 months. For companies with annual taxable profits of £20 million or less, payment dates will not change.
Payments of the bank levy by financial services companies or ring fence corporation tax (CT) by oil and gas companies will be unaffected by these changes. However, all other CT payments, including Bank CT surcharge, will change to the new dates.
The key impact of these changes for companies classed as very large under the new rules will be on cash flow. Not only will QIPs now be payable earlier on a regular basis, but in the first year the new regime will be applicable, the first instalment payment will be due before the final instalment of the previous accounting period subject to the old regime, and only two months after the third instalment. Businesses should make sure they are prepared for the implications this may have on cash flow. In addition, forecasting taxable profits at such an early stage in the accounting period may cause issues for businesses, especially those with fluctuating profits.
Another important issue arises for those businesses that are operating close to the £20 million threshold. Where a company’s annual taxable profits exceed £20 million for the first time it will fall immediately into the new regime for that accounting period, i.e. there is no ‘period of grace’ allowing commencement from the following accounting period. This means growing businesses approaching the threshold will need to monitor the position carefully.
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