Understanding the changes to Corporation Tax Rates and quarterly payments for companies

7th November 2023

The combination of increased interest rates and Corporation Tax rates has amplified the importance of payment timelines for companies. From a commercial perspective, knowing when you should make your payments and factoring them into your cash flow, helps you to be prepared and manage you resources effectively.

How much Corporation Tax do companies pay?

As of 1 April 2023, the main rate of Corporation Tax has increased to 25% for companies with profits exceeding £250,000. However, companies with annual profits below £50,000 will still enjoy the previous rate of 19%, also known as the ‘small profits rate’, with a marginal rate applying between those profit limits.

Associated companies and Corporation Tax

One noteworthy change to highlight, again, is the reintroduction of associated companies, as the above profit limits are divided by the number of associated companies. This affects businesses with common control, substantial trading interdependence, or shared premises. For example, if a husband and wife each own separate companies that engage in significant commercial activities with each other, they will be considered associated. Consequently, the profit limits mentioned earlier will need to be divided by two for tax calculation purposes.

Quarterly instalments for large companies

For large companies, quarterly instalment payments come into play. Large companies are considered as those with profits exceeding £1.5 million, factoring in the number of associated companies. Fortunately, there is a one-year grace period for newly large companies, provided their profits remain under £10 million. Quarterly instalments must be paid on specific dates throughout the current and following year, even though the exact annual profits may not be known at the time of payment.

Quarterly instalments for very large companies

Very large companies, with profits exceeding £20 million, do not receive a grace period. They are required to make quarterly instalment payments immediately. This means paying all Corporation Tax before the end of their fiscal year, with interest adjustments almost inevitable. Precision in profit forecasting becomes crucial for these entities to minimise interest.

What are the current Corporation Tax interest rates?

There has been a significant increase in interest rates for underpaid quarterly instalments, rising from 1.1% in March 2020 to 6.25% as of August 2023. Companies not subject to quarterly instalments, or those who delay payment for more than nine months after their year-end, also face higher interest rates, now at 7.75% as of August 2023, up from 2.75% in March 2020. On the positive side, HMRC interest rates are 5% for overpaid quarterly instalments and 4.25% for repayments of Corporation Tax. The interest payable for late payment of Corporation Tax has significantly increased over the years, emphasising the importance of timely payments.

What does these Corporation Tax changes mean for businesses?

In conclusion, the evolving landscape of Corporation Tax rates and payment schedules are important to keep track of. It underlines the need for businesses to stay informed and adapt their financial strategies accordingly. These changes can have a substantial impact on a company’s cash flow and overall financial health.

To discuss the impact of Corporation Tax on your business, please contact Mark Baycroft, Business Tax Partner, or a member of our Business Tax team.

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