Corporation Tax quarterly instalments: Avoid unexpected changes to your payment position

For most companies, Corporation Tax is paid nine months and one day after the end of the accounting period.

When does Corporation Tax need to be paid by instalments?

For most companies, Corporation Tax is due nine months and one day after the end of the accounting period. The position is different for companies that fall within the quarterly instalment payment regime.

Broadly, a company with annual taxable profits of more than £1.5 million is considered a large company for these purposes, subject to certain exemptions. Companies with profits above £20 million are treated as very large companies. For a large company with a 12-month accounting period, Corporation Tax is normally paid in four instalments:

• Six months and 13 days after the start of the accounting period
• Three months later
• Three months after that
• Three months and 14 days after the end of the accounting period

For example, a company with a calendar year accounting period ending 31 December 2026 would normally make payments on 14 July 2026, 14 October 2026, 14 January 2027 and 14 April 2027.

Very large companies pay considerably earlier. For a 12-month accounting period, payments fall on the 14th day of months 3, 6, 9 and 12. A calendar year company would therefore make its first payment on 14 March rather than 14 July. That difference can have a significant effect on cash flow.

The threshold may be lower than you expect

It would be easy to look at the £1.5 million and £20 million figures and assume the quarterly instalment rules are only relevant to businesses making profits at those levels. However, those thresholds can be reduced where there are associated companies.

For accounting periods beginning on or after 1 April 2023, companies are associated where, broadly, one controls another, or where both are under the control of the same person or persons. The thresholds are then divided by the total number of associated companies, including the company itself. For example, where there are four associated companies in total:

• The £1.5 million threshold becomes £375,000 for each company
• The £20 million very-large-company threshold becomes £5 million for each company

This means a company can fall within quarterly instalment payments at a much lower level of profit than the headline figures might suggest. It can also affect when payments need to be made. If the company exceeds its adjusted very-large-company threshold, the payment timetable moves from months 7, 10, 13 and 16 to months 3, 6, 9 and 12.

There is another important distinction. Certain companies becoming large for the first time can benefit from an exemption from quarterly instalments, subject to conditions. There is no equivalent period of grace when a company becomes very large.

For growing businesses, this makes it important to consider more than just the company’s own profit figure. Changes in ownership, group structure and forecast profits can all affect both whether quarterly instalments apply and when payments will be required.

Forecasts matter because the liability is not yet final

Quarterly instalments are being paid before the final Corporation Tax liability for the year is known. Payments therefore have to be based on an estimate of the company’s total Corporation Tax liability for the accounting period. That makes reliable forecasting particularly important.

If profits are developing differently from the original forecast, the expected Corporation Tax liability should be reviewed rather than assuming the original instalment calculation remains correct.

A stronger-than-expected year could mean further tax needs to be paid. If earlier instalments ultimately prove insufficient, interest can arise on the underpayment. Conversely, if the forecast reduces, continuing to pay based on an outdated higher estimate could unnecessarily tie up cash.

Corporation Tax should therefore form part of the wider forecasting process rather than being considered only after the year end.

A change is planned from April 2027

There is also an upcoming change that will be relevant to some companies receiving expenditure credits. The Government has announced plans to amend the definition of augmented profits used to determine whether a company falls within the quarterly instalment payment regime.

From April 2027, the Government intends that the following will no longer be included when determining whether a company is within QIPs:

• Research & Development Expenditure Credits
• Audio-Visual Expenditure Credits
• Video Games Expenditure Credits

The change is intended to prevent businesses from being brought into quarterly instalment payments solely because they receive one of these credits. This is particularly relevant because these credits can currently increase the figure used when considering the company’s QIP position.

For businesses undertaking qualifying R&D, the practical point is that a company’s position under the current rules may not necessarily be the same from April 2027. The Government currently plans to introduce the change through secondary legislation, so businesses potentially affected should keep the position under review as the implementation date approaches.

Avoiding an unexpected change in your Corporation Tax payments

Quarterly instalments are not simply a concern for companies making more than £1.5 million or £20 million of profit. The number of associated companies can substantially reduce those thresholds. Growth can move a business onto a much earlier payment timetable. The amount payable itself depends on current forecasts, and further changes to the threshold calculation are planned from April 2027.

The important thing is to understand the position early. Reviewing your profit forecasts, company structure and expected Corporation Tax liability throughout the year can help identify when your payment position is likely to change and ensure the resulting cash requirement does not come as a surprise.

How can Oldfield help?

If you are unsure whether quarterly Corporation Tax instalments apply to your business, or whether your current company structure or profit forecasts could change your payment dates, speak to the Oldfield team.

Reach out here or speak to your usual Oldfield contact if you would like us to help you with understanding the thresholds that apply to your business, forecasting the expected Corporation Tax payments or making sure they are reflected in your wider cash-flow planning.

Please note: This article is for general information purposes only and was correct as at the time of writing and does not constitute financial advice. The appropriate approach depends on the circumstances of the business. We recommend seeking advice tailored to your position before acting. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.