Chapter 5 Payment of Corporation Tax

Question 1

5.2 Large and very large companies

Answer 1

A company’s augmented profits determine if they are small, large or very large for tax instalments. They are profits obtained by taking taxable total profits and adding dividends received. Large companies have augmented profits exceeding £1.5 million but not exceeding £20 million, whereas large companies have augmented profits exceeding £20 million. The thresholds are proportionally reduced where the accounting period is less than 12 months.

Question 2

5.3 Instalment due dates – large companies

Answer 2

The instalment due date for large companies are as follows:
• First payment is due on the 14th day of month seven from the start of the accounting period
• Subsequent payments are due three months after the previous instalment
• The final payment is due three months plus 14 days from the end of the accounting period
The payment dates for the first three payments can never be later than the final payment date which is relevant for a short accounting period. Sometimes the company will have less instalment dates and pay the remainder on the final payment due date. Interest is added when tax is paid late and the rate of interest increases if there is any outstanding tax due nine months and one day after the accounting period.

Question 3

5.4 Amounts due by instalments – large companies

Answer 3

Each instalment is calculated using the following formula:
3/n x estimated corporation tax liability
N is the number of months
For a 12-month accounting period this means 3/12 is paid with each instalment. But for shorter accounting periods this can be different. For an 8-month accounting period there will be 3 instalments, with 3/8, 3/8 and 2/8 being paid on each instalment respectively.

Question 4

5.5 Groups of companies – Augmented profits

Answer 4

If a company is part of a group, dividends received from group companies are excluded from the augmented profits calculation. This is dividends from 51% subsidiaries of the receiving company.

Question 5

5.6 Groups of companies – Augmented profits threshold

Answer 5

If a company is in a group, we divide the large company profit threshold by the number of group companies. The number of related companies is determined by reference to the number of companies at the end of the immediately preceding accounting period of the company.
A company is a 51% subsidiary of another company if more than 50% of the ordinary share capital is owned directly or indirectly by the other company. The definition includes worldwide companies and companies are ignored from this if they have been inactive throughout the whole of the accounting period.

Question 6

5.7 Exceptions to paying by instalments

Answer 6

Where augmented profits do not exceed £10 million, a large company is not required to pay by instalments if the company was not a large company in the 12 months preceding that accounting period. This threshold is divided by the number of 51% subsidiaries. Also large companies with a corporation tax liability of no more than £10,000 do not pay by instalments, this threshold is proportionately reduced for a short accounting period.