Corporation tax has a quirk that catches out almost every first-time director: you have to pay it before you have to file the return that works out how much it is. Miss that, and interest starts running on a liability you have not formally declared yet.
The two dates that matter
- Payment: due nine months and one day after the end of your accounting period.
- Filing the CT600: due twelve months after the end of your accounting period.
For a company with a 31 March year end, that means the tax is payable by 1 January and the return is not due until 31 March the following year. Three months separate them, and the money moves first.
The practical consequence: your accounts and tax computation need to be substantially complete by month nine, not month twelve. Waiting until the filing deadline guarantees you have been paying interest for a quarter.
Companies large enough to pay in instalments
Bigger companies do not get the nine-month date at all, they pay quarterly in advance.
- "Large" companies, with profits over £1.5 million, pay in four quarterly instalments, two of which fall before the accounting period has even ended.
- "Very large" companies, with profits over £20 million, pay earlier still, in months 3, 6, 9 and 12 of the period itself.
Both thresholds are divided by the number of associated companies, counting the company itself. A group of four companies hits the "large" test at £375,000 of profit each, not £1.5 million, which is how a modest group finds itself paying in instalments unexpectedly. We cover that in our guide to associated companies and marginal relief.
Instalments are based on an estimate of the year's liability, so they require a forecast, revised as the year goes on. Under- and over-payments both attract interest, at different rates.
What late filing costs
Filing penalties escalate on a fixed schedule:
- £100 as soon as the return is a day late;
- a further £100 at three months;
- 10% of the unpaid tax at six months;
- a further 10% at twelve months.
Where a return is late three times in a row, the two £100 penalties rise to £500 each. Late payment is charged separately through interest, which runs from the day after the due date regardless of whether the return has been filed.
The accounting period trap
A corporation tax accounting period cannot exceed twelve months, but a Companies House accounting reference period can be longer. Extend your year end to, say, eighteen months and you do not get one long tax period, you get two: a twelve-month period and a six-month one, each with its own payment date, its own return and its own deadline. Directors who lengthen a period to buy time routinely create an extra filing obligation instead.
If you cannot pay
Contact HMRC before the due date. A Time to Pay arrangement is far easier to agree in advance than after a missed payment, and it stops enforcement action while it is in place. Interest still accrues, but penalties and escalation generally do not. Our guide to Time to Pay arrangements covers what HMRC looks for.
Build the calendar backwards
The workable rhythm is to close the books within two months of year end, prepare the computation by month six, and know the number well before month nine. That also leaves room to act on it, pension contributions, capital purchases and other decisions only help if they are made before the year end, which is the point of our note on proactive planning.
We manage corporation tax deadlines, computations and instalment forecasts for clients through our annual accounts and tax planning services, so the payment date is never the first time anyone sees the number. Book a call if your year end is approaching.