Details have been announced of two changes reducing the burden of quarterly payments of corporation tax:
- the rate of interest charged on underpayments has been reduced by one percentage point; and
- the de minimis limit below which quarterly payments do not have to be made, has been doubled to £10,000.
When advance corporation tax was abolished, only the largest companies remained liable to pay instalments on their corporation tax. Broadly these are companies with profits over £1.5 million. The company must estimate its annual profits for the accounting year, even though the accounting year is still running when the first two payments are made, and pay one quarter of its estimated tax liability in each instalment, subject to some transitional provisions. As the year progresses, the determination of the tax liability becomes more accurate, so each payment may include an adjustment for previous instalments. Interest is charged on underpayments of previous instalments, and is given on overpayments. These rates are lower than the rate of interest charged once the due date for corporation tax has been reached nine months after the year-end.
At present, the interest rate used for overpayments is two percentage points above the bank base rate. This is to be reduced to one percentage point above the base rate. This rate applies from 20 April 2000. It applies to tax payable on or after that date, and to interest which is already running at that date.
In addition to the annual profits limit, there is also a de minimis limit of £5,000 below which a company does not have to make quarterly payments. This limit is doubled to £10,000 for accounting periods which end after 30 June 2000. It is estimated that this increase in the de minimis limit will remove 1,000 companies from the requirement to make quarterly payments.
Taxes Interest Rate (Amendment) Regulations SI 2000 No 893
Corporation Tax (Instalment Payments) (Amendment) Regulations SI 2000 No 892
[2000]