Corporation Tax Payments & Cash Flow

With the projected impact of Covid-19 on the global economy and the consequential impact on businesses, it is likely that many businesses will struggle with cashflow. There are several actions that large corporates who are generally required to pay their Corporation Tax via Quarterly Instalment Payments (QIPs) can do to manage this impact, especially for those with upcoming payments due on 14 April.

Managing cash flow during a period of crisis

The focus in business at present is on protecting employees, understanding the risks to their businesses, and managing the supply chain disruptions being caused by the indirect impact of Covid-19. Businesses that are currently struggling with slow cash flows are particularly vulnerable. Even businesses that appear to be in a healthy financial position may not be immune due to the current uncertainty. Therefore, there may be many businesses out there that will be struggling to make payments.

Even if the virus slows down rapidly, the impact will long continue, and business may struggle as they have to make up for their losses.

Taking a practical approach

As QIPs are due and payable based on a company’s expectation of its tax liability for the current year, most businesses should be able to take a view on the forecast taxable profits for the year. This estimate needs to be justifiable, although in the current climate, it wouldn’t be unreasonable for some to project a £nil profit for the year; and if this was the case, no QIPs would be due. If in three months’ time (when hopefully the landscape is more certain), if it is apparent that more tax is due, then that can be made as part of the subsequent QIP.

Some may have a concern about the basis for calculating the QIPs and being able to obtain the necessary information to undertake the estimated calculation of the payments due. Furthermore, with the requirement of remote working, another consideration is whether controls are in are place for payments to be processed in the absence of having access to systems.

Although these concerns are understandable, the powers of HM Revenue & Customs (HMRC) to charge a penalty only apply if a company deliberately fails to make instalment payments, or deliberately makes instalment payments that are too small.

Given the current Covid-19 impact and significant uncertainty of the current market conditions, provided that companies have contemporaneous documentation to evidence the calculations of their QIPs, it should be relatively easy to support vastly reduced QIP payments from normal, even if by the end of the year it becomes apparent that more tax becomes due. Interest is charged by HMRC on any corporation tax that is paid after the due date, at what is generally considered to be a commercial (or even favourable) rate.  

The interest rate on late paid corporation tax on non-quarterly instalment payments (QIPs) changed from 3.25% to 2.75% on 30 March 2020.  The interest rate on late paid QIPs changed from 1.75% to 1.25% on 23 March 2020.

What is HMRC doing?

HMRC has set up a phone helpline (0800 0159 559) to support businesses concerned about not being able to pay their tax due to Covid-19. HMRC has stated that if you are unable to pay due to Covid-19, then HMRC will discuss your specific circumstances to explore:

  • agreeing an instalment arrangement;
  • suspending debt collection proceedings; and
  • cancelling penalties and interest where you have attempted to contact HMRC but have had administrative difficulties in doing so or paying your tax.

Further information can be found here.

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