21 March 2000
QUARTERLY PAYMENTS OF CORPORATION TAX
Summary of measures
Changes in the quarterly instalment payment arrangements announced by the Chancellor today will
· reduce the rate of interest on underpayments of corporation tax under the quarterly instalment arrangements
· remove around 1,000 companies from the instalment arrangements altogether.
1. The rate of interest charged on underpayments of corporation tax under the quarterly instalment arrangements is currently two percentage points above the base rate. The formula for calculating the rate, which is set out in regulations, is to be amended so that the rate will be only one percentage point above the base rate. The necessary change to the interest rate regulations will be made as soon as possible and will take effect 21 days after the new regulations are laid.
2. This change responds to representations from companies within the instalment arrangements that the rate of interest on underpaid instalments should be aligned more closely with commercial rates.
3. Only large companies (broadly, those with profits over £1.5m) pay corporation tax by quarterly instalments. But there is also a de minimis limit which excludes companies with an annual liability of £5,000 or less. This de minimis limit will be doubled to £10,000 for accounting periods ending on or after 1 July 2000 (that is, the second year of the instalment arrangements). It is estimated that as a result around 1,000 companies will no longer have to pay by instalments. The necessary change to the instalment regulations will be made as soon as possible.
1. The new system of corporation tax payments for larger companies was introduced last year for accounting periods ending on or after 1 July 1999. It provides for large companies (broadly those with profits of over £1.5m) to pay their corporation tax by instalments, two of which fall during the accounting period. The change is being phased in over a four year period, with companies paying a gradually increasing percentage of this tax by instalments (with the balance in a lump sum nine months and one day after the end of their accounting period). The transition to the new system will be completed in 2002.
2. More favourable rates of interest apply to underpayments and overpayments of corporation tax within the instalments period. These are currently two percentage points above the base rate for underpayments and one quarter of a percentage point below the base rate for overpayments. The rates are set by the Taxes (Interest Rate) (Amendment No. 2) Regulations (SI 1998 No. 3176).
3. The rates applying after the normal due date (nine months and one day after the end of a company’s accounting period) are two and a half percentage points above the base rate for underpayments and one percentage point below the base rate for overpayments.
4. Companies whose annual liability is £5,000 or less do not have to pay tax by instalments. The limit is set by the Corporation Tax (Instalment Payments) Regulations (SI 1998 No. 3175)
5. The reduction in the interest rate aims to help companies pay the correct level of instalments and will have no Exchequer cost. The increase in the de minimis limit will have a one-off Exchequer cost of £5m in 2000-2001.
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