For those who are paying corporation tax quarterly in advance based on your expected profit, here’s some useful advice and actions to take:
Given the current situation, you might face cash flow pressures in the coming months and so you should look at revising your quarterly payments. The first two quarterly payments for an accounting period are based on your anticipated taxable profit for the year. When times are good, companies often pay the quarterly payment based on last year. But these are challenging times, so if your business is likely to be affected you should take a pessimistic view and revise your anticipated profit now.
It’s hoped that HMRC will take a sympathetic view if you underpay. Ordinarily, HMRC might charge a penalty if you deliberately fail to make a payment (or make a payment that’s too small). Generally, you will only pay 1.75% interest on the overdue tax though, and the interest is tax deductible. Most importantly, you’ll have the cashflow benefit to help you through the coming months.
Your third quarterly payment is due 14 days after the end of the accounting period. Although you’ll have a better idea of the impact Covid-19 has had, don’t forget to bring in provisions for slow moving stock, potential bad debts, possible redundancy costs etc.
The fourth quarterly payment is due 3 months and 14 days after the end of the accounting period. At this point your results will be clearer but again – err on the side of caution and make full provision for anything slow moving or doubtful.
If you have any queries or would like our help with this, then please do get in touch.