As you may be aware, from April 2023, the main rate of Corporation Tax (CT) will rise from 19% to 25%. This, paired with ever-increasing interest rates, could have a big impact on cash flow.
The Bank of England base rate has been rising for some time and currently stands at 3.5%. This in turn leads to HMRC increasing interest charged on the late payment of tax.
For a business that doesn’t pay within one of the large company instalment regimes, tax owed is due 9 months and 1 day after the year end. If tax is paid late, interest will be charged at base rate plus 2.5% per annum on the outstanding balance. The current late payment interest rate is 6%, a rise of 3.25% since January 2022
It’s also worth mentioning that the repayment interest receivable on amounts overpaid has also increased. This is currently set at base rate less 1%. For a large company that falls into the instalment regime, the rate of interest on under paid instalments of CT is set at base rate plus 1%. The current instalment debit interest rate is, therefore, 4.5%, a rise of 3% since February 2022.
Credit interest received on overpaid quarterly instalments or early payments of CT has increased to base rate less 0.25%, currently standing at 3.25%. If you are business owner who pays CT via the large scheme (annual taxable profits between £1.5 million and £20 million) or the very large scheme (annual taxable profits over £20 million), and you therefore pay tax in quarterly instalments, the rising interest rates, which we expect to rise further to control inflation in the coming months, could significantly increase the cost of your payments.
Following the tax rate change in April 2023, large companies making instalment payments based on their expected tax liability for straddle periods should consider increasing their payments if they wish to avoid interest charges.
For further information on the upcoming CT rate increases, read our recent blog by clicking here.
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If you would like further advice based on your specific circumstances, please contact corporate tax assistant manager, Andy Kirkaldy, by clicking the button below.