In the ever-evolving world of UK taxation, many businesses and entrepreneurs find themselves grappling with the question: “Can you pay UK Corporation Tax in instalments?” The reality is, it’s not always straightforward. The complexities of Corporation Tax can be overwhelming, especially when faced with large sums and tight deadlines. Fortunately, the UK tax system offers solutions, such as QIPs (Qualifying Instalment Payments) and the Time to Pay scheme, which can make the financial burden much more manageable.
If you’re a small business owner, a large corporation, or even a sole trader, understanding these options could be the key to maintaining financial stability. And yet, the intricacies of paying taxes over time often remain unclear to many.
For example, consider Person A, a mid-sized tech company based in Manchester. Their tax bill for the year is £50,000. Without the ability to pay in instalments, they might face serious cash flow issues. Luckily, they can opt for a QIP arrangement, spreading the burden over several months.
Or, take Person B, a growing start-up in London, whose Corporation Tax bill totals £100,000. They are struggling with late payments and could use the Time to Pay scheme, giving them up to 12 months to settle the amount.
But, how do these schemes work, and are they available to everyone? Keep reading to find out how QIPs and Time to Pay can help your business.
is Corporation Tax in the UK?
Corporation Tax is the tax that a company must pay on its profits. For the 2024/2025 tax year, the standard rate is 25%, though it varies depending on your company’s profit. For example, companies with profits above £250,000 are taxed at the full rate of 25%, while those with profits between £50,000 and £250,000 face a tapered rate.
Person C, a company with £200,000 in annual profits, would face a tax bill of £50,000 (£200,000 x 25%). This is where QIPs and Time to Pay schemes can help ease the financial strain.
What are QIPs (Qualifying Instalment Payments)?
QIPs are a method that allows companies to pay their Corporation Tax in instalments. This is not an automatic feature for every business, however. Only companies that meet certain criteria can use QIPs.
To qualify for QIPs, your company must:
- Have profits above £1.5 million – This is the threshold at which companies must pay their Corporation Tax in instalments.
- Be subject to Corporation Tax on profits from trading, investment, or a combination of the two.
For larger businesses, paying in instalments can significantly ease cash flow management, allowing them to distribute payments over time rather than facing a lump-sum tax bill. This system is particularly useful for companies in industries with fluctuating profits or seasonal peaks.
How do QIPs Work?
Let’s say your company qualifies for QIPs, how exactly do you pay in instalments? Here’s how it works:
- Quarterly Instalments – Companies will be required to make quarterly payments towards their Corporation Tax. These instalments must be paid before the end of each accounting period.
- Pre-Determined Amounts – The amount of each payment is usually determined based on estimated profits, which are then adjusted once the final tax return is filed.
For example, Person D, a retail business based in Birmingham, estimates annual profits of £5 million for the current year. As a large business, they qualify for QIPs and are required to make quarterly payments based on estimated profits. If the quarterly payment is £25,000, they will need to pay this every three months.
What is the Time to Pay Scheme?
The Time to Pay (TTP) scheme is another lifeline for businesses facing challenges with paying their Corporation Tax in one go. TTP allows companies to spread their Corporation Tax payments over a longer period, often up to 12 months, depending on the circumstances.
Unlike QIPs, the Time to Pay scheme is available to businesses that are facing genuine financial difficulties. It provides the flexibility to manage cash flow by breaking down large tax bills into smaller, more manageable payments.
For example, Person E, a small manufacturing business based in Cardiff, is struggling to pay a £30,000 tax bill due to unexpected operational costs. They apply for the Time to Pay scheme and are granted the option to pay off the amount over the next 10 months, paying £3,000 per month.
How to Apply for the Time to Pay Scheme?
- Assess Your Business Finances – Before applying, ensure that you can realistically meet the proposed payment plan. HMRC may ask for detailed information about your company’s financial situation.
- Contact HMRC – You can apply by calling HMRC or using their online services to request a payment extension. Be prepared to provide evidence of why your business is unable to pay the full tax bill in one go.
- Agree on a Payment Plan – If HMRC agrees to your request, they will set up a payment plan based on your circumstances, ensuring the payments are manageable.
Key Differences Between QIPs and Time to Pay
| Feature | QIPs | Time to Pay |
| Eligibility | Companies with profits over £1.5 million | Businesses facing financial difficulties |
| Payment Frequency | Quarterly | Monthly or agreed schedule |
| Repayment Terms | Pre-determined instalments based on profits | Custom payment plans based on business needs |
| Application Process | Automatic for qualifying companies | Application required by the business |
| Flexibility | Fixed instalments | More flexibility based on company finances |
Why is it Important to Pay Corporation Tax on Time?
Paying your Corporation Tax on time is crucial to avoid costly penalties and interest. Failure to pay on time can result in:
- Penalties: Late payments are charged penalties, typically a percentage of the tax due. This can be as much as 5% after 30 days and continues to rise if payments remain overdue.
- Interest: Interest will be charged on the amount you owe from the day after your payment was due until it is paid in full.
For instance, if Person F, a business in Edinburgh, fails to pay their £20,000 tax bill on time, they may face a penalty of £1,000 and interest charges, which could further strain their finances.
Can You Use Both QIPs and Time to Pay?
In some cases, a business might be eligible for both QIPs and the Time to Pay scheme. For example, a large company that qualifies for QIPs may also face temporary cash flow difficulties, in which case they could negotiate a Time to Pay arrangement for their quarterly instalments.
It’s essential to speak with a tax advisor to understand the best options for your business.
Conclusion
Paying UK Corporation Tax doesn’t have to be an overwhelming burden. With options like QIPs and the Time to Pay scheme, businesses across the UK have the flexibility to manage their tax obligations more effectively. Understanding these systems and knowing when and how to apply can be a game-changer for your business’s financial health.
Whether you’re a small business owner in London or a large corporation in Manchester, making sure you’re on top of your tax payments and utilising the available options can save you from unnecessary stress and penalties. So, if you’re wondering, “Can you pay UK Corporation Tax in installments?” the answer is a resounding yes – and it could be easier than you think.
