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Quarterly Instalments on large Company

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Hi,

I am a bit confused regarding the rules on large company and corporation tax quarterly instalments.

I learnt from the textbook that the large company profit threshold is £1,500,000 for a single company. And the company is required to pay corporation tax in quarterly instalments if:

1) It was a large company the precedent 12 months;

2) The profit is more than £10,000,000 in the current accounting year;

But I also came across this question in summary:

Company A is a large company in both years (y/e 31 Mar 2020, y/e 31 Mar 2021) but was not a large company for any previous year. Company A needs not to pay quarterly instalments for y/e 31 Mar 2020, but needs to pay quarterly instalments for y/e 31 Mar 2021.

I don't understand. On one hand, the current year's profit threshold needs to exceed £10,000,000 to pay quarterly, and yet in the example above, a second year to qualify for large company also needs to pay quarterly instalments.

So which one should I follow? Or do I follow both?

Thank you.

Replies (4)

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Psycho
By Wilson Philips
04th Jul 2020 17:57

You follow the £1.5m rule (instalments payable only for the second year) unless profits for the current year > £10m. Example:

Yr 1 £2m
Yr2 £3m

Instalments due for year 2 (£1.5m rule)

Yr 1 £11m
Yr 2 £8m

Instalments due for both years (£10m rule applies Yr 1, £1.5m rule applies Yr 2)

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Replying to Wilson Philips:
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By lukayl
05th Jul 2020 11:27

Thank you. Now I am clear.

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By whitevanman
05th Jul 2020 10:48

As usual, I am a little late and I apologise if what follows adds nothing to your understanding!
The onus is on a company to decide whether it needs to pay by instalments (and to do so).
This could be difficult for growing companies. So the 2 year rule was included with the £10m as a long-stop. For example:

Yr 1 profit £1m
Yr 2 £2m
Yr 3 £1m
Yr 4 £2m
Yr 5 £1m
Yr 6 £10m
No instalments Yr 1 as below limit and not large in PY.
No instalments in yr 2 as not large PY.
Yr 3, no inst as below £1.5m.
Yr 4, no inst as not large PY.
Yr 5, no inst as below £1.5m
Yr 6, although not large in PY, instalments required as profit £10m.

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Replying to whitevanman:
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By lukayl
05th Jul 2020 11:29

Thank you. I learned the rationale behind the rule now.

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