Choose Your Corporation Tax Payment Date Carefully

Sarah Bradford examines how the choice of your accounting date for corporation tax purposes affects the company’s cash flow.

Corporation tax is generally due for payment nine months and one day after the end of your accounting period. Consequently, if you prepare annual accounts to 31 December, your corporation tax must be paid no later than 1 October in the following year.

Therefore, it is possible to choose when you want to pay your corporation tax by choosing an accounting date nine months previously. If your business is seasonal this can be useful to ensure that your corporation tax falls due in a period when cash flow is buoyant rather than when things are tight.

Changing accounting date

A company’s accounting date is generally governed by the date on which the business was incorporated, as the accounting reference date (i.e. the date to which statutory accounts are prepared) is the last day of the month in which the company was incorporated.

For example, a company that was incorporated on 2 August will have an accounting reference date of 31 August. A company which prepares its accounts to 31 August will have a corporation tax due date of 1 June.

Where corporation tax payment date falls at a bad time, for example when business is slack or when the company has other heavy financial commitments around the same time, it may be beneficial to change the accounting reference date and the consequently the corporation tax due date.

Example 1: Change of accounting date

LMN Ltd has been in business for many years, preparing accounts to 31 October each year. Consequently, the company’s corporation tax is due by 1 August. Business is slow in the summer and cashflow is tight.

To ease cashflow, the company changes its accounting reference date to 31 March, so that its corporation tax is due by 1 January when cashflow is easier.

Long accounting periods

There may be times where the period covered by the statutory accounts is longer than 12 months, for example the first set of accounts of following a change of accounting dates.

Although statutory accounts can be prepared for a period of more than 12 months, for corporation tax purposes an accounting period cannot be more than 12 months. A period of accounts of more than 12 months must be split into two periods for corporation tax purposes and the company must file two company tax returns. The tax relating to each split period is generally due nine months and one day after the end of that period.

Example 2: Long period of account

OPQ Ltd has historically prepared its accounts to 31 March. However, a corporation tax payment date of 1 January is difficult from a cash flow perspective. The company changes its accounting reference date to 30 June to move its corporation tax payment date to 1 April.

As a result of the change of accounting reference date, it prepares statutory accounts for the 15 months from 1 April 2013 to 30 June 2014. For corporation tax purposes, this 15-month period is split into two shorter periods –12 months to 31 March 2014 and 3 months to 30 June 2014. The profit is apportioned to each period by reference to the number of days in each. Separate company tax returns must be filed for each period.

Consequently, for the changeover period, the corporation tax is payable in two instalments – by 1 January 2015 for the 12 months to 31 March 2014 and by 1 April 2015 for the three months to 30 June 2014. Thereafter the corporation tax period will align with periods for which the accounts are prepared and a single return will be filed.

As indicated, where accounts are prepared for a period of more than 12 months, two company tax returns are needed as a corporation tax accounting period cannot be more than 12 months. Thus it is not possible to delay payment of corporation tax by preparing accounts for a longer period.

Practical Tip :

To change your accounting reference date at Companies House, you need to file form 288.