Quarterly tax instalment payments and the super deduction

Companies in the quarterly payments regime should very shortly be assessing their next corporation tax payments on account.

Companies with accounting periods ended 31 December 2021 will be making their first payment on 14 July and companies in the very large payments regime with a 31 March 2022 year end will be planning to make their first payment on 14 June.

While helping our clients calculate their quarterly instalment payments, it is becoming very apparent that the availability of the super deduction announced by the Chancellor in the budget in March of this year is playing a very significant role in how much that payment needs to be or even if there is a payment needed at all.

We first commented on this a couple of months ago, but to recap:

  • It is a temporary first year allowance in place from 1 April 2021 to 31 March 2023
  • Grants an allowance rate of 130%
  • Applies to new or unused assets contracted to be purchased after 31 March 2021

This is in addition to the Annual Investment allowance that is £1m per annum until 31 December 2021 and, the 50% deduction special rate pool assets also provided as a temporary measure until 31 March 2023.

To illustrate the impact, consider this example of a company with a 31 December 2021 year end which is budgeted to earn £5m of taxable profits before capital allowances for that year. It has budgeted to contract and buy £4m of new plant in the period 1 April 2021 to 31 December 2021. The company has no brought forward pools of expenditure for capital allowances. The impact of the super deduction is illustrated in the table.

Super Deduction
£’000
No Super Deduction
£’000
Taxable profit before capital allowances5,0005,000
Super deduction(5,200)
Annual investment allowance(1,000)
Capital allowances(540)
Taxable profit / (loss)(200)3,460
Tax at 19%£,000
£-
£’000
657
First quarter payment£’000
£-
£’000
164


Practically companies that may be in this position will need a clear picture of their contracted capital spending between 1 April 2021 and the end of their accounting period as well as their forecast profits to accurately forecast the payments they may need to make. This may require a more detailed analysis of when assets have been contracted to be bought and what those assets represent than has previously been the case.

The super deduction may well have a material impact on your next payment of corporation tax but to accurately assess how much you may need to do some work on identifying the assets that qualify and when they are bought now.

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