Many companies owing corporation tax will not pay

Despite October being one of the biggest months for the collection of Corporation tax, many companies may simply skip their Corporation tax liability and not pay, say leading tax and advisory from Blick Rothenberg.

Genevieve Morris, head of corporate tax at the firm said: “Even businesses which made healthy profits in 2019 may now be struggling with cash flow, and where they are predicting losses for 2020, which can be carried back and set against profits of 2019, it is expected they will simply skip paying their 2019 corporation tax liability, and accept a small interest charge from HMRC, rather than part with the cash now and look to recover it later.”

She added: “Corporation tax receipts have already fallen sharply this year and are down £10.4bn in the period April to August compared to the same period last year. An element of this will be due to timing changes on when very large businesses pay their corporation tax liabilities, but the more significant element is going to be the impact of Covid-19 on business profits, including where businesses have agreed additional time to pay their liabilities with HMRC.”

Genevieve said: “ October is a huge corporation tax collection month – one of the biggest of the year. Companies with December year ends, the most commonly selected company year-end date, were due to pay their corporation tax on 1 October, In addition, large companies within the corporation tax instalment regime, who have an accounting year end date of March, June, September and December will also be due to pay one of their quarterly instalment estimate tax payments on 14 October. In October 2019 alone the Treasury collected over £10bn in corporation taxes, but it won’t be the same this year.”

She added: “ At the moment it’s all about cash and cash management, so not surprising that businesses are looking at ways to manage their cashflow, particularly as we head towards a bleak winter and further restrictions.

“ In addition, calculations of quarterly instalment payments which are paid in advance and based on estimated profits will be impacted. Businesses will forecast ahead to their year-end and base their estimated tax payments on that forecast, and where their business has been badly impacted by Covid-19, their tax payments will reflect this.”

Genevieve said: “ A large company with a December 2020 year-end date will be due to pay its second estimated tax payment for the year in October 2020. By this date they will have a fair indication of the full year results and will be able to accurately forecast their tax liabilities.”

She added: “Business owners will be cautious going into the last quarter of the year and won’t be overestimating their tax liabilities, but taking a cautious approach and accepting they may have a small amount of interest to pay if they have underestimated the payment due.”

Genevieve said : “It will be very interesting to review the tax statistics for October when they are released later this year, and see whether the predicted impact materialises, and just how far behind corporation tax receipts are for the same period in 2019”.