What should UK businesses know about Corporation Tax payments on account in 2024/25?

Understanding “payments on account” for Corporation Tax in 2024/25

For many UK companies, Corporation Tax is something you think about after the year end: finalise the accounts, submit the return, pay what’s due, and move on. But for larger and faster-growing businesses, HMRC often requires Corporation Tax to be paid earlier and in instalments. These are commonly referred to as “payments on account” or “instalment payments,” and they can have a meaningful impact on cash flow, forecasting, budgeting, and even dividend planning.

The 2024/25 period is particularly important because the UK’s Corporation Tax landscape has changed in recent years, with a main rate, a small profits rate, and marginal relief affecting the effective tax rate for many companies. While the instalment regime is not new, the interaction between profit levels, group structures, accounting periods, and expected tax liabilities means that businesses can be caught out—especially where profits fluctuate, new revenue streams emerge, or a company crosses the thresholds that trigger instalments.

This article explains what UK businesses should know about Corporation Tax payments on account in 2024/25: which companies are affected, when instalments are due, how the thresholds work (including groups), how to estimate and adjust payments, and what practical steps to take to stay compliant and protect cash flow.

What are Corporation Tax payments on account?

“Payments on account” for Corporation Tax are advance payments made during an accounting period, rather than a single payment after the year end. HMRC uses a system of quarterly instalment payments for companies that are considered “large” or “very large” for Corporation Tax purposes. The idea is simple: if a business is generating significant taxable profits, the tax should be paid closer to the time those profits are earned.

Under the instalment system, companies make multiple payments across the year (and shortly after it), based on an estimate of the Corporation Tax liability for that accounting period. After the Corporation Tax return is filed and the final liability is known, the company either pays any balance due or receives (or offsets) an overpayment.

It’s important to note that this regime is not the same as the standard Corporation Tax due date for smaller companies. Many companies still pay Corporation Tax nine months and one day after the end of the accounting period. Payments on account shift that timeline forward.

Why 2024/25 matters: cash flow and rate complexity

In 2024/25, many businesses are operating in an environment of higher costs, tighter financing conditions, and increased focus on working capital. Instalment payments accelerate the outflow of cash to HMRC, and that can influence everything from payroll planning to capex decisions.

At the same time, Corporation Tax rates can create complexity. A company’s expected tax bill is not always a straightforward “profits multiplied by one rate.” If profits sit within ranges where marginal relief applies, the effective rate can vary. Add in group relief, losses brought forward, capital allowances, R&D claims, and other adjustments, and forecasting the instalments becomes more than a quick spreadsheet exercise.

The practical takeaway is that payments on account are as much a finance planning issue as a tax compliance issue. Businesses that treat instalments as a once-a-year tax calculation risk getting hit with avoidable interest charges, budgeting surprises, or rushed funding decisions.

Who has to pay Corporation Tax by instalments?

Quarterly instalment payments are generally required for companies whose taxable profits exceed certain thresholds. The thresholds depend on whether a company is “large” or “very large” under the Corporation Tax instalment rules.

Broadly:

Large companies pay Corporation Tax in four instalments, with the first payment due partway through the accounting period.

Very large companies also pay in four instalments, but the payments are brought forward even earlier, starting sooner into the period.

In both cases, the instalment rules apply based on taxable profits (not accounting profits), and thresholds can be affected by the length of the accounting period and whether the company is part of a group (including where there are associated companies).

The key thresholds and the importance of groups

The instalment regime uses profit thresholds to determine whether a company is “large” or “very large.” These thresholds are not fixed in all circumstances: they can be proportionately reduced if the accounting period is shorter than 12 months, and they are commonly divided by the number of associated companies (or broadly, the number of companies under common control) for the period.

This is where many businesses get caught out. A standalone company might appear to be below the instalment threshold, but if it sits within a group, the threshold can be shared or reduced, tipping one or more companies into the instalment regime. This is especially relevant for:

• Businesses with multiple trading subsidiaries

• Groups with separate companies for property, IP, or overseas operations

• Owner-managed businesses that have set up additional companies for different ventures

• Businesses that restructure during the year (for example, incorporating a new subsidiary)

Because group structures and control relationships can be complex, it’s important not to assume instalments don’t apply simply because one company’s profits are below a headline figure. Finance teams should review the group’s overall position and how the threshold is allocated.

When are instalment payments due for large companies?

For large companies, the standard pattern is four quarterly instalments. In a typical 12-month accounting period, payments are usually due as follows:

• 1st instalment: 6 months and 13 days after the start of the accounting period

• 2nd instalment: 9 months and 13 days after the start of the accounting period

• 3rd instalment: 12 months and 13 days after the start of the accounting period

• 4th instalment: 3 months and 14 days after the end of the accounting period

This schedule means that three payments are due during (or just after) the accounting period, with a final balancing-style instalment due shortly after the year end. It’s a very different timeline to the standard “nine months and one day after the year end” approach.

If your year end is 31 March 2025, for example, you would be looking at instalments that fall in October 2024, January 2025, April 2025, and July 2025 (exact due dates depend on the specific start date and how the days fall). Even if the company ultimately has losses or reliefs that reduce tax, those instalment dates can still apply if the company is within the regime.

When are instalment payments due for very large companies?

Very large companies have an accelerated instalment schedule. The first instalment is due earlier in the accounting period compared to large companies. In a typical 12-month accounting period, instalments are commonly due:

• 1st instalment: 2 months and 13 days after the start of the accounting period

• 2nd instalment: 5 months and 13 days after the start of the accounting period

• 3rd instalment: 8 months and 13 days after the start of the accounting period

• 4th instalment: 11 months and 13 days after the start of the accounting period

Notice what’s missing: for very large companies, the final instalment is due before the year end in many cases. That makes forecasting accuracy even more critical, because the business must pay most or all of its expected Corporation Tax during the year in which profits are earned.

What counts as “taxable profits” for instalment purposes?

The instalment thresholds and the instalment amounts are based on taxable profits, not accounting profits. That distinction matters because taxable profits are calculated after adjustments required by tax rules and after considering reliefs and allowances. Key differences can include:

• Depreciation is added back and replaced with capital allowances

• Disallowable expenses (such as certain entertaining costs) are added back

• Timing differences from revenue recognition and tax rules

• Loss relief (current year, carried forward, or group relief)

• Capital gains or losses and substantial shareholding exemption considerations

• R&D reliefs or credits, where applicable

Because instalments are paid before the final return is submitted, businesses often need a forecast of taxable profits rather than relying solely on management accounts profit figures.

How to calculate instalment amounts

There are different ways a business might approach instalment calculations, but the basic concept is to pay an appropriate share of the expected total Corporation Tax liability at each instalment date. Many companies aim to pay 25% of the estimated liability at each quarter for the large company regime. For very large companies, instalments are still four payments, but they are typically aligned to the accelerated schedule, again attempting to match the total expected liability by the end of the fourth instalment.

The challenge is that profits are not earned evenly across the year in many businesses. Seasonality, project delivery cycles, and one-off transactions can heavily skew results. Businesses should be cautious about blindly paying equal instalments if profits are expected to be significantly back-loaded or front-loaded. While HMRC expects reasonable estimates, the goal for finance teams is to strike a balance: pay enough to avoid interest on underpayments, but not so much that cash is unnecessarily locked up with HMRC.

Adjusting instalments when forecasts change

One of the most practical aspects of the instalment regime is that payments can be adjusted as the year progresses. If a company initially forecasts a certain level of taxable profits but later revises the forecast upward or downward, it can change the amount of later instalments.

Common situations that require adjustments include:

• A major contract wins or losses mid-year

• Unexpected cost increases or margin compression

• Asset disposals generating gains or losses

• Changes in financing costs or interest restrictions

• A decision to accelerate or delay capital expenditure impacting capital allowances

• A revised view on the availability or timing of loss relief

From a governance perspective, it’s helpful to tie instalment review into the regular forecasting cadence—monthly management accounts, quarterly reforecasts, or board reporting. That way, tax cash flow is treated as a living forecast rather than a year-end “tidy up.”

Interest and penalties: what’s at stake?

The primary financial consequence of getting instalments wrong is usually interest rather than penalties. HMRC charges interest on late paid instalments, and in some cases pays interest on overpayments (though businesses typically prefer not to overpay in the first place). The interest regime is designed to encourage accurate and timely payment.

Penalties can still arise in the broader Corporation Tax compliance process (for example, late filing of the return), but for instalments the key risk is that underpayment creates a cost and can signal weak financial control. For some businesses, repeated underpayment may also attract unwelcome scrutiny, especially if there is a pattern of optimistic assumptions that consistently result in shortfalls.

How accounting period length affects instalments

Not all accounting periods are 12 months. When a company changes its year end, starts trading, joins or leaves a group, or undergoes a reorganisation, it may have an accounting period shorter than a year (or occasionally longer, within limits). Instalment thresholds are typically adjusted proportionately for the length of the accounting period.

This can create surprising outcomes. A company might assume it is below the large company threshold based on annualised profits, but a short period can reduce the threshold and bring the company into instalments. Conversely, a short period can also compress the instalment timetable, creating due dates very close together.

Finance teams should pay close attention to period changes and ensure tax calendars are updated. It’s common for instalment due dates to be missed not because a business can’t pay, but because the dates were not clearly communicated or were incorrectly assumed to align with the standard payment date.

Groups, associated companies, and how instalments are allocated

Group structures add an additional layer of complexity because the thresholds can be divided among associated companies. In practical terms, HMRC is trying to prevent a large business from splitting into multiple companies to stay below the instalment threshold. The result is that a group needs to consider not just the profits of each company, but how many associated companies exist in the period and what portion of the threshold each company effectively has available.

This raises important planning points for 2024/25:

• If the group forms a new company mid-year, it may reduce thresholds for the period

• If ownership changes result in common control, companies may become associated unexpectedly

• Joint ventures and minority shareholdings can still create association issues depending on control rights

• Dormant companies may still count in some analyses, depending on the facts and tax definitions

Even where only one company is highly profitable, the presence of several smaller companies can push the profitable company into instalments sooner than expected. For groups, it’s sensible to treat instalment analysis as part of year-end tax planning and also part of any corporate structuring exercise.

Interaction with loss relief and group relief

Losses can significantly affect Corporation Tax liabilities, but they can also make instalment forecasting tricky. Consider a group where one company is profitable and another makes losses. Group relief may allow losses to be surrendered, reducing taxable profits in the paying company. But the timing, availability, and amount of loss relief can be uncertain during the year, especially where forecasts are volatile.

In 2024/25, businesses should ensure they understand:

• Whether losses are expected and in which entities they arise

• The group relief position and any restrictions

• How carried-forward losses may be used and whether any limitations apply

• Whether there are changes in ownership that could restrict loss utilisation

Where loss relief is expected to reduce tax materially, it may be tempting to reduce instalments aggressively. The better approach is usually to document assumptions and maintain a margin of safety, particularly if losses are forecast but not guaranteed.

Capital allowances and investment planning

Capital expenditure can reduce taxable profits through capital allowances. For businesses making significant investment decisions in 2024/25—machinery, equipment, IT infrastructure, fit-outs, vehicles, or certain building-related expenditure—capital allowances can materially affect the expected Corporation Tax liability.

That means investment planning should be integrated into instalment forecasting. If a company expects to claim substantial allowances, instalments can be adjusted accordingly. But if investment is delayed, cancelled, or shifted into a later period, the tax liability may rise, requiring larger later instalments to avoid interest.

From a practical perspective, finance teams should keep a live capex pipeline and align it with tax forecasting. When there’s uncertainty, scenario analysis can help: “If we spend X by March, tax is Y; if we spend it in June, tax is Z.”

What about companies that are close to the threshold?

A common real-world scenario is the business that sits close to the large company threshold and moves above it in a good year. The first year a company enters instalments can be a shock because the business may still be used to paying Corporation Tax well after the year end.

If your forecasts suggest you might cross the threshold in 2024/25, it’s worth planning early:

• Build instalment due dates into the cash flow model even if you’re not certain

• Discuss financing headroom with lenders ahead of time

• Ensure internal stakeholders understand that tax cash outflows may move forward

• Consider whether group structure changes could inadvertently trigger instalments

• Engage tax advisers early if there are complex reliefs or transactions

Even if it turns out instalments do not apply, the discipline of modelling earlier tax payments often improves cash visibility and reduces year-end surprises.

How to manage the process internally

Payments on account work best when they are treated as a recurring finance process rather than a technical tax task. Businesses that manage instalments smoothly typically have clear ownership and a documented timetable.

Practical steps include:

1) Create a tax payment calendar. Include instalment due dates, expected amounts, and internal deadlines for forecast updates and approvals.

2) Align tax forecasts to management reporting. If the board receives a quarterly reforecast, build a tax forecast update into that same cycle.

3) Maintain a bridge from accounting profit to taxable profit. This should cover the major recurring adjustments and be updated as the year progresses.

4) Document assumptions. Especially where instalments rely on uncertain items like group relief, capital allowances timing, or one-off transactions.

5) Build contingency. Consider a buffer where forecasts are volatile, to reduce interest risk.

6) Ensure payment execution is robust. Late payments often happen because of bank approval chains, signatory issues, or missed cut-offs rather than tax miscalculation.

What happens after the year end?

After the accounting period ends, the company finalises its Corporation Tax computation and files the Company Tax Return. The final tax liability is confirmed at that stage. If instalments were underpaid, the company will pay the remaining balance. If instalments were overpaid, the company may be due a repayment or a credit that can be offset against other liabilities.

It’s important not to confuse the instalment timetable with the filing deadline. Even if all tax has been paid through instalments, the return still needs to be submitted on time. The instalment regime changes the payment timeline, not the obligation to prepare accurate computations and file the relevant documents.

Special considerations: one-off transactions and exceptional profits

In 2024/25, many businesses will face situations where taxable profits are materially affected by one-off events. These can include selling a business line, settling litigation, receiving insurance proceeds, restructuring debt, or disposing of significant assets. Such events can transform the expected Corporation Tax liability and create a mismatch between earlier instalments (based on normal trading) and the eventual bill.

Where a major transaction is in progress, the finance team should model the tax impact as early as possible and consider whether instalments need to be increased. The cost of underestimating can be interest, but the bigger issue is cash management: if a large balancing payment is needed shortly after year end, it can collide with other cash needs like bonuses, supplier settlements, or refinancing milestones.

Compliance hygiene: HMRC communication and record-keeping

Although many instalment payments are simply made electronically with reference numbers, businesses should still maintain clear records showing how each payment amount was determined. If HMRC queries the basis of instalment amounts, having a contemporaneous forecast, a taxable profit bridge, and a record of approvals can make the process far smoother.

It’s also wise to ensure that the correct payment references are used and that payments are allocated to the correct accounting period. Allocation errors can create confusion and, in some cases, generate erroneous reminders or statements. Strong reconciliations between bank payments, HMRC statements, and internal tax schedules are worth the effort.

How instalments influence dividends and distributions

Payments on account affect not only the tax line in the cash flow, but also decisions about dividends. For some companies, especially those with shareholder expectations around distributions, moving tax payments earlier can reduce available cash at key points in the year.

Boards should be mindful that distributable reserves and cash are not the same thing. Even where accounting reserves support a dividend, the company still needs sufficient cash after meeting obligations, including instalment payments. A prudent approach is to incorporate instalment forecasts into dividend planning, particularly where the business sits near the threshold and instalments could apply unexpectedly.

Common pitfalls to avoid in 2024/25

Several recurring issues tend to cause problems for businesses dealing with instalments. Being aware of them can prevent unnecessary cost and disruption:

Assuming the standard payment date applies. Once a company falls into instalments, the familiar “nine months and one day” date may no longer be the relevant deadline.

Forgetting the group impact. Associated companies can reduce thresholds and bring companies into instalments sooner than expected.

Using accounting profit as a proxy for taxable profit. Without a tax bridge, instalments can be materially wrong.

Not updating forecasts. Instalments can be adjusted. Failure to revise assumptions can lead to avoidable interest.

Overlooking short accounting periods. Period changes can compress due dates and reduce thresholds.

Weak payment controls. Missing a due date because of internal approval delays is an expensive and preventable mistake.

A practical action plan for UK businesses

If you want a clear, practical approach to managing Corporation Tax payments on account in 2024/25, consider the following plan:

Step 1: Determine whether instalments apply. Assess expected taxable profits, consider accounting period length, and evaluate group/associated company impacts.

Step 2: Map the due dates. Identify the four instalment dates that apply to your company’s circumstances and build them into your finance calendar.

Step 3: Build a forecasting model. Create a robust bridge from management accounts to taxable profits, including key reliefs and allowances.

Step 4: Establish review points. Update the forecast in line with your normal reforecast cycle and revise later instalments as needed.

Step 5: Strengthen execution and governance. Ensure payment approval processes are aligned to due dates and that responsibilities are clear.

Step 6: Post-year-end reconcile and learn. Compare instalments paid to final liability, understand variances, and improve next year’s forecasting.

Conclusion: treat instalments as a cash flow discipline, not just a tax rule

Corporation Tax payments on account can feel like a technical requirement that sits with the tax team or external advisers. In reality, for businesses affected by the quarterly instalment regime, it’s a core part of financial management. Instalments accelerate cash outflows, require better forecasting, and create a closer link between operational performance and tax payments.

In 2024/25, UK businesses should focus on three essentials: knowing whether the instalment regime applies (especially in groups), maintaining an accurate and regularly updated forecast of taxable profits, and building instalment due dates into cash planning and governance. Done well, instalments become routine—predictable payments aligned to a well-managed forecast—rather than a source of surprises and interest charges.

If your business is close to the thresholds, experiencing rapid growth, undergoing restructuring, or planning significant transactions, it’s worth taking a proactive approach. A modest investment in planning and modelling can prevent expensive mistakes and give leadership a clearer view of cash commitments throughout the year.