Paying Corporation Tax in Instalments

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We created this webpage for company owners who want clear guidance on Corporation Tax, including how it is calculated, when it is due, and how it should be paid. Our aim is to help you understand your obligations, avoid penalties, and manage your company tax position with confidence.

This is a question I am asked regularly usually when a company has had a strong year on paper but cash flow feels tight. Directors often assume that Corporation Tax must always be paid in one lump sum and panic when the payment date approaches. In reality the position is more nuanced and in some circumstances paying Corporation Tax in instalments is possible although it is not the default option for most small companies.

In this article I will explain clearly whether you can pay Corporation Tax in instalments in the UK how the rules work when HMRC will agree to it and what your options are if you cannot pay on time. I am writing this in the first person based on how I advise my own clients and everything here reflects current UK practice and guidance from HM Revenue and Customs and GOV.UK.

How Corporation Tax is normally paid

For most UK limited companies Corporation Tax is paid as a single payment.

The standard rule is that Corporation Tax is due:

• Nine months and one day after the end of the accounting period

For example if your company year end is 31 March the Corporation Tax is due by 1 January following that year end.

This payment is made in one lump sum unless special rules apply or HMRC agrees to an alternative arrangement.

Why directors assume instalments are allowed

Many directors assume instalments are normal because they are familiar with:

• Self Assessment payments on account

• VAT quarterly payments

• PAYE monthly payments

Corporation Tax works differently. It is assessed annually and paid after the accounting period has ended. That timing often creates a cash flow pinch especially in growing businesses.

When Corporation Tax must be paid in instalments

There is one situation where Corporation Tax is paid in instalments automatically and that is for large companies.

Large companies are required to pay Corporation Tax under the quarterly instalment payment regime often referred to as QIPs.

This applies where:

• Taxable profits exceed a specified threshold

• The company does not qualify as small or medium sized

Under this regime Corporation Tax is paid in instalments during the accounting period rather than after it ends.

For most owner managed businesses this regime does not apply.

Most small companies cannot choose instalments by default

This is an important point to be clear on.

If your company is small or medium sized you cannot simply elect to pay Corporation Tax in instalments as a matter of choice. The default position is still one payment by the normal due date.

However that does not mean you have no options if you cannot pay on time.

What happens if you cannot pay Corporation Tax on time

If a company cannot pay its Corporation Tax by the due date the worst thing to do is ignore the problem.

HMRC does not automatically allow instalments but it may agree to a Time to Pay arrangement if certain conditions are met.

This is where instalments become possible in practice.

What is a Time to Pay arrangement

A Time to Pay arrangement is an agreement with HMRC that allows a company to pay its tax liability over an agreed period rather than in one lump sum.

This is not automatic and it is not guaranteed.

HMRC will consider a Time to Pay arrangement where:

• The company cannot pay on time

• The difficulty is temporary

• The company can realistically pay over time

• The company engages with HMRC early

Time to Pay can apply to Corporation Tax as well as VAT PAYE and other taxes.

When HMRC is likely to agree to instalments

In my experience HMRC is more likely to agree to instalments where:

• The company has a good compliance history

• Returns have been filed on time

• The company is viable in the long term

• Cash flow issues are short term

• A realistic proposal is made

HMRC is far less sympathetic where:

• The company has ignored previous correspondence

• Tax returns are outstanding

• The problem has been ongoing for a long time

• The proposal is vague or unrealistic

How long can a Time to Pay arrangement last

There is no fixed length but for Corporation Tax HMRC often expects arrangements to be relatively short term.

Common Time to Pay periods include:

• Three to six months

• Occasionally up to twelve months in more serious cases

Longer arrangements are possible but they require strong justification and detailed financial information.

Interest on instalment arrangements

It is important to understand that paying Corporation Tax in instalments through a Time to Pay arrangement does not stop interest.

HMRC will charge interest on the outstanding balance until it is fully paid.

This means:

• Instalments reduce pressure on cash flow

• But they increase the overall cost slightly

Penalties may still apply if payment is late but HMRC will often suspend enforcement action while an agreed arrangement is in place.

How to apply for a Time to Pay arrangement

Time to Pay arrangements can be requested in a few ways depending on the amount owed and the circumstances.

This usually involves:

• Contacting HMRC before or shortly after the due date

• Explaining why payment cannot be made on time

• Providing cash flow information

• Proposing a repayment schedule

In many cases applications can be made online but more complex situations require direct contact.

What information HMRC will ask for

HMRC will usually want to understand whether the company can afford to pay.

This may include:

• Current cash position

• Forecast cash flow

• Details of other debts

• Planned future income

• Director drawings and dividends

HMRC may challenge proposals that involve paying dividends or large director salaries while asking for time to pay tax.

Can you partially pay Corporation Tax and instalments for the rest

Yes and this is often a sensible approach.

If the company can pay part of the Corporation Tax on time and needs instalments for the remainder HMRC is often more receptive.

This shows:

• Willingness to engage

• That the company is making an effort

• That the problem is about timing not avoidance

Partial payment reduces interest and can strengthen a Time to Pay request.

What happens if you miss a Time to Pay instalment

Once a Time to Pay arrangement is agreed it must be followed precisely.

If instalments are missed:

• The agreement may be cancelled

• Enforcement action may resume

• Additional penalties may apply

This is why instalment amounts must be realistic not optimistic.

Can Corporation Tax be paid monthly voluntarily

Some directors ask whether they can simply pay monthly into HMRC in advance.

HMRC does not currently offer a formal monthly payment scheme for Corporation Tax in the way it does for PAYE.

However some companies choose to:

• Set aside money monthly in a separate savings account

• Treat Corporation Tax as a monthly cost internally

This does not change the legal payment deadline but it can make the eventual payment much easier.

Using budgeting to avoid instalment issues

In practice the best way to avoid needing instalments is forward planning.

I often encourage clients to:

• Estimate Corporation Tax during the year

• Set aside a percentage of profits monthly

• Avoid using tax money for working capital

• Review profit forecasts regularly

This approach avoids last minute stress and reduces reliance on HMRC discretion.

Paying Corporation Tax late without an agreement

If Corporation Tax is paid late without a Time to Pay arrangement:

• Interest is charged automatically

• Penalties may apply

• HMRC may issue payment demands

• Debt collection action can follow

Repeated late payment can also increase HMRC scrutiny across other taxes.

Corporation Tax instalments and insolvency risk

If a company genuinely cannot pay its Corporation Tax even with instalments this may be a warning sign.

Directors need to consider:

• Whether the company is solvent

• Whether debts can be paid as they fall due

• Director duties once insolvency is likely

Continuing to trade without addressing tax debts can create personal risk for directors.

Corporation Tax versus VAT and PAYE instalments

It is worth understanding that HMRC tends to be stricter with certain taxes.

PAYE and VAT represent money collected on behalf of HMRC. Corporation Tax is the company’s own liability.

As a result:

• HMRC may be more flexible with Corporation Tax than PAYE

• But repeated arrears across multiple taxes reduce goodwill quickly

A joined up approach is essential.

Common mistakes I see around Corporation Tax payments

There are a few recurring issues.

These include:

• Assuming instalments are automatically allowed

• Waiting until after the due date to contact HMRC

• Paying dividends instead of tax

• Making unrealistic Time to Pay proposals

• Ignoring interest costs

Most of these are avoidable with early action.

How an accountant helps with Corporation Tax payment planning

This is an area where professional advice can make a real difference.

As an accountant I help clients by:

• Forecasting Corporation Tax liabilities early

• Advising on cash flow planning

• Liaising with HMRC where needed

• Structuring Time to Pay requests

• Ensuring director decisions remain compliant

Often the goal is to avoid instalments altogether through planning but when instalments are needed good communication is key.

Can HMRC refuse instalments

Yes HMRC can and does refuse Time to Pay arrangements where it believes:

• The company can afford to pay

• The company is not viable

• The proposal is unreasonable

• The company has a poor compliance history

This is why preparation and honesty are essential.

What to do if HMRC refuses a Time to Pay request

If HMRC refuses instalments directors should:

• Review whether payment can be made through other means

• Consider short term finance options

• Reassess dividends and drawings

• Take urgent professional advice

Ignoring the situation will only make it worse.

Final thoughts

So can you pay Corporation Tax in instalments. For most small and medium sized companies the answer is not by default but yes in practice if HMRC agrees to a Time to Pay arrangement. Instalments are a concession not a right and they are designed to help viable businesses through temporary cash flow difficulties.

In my experience the best outcomes come from early planning honest communication and realistic proposals. Treating Corporation Tax as a cost to be managed throughout the year rather than a surprise bill at the end is the most effective way to stay in control and avoid unnecessary stress.

You may also find our guidance on how to pay corporation tax and does an llp pay corporation tax useful when dealing with related Corporation Tax questions. For a broader overview of Corporation Tax rules and support, you can visit our corporation tax help hub.