HM Revenue and Customs

3. Mr E complains about HMRC’s decision to include his company in the Quarterly Payer Regime for corporation tax contributions.

4. Mr E says the impact of this in terms of his company’s tax obligations is that HMRC will expect a company making a large gain late in the financial year to have already paid some tax related to that gain under the Quarterly Payment Regime. As the tax will not have been paid, due to the large gain not being made until later in the year, HMRC will demand interest on the late payment.

5. He explains HMRC has levied interest on the tax under the Quarterly Payer Regime to the sum of £85,607.32 on his investment company.

6. Mr E would like the interest to be cancelled, and for HMRC to create a policy which considers the needs of companies like his, which make large but infrequent gains.

7. Mr E has a family investment company. In its year ending July 2022, it made a large and unexpected profit. HMRC told Mr E this meant his company was considered to be ‘large’ for the purpose of Corporation Tax and so he was required to be paying in instalments. Some of the due dates for these instalments pre-dated the profit. He explains his company realises large gains but very infrequently, meaning he will make a small number of sales, but the profits from these sales may be large. He says the timings of these gains are difficult to predict in advance.

8. Because Mr E did not know this situation was going to occur, he did not know he should have been making payments on a quarterly basis beforehand. HMRC has claimed interest on the unpaid instalments.

9. Mr E complained to HMRC about this. It maintained that his company is required to pay in instalments and so any interest claimed is due.

10. The Adjudicator’s Office (AO) – the second-tier organisation that considers complaints about HMRC – declined to look at the matter further. It explained that this was because Mr E’s complaint was about the application or interpretation of legislation which fell outside of its remit.

13. When we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the organisation has got something wrong. We do this by comparing what should have happened with what did happen. We have done this and have not found any indications that something has gone wrong.

14. Section 2520 of CTM90000 (CTM92520) explains that where a company’s ‘profits for the accounting period in question are at an annual rate of more than £1.5 million but less than £20 million’ they will be considered to be a large company. HMRC and Mr E both agree Mr E’s company falls into this category for the period in question.

15. The Tax Manual also explains that if a company is considered ‘large’, it must pay its Corporation Tax liabilities in instalments. There are some exceptions to this which Mr E has confirmed his company does not meet the criteria for. These are therefore not relevant to this case.

16. HMRC’s Tax Manual reflects the law that underpins this information. The Corporation Tax (Instalment Payments) Regulations set out that instalments must be made on this basis. It goes on to say that ‘the first instalment payment shall be treated as becoming due and payable on the date which is six months and thirteen days from the start of the accounting period’. This can arise before the accounting period ends and the profit declared.

17. Section 87A of the Taxes Management Act explains that interest will be applied to any unpaid tax liability. Section 7 of The Corporation Tax (Instalment Payments) Regulations notes that this also applies to unpaid amounts of a large company’s total liability. This includes instalment payments which become due.

18. Mr E complains that this means tax, and interest on this tax, can become due on profits before they are realised. He also says that this system is not appropriate for companies like his own, where gains from investments are unpredictable and irregular.

19. We acknowledge his concerns and can see how unfair it must seem to Mr E to be told he should have been doing something before he knew he needed to. HMRC has acted as the law requires it to and there is no provision within the law for it to act otherwise. HMRC has not chosen to penalise Mr E, or any other company working in a similar manner, when it could have opted not to do so. It has claimed the interest on instalment payments which were not paid because the law compels it to.

20. HMRC has explained this to Mr E in its correspondence with him. It has advised that investment companies are included within the scope of the large company/instalment payment category. It has said it expects companies to decide for themselves if they need to make quarterly payments.

21. We accept the difficulty Mr E has told us this poses. We understand that, by its nature, an investment company may find it problematic to do this. While this must be frustrating, we find HMRC’s decision is in line with legislation. Therefore, there are no indications of maladministration, and we will not consider the complaint further. We wish Mr E all the best for the future.

1. We have carefully considered Mr E’s complaint about HM Revenue and Customs (HMRC). We are sorry to hear about the stress and worry he has experienced.

2. We have not seen any indication that HMRC was wrong to tell Mr E he had to make quarterly payments or to claim interest on any unpaid payments of this nature. Although this may have been claimed for a period before Mr E knew he would need to make such payments, HMRC has acted as the law tells it that it must. Therefore, we will not consider it further.