Setting Up Group Payment Arrangements for Corporation Tax

If you run a group of companies, you can simplify your Corporation Tax administration by setting up a Group Payment Arrangement. This allows one nominated company to make combined tax payments on behalf of multiple group companies, which can reduce administrative burden and po...

Introduction

What is a Group Payment Arrangement?

A Group Payment Arrangement is an optional legal contract between your group and HMRC. Instead of each company in your group making separate Corporation Tax payments, one nominated company makes a single payment covering all participating companies.

The arrangement stays in place until either you ask to end it or HMRC cancels it due to payment problems.

Whilst the nominated company handles the payments, each individual company remains responsible for its own Corporation Tax liability, including how much is due and when it must be paid.

Who qualifies

Not all groups can use this arrangement. Your group must meet specific structural requirements:

Group structure: The arrangement is available to parent companies and their 51% subsidiaries (companies where the parent beneficially owns more than 50% of the ordinary share capital). You can also include 51% subsidiaries of those subsidiaries, and so on down the ownership chain.

This definition of a "group" differs from how HMRC defines groups for other Corporation Tax purposes or other taxes.

Which companies to include: You don't need to include every eligible company in your group. You can set up multiple arrangements covering different sets of companies. However, each company can only belong to one Group Payment Arrangement for any given accounting period.

Conditions you must meet before applying

Before setting up a Group Payment Arrangement, your group must satisfy several conditions:

Filing and payment obligations: All companies must be up to date with their Corporation Tax filing and payment obligations.

Nominated company residency: The nominated company (the one making payments on behalf of the group) must be UK resident. Other companies in the arrangement don't need to be UK resident—you can include UK subsidiaries of overseas companies and UK branches of non-resident companies. Companies qualify even when their 51% connection runs through an overseas parent.

51% relationship: The required 51% subsidiary relationship must exist when the Group Payment Arrangement document is signed. If HMRC later discovers this relationship didn't exist for any participating company at that time, those companies will be removed from the arrangement.

Accounting dates: All participating companies must prepare their accounts to the same date as the nominated company.

Active companies only: Only companies that are active for Corporation Tax purposes (such as trading companies) should be included.

Advantages of using a Group Payment Arrangement

Simplified administration

You only need to make one Corporation Tax payment regardless of how many companies participate in the arrangement. HMRC will issue a special payment reference specifically for the Group Payment Arrangement. You must use this reference—not the individual companies' normal payment references.

Potential interest savings

Many group companies must pay Corporation Tax by instalments (at least 4 payments per accounting period). Because these payments are based on profit estimates, they're rarely exactly correct, meaning interest charges often arise.

A Group Payment Arrangement lets you retrospectively allocate your payments across member companies' tax liabilities once the actual amounts are known. Because HMRC charges higher interest on underpayments than it pays on overpayments, you can allocate payments to minimise net interest charges across the group.

HMRC will calculate whether the payments allocated to each company result in interest payments to or from them once the actual figures for the accounting period are known.

How to apply

To set up a Group Payment Arrangement:

1. Complete the application document: Download and complete HMRC's Group Payment Arrangement application, which is a legally binding contract between your group and HMRC. Don't fill in the date on page 1—HMRC will complete this.

2. Get director's signature: The director of the nominated company must sign the document.

3. Submit at least one month before first payment: Send the signed agreement to HMRC's Group Payment Arrangements Team at least one month before the first payment is due. The first instalment payment is typically due 6 months and 13 days after the start of the Corporation Tax accounting period.

Making payments

Once your arrangement is approved, make all payments using the special payment reference HMRC provides. Each payment is a single amount covering the entire group.

You don't need to:

Make individual payments for each member company
Provide a breakdown showing each member's contribution
Tell HMRC how payments should be apportioned between members until after all tax liabilities are known

Claiming repayments

If your group has overpaid Corporation Tax, HMRC will make repayments by electronic transfer to your bank account. The nominated company should write on headed notepaper or submit an electronic request (including the company logo) explaining:

Why a repayment is due
The bank account name, account number and sort code for the repayment
Which group payments should be used to make the repayment

Managing the arrangement

Reporting companies leaving the group: You must tell HMRC when a company leaves the group (for example, if it's sold). Until you notify HMRC and the company is removed, it remains in the arrangement—and you could be responsible for its tax liability even though it has left the group.

Updating contact details: Report any changes to contact names, addresses or telephone numbers to the Group Payment Arrangements Team.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.