Action was taken today to implement two elements in the package of measures designed to create a more competitive environment for business announced in the Budget.

Regulations have been laid before the House of Commons which will
reduce by 1% the rate of interest on underpayments of corporation tax under the quarterly instalment arrangements for large companies;
double the de minimis limit, below which large companies do not have to pay by instalments, from #5,000 to #10,000. As a result around 1,000 companies will be removed from the instalment arrangements.


1. The new interest rate regulations amend the formula for calculating the interest rate on underpayments of quarterly instalments, from two percentage points above the base rate to just one percentage point above the base rate. The reduced rate will apply from 20 April 2000 and the reduction will affect interest which is already running as well as interest on tax due after that date.

2. The Inland Revenue will continue to monitor the instalment payment arrangements closely. Further changes in the interest rate may be made if market conditions or changes in payment patterns indicate they are necessary.

3. The new de minimis limit will apply for accounting periods ending on or after 1 July 2000. It is estimated that around 1,000 companies will no longer have to pay by instalments as a result of this change.


1. The regulations which change the interest rate formula are The Taxes Interest Rate (Amendment) Regulations 2000 (SI 2000 No.893). They amend Regulation 3ZA of The Taxes (Interest Rate) Regulations 1989 (SI 1989 No.1297), which was inserted by The Taxes (Interest Rate) (Amendment No.2) Regulations 1998 (SI 1998 No.3176).

2. The formula for calculating the rate of interest charged on underpayments of quarterly instalments is linked to the base rate. The base rate for these purposes is the average of the base lending rates of six specified banks, rounded up to the nearest amount which is a multiple of one-quarter.

3. The rate of interest applying to underpayments continuing after the normal due date (nine months and one day after the end of a company’s accounting period) will continue to be two and a half percentage points above the base rate. The base rate for these purposes is the average of the base lending rates of six specified banks, rounded to the nearest whole number, with amounts midway between two whole numbers rounded down.

4. The regulations which increase the de minimis limit for the quarterly payment arrangements are The Corporation Tax (Instalment Payments) (Amendment) Regulations 2000 (SI 2000 No. 892). They amend Regulation 3 of The Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998 No.3175).

5. Only large companies (broadly, those with profits over 1.5m pounds) pay corporation tax by quarterly instalments. But there is also a de minimis limit which excludes companies with an annual liability of 5,000 pounds or less from paying by instalments. It is this limit which has been increased.

6. Copies of both of these amendment regulations will be available shortly from the Stationery Office. They will also be available on the Inland Revenue website, the address of which is given below.

7. The changes implemented by these regulations were announced on Budget Day in Budget Note REVBN2I.

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