Overview of Group Payment Arrangement

Group payment arrangement means joint payments of corporation tax done by group of companies to save their money. Group payment arrangements are considered suitable for group of companies but only certain groups will qualify for group payment arrangements. To apply, Group of companies should sign a complete legal agreement and their payments must also meet the certain conditions. With the help of group payment arrangements, group of companies save their money and reduce their work of making a large number of individual payments. It also helps in reducing the overall interest charges that group of companies needs to pay.

To whom a Group Payment Arrangement applies to?

Group payment arrangement applies to the following –
  • Group of companies that are eligible to enter a group payment arrangement are a parent company with its 51% subsidiaries.
  • 51% subsidiaries of those subsidiaries are also eligible to be included in the group.
HMRC may use different definition for a group for the purpose of group payment arrangements in relation to other aspects of corporation tax or other tax areas or by other govt. departments & agencies.

How Group Payment Arrangement works?

A group payment arrangement is an optional contract between group of companies and HMRC if your company is a member of the group and meets the required conditions. There is no need to include all eligible companies in a group payment arrangement but you can use more than one arrangement to cover different set of companies within the group. Only one company can be included in one group payment arrangement for an accounting period.

How long it lasts for?

In case you set up a group payment arrangement with HMRC, it lasts forever unless you tell HMRC to discontinue it. However, in case of payment problem, HMRC discontinues the same.

Who makes the payment in Group Payment Arrangements?

One member is nominated from the group of companies in the arrangement to make the payment on behalf of all the companies. It is called as nominated company. The nominated member is only responsible for making the payments. The corporation tax liability – how much amount is due and when we have to pay is still the responsibility of every individual company covered in the arrangement.

Conditions to get registered for Group Payment Arrangement

You have to fulfill the following conditions mentioned below to get registered for group payment arrangement –
  • The first and the foremost condition is that a nominated company should be a resident in UK but this condition doesn’t apply to other companies in the group. You can include UK subsidiaries of overseas companies and non-resident UK branches in the arrangement. Companies can also qualify in case their 51% connection to the rest of the group is through parent company overseas.
  • The filing and payment obligations of the companies must be up to date.
  • 51% Subsidiary relationship must exist between the members of the group at the time of signing the group payment arrangement document. If found later that it was not the case for any of the participating companies, those companies will be removed from the arrangement.
  • The nominated company wants every participant company to make their accounts ready on the same date so that it should be easily submitted to HMRC.
  • The companies that are active only for corporation tax purposes should be included in a group payment arrangement.
You must tell HMRC if –
  • A company leaves the group. If you will not tell HMRC about the company leaving the group, the company will still remain the part of a grouppayment arrangement until it is found and removed by HMRC which may leads you responsible for the tax liability even after leaving of the company from the group.
  • A company leaves a group but payment is already done to the arrangement on its behalf. You must tell HMRC once to do payments correctly and accordingly.

Advantages of Group Payment Arrangement

There are two main advantages of group payment arrangement and they are as follows –
  • Simplified Administration – The first advantage of a group payment arrangement is that it simplifies the administration. With the help of group payment arrangement, you only need to make one payment of corporation tax to HMRC. It doesn’t matter that how many companies are in the group. You can do single payments for N number of companies by using the special payment reference provided by HMRC which is different from the reference normally used by the individual companies.
  • Reduced Interest Charge – We normally pay corporation tax by installments. At least 4 payments are needed from the companies for each accounting period. Therefore, every company prepares its corporation tax by estimating its profits and the payment done may sometime get underpaid or overpaid to HMRC for which HMRC charges interest.
In case of group payment arrangement, the group submits the corporation tax to HMRC after knowing the tax liabilities of all the member companies. With the help of group payment arrangement, the group can allocate its payments in a way that benefits them at a large scale. Interest rate charged by HMRC on underpayment of corporation tax is higher than the interest charged on over payment. It leads to net saving of interest for the group.

How to apply for Group Payment Arrangement

In order to apply for a group payment arrangement, make sure that all the conditions specified in this section of the guide for group payment arrangements are met or will be met. Group payment arrangement document is a written legal contract between you and HMRC which needs to be completed and signed by the company director nominated to make the payments on behalf of the group. It must be sent at least one month before the first payment is due for the accounting period i.e. 6 months 13 days after the start of the corporation tax accounting period. Complete the group payment arrangement document and send it to the group payment arrangement team.
When completing your agreement, you should not fill in the date on page 1. This will be completed by HMRC.

Pay Your Corporation Tax

There are different modes of payments by which you can pay your corporation tax. In the case of group payment arrangement, payments are made –
  • Electronically
  • By using the payment reference that HMRC issues to the groups specifically under group payment arrangement.
You have to tell HMRC that which payment method you will use at the time of applying for a group payment arrangement. Some methods of payment you can use are as follows –
  • BACS
  • Direct credit
  • CHAPS or Bank GIRO.
Repayment of overpaid Corporation Tax In case of over payment of corporation tax under the group payment arrangement, HMRC will pay you by electronic transfer to your bank account. If you overpaid the corporation tax and the payment is due from HMRC, the nominated company should write to HMRC on the company letter head and tell them –
  • Why you think a repayment is due from HMRC
  • Bank account details including your bank account name, bank account number and the sort code in which your repayment is paid.
  • Which group’s payments used by HMRC to make the repayment.
Estimating What to Pay Each group has to done a single payment to HMRC under group payment arrangement. There is no need to do individual payments on behalf of each member company or nor you have to provide any breakdown to HMRC to tell contribution from each member.
Reporting a change in contact details
Each group has to done a single payment to HMRC under group payment arrangement. There is no need to do individual payments on behalf of each member company or nor you have to provide any breakdown to HMRC to tell contribution from each member.
End of a period covered by a Group Payment Arrangement
A group payment arrangement closes for an accounting period later between the following two –
  • The filing deadline date for company tax returns.
  • The date when all companies in a group payment arrangement have either filed their company tax return or corporation tax payable.
Notice of Closure
At the time of group payment arrangement closure, HMRC issues a closure notice to the nominated company containing the details about the payments made and the corporation tax due for each participating company. Form CT630 notice will ask the nominated company –
  • About payment of any outstanding tax due
  • How he wants to receive the net over payment of corporation tax from the HMRC.
Nominated company needs to answer this notice within 30 days unless apportionment notice will be issued to the group of companies by HMRC in the form of CT631 showing how they will intend to allocate the payments for you as well as details about the interest paid by HMRC or any interest due and remaining to be paid to HMRC from your side.