How does group payment arrangement work for corporation tax?

Here is a comprehensive explanation of how group payment arrangements (GPAs) work for corporation tax:

HMRC Guidance / Practice

Legal Basis

The GPA regime is founded on TMA70/S59F, which allows HMRC to make group payment arrangements with groups of companies. Joining is entirely optional — each group must decide whether it is right for them. Companies that join enter into a contract (the arrangement document) with the Commissioners for HMRC, the terms of which cannot be negotiated.

Purpose and Key Benefits

GPAs help groups manage the payment of corporation tax by allowing them to:

• Pay the right amount of CT at the right time as a group rather than individually;
• Forecast CT for all participating companies as a whole, rather than company by company;
• Mitigate the differential interest rate effect on over- and underpaid tax.

A GPA is more flexible than a repayment surrender under CTA2010/S963 for neutralising the credit/debit interest rate differential.

Structure: Nominated Company and Participating Companies

• The nominated company is the company chosen by the group to make payments on behalf of all others.
• The other companies in the arrangement are participating companies.
• A GPA transfers the responsibility for making payments to the nominated company — but does not transfer the actual tax liability of the participating companies.
• Each company remains liable for its own CT, but the nominated company also becomes liable to discharge the CT liabilities of all participating companies.

Eligibility and Group Definition

The group definition for GPA purposes is broader than for group relief — it covers a parent company and its 51% subsidiaries (and their 51% subsidiaries, and so on). Key eligibility criteria include:

• At least one participating company must be expected to be a quarterly instalment payer for the period covered;
• The nominated company must be UK resident (though other participating companies need not be);
• UK subsidiaries of overseas companies and UK branches of non-resident companies can participate;
• Not all group members need be included — a group may set up more than one arrangement for different sub-sets.

Conditions for HMRC to Enter the Arrangement

HMRC will enter a GPA at its discretion but may decline if:

• The completed and signed arrangement document is not received at least one month before the first instalment payment is due;
• The same company is entered into more than one GPA for the same accounting period;
• Not all participating companies have a relevant accounting period ending on the same date as the nominated company;
• Not all participating companies are up to date with filing and payment obligations;
• The required 51% group relationship does not exist at the time of signing.

How Payments Work

Under the arrangement, the nominated company:

• Makes quarterly instalment payments based on the most recent profits forecast for all large companies in the arrangement;
• Adjusts payments if the forecast changes;
• Makes top-up payments where appropriate;
• Pays the amount due on the normal due date for all participating companies (including non-large companies' full liabilities).

Payments must be made by BACS, CHAPS or bank giro credit.

A company that is not liable to pay by instalments does not become liable to do so simply by joining a GPA.

Closure and Apportionment

After the closing date for each group payment period, the group payment team calculates what is due from the nominated company and issues a notice of closure. The notice invites the nominated company to:

• Pay any outstanding balance or indicate how to dispose of any net overpayment;
• Specify within 30 days how payments are to be apportioned between participating companies.

HMRC can override the nominated company's allocation if, for example, an underpaid company is insolvent and payment cannot be secured — reallocating the underpayment to a solvent participating company.

Once the GPA is closed, adjustments to individual companies' liabilities (e.g. from enquiries, interest, or penalties) become the responsibility of the individual company, not the nominated company.

Repayment Claims

Companies in a GPA claim repayments via the Group Payment Team under Clause 4 of the arrangement contract. Once a GPA has been closed for an accounting period, claims should be made to Technical caseworkers under REG6 (for large companies paying by instalments).

Removal of Companies

A participating company may leave by agreement between the nominated company and HMRC. Removal takes effect for accounting periods where the first instalment date falls after the date of removal. Removal does not affect the arrangement or the obligations of the remaining parties.

CT Return Obligation

Companies whose tax is paid through a GPA must indicate this by putting an X in box 635 (version 3) or box 96 (version 2) of the CT600 Company Tax Return.