What is an IRC payment on account?

What is a payment on account?

A payment on account (pagamento por conta) is an advance of the current year's IRC. Instead of paying all the tax at once the following year, the company hands the State three instalments over the year, on account of the tax it will eventually assess. It is not an extra tax: it is the same IRC, paid earlier and in parts.

There is one important detail, though: when the instalments are paid (mid-year), the year's profit is not yet known. So the law works out the payment on account from the previous year's figures¹. You can estimate your instalments in our payment-on-account calculator.

When they are paid

There are three instalments, with these deadlines²:

The first two are mandatory. The third can be reduced or skipped if the company estimates the payments already made cover the year's final tax (an option the calculator does not model).

How it is calculated

The calculation has three steps:

1. Base. Start with the prior year's IRC (coleta) and subtract that year's withholdings at source:

   Base = prior year's IRC (coleta) − prior year's withholdings at source

2. Percentage. Apply a percentage to the base that depends on the prior year's turnover:

   Prior year's turnover	Percentage
   Up to €500,000	80 %
   Above €500,000	95 %

3. Split. The resulting total is divided into three equal instalments, each rounded up to the whole euro. So the total paid can be a few cents above the exact figure.

The point many people get wrong is step 2: it is turnover, not profit, that decides whether the percentage is 80 % or 95 %.

When there are no payments on account

There is an exemption when the base (the coleta minus withholdings of the reference year) is below €200². This is the case for many companies in their first year of activity or with low profit: there are simply no payments on account to make.

Worked example

A company with €1,000 of prior-year IRC, no withholdings at source and €200,000 of turnover:

• base = 1,000 − 0 = €1,000;
• turnover up to €500,000, so 80 % applies: 1,000 × 80 % = €800;
• split into three equal instalments rounded up: €267 each (in July, September and by 15 December), i.e. €801 in total.

A larger company, with €50,000 of IRC and €2 million of turnover, applies 95 %: 50,000 × 95 % = €47,500, about €15,834 per instalment.

Test your case in the payment-on-account calculator.

The final settlement the next year

Payments on account are advances, so the following year, on the Modelo 22 return, they are deducted from the final tax:

• if the year's IRC is higher than what you advanced, you pay only the difference;
• if the IRC is lower, the company is refunded what it overpaid.

For the year's base tax (the coleta), use our IRC calculator; and for the surcharges added to IRC, the derrama calculator.

What this estimate does not include

The calculator estimates only the payments on account from the figures you enter. It does not compute the year's IRC (that is the IRC calculator), does not model limiting the third instalment (art. 107.º), the special payment on account or the additional payment on account of the state surcharge, and does not cover the rules of the autonomous regions (Madeira and the Azores). Use the estimate to get the order of magnitude and confirm the figures with your accountant.