What happens if my company falls into QIPs?

What are quarterly instalment payments and who has to pay them?

Generally, most companies must pay their Corporation Tax liability within 9 months and 1 day of the relevant accounting period end. However, where your company is deemed to be ‘large’, you are required to pay your Corporation Tax electronically by instalments.

A large company is one whose profits for an accounting period are at an annual rate of more than £1.5million but less than £20million. This is pro-rated for shorter accounting periods, and the limit is divided by the number of related associated companies plus 1. This is explained later in the article.

When are my quarterly instalment payments due?

For accounting periods of 12 months, you will normally pay your Corporation Tax in 4 equal quarterly instalments, with 2 being due before the end of your accounting period.

The payment deadlines for large companies under the QIP regime are outlined below:

• The first payment is due 6 months and 14 days after the start of the relevant accounting period;
• The remaining 3 payments are due at three-monthly intervals, with the last one being due three months and 14 days after the end of that accounting period.

Example

Instalment payment dates for an accounting period from 1 January 2022 to 31 December 2022:

First payment                14 July 2022

Second payment           14 October 2022

Third payment              14 January 2023

Final payment              14 April 2023

If the company is classified as ‘very large’ (with annual profits exceeding £20m) then quarterly instalments will be due entirely within the accounting period, commencing two months and thirteen days after the start of the accounting period.

Are there any exceptions?

There are some exceptions to the company being classified as ‘large’ (though this doesn’t apply if the company is very large), even if your company’s profits exceed £1.5million – if either:

• The amount of the company’s total Corporation Tax Liability for the accounting period does not exceed £10,000 (or if the company’s accounting period is shorter than 12 months, does not exceed an annual rate of £10,000)
• The company’s profits for the current accounting period do not exceed £10 million and either of the following is applicable:
  • At any time during the 12 months prior to the current accounting period your company did not exist or have an accounting period
  • For any accounting period ending in the 12 months before the current accounting period, either the company’s annual rate of profit did not exceed £1.5 million, or the company’s annual rate of Corporation Tax liability did not exceed £10,000.

Should either of these exceptions apply, payment can be made at the normal due date of 9 months and 1 day after the accounting period ends. 

If the profit causing the company to be very large is due to a disposal giving rise to a gain, it may be possible for the company to be classified as ‘large’ instead of ‘very large’.

All the above thresholds (relevant for large and very large classifications) are reduced according to the number of related or associated companies plus one.

There are other associated companies, does this matter?

Further consideration needs to be taken where a company has associated companies.

For accounting periods beginning on or before 31 March 2023, the threshold for deciding if a company is large was divided by the number of 51% related companies plus one.

However, for accounting periods beginning on or after 1 April 2023, the related 51% group company test is being replaced by the associated company test.

As such, this could potentially mean that a company previously not deemed to be large, could possibly be large under the new rules.

Example

Trade Co 1 has 4 associated companies.

The £1.5million threshold is divided by (4+1), meaning that these companies would fall into QIPs if their annual profits exceed £300,000.

Tell me more about the associated company rule change

Under the previous rules, the QIPs threshold was divided by the number of related companies plus one. Companies were related where:

• One company was a subsidiary of another, or;
• Both companies were 51% subsidiaries of the same company.

This meant that two companies held separately by the same individual would not be in a 51% related group.

However, for accounting periods beginning on or after 1 April 2023, the threshold is divided by the number of associated companies plus one. Companies are associated where:

• One company has control of the other (> 50% of the voting power, share capital or distribution rights of the company)
• Both companies are under the common control of the same person or persons. For assessing this it may be necessary to consider the attribution of rights held by connected persons and also, whether there is substantial commercial interdependence between two companies.

How can we help?

QIPs can be a daunting and complex issue, presenting a potential burden around calculations, tax planning and cash flow. If you require any assistance, please get in contact via our enquiry form below.

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