Which companies fall into the QIPs regime?

With interest rates remaining high with no signs of falling an unexpected cost that businesses need to manage is the interest on late paid corporation tax.

As a result of the recent changes to the associated company rules, we are seeing a great deal more companies falling into the corporation tax quarterly instalment payment (QIP) regime.

Which companies fall into the QIPs regime?

Most companies are required to pay their corporation tax 9 months and 1 day after their year end. However, companies that are “large” for tax purposes must pay their corporation tax liability in quarterly instalments, Companies are “large” for corporation tax purposes where their taxable profits either:

  1. Exceed £1.5m for two consecutive periods; or
  2. Exceed £10m in any one year.

These limits are reduced by the number of related 51% group companies (for accounting periods starting before 1 April 2023), or the number of associated companies (for accounting periods starting after 1 April 2023).

When are the instalments payable?

If a company is deemed to be “large” the tax for a period is payable in four equal instalments, due on the 14th day of months 7 and 10 of the accounting period and month 1 and 4 of the following period.

“Very large” companies are those companies where the taxable profits exceeds £20m (divided by the number of associated companies).  The tax payment dates fall due on the 14th day of months 3, 6, 9 and 12 of the accounting period. It is striking to note that for these companies, the whole of the corporation tax liability is due before the accounting period has actually ended.

So what is changing?

For accounting periods starting on or after 1 April 2024, we must look at the number of associated companies rather than related 51% group companies. This this is likely to produce a higher number of associated companies which will result in the QIPs thresholds being lower than previously.  The QIPs rules will therefore catch more companies.

What is meant by associated company?

A company is an associated company if, for any part of the accounting period, one has control of the other, or both are under the control of the same “person” or “persons”. This will be the case where one person owns more than half the shares in the company, for example.

In some circumstances, companies controlled by the individual’s relatives or business partners must also be taken into account.

Example

Mr Apple owns 51% of shares in Crunchy Limited, 51% of shares in Munchy Limited and 51% of shares in Lunchy Limited.

For accounting periods starting before 1 April 2023 the QIPs threshold is £1.5 million. QIPs would be payable only by Mr Apple’s companies whose profits exceeded this limit.

For accounting periods starting after 1 April 2023 the companies are all associated within each other as they are all under control by the same person. This means the QIPs threshold is divided by three. Any of the companies with profits over £0.5 million would therefore fall into the QIPS rules.

In addition to this we need to look at Mr Apple’s associates.  If Mrs Apple, for example, controlled companies then in some circumstances these may also included in the number of associated companies and the QIPs threshold would be reduced further.

What is the take away point from all this?

It is really important to understand the number of associated to be able to estimate the instalments due as this will have a direct impact on the company’s cash flow.  Interest is charged by HMRC on instalments paid after the due date, currently at 6.25% pa.