Quarterly Instalment Payments (QIPs) – The impact of associated companies

While the QIP regime for corporation tax has been around for a number of years, we now need to consider these rules alongside the associated companies rules.

What is an associated company

A company is an associated company of another if one has control of the other or both are controlled by the same person or persons. A person is treated as having ‘control’ of a company if that person exercises, is able to exercise, or is entitled to acquire direct or indirect control over the company’s affairs. If two or more connected persons satisfy any of the above conditions, then they will also be treated as having control of the company.

Associated Companies and QIPs

In addition to determining what rate of corporation tax will apply, associated companies will also need to be considered, to establish whether a company is large or very large for the QIPs regime. This sees a move away from the 51% group companies rules and back to the old associated companies legislation.

Large companies

A company will be considered large where its taxable profits exceed £1.5m. Assuming the profits are below £10m then any company falling within QIPs will be deferred to the following accounting period. This is known as the ‘year of grace’. However, where profits exceed £10m then companies will fall into QIPs in the reporting period to which the profits relate.

Under the new associated companies rules, these limits (£1.5m and £10m) will need to be divided by the number of associated companies at the end of the last accounting period.

Example including associated companies

where an individual directly holds 100% of the shares in three separate trading companies and is associated by virtue of control to a company owned by his wife. The four companies would previously have had separate thresholds of £1.5m or £10m respectively for determining whether and when they fall within the instalments regime.  From 1 April 2023 however these companies will be associated, each company would be treated as large if its taxable profits exceed £375,000 and would be immediately into the QIPs regime if their profits exceed £2.5m.

Payment for large companies

Companies in the QIPs regime will need to pay their corporation tax by four instalments, being due:

  • 6 months and 14 days from the start of the accounting period
  • 3 months after the first instalment
  • 3 months after the second instalment
  • 3 months and 14 days from the end of the accounting period

Very large companies

Accelerated instalment payments will apply to ‘very large’ companies where taxable profits exceed £20 million, again divided by the number of associated companies. There is no ‘year of grace’ provisions for companies moving into the ‘very large’ payment regime.

For very large companies with a 12-month accounting period, quarterly instalment payments are due:

  • 2 months and 13 days after the first day of the accounting period
  • 3 months after the first instalment
  • 3 months after the second instalment
  • 3 months after the third instalment

HMRC Interest and penalties

HMRC will charge interest on all late or underpaid instalments. Interest is calculated and charged when a company has filed its company tax return, or HMRC have made a determination of its corporation tax liability and the due date has passed. Penalties may be charged if a company deliberately fails to make or underpays its instalment payments.

Get in touch

For more information on QIPs and to get an understanding of whether they are due for your business, get in touch with our tax experts.

Photo by Çağlar Canbay on Unsplash

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