This system spreads tax payments across a whole year, rather than through a single lump sum, but payment is required much earlier than for a ‘small’ company. You might be thinking, “surely this doesn’t apply to my business”, but as explained below, the regime might apply without you realising and this can result in some potentially hefty interest charges.
Who needs to pay QIPs?
QIPs apply to ‘large’ companies, defined as those with taxable profits exceeding £1.5 million. This appears to be a very high threshold but the often overlooked tripping point is that this minimum is shared equally between all companies associated with each other (broadly defined as companies under the same common control – this will include, but is not confined to, all member companies of a 51% group). If you take a company with two associates, that £1.5million threshold becomes £500,000 for each affected company, which is far more easily exceeded.
Where the minimum threshold, as divided, is breached but a company’s total corporation tax liability for the year is less than £10,000, there is a specific exemption to excuse the company from the QIPs regime. There is also a ‘year of grace’ that means that a company will generally not be required to pay QIPs in the first year that it becomes ‘large’.
The statutory definition of ‘control’ and whether or not companies are to be treated as associated can be quite complex and it would be advisable to seek our guidance, especially where several companies are owned across a family group. In some circumstances shareholdings of close family members or even fellow members of a trading partnership may be aggregated to determine ‘control’.
Failing to pay QIPs on time will give rise to automatic interest charges (to be charged at 8.5% from 6 April 2025). In extreme cases HMRC also has the power to charge penalties.
If you are unsure if you fall foul of these rules, please get in touch with us.
How do I report and pay QIPs?
Under the QIP system, companies are responsible for calculating and paying over four instalment payments in respect of a particular accounting period (for accounting periods less than twelve months the number of payments may be reduced). These payments are based on the company's estimated corporation tax liability for the period. The payment schedule for a typical twelve month period to 31 March 2025 would be:
First Instalment: due six months and 13 days after the start of the accounting period (14 October 2024);
Second Instalment: due three months after the first instalment (14 January 2025);
Third Instalment: due three months after the second instalment (14 April 2025);
Fourth Instalment: due three months and 14 days after the end of the accounting period (14 July 2025).
The amount of each instalment is calculated based on the company's estimated taxable profits for the accounting period. Companies must ensure their estimates are as accurate as possible to minimise potential consequences. This can be quite difficult if you do not have regular financial reporting or a seasonal business with fluctuating profit levels. At the very least, there will be additional compliance and administration to meet the payment deadlines which are not the norm and far earlier than you might be used to.
Is it all bad?
Well depending on your viewpoint there can be some advantages to QIPs:
Cashflow management: by spreading tax payments throughout the year, companies can better manage their cashflow.
Reduced risk of large payments: making smaller, regular payments removes the impact of facing a large, single tax bill nine months after the end of the year.
Interest on overpayments: if a company overpays its tax instalments for the year, HMRC will pay interest on the overpaid amount .
HMRC’s tax system is never straight forward, and there is not an easy answer but If you have any specific questions or need further details, please do get in touch at Lovewell Blake - we would be happy to help.