Following on from the article published on 8 March 2023 regarding the new corporation tax rates, this article looks into the different payment dates of Quarterly Instalment Payments (QIPS) under the large and very large QIP regimes, the higher interest rates being charged by HMRC on late/underpaid amounts of Corporation Tax and the anticipated direction of travel by HMRC in relation to penalties being charged on the non-payment (or deliberate underpayment) of QIPS. 

“Large” and “very large” QIP regimes

As advised in our article 'preparing for the new rates of Corporation Tax'  “Large” and “Very Large” companies are required to accelerate their payment of corporation tax through the Quarterly Instalment Payment (QIP) regime – with the Very Large making their companies’ payments even earlier than Large companies. 

Definition of large  

Broadly, a large company is one whose profits for the accounting period in question are more than £1.5 million but less than £20 million per annum (adjusted on a pro-rata basis if your accounting period is less than 12 months) In addition, if your company has associated companies the £1.5 million threshold is also reduced by dividing by the number of associated companies, plus your company.  

This new figure is the relevant threshold for your company. 

Your company does not need to pay by instalments for an accounting period (even though its profits exceed £1.5 million) if either: 

• the amount of its total liability for the accounting period is less than £10,000 (or when the accounting period is less than 12 months, less than an annual rate of £10,000) 
• its profits for the accounting period are no more than £10 million and either: 
• it did not exist or did not have an accounting period at any time during the previous 12 months. 
• its annual rate of profit was no more than £1.5 million, or its annual rate of tax liability was no more than £10,000, for any accounting period which ended in the previous 12 months. 

If either of these conditions apply, the company does not fall within the QIP regime but must pay its tax in full by the normal payment due date. 

Definition of very large  

Broadly, a very large company is one whose profits for the accounting period in question are more than £20 million per annum. Similar to the large company rules above, the threshold is reduced proportionately if the accounting period is less than 12 months and/or by the number of associated companies a company has, including itself. 

QIP dates 

For example, a company with a year end of 31 December 2025 would be due to pay QIPs on the following dates under each regime: 

Here you can clearly see the acceleration of payments under the very large QIPs regime, with the whole liability requiring to be paid before the year end date.  

Re-introduction of associated company rules 

The re-introduction of the associated company rules has had an impact on QIPS for some companies. 

For example, say there is an active holding company with a 100% trading subsidiary which has a year end of 30 June 2024. The majority shareholder also controls 7 other companies. 

Under the pre 1 April 2023 regime, the trading subsidiary only has one 51% related company and therefore the threshold is divided by 2.  

However, despite nothing else changing, under the new regime the QIP thresholds need to be divided by 9 (i.e. the other 7 other associated companies would need to be considered). This could result in the trading subsidiary being liable to pay QIPs under the very large QIPs regime. 

The table below highlights the acceleration in QIP dates and the potential overlap of payment dates between accounting periods that could arise this situation.  

Increased interest rates 

The underpayment interest rate on QIPS is set at the Bank of England base rate plus 1%. Since 14 August 2023, the late payment interest has been set at a rate of 6.25%.  

As interest is charged on both late payments and under payments of Corporation Tax any under payments or late payments of corporation tax can be costly, albeit interest payments are tax deductible. 

For completeness, a company not due to pay under the QIP regime is liable to pay corporation tax within 9 months and 1 day. Late payments are currently subject to interest charged at 7.75%.  

It is therefore advisable that companies out with the QIPs regime settle their corporation tax liabilities within 9 months and 1 day of their accounting year end and that any companies that fall under the QIPs regime, whether that be the “large” or “very large” regime, ensure that QIPs are paid on time and that the payment made is as accurate as possible.  

Potential for penalties to be charged by HMRC for non-payment of QIPs   

The application of underpayment interest is not meant to be punitive. Instead, it is applied to encourage prompt, accurate payment and reflect economic parity.  

We have recently seen examples of HMRC issuing letters to companies that they think should be paying in QIPs but haven’t been. It is expected that HMRC may soon start issuing penalties more regularly for the non-payment of QIPs. HMRC only expect to apply penalties for non-payment (or deliberate underpayment) of QIPs where there has been serious abuse of the regulations. For example, where a company clearly failed to make payments in line with the latest available estimates. 

The penalty that could be charged by HMRC for the non-payment (or deliberate underpayment) of QIPs is an amount not exceeding twice the amount of interest charged on any unpaid amount in respect of the total liability of the company for its accounting period. For example, if the interest on unpaid amounts was £5,000, then the penalty applied by HMRC could be no more than £10,000.  

Paying tax on time is the right thing to do

As the interest rates are higher than in recent years there is potential for more frequent penalties to be applied for the non-payment (or deliberate underpayment) of QIPs, we advise that companies ensure that they are paying QIPs as accurately as possible, both in terms of the timing and value of the payments. We are happy to assist both with the determination of whether a company is liable to pay under the QIPs regime and with the calculation of QIPs. Should you wish for our assistance, please provide us with profit forecasts in good time ahead of QIP deadlines.  

Get in touch  

If you would like us to discuss any of the points in this blog with regards to your business, please feel free to get in touch with either of us or your usual Johnston Carmichael contact.