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QIPs – no laughing matter: CT payments and company size

30 April 2019

 

For some years now, “large companies” have been required to pay their Corporation Tax by instalments.  For an accounting period of one year, payment is required in four equal instalments. These quarterly instalment payments (“QIPs”) fall roughly 6, 9, 12 and 15 months after the start of the period (actually six months and 13 days, etc).   For shorter accounting periods, payment may be required in fewer instalments: if the accounting period is shorter than three months, for example, all the tax is payable three months and 14 days after the end of the period.

A particular problem that may arise in practice is that the circumstances making a company “large” for a period may not arise until after some of the instalments have become due for payment.  This may particularly be the case if a company which until then was not “large” makes a substantial capital gain towards the end of its accounting period: bizarrely, it may find itself obliged to pay interest on the “late” payment of instalments that become retrospectively due.

A company is “large” for an accounting period if taxable profits for the period exceed £10m, or if, broadly, its profits habitually exceed £1.5m.  In either case, if the company has one or more “related 51% group companies” for the period, the figures are reduced proportionately.  So if a company is a member of a five-member group, for example, it will be “large” if its profits exceed £2m or if they habitually exceed £300,000.  In either case, the figures are again reduced if the accounting period in question is less than one year long, but there is a “back-stop”: a company whose tax bill is less than £10,000 is never “large”.

All this is old news.  The new news is that for accounting periods beginning after 31 March 2019, the quarterly instalment regime is amended for Very Large Companies (“VLCs”).  Such companies are still required to pay Corporation Tax by instalments (still four equal instalments for a 12-month accounting period): but instalments are now due two months and 13 days into the period and at three-monthly intervals thereafter.

A company is a VLC for an accounting period if its taxable profits for the period exceed £20m.  But the point to bear in mind is that – as with “large” companies – that figure is reduced if there are one or more “related 51% group companies”.  Thus, for example, a company in a 10-member group will be a VLC for any period in which its profits exceed £2m (or a proportionately reduced amount for a shorter accounting period).

For more information, please get in touch with your usual BKL contact or use our enquiry form.