Companies Required to Pay Tax Throughout the Year

The due date for corporation tax suffered by UK resident businesses depends on the size of the company, with ‘large’ companies paying tax under the quarterly instalment payment (QIPs) regime.

Where a company falls within the QIPs regime, the first instalment of tax is due six months and thirteen days after the start of an accounting period, and continuing at three monthly intervals, with the last instalment being due three months and fourteen days after the end of the period.

Companies which are not large for these purposes pay their corporation tax in one instalment, nine months and one day after the end of the accounting period.

What is a ‘large’ company for QIPs purposes?

A large company is one whose profits chargeable to corporation tax exceeds £1.5m.

The £1.5m limit is reduced on a pro-rata basis when the accounting period is less than 12 months and shared amongst companies that are part of a group.

Companies that make less than £10k taxable profits in an accounting period do not fall within the QIP regime.  This limit is reduced pro-rata for periods less than 12 months.

What constitutes a group for these purposes

A group for these purposes includes a company and all of its 51% subsidiaries, but excluding those that are dormant.  The limit of £1.5m is shared evenly across the relevant group companies, such that the limit for each company is reduced accordingly.  Any group company whose profits exceed the reduced limit will be liable to pay corporation tax via QIPs.

First year exemption for growing companies

Fortunately, there is an exemption for growing companies which excludes them from the QIPs regime in the first year they become ‘large’.

This applies where taxable profits are less than £10m in the first year of being ‘large’.  However, the £10m is again divided by the number of group companies and apportioned for accounting periods of less than 12 months.

Paying QIPs

Providing a company has a 12-month accounting period, QIPs would be due in four equal amounts, with the first instalment due six months and thirteen days after the start of the accounting period, and continuing at three monthly intervals, with the last instalment being due three months and fourteen days after the end of the period.

For a company with a year end of 31 December, the QIPs would therefore be due on:

• 14 July – during the year
• 14 October – during the year
• 14 January – after the year end
• 14 April – after the year end

Each company would need to prepare a forecast of its profits chargeable to corporation tax at each quarter, taking into account actual and budgeted results.  A payment should be made to reflect the amount of tax due at the relevant QIP date, taking into account any payments already made for that period.

As the results will inevitably change throughout the year, it is likely each quarterly payment will vary to reflect these amended results. The final QIP payment should be made to take account of the total tax liability due for the entire period and the payments made to date.

Interest and penalties

Interest for late or underpaid QIPs is currently charged by HMRC at 1.5% per annum.  This rate applies until the normal due date for payment for companies that are not ‘large’, being 9 months and 1 day after the end of the accounting period.  After this, the rate reverts to the standard late payment interest rate, which is currently 3%.

The UK tax authorities expect companies that are large to make every effort to comply with the QIP regime.  Failure to comply where QIPs should have been due can attract penalties, which can be up to twice the level of interest charged.

How we can help

It is important that growing companies regularly review their status to consider whether they fall under the QIP regime, particularly as the transitional year from the existing regime into the QIPs can impose significant cash flow issues, with part of the corporation tax for the current year falling due before the tax for the previous year.

We can help a company consider whether QIPs are required for a particular accounting period, and estimate the tax liability that falls due. Please get in touch with your usual Shorts tax contact for more information.