Quarterly Instalment Payments (QIPs) for Corporation Tax

For companies within the scope of UK corporation tax, quarterly instalment payments (QIPs) are required for large companies. These payments are based on the company’s estimate of its current year tax liability and offer a strategic way to maintain cash flow while staying compliant.

This guide presents the ‘when’, ‘why’ and ‘how’ of instalment payments, and offers key considerations for affected companies.

Understanding quarterly instalment payments

Large and very large company regimes

Companies with annual taxable profits above £1.5m must pay corporation tax in quarterly instalments; These instalments are calculated based on the estimated tax liability where the final liability for the year has not yet been established.

A company with profits exceeding £1.5m but not exceeding £20m is classified as a large company for corporation tax payment purposes. For a company with a 12-month accounting period, corporation tax is due in in four equal instalments due:

• Six months and 13 days after the first day of the accounting period
• Three months after the first instalment
• Three months after the second instalment (14 days after the last day of the accounting period)
• Three months and 14 days after the last day of the accounting period

If a company’s profits exceed £20m for an accounting period beginning on or after 1 April 2019, it enters the realm of very large companies QIPs regime, which have an accelerated instalment payment schedule.  For a company with a 12-month accounting period, corporation tax is due in in four equal instalments due:

• Two months and 13 days after the first day of the accounting period
• Three months after the first instalment
• Three months after the second instalment
• Three months after the third instalment

Failure to comply with payment deadlines can lead to significant interest charges for underpaid or late payments.  Interest charged on underpaid quarterly instalment payments is currently 6.25%, and for late payment is at 7.75%.

HMRC may also charge a penalty if a company deliberately fails to make instalment payments, or deliberately make instalment payments that are too small.

Associated companies

The relevant thresholds for the quarterly instalment payment regimes are reduced by dividing by one plus the total number of associated companies.

From 1 April 2023 the new associated company rules replaced the old ‘related 51% group companies’ definition. A company is now associated with another company if:

• one is under the control of the other
• both are under the control of the same person or persons

Dormant companies are excluded from the associated company rules, but a company may be an associated company no matter where it’s resident for tax purposes, and if it is associated for only part of the period of account.

Group Payment Arrangements

Groups of companies may be able to further manage their exposure to late payment interest by entering into a Group Payment Arrangements (GPA) with HMRC; A GPA also simplifies payment administration.

A GPA allows the group to make a single instalment payment each quarter, and once the companies’ final liabilities are known, those earlier payments may be allocated in the most beneficial way to minimise late payment insert cost.

There are various criteria to be eligible for a GPA, including the participating companies having a common year end, and being up to date with their corporation tax filings and payments.  Application for a GPA must be made at least one month before the first payment is due for the accounting period to be covered by the GPA.