By Mathew Browne
Definition of a large company for quarterly instalment payments (QUIPs):
A large company is one whose profits for the accounting period in question are at an annual rate of more than £1.5 million but less than £20 million.
Accounting period beginning after 1 April 2023:
For accounting periods beginning after 1 April 2023 the 51% group test has been replaced by the new definition of an associated company:
For profits earned after 1 April 2023 there is no longer a single rate of corporation tax. As the main rate increased from 19% to 25%, a small profits rate of 19% was introduced for companies with profits below £50,000. Marginal relief was brought in for companies whose profits fall between the lower limit and £250,000 (the upper limit).
Associated Company:
A company is an associated company of another if one has control of the other, or both are under the control of the same person or persons. In this case control can be defined under several categories (any of which can apply to meet the control test), such as the ability to control the affairs, income or assets of the company or control through voting power, share capital or issued share capital.
As an example if Company X is under the control of Mr Smith, who also controls another 7 companies. It will be considered that there are 8 companies in the group and the thresholds will be adjusted as below.
Upper limit = £250,000 divided by 8 = £31,250
Lower limit = £50,000 divided by 8 = £6,250
Large QUIPs threshold = £1,500,000 divided by 8 = £187,500
Intricacies for being considered an associated company:
There are various intricacies to be aware of, notably
- A company may be an associated company no matter where it is resident for tax purposes.
- An associated company is counted even if it is an associated company for only part of an accounting period.
- An associated company which has not carried on any trade or business at any time during the accounting period is disregarded.
- Non-resident companies without a permanent establishment within the UK and close investment holding companies are not eligible to use the small profits rate or apply marginal relief and must use the main CT rate regardless of their profit levels.
Short AP:
Where the accounting period is less than twelve months, the upper and lower limits and QUIPs threshold are reduced proportionately.
For example, Company X with profits of £100,000 has a 8-month accounting period of 1 January 2024 to 31 August 2024. The upper and lower limits applicable to this company will be:
Upper limit = £250,000 x (243/365) = £166,438
Lower limit = £50,000 x (243/365) = £33,288
(Note that strictly the calculation should be carried out by reference to the number of days in the short AP rather than months).
Intricacies of calculating CT liability for QUIPs
When working out your instalment payments, your Corporation Tax liability estimate must include
- Tax on loans to directors and other participators in ‘close’ companies
- Tax due on controlled foreign companies
- Exclude any research and development expenditure credits (RDEC) or research and development tax credits (RDTC)
It is crucial to accurately calculate your Corporation Tax liability to avoid any potential penalties by ensuring that you correctly establish your associated companies.
Ensuring compliance now can save you from complications and financial repercussions in the future.
If you would like to discuss your corporation tax, or how to reduce it, please do get in touch.
