For most UK companies, Corporation Tax is settled in a single annual payment. However, for large, very large and fast-growing businesses, HMRC requires Corporation Tax to be paid in Quarterly Instalment Payments (QIPs). This requires companies to estimate their Corporation Tax liabilities, making payments over four instalments.
Payments are based on estimated profits rather than finalised figures, so businesses must maintain a close and accurate grip on their finances throughout the year. Get in touch with DS Burge & Co’s team to ensure your company makes the correct Corporation Tax payments, and prevents HMRC penalties or interest charges.
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What is Corporation Tax?
Corporation Tax (CT) is a tax levied on the taxable profits of UK limited companies. It applies to trading profits, investment income, and chargeable gains that arise in each accounting period.
How is Corporation Tax calculated?
To calculate a Corporation Tax liability, a company starts with its accounting profit and applies a series of adjustments, adding back disallowable expenses and deducting allowable reliefs, capital allowances, and any available losses. The resulting figure is the company’s taxable profits, to which the applicable rate of Corporation Tax is applied.
Since 1 April 2023, the UK has used a three-band Corporation Tax structure based on the level of annual taxable profits. They are as follows:
| Taxable Profits | Corporation Tax Rate |
|---|---|
| Up to £50,000 | 19% (Small profits rate) |
| Between £50,000 and £250,000 | Marginal relief applies |
| Over £250,000 | 25% (Main rate) |
What are Corporation Tax Quarterly Instalment Payments (QIPs)?
Corporation Tax Quarterly Instalment Payments (QIPs) are a method of paying Corporation Tax, whereby certain companies, namely those classified as large or very large, pay their estimated Corporation Tax liability in four equal instalments over their accounting period rather than in a lump sum.
Most small UK companies are not required to use QIPs and settle their Corporation Tax in one lump sum payment, which is due nine months and one day after the end of the accounting period.
How are Corporation Tax Quarterly Instalment Payments (QIPs) calculated?
To calculate each instalment, a company must first estimate its Corporation Tax liability for the accounting period, including relevant charges, and after deducting reliefs, in the same way a Corporation Tax return would be prepared. For a 12-month accounting period, each instalment is usually calculated as one quarter of the total estimate. However, if the estimate changes during the year, later instalments should be adjusted and, where necessary, extra payments should be made to cover any shortfalls.
When do QIPs need to be paid?
The payment dates for QIPs are determined by the company’s accounting period. For a standard 12-month accounting period, the four instalments fall on the following dates:
- Instalment 1: 6 months and 13 days after the first day of the accounting period
- Instalment 2: 3 months after instalment 1
- Instalment 3: 3 months after instalment 2
- Instalment 4: 3 months and 14 days after the last day of the accounting period
Instalments 1 and 2 fall before the accounting period has ended, and as such are based on forecast profits. This is one of the most challenging aspects of QIPs, as accurate forecasting requires real-time visibility of financial performance throughout the year.
Irregular Accounting Periods
Where an accounting period exceeds 12 months, HMRC will split returns, the first covering the initial 12-month period and the second covering the remainder. Each accounting period is treated independently for QIP purposes, with instalment dates calculated from the start of each respective period.
For accounting periods shorter than 12 months, the instalment payment dates and amounts are adjusted proportionately. The threshold limits are also scaled to reflect the shorter accounting period.
Who is required to make Quarterly Corporation Tax Payments?
Quarterly Corporation Tax payments are required by a company that meets the following conditions:
- Large Company: Annualised profits over £1.5 million.
- Very Large Company: Profits over £20 million.
- Associated Companies: If the business has associated companies, the £1.5 million threshold is divided by the number of companies, including itself. For example, three associated businesses reduce the limit to £375,000 each.
- Exceptions: Companies with a tax liability under £10,000 do not need to pay by instalments. A ‘year of grace’ usually applies, meaning if this is the first year the company exceeds £1.5 million in annualised profits, CT instalments are not required, provided profits do not exceed £10 million.
Large Companies
A company is considered large if its annualised profits are above £1.5 million but do not exceed £20 million. For a large company with a standard 12-month accounting period, a QIP structure would be as follows:
- Expected profits: £3.2 million
- Corporation Tax rate: 25%
- Estimated Corporation Tax Liability: £800,000 (£3.2m x 25%)
- Quarterly Instalments: £200,000
- Instalment 1: £200,000; 6 months and 13 days after the first day of the accounting period
- Instalment 2: £200,000; 3 months after instalment 1
- Instalment 3: £200,000; 3 months after instalment 2
- Instalment 4: £200,000; 3 months and 14 days after the last day of the accounting period
Very Large Companies
A company is considered very large if its annualised profits are above £20 million. Unlike large companies, there is no grace period when a company first becomes very large. This means the accelerated QIP timetable applies to the accounting period itself, rather than starting in a later year. For a very large company with a standard 12-month accounting period, a QIP structure would be as follows:
- Expected profits: £32 million
- Corporation Tax rate: 25%
- Estimated Corporation Tax Liability: £8 million (£32m x 25%)
- Quarterly Instalments: £2 million
- Instalment 1: £2 million; 2 months and 13 days after the first day of the accounting period
- Instalment 2: £2 million; 3 months after instalment 1
- Instalment 3: £2 million; 3 months after instalment 2
- Instalment 4: £2 million; 3 months after instalment 3
For support in calculating and making electronic Corporation Tax Quarterly Instalment Payments, use DS Burge & Co’s Corporation Tax Return Service to help you stay accurate, compliant, and on time with your payments.
Quarterly Instalment Payments for Growing Companies
For many business owners, the most significant and often most disruptive encounter with QIPs occurs when a company is in the process of transitioning into a large company.
A growing company, in the context of QIPs, is a business that has recently crossed the £1.5 million profits threshold and is considered large for the first time. HMRC recognises that this transition can place sudden demands on cash flow and therefore provides a one-year grace period for QIPs. This grace period is only provided assuming the company meets both of the following:
- Does not exceed £10 million in profits during the given accounting period
- Has not been considered large for any previous accounting periods
It is important to note that the £10 million threshold is reduced proportionally for shorter accounting periods and divided by the number of associated companies, where applicable.
The Two-Year Payment Overlap
The greatest impact of QIPs on a growing company is managing cash flow to ensure Corporation Tax payments are made on time. While a first-year grace period helps growing businesses to manage future CT payments, it does not eliminate cash flow challenges. Instead, the grace period can result in overlapping payment issues, commonly referred to as the two-year payment overlap.
The two-year payment overlap occurs when a growing company uses the grace period in its first large year but still owes Corporation Tax for that year as a lump sum, due nine months and one day after the accounting period ends. In the same accounting period in which the lump sum payment is required for the previous period, QIPs begin. Without careful cash flow management, this can result in significant issues for growing businesses, which often face further cash flow demands elsewhere in the business due to growth.
Example: Two-Year Payment Overlap
A company that has a 12-month accounting period and a year-end of 31 March, with profits as follows:
- Year 1: Profits of £900,000 – Not considered large and a CT lump sum due 1 January 2026.
- Year 2: Profits grow to £3 million. The company is considered large for the first time. The grace period applies for this period. CT lump sum due 1 January 2027.
- Year 3: Profits forecast to remain over £1.5 million. The grace period no longer applies. QIPs are now required. Instalment schedule for Year 3:
- Instalment 1: 14 October 2026
- Instalment 2: 14 January 2027
- Instalment 3: 13 April 2027
- Instalment 4: 14 July 2027
The company pays its Year 1 CT lump sum in January 2026 as expected. However, in Year 2, the company becomes large for the first time. As it uses the grace period, it is not required to adopt QIPs until the following accounting period and can continue to pay its Year 2 CT as a lump sum, due 1 January 2027.
In Year 3, the company’s profits are forecast to remain above the £1.5 million threshold for QIPs, with the company following a four-instalment payment plan. The adoption of QIPs raises significant cash flow issues without forward financial planning. First, cash is required to make the first instalment on 14 October 2026, whereas previously this would not have been required to be paid until January 2028.
It is the second instalment that presents the most significant cash flow concerns. There is an overlap of CT payments, with the lump sum payment required from Year 2 to be paid on 1 January 2027, and the second instalment of Year 3 to be paid on 14 January 2027. From a cash flow perspective, companies find themselves paying CT for two years during the same period, due to the grace period decision. It is important that companies build reserves in advance and take advantage of financial forecasts to account for both the delayed Year 2 lump sum and the accelerated Year 3 QIP schedule.
For a growing business to successfully manage the two-year payment overlap and Corporation Tax obligations, early planning and specialist support are required. Speak to one of our Corporation Tax specialists today to see how we can provide early financial planning for your growing business.
Quarterly Instalment Payments for Associated Companies
Associated companies are companies where either one controls the other, or both are under the control of the same person or persons. For accounting periods beginning on or after 1 April 2023, the main Corporation Tax thresholds are divided equally across all associated companies, including the company itself, meaning a business can be brought into QIPs much earlier than expected if it sits within a wider group structure.
For example, a company with four associated companies (five in total, including itself) and profits of £500,000 would be considered large for QIP purposes. The £1.5 million threshold is divided by five, giving an adjusted threshold of £300,000. Despite profits being well below the standard threshold, the company exceeds the adjusted figure, and its CT liability is above £10,000, so it must adopt QIPs.
Associated companies make quarterly payments in the same way as any other large company: estimating the CT liability for the accounting period and paying in four equal instalments. Where a company’s total CT liability is below £10,000, no instalments are required (adjusted proportionately for irregular accounting periods). Smaller companies that exceed this £10,000 threshold, but whose taxable profits remain below £1.5 million, can still fall into QIPs once their adjusted threshold is breached.
Where several group companies are making quarterly payments, HMRC offers a Group Payment Arrangement (GPA). This allows one nominated company to make payments on behalf of the participating companies, using a special payment reference. A GPA can reduce administration costs and improve the overall group interest position, as payments can be allocated later once final liabilities are known. HMRC requires the participating companies to be within the relevant group relationship and to draw up their accounts to the same date as the nominated company.
Interest and Penalties for Quarterly Instalment Payments
Failure to pay quarterly instalments in full or on time incurs interest and, in some cases, penalties. As rates are subject to change, the latest figures are available on HMRC’s interest rates page.
Where cumulative instalments fall short of the final CT liability, HMRC charges interest on the shortfall, which is calculated retrospectively once the Company Tax Return is filed and is tax-deductible. HMRC distinguishes between unintentional underpayments, where a company has made genuine best estimates, and deliberate underpayments, where payments are knowingly too low. For unintentional shortfalls, only interest applies; deliberate underpayments may also attract a financial penalty.
If earlier instalments prove insufficient, a top-up payment can be made at any time to limit the period over which interest accrues. For example, a company with an estimated liability of £800,000 makes two instalments of £200,000. Updated management accounts indicate the final liability will be £1 million, so a £100,000 top-up is made alongside the second instalment. Interest is only charged on the shortfall from the first instalment date to the top-up date, rather than for the full period.
Where instalments exceed the final liability, HMRC pays credit interest. For example, four instalments of £250,000 against a final liability of £900,000 results in a £100,000 overpayment, returned with credit interest. Overpayments can alternatively be offset against future instalments. The same interest rate applies to payments made before the due date.
Late payments attract debit interest from the due date to the date of payment. For example, an instalment of £150,000 paid two months late would incur approximately £1,600 in interest (assuming a 6.25% interest rate).
For support on documenting obligations, planning cash flow, and avoiding unnecessary penalties, get in touch with DS Burge & Co.
Conclusion
Quarterly Instalment Payments (QIPs) represent one of the more demanding aspects of the UK Corporation Tax system for growing and larger businesses. The impact of transitioning to a quarterly instalment plan can present significant cash flow issues for growing companies, altering the timing at which Corporation Tax is paid. Companies must build reserves and take advantage of financial modelling to ensure that these tax obligations are met, without incurring penalties or interest charges.
At DS Burge & Co, we help UK business owners and directors to navigate the full spectrum of Corporation Tax obligations. Whether you are approaching the large company threshold for the first time, managing a group structure with multiple associated companies, or looking for reassurance that your instalment payments are correctly calculated, our team is here to help.
We use Xero accounting software, making the management and submission of electronic QIPs straightforward and providing real-time visibility of your financial position throughout the year. To discuss your Corporation Tax position and how our expert team of tax advisers can help you plan, organise, and manage your quarterly instalment payments, get in touch with DS Burge & Co Chartered Accountants today.