HMRC adds to quarterly instalment payment confusion

The quarterly instalment payment (QIP) regime accelerates the due dates that a company’s corporation tax liabilities should be paid for those that breach certain profit thresholds. The number of companies paying corporation tax liabilities under the QIP regime is likely to increase given the new associated companies rules for periods beginning on or after 1 April 2023 and the profit thresholds not moving over time. Additionally, very large corporate groups and companies are required to settle liabilities even earlier under the accelerated QIP regime, meaning that the ‘estimated’ liability for the period should be settled in full prior to the period end.  

The QIP regime appears to be on HMRC’s radar as it has recently issued letters to companies stating they should have been in the QIP regime historically. It is unclear what has prompted these letters and although they should be considered on a case-by-case basis, in several examples, HMRC’s assertion has been incorrect after further investigation. 

Revisiting historic periods can be time consuming, therefore less significant interest charges may be settled by companies rather than challenged, out of ease or due to the potential cost of professional fees for challenging. However, knowing that HMRC isn’t always right may make companies think twice before settling a potentially incorrect interest balance. 

With increased interest rates on late or underpaid QIPs (currently 6.25%), for many companies, spending time better estimating the required payments can be beneficial and reduce interest costs, especially on significant liabilities. However, there are some things companies and their advisers can do to reduce this cost by looking at the administration. 

Large groups and businesses reallocating corporation tax payments between periods and group companies should beware of creating some unexpected interest costs. For example, HMRC will not always reallocate payments in the most beneficial way, therefore specific instructions should be provided to HMRC, and a check made afterwards to ensure this has been processed, and interest is calculated correctly. 

The use of a group payment arrangement (GPA) can significantly reduce the admin burden and potential interest cost for large groups by enabling the retrospective allocation of payments made against the tax liabilities of its members. 

We recommend that businesses take the time to consider the administration around QIPs to avoid the pitfalls which may currently create high interest costs. Along with this, reviewing the allocation of payments and interest charges made by HMRC can identify any mismatches.