Date posted: 3rd May 2024
As we have stated previously, a lot more companies will have fallen into the quarterly instalments (QIPs) regime, since 1 April 2023.
Following another change from 1 April 2024, the calculation of the profits may also force even more companies into the QIPs regime due to the change in the calculation of R&D tax relief.
Previously, R&D tax relief, for most SME companies, was granted via a further deductible expense being claimed in the company tax computation.
From 1 April 2024, the calculation of the R&D tax relief a company is entitled to claim has reduced but also the methodology for claiming the relief has changed too.
This could see a change in those companies that are liable to pay QIPs. This is best illustrated with an example.
The old regime
A company has £1.8m of profits and is not associated with any other companies.
It has spent around £350k on qualifying R&D expenditure. At an 86% relief rate, this entitled the company to a further deductible expense (for tax purposes) of £301k.
This means for the purpose of working out whether QIPs are due, the profits are £1.499m, so below the £1.5m threshold.
The tax due for the year would be c£375k. This would be payable nine months after the year end.
The new regime
A company has £1.8m of profits and is not associated with any other companies.
It has spent around £350k on qualifying R&D expenditure. It will be entitled to a 20% research and development expenditure credit of £70k, but this is a taxable credit.
The tax due on the £1.8m of profits would be £450k.
The tax due on the R&D credit would be c£18k.
But the £70k tax credit would be deducted, thus leaving a tax position for the year of £398k (£450k + £18k – £70k).
However, the company would still need to make QIPs based on the profits ignoring the R&D tax credit – i.e. based on the profits of £1.8m. So it would need to pay QIPs of 25% of £450k – c£113k each quarter, until the R&D tax credit is established.
Watch out?
As we have mentioned previously, associated companies will also have an impact on the timing of the taxes due – click here, for more information.
Finally, don’t forget to ensure that you secure the R&D tax relief by making a six month notification to HMRC – click here, for more information.
If you have any corporate tax queries, please give us a call.
