Why the new associated companies regime could lead to more companies paying quarterly instalments
23rd May 2025
Posted in Articles by Tom Stockton
For accounting periods beginning on or after 1 April 2023, HMRC introduced new associated companies rules. Prior to this date, companies were only associated if one was a 51% subsidiary of the other (essentially restricting association to group companies).
Under the new rules, companies are now associated if there is common control. Control of a company can be satisfied in several ways:
• Control through voting power
• Control through share capital
• Control over income of the company
• Control over assets of the company
This provides wider scope for companies to be classified as associated as it goes beyond group companies.
Most people are aware that the number of associated companies is taken into account when assessing the rate of corporation tax payable. However, many may have overlooked the impact on quarterly instalment payments (‘QIPs’).
Under the QIPs regime large and very large companies have to pay their corporation tax earlier than the normal date of nine months and one day after the accounting period:
• For large companies (defined as having taxable profits over £1.5 million) they must start paying their corporation tax in the seventh month of the accounting period.
• For very large companies (defined as having taxable profits over £20 million) they must start paying their corporation tax in the third month of the accounting period.
However, there is a first year grace period for companies falling into QIPs if their taxable profits are below £10 million.
A crucial point to note though is that all these thresholds must be divided by the number of associated companies (including the company itself).
For QIPs purposes, the number of associated companies is determined by the number of associates on day one of each accounting period following 1 April 2023.
Example
1. Jamie owns six standalone property rental companies. Each company makes taxable profits of £1.45 million in the year ended 30 June 2024.
Prior to the change in rules, none of Jamie’s companies would have been associated and so none were classified as large for corporation tax purposes.
Under the new associated companies rules all six companies are now associated. This means the large company threshold is £250,000 (£1.5 million divided by six), and every company is classified as large. However, the threshold for the grace period is £1,666,667 (£10 million divided by six). Therefore, the companies will not fall within the QIPs regime until the next accounting period.
2. Lorna runs a rival rental property business owning eight standalone companies. Similar to Jamie, each company made taxable profits of £1.45 million in the year ended 30 June 2024.
As with Jamie, under the old 51% group test Lorna’s companies would all have taxable profits below the £1.5 million threshold, meaning none are classified as large companies.
However, under the new rules all eight companies are associated and therefore each one is classed as large as their taxable profits are all above £187,500 (£1.5 million divided by eight). Furthermore, the grace period threshold is only £1.25 million (£10 million divided by eight). Lorna gets a nasty shock when she finds out that all her companies are immediately within QIPs!
3. Despite the above, Lorna incorporated a further seven companies, expanding her property empire. Each company made taxable profits of £1.45 million in the year ended 30 June 2025. She now finds that each company not only exceeds the large company threshold of £100,000 (£1.5 million divided by 15), but in fact exceeds the very large company threshold of £1,333,333 (£20 million divided by 15). Lorna has gone from having until 1 April 2026 to pay her corporation tax to starting to pay it on 14 September 2024!
Forbes Dawson view
The change to the associated company rules could easily catch out companies with non-grouped associates when it comes to QIPs. Companies who are likely to be affected need to consider their position well in advance of any deadlines to avoid any unexpected surprises.
The new rules may be a reason to consolidate and eliminate any unnecessary entities to limit the amount of associated companies. Alternatively, it may be possible to make clever use of intercompany recharges, or strategically plan group relief in order to keep companies out of the QIPs regime from year to year.
