CREC072100 - Expenditure credit redemption: effect of credits on Quarterly Instalment Payments (QIPs)

Companies who claim AVEC and/or VGEC will have an increased corporation tax liability due to the requirement to add the credit to profit as a taxable receipt (see CREC35000). This will increase QIPs payable. AVEC and VGEC are stand-alone credits and so are not deductions in calculating the corporation tax liability. Consequently, they cannot come into the calculation of quarterly instalment payments. 

The legislation at section 1179CC says at Step 1 that the set-off amount is to be applied in discharging any liability of the company to pay corporation tax for the accounting period. This doesn’t require it to be outstanding, just for there to be a liability. If the liability has already been paid (E.g. via QIPs) and a set-off is applied, then it means the liability becomes overpaid and a repayment arises. However, the set-off will go with a later effective date of payment (EDP) and there will be no repayment interest. 

In addition, companies may use AVEC/VGEC to discharge a QIP at step 3 of section 1179CC, but this will depend on whether a QIP is due at the time the claim for a credit is made. Step 3 of section 1179CC says ‘the amount remaining after step 2 is to be applied in discharging any liability of the company to pay corporation tax for any other accounting period’. The liabilities are those due at the time the claim is made. 

Also, once the company has submitted a return and made a valid claim to a credit, subject to there being no other liability (per steps 1-5 of section 1179CC), it could choose to use the credit to discharge future QIPs. These are likely to be QIPs for the following accounting period unless tax is overdue. 

As AVEC and VGEC carry an effective date of the date of set-off, this affects the CT interest provisions so that generally interest will not accrue on any amounts that are due back to the company. There may be some instances where small amounts of interest will arise as a result of processing procedures. HMRC will not seek to recover these amounts.