Why Your R&D Tax, VGEC or AVEC Claim Could Trigger Quarterly Instalment Payments

Companies claiming the Research & Development Expenditure Credit (RDEC), Audio-Visual Expenditure Credit (AVEC), or Video Games Expenditure Credit (VGEC) are currently at risk of stumbling into QIP territory. The credit income is currently included in the figure HMRC uses to determine whether you're a large company for Quarterly Instalment Payment purposes.

From April 2027, that changes. HMRC has confirmed it will legislate to exclude these credits from the QIP threshold calculation. But to understand why this matters, it helps to know how expenditure credits work and exactly how they create a cashflow problem for companies that weren't expecting to be in the QIP regime.

How do expenditure credits work?

RDEC, AVEC, and VGEC are "above the line" credits. They support companies carrying out qualifying R&D or producing films, TV or video games.

Unlike previous versions of the tax relief schemes, which operated as an enhanced deduction, expenditure credits are recognised as income in your profit and loss account. For example, a company incurring £1m of qualifying expenditure and claiming RDEC at 20% books a £200,000 credit as a receipt in its accounts. This income is taxed at your Corporation Tax rate, so this company receives £150,000 in tax benefits when the 25% CT rate is taken into account.

The credit is applied against your Corporation Tax liability in a specific order. Any amount remaining after offsetting against CT is paid out in cash by HMRC after your CT return has been filed and processed.

What are Quarterly Instalment Payments?

Large companies, broadly those with annual profits above £1.5m (adjusted for associated companies and short accounting periods), don’t have the standard nine-month deadline to pay their Corporation Tax. Instead, they must pay in quarterly instalments throughout the year. You can find more information on QIP thresholds in HMRC’s guidance webpage.

For a standard 12-month accounting period, the instalments fall in months 7, 10, 13, and 16. Very large companies with profits above £20m face an even earlier schedule, with payments starting in month 3.

The instalment amounts are based on estimated liability for the current year, not the previous one. That means calculating and paying tax before your accounts are finalised, before your R&D claim is quantified, and often before you have a complete picture of the trading year.

The QIP threshold calculation

HMRC determines whether you're in the QIP regime using a measure called augmented profits. This includes your taxable profits plus certain dividends received from non-group UK companies. Currently, it also includes the credit income from RDEC, AVEC, and VGEC.

Here's where the problem bites. Take a company with £1.2m in trading profits that receives a £400,000 RDEC credit. Its augmented profits come to £1.6m, nudging it over the £1.5m threshold. It's now in QIP for that period, despite its underlying trading activity sitting comfortably below the threshold.

In practice, this means:

• The company must begin estimating and paying Corporation Tax during the accounting period, well before the return is filed
• The RDEC credit that triggered QIP status won't be received as cash until after the return is processed, often nine to twelve months after the period end
• The company is therefore accelerating its tax payments because of income it hasn't yet received

You're paying tax earlier because of a credit that hasn't landed yet. And the companies most likely to be caught by this are mid-sized R&D-active businesses that aren't large in any meaningful commercial sense, they've simply received a credit that distorts the calculation.

What HMRC is changing from April 2027

HMRC has confirmed it will introduce secondary legislation to amend the definition of augmented profits for QIP purposes. From April 2027, RDEC, AVEC, and VGEC income will be excluded from the calculation entirely.

In straightforward terms: if the only reason your augmented profits exceed £1.5m is that you received one of these credits, you'll no longer be classified as a large company for QIP purposes. Your Corporation Tax reverts to the standard nine-month payment deadline.

The change is limited to QIP status. It doesn't affect how the credits are taxed, how they're recognised in your accounts, or how they interact with your CT liability in any other respect.

Who benefits, and who doesn't

This change will make a difference for companies whose augmented profits sit just above the £1.5m threshold because of a credit receipt. If you're a company with a significant R&D programme claiming RDEC, or an independent production company or games studio claiming AVEC or VGEC, and the credit is what's pushing you into QIP, April 2027 removes the administrative burden of managing quarterly instalments.

If your underlying trading profits are already above £1.5m independently of any credit income, you remain in QIP. The exclusion doesn't change that. And for very large companies well above the £20m threshold, the credits weren't the trigger in the first place, so the measure has no practical effect on them.

The companies this helps most are those who've been managing a QIP obligation they didn't expect and that doesn't reflect their actual size as a business.

Planning ahead

If you're currently in QIP because of RDEC, AVEC, or VGEC income, it's worth reviewing whether that position changes from April 2027 and updating your cashflow projections and CT payment schedules accordingly.

It's also worth checking whether your QIP instalment calculations for periods before April 2027 are correctly accounting for credit income. Miscalculating augmented profits is a common source of late payment interest, and if you're close to the threshold, the margin for error is small.

If you'd like to understand how this change affects your Corporation Tax position, or how your expenditure credits interact with your current tax profile, contact Myriad. We'll work through the numbers with you.