TT328: Will you be due a corporation tax refund?

August 25, 2020

With many industries facing uncertain times due to the COVID-19 pandemic, with those worse affected being the hospitality, tourism and aviation sectors, HMRC have issued an update to their guidance on repayments of corporation tax. With many companies expecting unprecedented losses in their current accounting periods, HMRC has now acknowledged that, in exceptional circumstances, claims for repayments of corporation tax for prior periods based on anticipated losses before the current accounting period has concluded, will be considered.

Repayment of quarterly instalment payments (QIPs)

Although it was previously clear that the QIPs regime allowed for repayment of excessive instalments in the current accounting period, the position in respect of excessive QIPs paid in respect of the prior period (where the current period had not concluded) was less certain. The updates to HMRC guidance will offer welcome support for businesses.

HMRC have stated that Companies will be required to provide evidence to substantiate claims and support the quantum of any losses expected to accumulate. They will need to demonstrate that the losses are significant enough to comfortably cover any income of the current period and the taxable profits of the prior period relevant to the claim.

However, as you would expect, HMRC’s guidance does indicate that: “It will be extremely difficult for a company to provide adequate evidence during the earlier part of its accounting period.” This is because when the date of the claim is further into the accounting period, there is less reliance on forecasts and the smaller the chance of any upturn or recovery of losses.

Repayment of corporation tax (paid on the normal due date for payment)

Similar guidance has been provided by HMRC in respect of repayment of corporation tax made on the normal due date for payment (usually nine months and one day after the accounting period ends). Similar principles apply whereby a company can make a claim to repayment of corporation tax paid based on an anticipated loss in the current accounting period which has not concluded, subject to a high evidence requirement.

So what types of information should be included in a claim? Whilst HMRC will review each case on its own merit, there are no hard and fast rules in respect of what information needs to be provided. However, the more information you can provide to substantiate the losses, the better.

The types of information which would be useful to provide as part of any claim include:

  • Updated profit and loss forecasts.
  • Management accounts and draft tax computations.
  • Detailed reasoning and assumptions behind any figures submitted.
  • Summary from the Board of Directors concerning the company’s trading position.
  • Confirmation that the company is not expecting any exceptional income or gains in the existing accounting period.
  • External evidence which supports the fact that the issues involved are unlikely to be resolved in the short term – this could include sector or industry commentary.

It will be interesting to see how this translates into practice but should you believe that your business will be in this position, then please contact your partner at Barnes Roffe for further guidance and assistance.


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