Businesses claimed back £11.5bn in overpaid corporation tax from HMRC last year, as Covid losses hit, says UHY Hacker Young, the national accountancy group. The amount of overpaid corporation tax being repaid to businesses jumped 26% from £9.1bn the year before.
Businesses pay corporation tax based on forecast profits for the following year, making it easy to overpay tax if profits fall below their expectations – which will have been the case for most companies during the pandemic.
UHY Hacker Young says it’s likely that these refunds are just the tip of the iceberg as many of them only reflect losses suffered by businesses in the early part of the pandemic.
In the March Budget, the Government introduced a temporary extension to ‘loss relief’ rules, allowing businesses to reclaim losses made during Covid from corporation tax they have paid in the last three years, rather than the usual one year. By doing so, more businesses should be able to claim a refund.
UHY Hacker Young says if a business does not spot that it has overpaid corporation tax, HMRC will hold onto their money. Given the size of losses that businesses have suffered due to Covid, it’s vitally important that businesses seek expert advice to ensure they are reclaiming as much overpaid corporation tax as they can.
A lot of businesses have not filed their tax returns covering the full lockdown period yet and with many businesses unable to trade over the past year, it’s likely some will be facing big losses. As a result, far more businesses than usual will have overpaid corporation tax, meaning refunds are expected to rise even further in the coming months.
Nikhil Oza, Corporate Tax Director at UHY Hacker Young, says: “Businesses are already overpaying billions in corporation tax under HMRC’s current collection system. Accounting for Covid-related losses on top of this will only see refunds jump even further.”
“Businesses ought to make use of the Government allowing them to reclaim losses against three years of corporation tax bills instead of just one – particularly those facing huge losses due to the pandemic.”
“Unfortunately, it will be down to the business to spot any corporation tax it has overpaid HMRC and to instigate the refund process. Failure to do so means HMRC will keep the money it’s not actually owed.”