Claiming a Corporation Tax Repayment Early

As lockdown rules are gently eased and businesses can gradually reopen many companies will be facing financial difficulties. Previously profitable companies are likely to have been pushed into a loss-making position in the last few months.

However, companies with year ends prior to January 2020 may have made a profit in this prior period and Corporation Tax will be falling due on these profits within the next few months.  Many of these companies will have insufficient funds to pay HMRC and will have to request a time to pay arrangement.

Under the Corporation Tax rules it has always been possible to carry back trading losses from a loss-making accounting period for relief against total profits of the previous 12 months.  However, relief for this loss would only be given upon submission of the Corporation Tax Return for the loss-making period.  This could be up to a year after the end of the relevant accounting period.

HMRC have recently confirmed a change in policy whereby they will now be willing to consider claims for a repayment before the end of the accounting period in which the losses are expected to arise. A company may wish to make an early repayment to assist with cashflow.

Companies wanting to make a claim will need to write to HMRC asking for an amendment to the prior year’s Corporation Tax return to include the loss carry back claim. For a claim to be accepted, the company will need to provide evidence that losses will be reported on the return for the loss-making period once submitted. To do this the following information will need to be provided:

1. Profit and loss forecasts
2. Management accounts for the period to date
3. Draft tax computations
4. Detailed reasoning/assumptions behind the figures submitted
5. Reports from the board of directors where financial performance was discussed

HMRC have stated that repayments will only be considered where the trading losses comfortably exceed any other profits in the current accounting period and the profits of previous 12 months that relate to the repayment claim. If insufficient information is provided with a claim, HMRC may request further details which is likely to slow any repayment due down. It will therefore be important to make sure that you provide them will all the necessary information and we can of course assist you with this.

HMRC will take a more critical view on whether an accounting period will be in a loss-making position where the company is in the earlier part of an accounting period, although no minimum period has been set for a claim. HMRC are taking this approach as they believe that the trading position could be reversed later in the accounting period or a capital gain may arise later in the accounting period which would need to be covered by the trading loss before any carry back claim can be made.

The information in this blog provides only an overview of  guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.