HMRC may allow tax refunds for anticipated company losses
HM Revenue and Customs (“HMRC”) have recently announced that they may allow limited companies to make claims for loss relief and tax refunds even though the current accounting period has not yet ended and the corporation tax return has not been submitted. This will be available to companies of all sizes but they will be required to provide evidence to support the claims.
REFUNDS OF QUARTERLY INSTALMENT PAYMENTS
Companies with profits in excess of £1.5 million are required to make quarterly instalment payments (QIPs) of their corporation tax liability much earlier than the normal payment date which is 9 months after the end of the accounting period.
For year ended 30 June 2020 a company with profits between £1.5 million and £20 million would be required to pay 25% of the estimated liability on 14 January 2020, 50% on 14 April with further payments due on 14 July and 14 October 2020. Where profits exceed £20 million the payments are due 3 months earlier.
If, following a review at the next instalment payment date, the latest management accounts and forecasts can illustrate that the company’s corporation tax liability will be less than expected, you can make a claim for a repayment (full or partial) for your instalments.
HMRC advise that the claim must be made to an officer of HMRC and has to state:
- The amount which the company consider should be repaid
- Grounds for believing that:
- The amount of the total liability for the period is likely to be less than previously calculated, and
- The cumulative payments exceed the revised calculation of the liability.
In HMRC’s guidance they state that the following would be required in order to substantiate the claim:
- Revised profit and loss forecasts – supported by detailed reasoning and assumptions underlying them
- Latest management accounts evidencing any loss or drop in profit
- Be able to demonstrate that for the remainder of the accounting period, the company historically has not generated profits during this timeframe which would cover the current loss position, e.g. a company could have more profits over the Christmas period
- Confirm that they are not anticipating any exceptional gains or other taxable amounts in the remainder of the accounting period.
Note that the £1.5 million and £20 million limits referred to above are divided by the number of companies under common control so for example the limit
would be £500,000 per company if there are 3 companies in a group.
CARRY BACK TO PREVIOUS ACCOUNTING PERIOD
Where company profits are below the £1.5 million limit then QIPs will not be due but companies may still be able to make a claim to set a loss against
profits of the previous accounting period and obtain a tax repayment where losses are anticipated. HMRC would expect to see evidence similar to the
repayment of QIPs for any such claims.
We can of course help you make a claim and negotiate a tax repayment with HMRC.
If you would like more information in relation to the above please do get in touch with our Tax Partners, Steve Crompton or Lucy Williams, on the details