A leading accountancy firm has urged company owners to check if they are due a Corporation Tax refund from HMRC at the end of each year, as delays are not uncommon.
UHY Hacker Young says that there was a large jump in the amount of Corporation Tax refunded by HMRC over the past year – up from £5bn in financial year ending March 2011 to £7bn in 2012.
Larger companies are more likely to be owed money, as they pay Corporation Tax in advance (in quarterly payments), based on their previous year’s profits.
If profits in one year are lower than those in the previous year, due to recessionary pressures or a general decline in business, then HMRC will refund the overpaid tax.
However, in reality, many firms face a long wait to receive any refunded Corporation Tax, according to UHY Hacker Young.
A partner at the firm, John Ireston, says that the CT refund system is somewhat of a “lottery”, with some companies receiving a refund quickly, whereas others have to wait a number of months before their claim is processed.
In the current economic climate, any delayed payments can put extra pressure on businesses with poor cash flow:
“When a business has overpaid Corporation Tax, refund delays can be particularly galling as the money should be in a business’ bank account, not sat with HMRC. A missing Corporation Tax refund will aggravate the difficult financial situation a business might be in that led to the need for a refund in the first place.”
In fact, there have been rare situations where firms have gone into administration while waiting for an HMRC refund; “The refund that HMRC is sitting on could be the lifeline that helps a company stay in business.”
In the year ending March 31st 2012, almost 350,000 companies received CT refunds from HMRC, with an average payout of £20,231.
John Ierston urges companies of all sizes to check if they are eligible to claim a Corporation Tax refund – either due to simple over-payment, or due to loss relief or an R&D credit relief (it is worth noting that small companies can claim for an R&D credit if it has recorded no profits for the year in question).
Commenting on the significant rise in CT refunds between 2011 and 2012, Ierston suggested that many companies may have been “over-confident about their profit predictions recently”, clearly expecting the economic malaise to have given way to a more robust recovery by now.
“The rise may also include increased Research & Development relief payments made to small businesses following the rise in the value of the relief to 200% from 175%.”
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corporation tax,
hmrc,
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