Following news that HMRC repaid nearly £5bn in Corporation Tax receipts to companies last year, a leading accountancy firm has urged companies to check to see if they are due a refund following a profits shortfall.
Although the economy is clearly on the mend, some firms are still experiencing challenging trading conditions. As a result, a significant number of companies are due Corporation Tax rebates. In fact, a total of £4.6bn was repaid to 286,000 companies for the year ending 31st March 2013.
There are a number of reasons why a company may be due a refund:
1. Larger firms (those making £1.5m of more in annual profits) tend to pay Corporation Tax in instalments, based on their projected profits for the current year. Should these profits fail to come in as expected, then they will have overpaid when it comes to year-end.
2. If a firm incurs losses, they may be offset against profits made during previous periods, reducing the overall Corporation Tax liability.
3. If a company invests in equipment during the year, this will reduce its overall CT liability. This could be an indicator of a company’s health, despite the reduction in taxable profits for the year in question.
Roy Maugham, Tax Partner at UHY Hacker Young, commenting on the latest figures said that “it shows how important it is for companies to regularly review any overpayment of tax as HMRC will not be looking to see if they owe them money.”
Given the sizeable sums involved (an average of £16,000 per claimant), Maugham says that firms shouldn’t waste any time when applying for a refund – especially when some firms have to wait between 12 and 24 months for a repayment (although 2-3 months is more typical).
Cash-flow management can also become an issue if large sums are owing to struggling firms – “It’s not unheard of for some to simply fold under the pressure in the meantime, as cash-flow dries up.”
The trouble for many firms lies in predicting profit levels for the year ahead. If you underestimate profits, HMRC will charge interest on the difference.
If your overestimate – you will end up overpaying Corporation Tax, and then be forced to wait for a repayment at the end of the tax year.