By Daniel Hunter
The value of Corporation Tax refunds paid out by HMRC leapt by £2 billion last year to £7 billion, up 40% from £5bn the year before, says UHY Hacker Young, the Chester-based accountancy firm.
UHY Hacker Young says that long delays in HMRC paying Corporation taxes refunds cause serious problems for businesses that may already be struggling financially.
Large companies pay Corporation Tax to HMRC in quarterly instalments starting half-way through the year, based on what they project their profit to be for the year.
A refund will become due from HMRC when a business’ yearly profits prove to be lower than expected or when a business makes a loss — in this case, businesses are paid a refund from their Corporation Tax paid in previous years. A small to medium sized enterprise (SME) may also claim a research and development (R&D) credit if it does not have profits for the period concerned.
“Businesses face a real lottery on Corporation Tax refunds. Quite often, HMRC can be quite slow in returning overpaid tax or tax relief to a business. Some businesses do receive a refund quickly, but others will have to wait months to receive a payment," John Ierston, Partner at UHY Hacker Young, said.
“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.
“Refunds can be worth a significant amount to a business so the missing funds could cause cashflow problems. It’s rare, but there have been occasions when a business has gone bust while waiting on a refund to be paid by HMRC. The refund that HMRC is sitting on could be the lifeline that helps a company stay in business.”
UHY Hacker Young says that Corporation Tax refunds can be worth a lot to individual companies. Last year, the average amount paid out for each approved claim was £20,231.
“Businesses should always double check to see if they are eligible for a Corporation Tax refund at the end of the year. They may be eligible for an over-payment refund, loss relief or R & D credit relief. A significant amount of money can be at stake and HMRC is unlikely to pay a refund without being asked to first," Ierston said.
UHY Hacker Young adds that 346,000 businesses received Corporation Tax refunds from HMRC last year.
“The number of Corporation Tax refund requests that HMRC receives is not that large in the scheme of things — especially when compared to the millions of self-assessment tax returns that HMRC receives — but the organisation still struggles to process them quickly," said Ierston.
“Further cuts to HMRC’s budget and the re-allocation of funds to focus on tax avoidance and evasion issues could be leaving HMRC under-resourced for basic processes.”
UHY Hacker Young says the jump in the number of refunds issued by HMRC is probably down to the slower than anticipated economic recovery or greater awareness of R & D relief.
“The sharp increase in the number of businesses applying for refunds suggests that businesses have been over-confident about their profit predictions recently. Many businesses were clearly expecting the economy to recover much faster than it has done," Ierston concluded.
“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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