Due to the exceptional circumstances that many industries and organisations are facing during the COVID-19 pandemic, HMRC has updated its guidance on repayments of corporation tax.
Claims for repayments of corporation tax for prior periods based on anticipated losses before the current accounting period has concluded will now be considered.
Having previously raised the issue with HMRC, the Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) welcomed the new guidance.
Update to HMRC’s internal Company Tax Manual
In an update to its internal Company Tax Manual, HMRC said that repayment of Quarterly Instalment Payments (QIPs) will require companies to submit evidence in support of claims and to demonstrate the amount of the losses they expect to incur.
HMRC guidance indicates that: “It will be extremely difficult for a company to provide adequate evidence during the earlier part of its accounting period.” This is because when the date of the claim is further into the accounting period, there is less reliance on forecasts and the smaller the chance of any upturn or recovery of losses.
It’s a similar story with the repayment of Corporation Tax paid on the normal due date for payment, which tends to be nine months and one day following the end of the accounting period.
However, the guidelines still state that repayments will only be made in exceptional circumstances and that claims will be made based on the specific circumstances of each application.
To help businesses provide HMRC with the right information, the ICAEW suggested an application should include:
- Up-to-date profit and loss forecasts
- Management accounts and tax calculations
- Details reasoning and assumptions underpinning the figures submitted
- Reports from the Board of Directors and public statements concerning the company’s trading position
- Evidence that the forecasts submitted are the same as those used for internal planning
- Confirmation that the company does not expect exceptional income or gains during the current accounting period
- External evidence demonstrating the circumstances involved are unlikely to change in the short term.
Reaction from ICAEW
Angela Clegg, Technical Manager at the ICAEW’s Tax Faculty said: “The changes to the guidance are helpful and it will be interesting to see how this translates into practice. It will involve a careful balance between getting cash to affected businesses in a reasonable timeframe and appropriate due diligence by HMRC.”
Back in May, ICAEW’s Tax Faculty urged HMRC to facilitate refunds of instalment payments of corporation tax that companies believe they have overpaid in respect of prior periods due to the impact of coronavirus.
Given the circumstances, ICAEW submitted representations asking HMRC to extend further support to businesses and facilitate a repayment of overpaid tax as soon as possible either by using its existing powers under the QIPs regulations or HMRC’s wider powers for change, s76, Coronavirus Act 2020, which states: “Her Majesty’s Revenue and Customs are to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease.”