Businesses overpaying corporation tax rise 26% to £11.5bn

The companies claimed a record £11.5billion in corporation tax overpaid to HMRC last year, a 26% jump from £9.1billion the previous year, according to data from accounting firm UHY Hacker Young, shared with AM City this afternoon.

The company stressed that it is “extremely likely” that these refunds are “just the tip of the iceberg”, as many of them only reflect the losses suffered by companies at the start of the pandemic.

Companies pay corporation tax based on expected profits for the following year, making it easier to overpay taxes if profits fall short of their expectations, which will have been the case for most companies during the pandemic.

“Loss compensation” rules

In the March budget, the government introduced a temporary extension to the ‘loss reduction’ rules, allowing businesses to recoup losses incurred during Covid from the corporation tax they paid over the past three past years, rather than the usual year.

By doing so, more businesses should be able to claim a refund.

If a business does not find that it has overpaid corporation tax, HMRC will keep its money, UHY Hacker Young has pointed out.

Many businesses have yet to file their tax returns covering the entire lockdown period and with many businesses unable to trade over the past year, some are likely to suffer big losses, the company added.

As a result, many more businesses than usual will have overpaid corporation tax, meaning refunds are set to rise further in the months ahead.

Amount of corporate tax overpaid by companies: up 26% over last year

“Companies already pay billions in corporation tax under HMRC’s current collection system. Accounting for Covid-related losses on top of that will only drive up refunds even more,” explained Nikhil Oza, director of corporate tax at UHY Hacker Young.

“Unfortunately, it will be up to the business to track down any corporation tax it has overpaid to HMRC and initiate the process of refunding it. Failure to do so means HMRC will keep the money that is not theirs. really owed,” he concluded.