Covid-19: HMRC clarifies corporation tax refund

HMRC has now recognized that in exceptional circumstances claims for refunds of corporation tax for earlier periods based on anticipated losses before the end of the current accounting period will be considered.

ICAEW Tax Faculty Technical Lead Angela Clegg, who had raised the issue with HMRC, said: “The changes to the guidance are helpful and it will be interesting to see how this translates into practice.”

“This will involve a careful balance between securing cash for affected businesses within a reasonable time frame and appropriate due diligence by HMRC.”

ICAEW representations pointed out that while it was clear that the Quarterly Installment Scheme (QIP) allowed for the reimbursement of excessive installments in the current accounting period, the situation regarding excessive QIPs paid under the previous period (when the current period had not concluded) was less certain.

Updated guidance from HMRC addresses this concern.

Businesses will be required to provide evidence to substantiate claims and substantiate the quantum of any loss expected to accrue. They will need to demonstrate that the losses are so substantial that they will comfortably house any current period income and prior period taxable profits relevant to the claim.

However, the guidelines state: “….it will be extremely difficult for a company to provide adequate evidence during the first part of its accounting period.

“Even a drastic downturn in a company’s business environment may reverse in the latter part of the period, or its position may be mitigated by the recognition of a windfall capital gain or income item.

“All claims for anticipated losses must be critically and fully investigated. The evidence required to validate such a claim must be considered strictly as there will often be considerable doubt about the company’s earnings position in the months ahead.

HMRC has provided similar guidelines for corporation tax refunds made on the normal payment due date (usually nine months and one day after the end of the accounting period). Similar principles apply, whereby a company can make a loss carry-forward claim based on an anticipated loss in the current accounting period that has not ended, subject to a high evidentiary requirement.

ICAEW says it is clear that each case will be considered by HMRC on its own facts and circumstances and there will be no hard and fast rules. However, the more information claimants can provide to substantiate losses, the better.

This could include revised profit and loss forecasts; management accounts and draft tax statements; the detailed reasoning and assumptions underlying the figures submitted; and board reports and any public statements regarding the company’s business position.

Companies could also consider submitting any documentation that has been shared with regulatory or financial institutions or that confirms that these are the same forecasts used for internal planning purposes, as well as external evidence that supports the fact. that the issues involved are unlikely to be resolved in the short term, such as sector or industry comments.

HMRC guidance on corporation tax refunds:

CTSA: monthly payments: prepayment

Self-assessment of corporate tax (CTSA): payment obligation: reimbursement before definitively established liability