Businesses claimed back £11.5bn in overpaid corporation tax from HMRC last year, as the amount of overpaid corporation tax repaid to businesses rose by 26%, up from £9.1bn the year before, according to research by UHY Hacker Young.
According to the group, businesses pay corporation tax based on “forecast profits for the following year”, making it easy for companies to overpay tax if profits “fall below their expectations”.
UHY Hacker Young said it is likely that these refunds are just the “tip of the iceberg” as many of them only “reflect losses suffered by businesses in the early part of the pandemic”.
In the March Budget, the government introduced a temporary extension to ‘loss relief’ rules, allowing businesses to reclaim losses made during Covid from corporation tax they have paid in the last three years, rather than the usual one year.
In addition, the group said that a lot of businesses have “not filed their tax returns covering the full lockdown period yet” and with many businesses unable to trade over the past year, UHY said it is likely that some companies will be facing “big losses”.
As a result, far more businesses than usual will have overpaid corporation tax, meaning refunds are “expected to rise even further in the coming months”.
Nikhil Oza, corporate tax director at UHY Hacker Young, said: “Businesses are already overpaying billions in corporation tax under HMRC’s current collection system. Accounting for Covid-related losses on top of this will only see refunds jump even further.
“Businesses ought to make use of the government allowing them to reclaim losses against three years of corporation tax bills instead of just one – particularly those facing huge losses due to the pandemic.”
He added: “Unfortunately, it will be down to the business to spot any corporation tax it has overpaid HMRC and to instigate the refund process. Failure to do so means HMRC will keep the money it’s not actually owed.”