Figures obtained by accountancy group, UHY Hacker Young reveal that some 286,000 businesses received a corporation tax rebate in the year to March 31, 2013 – equating to an average refund in overpaid tax of more than £16,000 each.
UHY Hacker Young explains that refunds can become due if larger companies, which have to pay in installments based on their projected profits for the year, undershoot those predictions.
However, they can also become due if a company has incurred losses that can be off-set against earlier profits or where taxable profits have been reduced due to capital investment. Smaller firms could also be eligible to claim a research and development tax credit if they have not made a profit during the relevant period.
Roy Maugham, Tax Partner at UHY Hacker Young, said: “UK businesses are still finding that they are overpaying their corporation tax in the billions of pounds.
“It shows how important it is for companies to regularly review any overpayment of tax as HMRC will not be looking to see if they owe them money.”
He added that it also shows how vital it is for HMRC to make repayments of overpaid corporation tax as quickly as possible. However, repayments can sometimes take between 12 and 24 months to organise with two to three months being fairly typical.
Roy Maugham said: “This can make the burden for companies struggling with unexpected losses or lower than anticipated revenues even heavier. It’s not unheard of for some to simply fold under the pressure in the meantime, as cash-flow dries up.
“Given that the number of rebates has been falling in the last few years, HMRC should be getting quicker but this doesn’t seem to be happening in reality.
“Companies have a difficult line to tread when it comes to accurately predicting their performance for the year ahead.
“If they underestimate their profits, HMRC will charge them interest on the difference underpaid. Overestimate profits and they could be handing over large amounts of tax unnecessarily to HMRC which will then have to be recovered."
HMRC only pays 0.5 per cent interest on their overpayments, so the disadvantages still outweigh the benefits.
The number of approved claims for corporation tax refunds is down 17 per cent on 2011/12 when there were 346,000. There were 386,000 in 2010/11.
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Susie Hughes © Shout99 2014