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Covid-19 : Business Support 10.07.20 – Update 41

Repayment of corporation tax for prior periods based on anticipated losses

Many industries have been adversely affected by the Covid-19 pandemic, and as a result many companies may have substantial tax losses in the current accounting period which they could offset against taxable profits of the prior period to claim a corporation tax refund. Normally offsetting these losses and claiming a tax refund can only occur once the current accounting period has concluded and the losses are quantified by the submission of a corporation tax return form. However in light of the exceptional circumstances many companies are now facing HMRC has provided additional support in respect of anticipated losses.

Repayment of corporation tax for prior periods
HMRC has updated its corporation tax manual, available at CTM92650, to outline that in exceptional circumstances claims for repayments of corporation tax for prior periods based on anticipated losses before the current accounting period has concluded will be considered. HMRC has provided similar guidance, available at CTM92090, in respect of the repayment of corporation tax already made for the current period.

In all cases companies will be required to provide evidence to substantiate claims and support the quantum of any losses expected to arise (see below).

HMRC has provided the following example in their manuals. A company pays tax for accounting period 1 (AP1). During accounting period 2 (AP2) the company believes it will make a loss that it intends to carry back to AP1. The relevant claims can be made before the end of AP2 in exceptional circumstances where the expected allowable tax losses will be so great in AP2 that they are likely to comfortably exceed any relevant profits in AP2 and the amount of taxable profits of AP1 that relate to the repayment claim.

Repayment of quarterly instalment payments
Furthermore, there may be instances when a company has made quarterly instalment payments and subsequently has grounds for believing that due to a change in circumstances:

  • its total liability for the accounting period is likely to be less than previously calculated; and
  • the total amount it has paid is greater than the amount, based on the revised calculation, that has so far become due to pay.

If the above circumstances apply, then a company may apply for a repayment claim of the excess amounts. Normally HMRC do not accept any claims that depend on events in a subsequent accounting period that has not ended at the time of the claim. However HMRC has also confirmed that in exceptional circumstances they will consider the repayment of excessive instalment payments paid in respect of the prior period where the current period has not concluded. Again companies will be expected to provide HMRC with full evidence to support such claims.

Evidence to support claims
Companies will be required to provide evidence to support claims in respect of any losses that they expect to accumulate. Evidence will also need to be provided to demonstrate that the losses are so significant that they will comfortably shelter any income of the current period and the taxable profits of the prior period relevant to the claim.

The guidance outlines 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.

HMRC will review individual cases based on their own circumstances, however, the more information that claimants can provide to substantiate the losses, the better. Evidence to support claims will include:

  • Revised profit and loss forecasts;
  • Management accounts and draft tax computations;
  • Detailed reasoning and assumptions behind any figures submitted;
  • Reports from the Board of Directors and any public statements made concerning the company’s trading position;
  • Documents which have been shared with regulatory or financial institutions or confirm that these are the same forecasts used for internal planning purposes;
  • Confirmation that the company is not expecting any exceptional income or gains in the existing accounting period; and
  • External evidence which supports the fact that the issues involved are unlikely to be resolved in the short term – this could include sector or industry commentary.

If your company paid corporation tax in a prior accounting period and has incurred substantial losses as result of Covid-19 please do not hesitate to contact us to discuss the process and likelihood of claiming an early corporation tax refund from HMRC.

ASM Contacts

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Grainne Quinn – Magherafelt
grainne.quinn@asmmagherafelt.com

Ian Finnegan – Newry
ian.finnegan@asmnewry.com

Caroline Keenan – Belfast
caroline.keenan@asmbelfast.com

Michael P. O’Hare – Dundalk
michael.p.ohare@asmdundalk.com

Alistair Cooke – Dungannon
alistair.cooke@asmdungannon.com