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Corporation Tax repayments during COVID-19

In this blog we look at how businesses, who have been adversely affected by COVID-19 and are expecting to make a loss this financial year, may be able to make a loss carry-back claim early in order to access the tax ‘benefit’ in a more timely manner.

With many companies expected to report a financial loss in 2020, there may be an opportunity to claim a repayment of the 2019 corporation tax liability earlier than they normally would. This provides a potential cash flow benefit as tax refunds can be accelerate and a potential claim should be considered as part of the overall tax payment strategy of the company.

Normal position

Normally, where there is a tax liability due in respect of say year end (YE) 31 December 2019 with losses arising in the following period, e.g. YE 31 December 2020, the company would still be required to pay the full corporation tax  liability for 2019 by its usual deadline. The company could then request a refund on submission of the 2020 return if a loss carry back claim from 2020 to 2019 is made.

The drawback of the claim is that it would not normally be accepted by HMRC until:

  • The 2020 statutory accounts have been finalised and submitted to Companies House, and
  • The final tax return has been received

This can be several months after the year end, thus the tax ‘benefit’ of the loss claim is delayed until a much later date.

Temporary position

In broad terms, where a company can demonstrate to HMRC that it is expecting to make substantial losses in 2020, the loss carry-back claim can be submitted earlier, before the relevant 2020 accounts have been finalised. The claim can be made during the current 2020 financial year; there is no need to wait for the year end to pass

Companies will be expected to provide HMRC with full evidence to support such claims. The level of evidence required will depend on the particular fact pattern of the company so each claim must be considered on a case-by-case basis. However, where a claim is made before the end of current financial year then, in addition to management accounts, HMRC would expect to see forward looking reports to the company’s board of directors and any relevant public statements. Where the evidence provided is deemed insufficient, HMRC could request further evidence.

The ability to make such a claim is available for companies of all sizes, including companies who pay corporation tax under the quarterly instalment payments (QIPs) regime.

Other taxes

Many companies have deferred their VAT and/or PAYE payments, in addition to corporation tax payments. As a company looks to settle its outstanding tax liabilities over the coming months, time to pay (TTP) arrangements are anticipated as being a useful tool to manage the tax debt in an achievable way. The ability to make a provisional loss carry-back claim should be considered as part of any TTP arrangement.

If you have any queries about claiming a repayment, please contact me or your usual PKF Francis Clark contact.

 

 

 

 

 

 

 

FEATURING: Adam Kefford
Adam is based in the Exeter office within the tax consultancy team. His expertise covers corporate and business taxes, and he spends much of his… read more
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