News

April 19, 2013

40% jump in corporation tax refunds

The value of corporation tax refunds paid out by HM Revenue & Customs (HMRC) leapt by £2bn last year to £7bn, up 40% from £5bn the year before, according to accountancy firm UHY Hacker Young.

That means 346,000 businesses received corporation tax refunds from HMRC last year – and the average amount paid out for each approved claim was £20,231.

The main reason for the rise in the number of refunds is likely to be poor business performance, said John Ierston, partner at UHY Hacker Young. "The sharp increase suggests that businesses have been over-confident about their profit predictions recently. Many businesses were clearly expecting the economy to recover much faster than it has done. The rise may also include increased Research & Development relief payments made to small businesses following the rise in the value of the relief to 200% from 175%."

Ierston warned that delays in HMRC paying refunds might cause serious problems for businesses, especially those that are already struggling. He said: "Businesses face a real lottery on corporation tax refunds. Quite often, HMRC can be quite slow in returning overpaid tax or tax relief to a business. Some businesses do receive a refund quickly, but others will have to wait months to receive a payment."

He added: "Refunds can be worth a significant amount to a business so the missing funds could cause cashflow problems. It's rare, but there have been occasions when a business has gone bust while waiting on a refund to be paid by HMRC. The refund that HMRC is sitting on could be the lifeline that helps a company stay in business."

Businesses should always double-check to see if they are eligible for a corporation tax refund at the end of the year, said Ierston. "They may be eligible for an over-payment refund, loss relief or R&D credit relief. A significant amount of money can be at stake and HMRC is unlikely to pay a refund without being asked to first."