Covid-19 results in early corporation tax repayment opportunity

HMRC has changed its guidance to provide early relief for companies who have suffered losses as a result of Coronavirus.

HMRC’s announcement has come about as a result of lobbying from the Chartered Institute of Taxation and other professional organisations. As a result of this change a company can receive a repayment of corporation it has paid in respect of its last filed accounting period or, if it is a large company, it can claim a repayment of quarterly instalment payments it has made even if that accounting period has not finished.

The rules allow a company that was previously profitable to carry losses back from a loss-making year to the previous year. Before the change in the guidance, HMRC required a final return to be submitted for the loss-making period before approving the claim to carry back losses. Therefore, companies would need to wait for the accounts to be approved before they can make a claim therefore suffering a significant cash flow disadvantage.

Where a corporation tax return for the loss-making year has not been submitted companies wishing to make an early claim to loss relief can write to HMRC to receive their agreement that an early claim can be made. For such a claim to be successful the company will need to provide enough evidence. The level of evidence required will depend upon the facts of the case however one would usually expect, as a minimum, a set of up to date management accounts showing a loss would be required.

HMRC might require further evidence such as board minutes where the results of the company are being consider or projections which indicate that there is no expected-up turn in the fortunes of the business in the immediate foreseeable future.

If a company believes that it might be able to make such a claim owing to the exceptional circumstances that have arisen as a result of coronavirus it should seek professional help to collate the evidence that is needed to ensure that a claim is successful without protracted enquiry from the tax authorities which would only serve to delay any repayment.

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If you need help with making an early claim for loss relief, please contact Dominic Bourquin or Stephanie Hurst.