UK business tax rebates hit £4.6bn

17 June 2014 -

While overall number of refunds has fallen, HMRC is still proving sluggish in its repayment of finances, new research has shown

HMRC gave back £4.6 billion in corporation tax to UK firms last year, according to national accountancy group UHY Hacker Young. Reflecting the tough trading environment experienced by many companies, around 286,000 firms received corporation tax rebates in the year ending 31 March 2013, with the average refunded sum coming to £16,000.

Some of the most common conditions in which companies can qualify for corporation tax rebates are:

1. If they pay instalments based upon predicted profits that they later fail to meet;

2. If they incur losses that can be offset against earlier profits;

3. If taxable profits have been reduced due to capital investment, or

4. SMEs may be eligible to claim R&D tax credits if they have not made profits during the relevant period.

According to UHY Hacker Young tax partner Roy Maugham, the research shows how vital it is for bosses of large and small businesses to monitor and assess how much tax they are paying on a continuous basis. “UK businesses are still finding that they are overpaying their corporation tax in the billions of pounds,” he said. “It shows how important it is for companies to regularly review any overpayment of tax, as HMRC will not be looking to see if it owes them money.”

Maugham stressed that HMRC must take greater responsibility to make tax repayments as quickly as possible, and said that any delays could 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,” he warned.

Overall corporation rebates saw a decline during the study period, with approved claims falling by 17% on the 346,000 recorded for 2011 to 2012. Maugham added: “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.”

However, as Maugham points out, HMRC only pays 0.5% interest on its overpayments, suggesting that refunded companies must take care to avoid the process in future to look after their financial health: “Getting tax bills right so that businesses aren’t paying more than they need to, or are claiming the right reliefs, would go a long way towards putting firms back onto a firmer financial footing – to the benefit of the UK economy as a whole,” he said.

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