Corporation Tax refunds from HM Revenue & Customs (HMRC) rose by £2bn last year, to £7bn up from £5bn in 2011, which means that 346,000 businesses received corporation tax refunds with the average amount being paid out for each approved claim totaling around £20,231.

It is likely that the main reason for the rise in the number of refunds is because of over-confidence by firms about their profit predictions and because many businesses were expecting the economy to recover much faster than it has done.

The rise may also include increased Research & Development (R&D) relief payments made to small businesses following the rise in the value of the relief from 175 per cent to 200 per cent.

However, it is very likely that firms may face delays in getting their refunds, which could cause them cash flow problems. Since refunds can be worth a significant amount to a business, a delay can cause substantial problems. In fact, although it is rare, some firms have been known to go bust whilst waiting for their refund.

Firms should always double-check to see if they are eligible for a corporation tax refund at the end of the year, as 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. Firms should also note that a corporation tax refund will become due when a business’s yearly profits prove to be lower than expected or when a business makes a loss; in this case, businesses are paid a refund from their corporation tax paid in previous years.

London accountant, Darren Specterman specialises in providing corporate tax advice and guidance.

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