HMRC have issued an update to their guidance on repayments of corporation tax. They have now acknowledged that, in exceptional circumstances, claims for repayments of corporation tax for prior periods based on anticipated losses before the current accounting period has concluded will be considered.
Angela Clegg, technical manager in the ICAEW tax faculty, which had raised the issue with HMRC, said:
‘The changes to the guidance are helpful and it will be interesting to see how this translates into practice.
‘It will involve a careful balance between getting cash to affected businesses in a reasonable timeframe and appropriate due diligence by HMRC.’
ICAEW representations pointed out that although it was clear that the quarterly instalment payments (QIPs) regime allowed for repayment of excessive instalments in the current accounting period, the position in respect of excessive QIPs paid in respect of the prior period (where the current period had not concluded) was less certain.
Updated HMRC guidance on repayments of corporation tax addresses this concern.
Companies will have to provide evidence to substantiate claims and support the quantum of any losses expected to accumulate. They will need to demonstrate that the losses are so substantial that they will comfortably shelter any income of the current period. Also that the taxable profits of the prior period relevant to the claim.
However, the guidance states: ‘it will be extremely difficult for a company to provide adequate evidence during the earlier part of its accounting period.
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This is because when the date of the claim is further into the accounting period, there is less reliance on forecasts and the smaller the chance of any upturn or recovery of losses.
The guidance further assures to examine all claims for anticipated losses critically and in full. In addition, the required evidence to validate such a claim should be viewed strictly.
HMRC has provided similar guidance regarding repayments of corporation tax made on the normal due date for payment. The normal due date usually is nine months and one day after the accounting period ends.
Similar principles apply whereby a company can make a loss-carry-back claim based on an anticipated loss in the current accounting period which has not concluded, subject to a high evidence requirement.
ICAEW says it is clear that HMRC will review each case on the basis of its own facts and circumstances. Although, there will not be any hard and fast rules. However, the more information that claimants can provide to substantiate the losses, the better.
This could include revised profit and loss forecasts; management accounts and draft tax computations; detailed reasoning and assumptions behind any figures submitted; and reports from the board and any public statements made concerning the company’s trading position.
