HMRC has updated its company tax manual outlining when companies can make claims for repayments of corporation tax based on anticipated losses, in light of the exceptional circumstances many industries are facing during the Covid-19 pandemic
HMRC has 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 addresses this concern.
Companies will be required 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 and 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.
‘Even a drastic downturn in a company’s trading environment may reverse in the later part of the period, or its position could be mitigated by the recognition of an unexpected capital gain or revenue item.
‘All claims for anticipated losses must be examined critically and in full. The evidence required to validate such a claim should be viewed strictly as there will often be considerable doubt about the company’s profit position in future months.’
HMRC has provided similar guidance regarding repayment of corporation tax made on the normal due date for payment (usually 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 each case will be reviewed by HMRC based on its own facts and circumstances and 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.
Companies could also consider submitting any documents which have been shared with regulatory or financial institutions or which confirm that these are the same forecasts used for internal planning purposes, as well as external evidence which supports the fact that the issues involved are unlikely to be resolved in the short term, such as sector or industry commentary.
HMRC guidance on repayments of corporation tax: