HM Revenue & Customs have confirmed that, in exceptional circumstances, repayments of corporation tax for previous accounting periods will be considered based on the anticipated losses of the current accounting period, even before that period has ended.

This can apply for companies who pay tax at the normal time (i.e. 9 months and 1 day after the end of the accounting period) and for those who are in the quarterly instalments regime.

Companies will need to be able to demonstrate that the losses of the current period are so substantial that they will comfortably exceed any other profits of that period and the taxable profits of the previous accounting period.

However, a very high level of evidence is required to substantiate the claim and HMRC’s guidance notes that a company will find it difficult to provide satisfactory evidence during the earlier part of the current accounting period.  In other words, sufficient time will need to have elapsed to give credence and greater certainty to the evidence of the loss.

What evidence do HMRC require?

There are no hard and fast rules.  Each case will be reviewed on its own merits and the more evidence that can be provided to validate the loss, the more likely it is that a claim will be successful.

Types of evidence could include:

  • Updated or revised profit and loss forecasts;
  • Management accounts and draft tax computations;
  • Detailed reasoning and assumptions behind the submitted figures;
  • Data illustrating seasonal trends;
  • Reports from the directors and any public statements made about the company’s trading position;
  • Documents which have been shared with regulatory or financial institutions;
  • Confirmation that the company is not expecting any exceptional income or gains; and
  • External evidence of the issues facing the company that are unlikely to be resolved in the short term, for example sector or industry commentary.

HMRC will take into account how much of the current accounting period has passed, any possible upturn in revenue as well as any other factors that may affect the ultimate loss position.

Exercising caution

Where insufficient evidence is provided, HMRC officers have been instructed to open an enquiry to obtain the relevant information to corroborate the repayment. Whilst the enquiry will be limited to aspects of the loss claim, this may result in additional costs.

If you have not done so already, you may wish to consider taking our fee protection insurance, which will cover the cost of our fees in dealing with an enquiry, before any loss claim is submitted.

Should a loss claim turn out to have been excessive, then the company may become liable to tax geared penalties if sufficient care has not been taken in making the claim.  Companies will need to retain the evidence that shows how the forecast losses were established and show that appropriate care and diligence were taken in preparing the claim.

Please get in touch with your usual contact at M+A Partners if you think your company may meet the criteria to make a claim or if you wish to discuss our fee protection insurance.