Businesses overpaid £11.5bn in corporation tax in 2020

The amount of overpaid corporation tax being repaid to businesses jumped 26 per cent to £11.5 billion in 2020 from £9.1 billion the year before.

According to UHY Hacker Young's Nikhil Oza, given that businesses pay corporation tax based on forecast profits for the following year, it's easy to overpay tax if profits fall below their expectations – which will have been the case for most companies during the pandemic.

"It’s likely that these refunds are just the tip of the iceberg as many of them only reflect losses suffered by businesses in the early part of the pandemic," Mr Oza said. 

In the March budget, the government introduced a temporary extension to ‘loss relief’ rules, allowing businesses to reclaim losses made during COVID from corporation tax they have paid in the last three years, rather than the usual one year. By doing so, more businesses should be able to claim a refund.  

However, those businesses that didn't spot they had overpaid corporation tax, HMRC will hold onto their money. As such, and given the size of losses that businesses have suffered due to COVID, it’s vitally important that businesses seek expert advice to ensure they are reclaiming as much overpaid corporation tax as they can, Mr Oza said. 

“Businesses are already overpaying billions in corporation tax under HMRC’s current collection system. Accounting for COVID-related losses on top of this will only see refunds jump even further,” he explained.  

“Unfortunately, it will be down to the business to spot any corporation tax it has overpaid HMRC and to instigate the refund process. Failure to do so means HMRC will keep the money it’s not actually owed.”