HMRC refund 2b in corporation tax

HMRC was guilty of overcharging corporation tax to businesses £7bn last year putting their survival at risk as a result, reports accountants Northampton Harris & Co.

The value of tax refunds for financial year 2011/12 increased 40% on figures for the previous 12 months - a rise of £2bn.

Large companies pay their corporation tax in four instalments across the year based on projections of their profit for the year, with a refund due when estimations are lower than expected.

UHY Hacker Young is concerned, however, that for those struggling to balance the books, the rise in overpaid tax could be having dire consequences for some of the businesses.

John Ierston, partner at UHY Hacker Young, says:

‘Refunds can be worth a significant amount to a business so the missing funds could cause cashflow problems. It’s rare, but there have been occasions when a business has gone bust while waiting on a refund to be paid by HMRC.’

The situation can be exasperated, when the refund is not promptly returned as Ierston explains:

‘Businesses face a real lottery on Corporation Tax refunds. Quite often, HMRC can be quite slow in returning overpaid tax or tax relief to a business. Some businesses do receive a refund quickly, but others will have to wait months to receive a payment.’

The Chester-based firm has calculated that the average amount paid out by HMRC for each approved claim was £20,231 last year.