Anticipated losses can be used to recover corporation tax in “exceptional circumstances”

HMRC has updated paragraphs CTM92090 and CTM92650 of its Corporations Tax Handbook to confirm that corporations may, in ‘exceptional circumstances’, reclaim corporation tax where the claim is dependent on events occurring in the course of a subsequent accounting period that has not ended at the time of the claim. Taxpayers will welcome this announcement, given the magnitude of the losses apparently suffered in some industries during the COVID19 pandemic.

Corporation tax is paid by reference to accounting periods and, as a rule, is payable nine months after the end of the relevant accounting period. Section 6 of the Corporation Tax (Spread Payments) Regulations 1998 (SI 1998/3175) provides that a company may claim a refund of corporation tax where it has reason to believe that ‘a change in circumstances since a down payment was made has made the initial calculation excessive.

Although the regulation makes it clear that corporation tax which has been overpaid can be recovered once the accounting period to which it relates has been closed, the situation is less clear when the recovery requires the compensation of losses incurred during of a later current period.

Businesses will need to provide evidence to HMRC to demonstrate exceptional circumstances.

The updated paragraphs can be viewed here and here.

Luisa D. Fuller