HMRC internal manual

Company Taxation Manual

Corporation Tax self-assessment (CTSA): the payment obligation: repayment before liability finally established

For payments made under the CT (Instalment Payments) Regs 1998/3175, see CTM92650.

Introduction

Note: Any tax that has been paid before the normal due date is repayable up until that normal due date without pre-conditions.  ‘Normal due date’ here means 9 months and 1 day after the end of the accounting period (TMA70/S59D (1)).

Repayments before liability is finally established

There may be occasions when a company seeks repayment after the normal due date:

  • before the company tax return has been filed, or
  • after the company tax return has been filed.

Under TMA70/S59DA (2) where:

  • the circumstances of the company have changed and
  • it has grounds for believing that it has paid too much tax and
  • its liability for the accounting period has not been finally established,

the company may apply for a repayment of the excess. 

Under Regulation 6 SI1998/3175 the rules are very similar, see CTM92650.

Conditions

A claim under Section 59DA cannot be made before the date when the company would become entitled to any interest under ICTA88/S826.  For most types of tax this will be the normal due date but there are later dates for ICTA88/S455 tax, land remediation tax credits, and payable research and development tax credits (see CTM92310 onwards).   

Any Construction Industry Scheme deductions must be left out of account in determining whether the tax paid by the company exceeds its probable liability (TMA70/S59DA (7)).  Construction Industry Scheme deductions suffered after 6 April 2002 cannot be set against corporation tax liabilities.

Companies in a Group Payment Arrangement are dealt with under the GPA, and any repayment is claimed via the Group Payment Team under Clause 4 of the arrangement contract (see CTM97510).  But once a GPA has been ‘closed’ for an accounting period and money apportioned to the participating companies, any claim for repayment before the liability has been finally established should be made to the technical caseworker under Section 59DA, unless payment was made by a large company by way of instalments, when Regulation 6 applies (see CTM92650).

How to deal with a claim under Section 59DA

The company must give notice to an officer stating the amount which it considers should be repaid together with the change of circumstances and grounds for believing that the amount paid exceeds the company’s probable liability to CT.

You should treat such applications on their merits.  We do not generally accept as valid any grounds that depend on events in a subsequent accounting period that has not ended at the time of the claim. 

The most common example of this will be a company that has paid tax for accounting period 1 (AP1) and during accounting period 2 (AP2) believes it will make a loss that it intends to carry back to AP1.  Until the accounting period has ended no allowable loss has crystallised and the company cannot anticipate losses/reliefs and obtain repayment.  The reason for this is because loss relief claims under CTA10/S37 require that AP2 losses are first set against profits of that accounting period before the remainder can be carried back. Until AP2 has ended, the full extent of the profits and losses of that accounting period cannot be determined with any degree of certainty.  This means that in practice it is very difficult to establish that a specified amount will be available for carry back and to produce an accurate revised calculation of liability.

After the end of AP2 you may accept draft accounts or management accounts as evidence the company has grounds for believing that it has paid too much tax.

Claims based on anticipated losses: exceptional cases

Officers may, however, consider Section 59DA claims made before the end of AP2 in exceptional circumstances where, for example, the expected allowable tax losses will be so great in AP2 that they are likely to comfortably exceed any relevant income in AP2 and the amount of taxable profits of AP1 that relate to the repayment claim.  Claims should take into account how much of the accounting period has expired, any possible upturn in revenue and any other factors that may affect the ultimate AP2 loss position of the company. 

Companies will be expected to provide HMRC with full evidence to support such claims.  The level of evidence required will depend on the particular fact pattern of the company so each claim must be considered on a case-by-case basis.  However, where a claim is made before the end of AP2 then, in addition to management accounts, HMRC would expect to see forward looking reports to the company’s board of directors and any relevant public statements.  Where the evidence provided is deemed insufficient, HMRC should open an enquiry under TMA70/SCH1A in order to obtain relevant evidence before accepting the claims. 

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)