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HMRC internal manual

Debt Management and Banking Manual

Interest: Interest Review Unit (IRU): Corporation Tax (CT): CTSA Surrender of company tax refund within a group

Where one company within a group of companies is owed a refund for a specific accounting period, that company can ‘surrender’ the refund to another company in the group, for the same accounting period. The receiving company does not have to have an outstanding liability to absorb the surrendered amount for that accounting period.

At any time before the refund is actually made, the two companies may jointly give notice to HMRC that the surrender of some or all of the refund should be made. Surrender cannot be applied retrospectively. So, where a refund or reallocation has already taken place it should not be reversed or overridden to allow a surrender to replace it. Unless the companies can show they gave notice for surrender before the refund took place.

Where neither company pays by Quarterly Instalment Payments (QIPs), surrender is made possible by ‘S102 FA 1989’. Where surrender is made of an amount paid on or before the due date, the receiving company is treated as having paid the tax itself on the normal due date for the accounting period. The surrendering company is treated as though the tax has been repaid. If the amount being surrendered was originally paid after the due date, the amount surrendered will keep the original date of payment.

Any charge to interest arising on the surrendered amount can only run from the due date of the accounting period to the original date of payment. Where the surrendering company has accounted for this interest charge already, then the receiving company will owe no interest. Likewise no repayment interest will be paid on the surrendered sum for any period after the original payment date.

Regulation 9 of the Quarterly Instalment Regulations amends S102 FA 1989 for companies who pay by QIPs. Where this applies, the surrendering company can surrender excess instalment payments. The surrendering company must give details of both the instalment and how much is to be surrendered. The effect of this is that the actual date of payment of the given payment moves with the payment (instead of the normal due date). All the credit interest, debit interest and repayment interest attached to the given payment also move to the receiving company.

If the surrender request is handled correctly, then the effect should be neutral and no interest objection should arise.

However if the surrender request was made at the right time before a refund was made and is dealt with incorrectly or overlooked, an interest charge may arise where otherwise there would not have been one. It is the relevant local office’s responsibility to correct any handling error. Where this is done, the interest question should be resolved and the objection dealt with.

But there may be cases for example where funds have been moved again, and a correction cannot be made by the local office, consider giving up interest in these cases. There are three types of case.

  • The refund has been made direct to the surrendering company. This requires the receiving company to pay the tax debt directly. Here the effective payment date will be the date of the actual payment and not the date of the original, and earlier, payment by the surrendering company. The interest should be recalculated as if the surrender had taken place and the earlier payment date used. The difference in interest should be given up.
  • The surrender has taken place but the effective payment date given to the payment is wrong. The interest should be recalculated using the correct payment date(s). The difference in interest is to be given up. In this type of case repayment interest may also have been paid because of the use of incorrect later dates. The repayment interest should also be recalculated and any excess reclaimed by limiting the amount of interest being given up.

  • The surrender has been made but it did not take into account the split of funds amongst the QIPs. This will have produced an imbalance between the credit interest paid and debit interest charged on the respective instalments, as well as late payment interest possibly being due. The credit interest and debit interest should be recalculated using the correct original dates and payment amounts. A net amount should be given up to reflect the new debit interest due and credit interest to be paid.