How to apply for a Corporation Tax refund

It’s a rare day when HMRC is the one who owes money to you, but it does happen sometimes. One such occasion is when your company or organisation is due a Corporation Tax refund as a result of overpayment. You can also claim Corporation Tax relief on losses that your company makes.

We will discuss both situations in this post, briefly explaining how to apply to HMRC for a Corporation Tax refund and/or claim tax relief when you file your online Company Tax Return.

Ask HMRC for a refund or interest on your Corporation Tax

If your limited company pays too much Corporation Tax, you can ask HMRC for a Corporation Tax refund (i.e. a ‘repayment’) of the amount that you overpay. You may also be entitled to interest on the overpayment. HMRC’s current interest rate is 0.5%.

If you think that you are due a refund, you can inform HMRC by completing the relevant sections in your next online Company Tax Return (form CT600).

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The refund will be paid into your company’s business bank account, if you provide the account details in the tax return. Otherwise, HMRC will put the money toward either: other taxes that your company owes (e.g. PAYE or VAT), or your next Corporation Tax bill, or late filing penalties.

If any part of the refund is used to pay off outstanding HMRC debts, confirmation of the repayment will be shown in your company tax account. Any remaining amount, if applicable, will be refunded in one of the following ways:

• to the original payment card
• as a payable order, sent to your company’s registered office address

Receiving interest from HMRC

HMRC will pay your company interest if you:

• pay your Corporation Tax early (this is known as ‘credit interest’)
• pay more Corporation Tax than your company owes (this is known as ‘repayment interest’)

Any interest that your company receives is taxable, so you must include it as income in the next Company Tax Return.

Credit interest

If you pay your Corporation Tax early, credit interest payments will normally apply from the date you pay the tax, up until the payment deadline.

The earliest date that HMRC will pay your company interest is 6 months and 13 days after the start of your Corporation Tax accounting period.

Repayment interest

If you pay more Corporation Tax than you owe, HMRC will usually apply repayment interest to your refund from either:

• the date the tax was due, if you paid by the due date
• the date you paid the tax, if you paid after the due date

If your company pays Corporation Tax in instalments, HMRC will automatically pay interest when they know the final Corporation Tax bill for that accounting period. Normally, this will be when you file your Company Tax Return.

However, if your company pays in quarterly instalments, the interest will be calculated from the first instalment date or the date that your balance exceeds what you owe (whichever date is later).

Claiming Corporation Tax relief on trading losses

Your company may be able to claim Corporation Tax relief if it makes a loss from trading. Trading losses occur when the income your business generates is less than its allowable expenses within an accounting period.

You get Corporation Tax relief by offsetting the trading loss against your company’s other gains or profits in the same accounting period.

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If you’re unable to use the relief in the same period, you might be able to carry it back to an earlier one. Otherwise, the relief will be carried forward to be offset against profit in a future period.

To calculate a trading loss, you must include:

• any capital allowances (which increase the loss)
• any balancing charges (which reduce the loss)
• certain annuities and charitable donations (known as ‘trade charges’)

However, you should not include any losses or gains that may be made on the sale or disposal of business assets.

How to claim

If you need to claim for trading losses, you can do so as part of your online Company Tax Return (form CT600).

If your claim covers the most recent accounting period, you must do all of the following:

• enter ‘0’ in box 155 of form CT600
• state the full amount of the loss in box 780
• enter the entire loss or as much as you are able to claim, in box 275 against the company’s total profits

However, if your claim includes losses from a later accounting period, you must do all of the following:

• enter ‘0’ in box 155 of form CT600
• in box 275, state the full amount of the trading losses arising in this accounting period, or a later one, that you can claim against total profits
• in box 780, enter only the loss arising in this accounting period

GOV.UK provides full guidance on how to Work out and claim relief from Corporation Tax trading losses, including carrying a trading loss forward or back.

In addition to trading losses, you can claim Corporation Tax relief on terminal, capital, and property income losses.

Dealing with limited company tax and accounting requirements can be complex, especially if you have no relevant knowledge or prior experience. We recommend appointing an accountant for expert help and advice.

Thanks for reading

We hope that you have found this post useful. If you have any questions about this topic, or would like to speak to us about any other matter related to limited companies, please comment below or get in touch with our friendly team of company formation experts.