Finance Update

Updated guidance published by HMRC recognises the exceptional circumstances that many industries are facing during the COVID-19 pandemic and provides additional support. Hospitality, tourism and aviation are among the worst affected, with unprecedented losses accumulating in their current accounting periods.

HMRC has now acknowledged that, in exceptional circumstances, claims for repayments of corporation tax for prior periods based on anticipated losses before the current accounting period has concluded will be considered.

The Institute of Chartered Accountants in England and Wales (ICAEW) Tax Faculty has welcomed the new guidance having previously raised this issue with HMRC.

Angela Clegg, technical manager in the ICAEW Tax Faculty, said: “The changes to the guidance are helpful and it will be interesting to see how this translates into practice. It will involve a careful balance between getting cash to affected businesses in a reasonable timeframe and appropriate due diligence by HMRC.”

Repayment of quarterly instalment payments (QIPs)

Although it was clear that the QIPs regime allowed for repayment of excessive

Clarity over corporation tax repayments and anticipated losses

HMRC has updated its company tax manual outlining when companies can make claims for repayments of corporation tax based on anticipated losses.

instalments in the current accounting period, the position in respect of excessive QIPs paid in respect of the prior period (where the current period had not concluded) was less certain. The updates to HMRC guidance, therefore, offer welcome support for businesses.

Companies will be required to provide evidence to substantiate claims and support the quantum of any losses expected to accumulate. They will need to demonstrate that the losses are so substantial that they will comfortably shelter any income of the current period and the taxable profits of the prior period relevant to the claim.

The guidance indicates that: “It will be extremely difficult for a company to provide adequate evidence during the earlier part of its accounting period.” This is because when the date of the claim is further into the accounting period, there is less reliance on forecasts and the smaller the chance of any upturn or recovery of losses.

Repayment of corporation tax (paid on the normal due date for payment)

HMRC has provided similar guidance in respect of repayment of corporation tax made on the normal due date for payment (usually nine months and one day after the accounting period ends).

Similar principles apply whereby a company can make a claim to repay corporation tax paid based on an anticipated loss in the current accounting period which has not concluded, subject to evidence being produced.

What types of information should be included in any claim?

It is clear that each case will be reviewed by HMRC based on its own facts and circumstances and there will not be any hard and fast rules. However, the more information that claimants can provide to substantiate the losses, the better.

“The changes to the guidance are helpful and it will be interesting to see how this translates into practice. It will involve a careful balance between getting cash to affected businesses in a reasonable timeframe and appropriate due diligence by HMRC.”

The types of information which would be useful to provide as part of any claim include:

Revised profit and loss forecasts

Management accounts and draft tax computations Detailed reasoning and assumptions behind any figures submitted Reports from the board of directors and any public statements made concerning the company’s trading position Documents that have been shared with regulatory or financial institutions or confirm that these are the same forecasts used for internal planning purposes Confirmation that the company is not expecting any exceptional income or gains in the existing accounting period External evidence which supports the fact that the issues involved are unlikely to be resolved in the short term – this could include sector or industry commentary

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Screens are being recommended by the Government and Public Health England as part of overall control solutions to help enforce social distancing in workplaces and prevent the spread of infection by having surfaces that are easy to keep clean. Where workstations or interaction with the public cannot be two metres apart screens can provide a physical barrier to provide protection for both employees and customers and a means to stop transmission of viruses.

As the lock-down eases and more businesses begin to consider long term measures to mitigate any future resurgence of the virus, these protective screens are likely to become an everyday requirement.

There was a need for rapid installation of screens and the plastic based versions you can see have helped provide physical barriers against COVID-19; however these screens are not all designed for permanence and they are susceptible to scratching from day to day use as well as discolouration from disinfectants; when the plastic surfaces degrade and become more porous they can become more of a risk in transmitting viruses if they are not kept clean.

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