CTM92650 - CTSA: quarterly instalments: early repayment
Introduction
A company liable to pay under the quarterly instalment payments regulations will usually pay its CT liability before it delivers its company tax return (see CTM92500 onwards).
After delivery of the company tax return, if the amount paid exceeds the final amount shown as due and payable in the company’s self assessment for that accounting period, then the excess is automatically repayable (TMA70/S59D (2)).
Repayments before liability is finally established
There may be instances when a company has made quarterly instalment payments and subsequently has grounds for believing that, by reason of a change in its circumstances:
- its total liability for the accounting period is likely to be less than previously calculated,
and
- the total amount it has paid is greater than the amount, based on the revised calculation, that has so far become due to pay.
It may then apply for repayment of the excess.
Any tax paid before the first instalment date for the accounting period is repayable up until that date without pre-conditions, and a claim under REG6 is not required.
Conditions
REG6 (see CTM92505) is broadly analogous to TMA70/S59DA that applies to companies generally (see CTM92090). REG6 deals with when and how companies that pay by quarterly instalments can ask for repayment of those instalments. It does not involve any adjustment to the liability as shown by the company’s self-assessment.
The company must specify the amount that it thinks is repayable and the grounds for that belief.
From 6 April 2002 Construction Industry Scheme deductions cannot be set against company tax liabilities
REG6 can apply (in place of TMA70/S59DA):
- at any time after the payment of an instalment,
and
- before the liability of the company is finally established.
This differs from applications under TMA70/S59DA (which only applies after the due and payable date i.e. 9 months and 1 day from the end of the AP) because the quarterly instalment regulations (as TAM70/S59D(5) and S59E provide) modify the corporation tax due and payable date for large and very large companies.
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. Once a GPA has been ‘closed’ for an accounting period, any claim should be made to the Technical caseworkers in LB or WMBC under REG6.
How to deal with REG6 repayments
Officers should treat such claims on their merits. Officers should allow a REG6 claim based on lower anticipated profits of the period for payments that have been made unless dissatisfied with the grounds given by the company.
If a claim cannot be accepted, then an enquiry should be opened in accordance with Sch 1A TMA70, otherwise repayments should be made as soon as practicable.
Claims based on anticipated losses: introduction
We do not usually accept as valid any REG6 claims 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 pays 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 tax 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 a revised calculation of that liabilty.
After the end of AP2 draft accounts or management accounts may be accepted 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 REG6 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.
The contingent and uncertain nature of the company’s position before the end of an accounting period means that detailed evidence will be required to demonstrate that the expected losses in AP2 are sufficient to justify such a REG6 claim. As a company approaches the end of its loss-making accounting period, the company will have to rely less on projections (given the availability of actual figures) and the chances of a general upturn or unexpected income/gains will become smaller. This means that the projections for the accounting period as a whole will become firmer and less susceptible to volatility and it will generally be easier for the company to establish that sufficient tax losses will be incurred to allow a REG6 claim giving rise to a repayment of some or all of the instalments. However, a degree of uncertainty will remain, and the possibility of an improvement in the company’s position or an unexpected receipt/gain should not be ignored.
On the other hand, it will be extremely difficult for a company to provide adequate evidence during the earlier part of its accounting period. Even a drastic downturn in a company’s trading environment may reverse in the later part of the period, or its position could be mitigated by the recognition of an unexpected capital gain or revenue item.
All claims for anticipated losses must be examined critically and in full. The evidence required to validate such a claim should be viewed strictly as there will often be considerable doubt about the company’s profit position in future months.
Claims based on anticipated losses: example
A company with a year end 31 December paid instalments based on estimated 2022 profits of £40m. As the company is ‘very large’ per REG3, it has paid all its instalments within the 2022 accounting period. During the first 6 months of 2023, the company’s trade collapses to the extent that it suffers trading losses of £95m in that period. It becomes apparent as the year progresses that trading conditions are unlikely to improve and that there is little prospect of recovery to a profitable position by the end of the accounting period. This is reflected in the company’s current forecasts.
In September 2023, in order to assist with its cash flow position, the company makes a claim for repayment of the 2022 instalments. The claim is based on a revised calculation of the liability that takes into account an expected loss that will be available to carry back of £40m from 2023. To substantiate the REG6 claim, the company provides copies of the revised profit and loss forecasts which are supported by the detailed reasoning and assumptions underlying them. It also provides the management accounts evidencing the £95m loss and demonstrating that, in previous accounting periods, annual profits have never been greater than £50m and that profits in the second halves of those accounting periods have never exceeded £30m. The company also confirms that it is not anticipating any exceptional gains of other taxable amounts in the remainder of the accounting period. As they believe it is relevant to their change in circumstances, the company also provide external evidence and reports of wider difficulties facing the sector and its customers which indicate these are unlikely to resolve in the short-term. The company confirms that these are the same profit and loss forecasts it uses for internal planning and are shared, where relevant, with any regulators or providers of finance. HMRC considers that this REG6 claim is acceptable upon reviewing the evidence and repays the 2022 instalments.
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CTA10/S963 and REG9
There may be a claim under CTA2010/S963 as extended by REG9, to surrender a repayment due to a quarterly instalment payer to another company. See CTM92740 and CTM92750.