25 January 2010

Titles that covered this article include the Financial Times, 23 January 2010.

• Businesses forced to wait twice as long for repayments
• Doubts over HMRC’s efforts to ‘centralise’ processing offices

Cash-strapped businesses are waiting twice as long for repayments of Corporation Tax from HM Revenue & Customs (HMRC) as they were a year ago, leaving many facing severe cashflow problems, says UHY Hacker Young.

UHY Hacker Young says that many of its clients are now waiting more than a month for Corporation Tax repayments with some waiting two months or more. Less than a year ago the average turnaround on repayments was just seven to fourteen days.

According to UHY Hacker Young, the recession means that a growing number of businesses have made losses and so are entitled to claim back Corporation Tax paid in previous years. In this year’s Budget the Government announced that businesses reporting a loss would temporarily be able to claim up to an additional £50,000 of tax relief in earlier years to help ease financial stress during the downturn.

Rob Durrant-Walker, Tax Manager, at UHY Hacker Young, comments: “The last thing businesses need is delays waiting for Corporation Tax refunds – refunds to which they are fully entitled. The financial distress caused by such delays will only add to the woes of companies already facing a struggle for survival. Unlike the self assessment system for individuals where repayments are largely automated, subject to security checks, all corporation tax repayments have to be processed manually by HMRC staff.”

“One small business we advise only just received a repayment for £35,000 after the claim was filed electronically five weeks ago. Normally that repayment would be handled in about a week.”

He adds: “We now often have to chase HMRC for repayments before clients receive their money.”

UHY Hacker Young says that the increased delays in Corporation Tax refunds may also be due to HMRC recently changing the way in which it deals with Corporation Tax, centralising it into a small number of large regional offices.

Adds Rob Durrant-Walker: “Claims are no longer processed at the nearest local tax office. For example, all Corporation Tax claims in York used to be dealt with in the York tax office but are now processed in Nottingham, along with claims from several other regions.”

“The huge rise in businesses posting losses during the recession has lead to a sharp increase in Corporation Tax repayment claims. This has no doubt had an impact on the speed of processing repayments, but these changes to HMRC’s working operations are slowing things down even further at the worst possible time.”

“I’m sure HMRC will say that this ‘streamlining’ of their operations will be of long-term benefit to businesses but you really do have to question the wisdom of HMRC’s decision to implement these changes in the middle of a recession.”