Yes. A business or business owner in the United Kingdom can receive a tax refund when more tax has been paid than was actually due.

This is not limited to incorporated companies. Sole traders, partners, limited companies, VAT-registered businesses and employers can all potentially receive repayments from HMRC, depending on the type of tax that was overpaid.

The important question is therefore not simply: “What type of business do I own?” Instead, you need to ask: “Which tax have I overpaid?”

For example:

• A sole trader might overpay Income Tax through Self Assessment;
• A limited company might overpay Corporation Tax;
• A VAT-registered company might be due a VAT repayment;
• An employer might overpay PAYE;
• A company may become entitled to a Corporation Tax repayment after carrying a qualifying trading loss back.

The method for recovering the money depends on which of these situations applies.

Can UK Businesses Claim Tax Refunds?

Yes. HM Revenue & Customs can repay tax when a taxpayer has paid more than the amount legally due. A business tax repayment can arise for several reasons. You may have:

• Paid the same tax bill twice;
• Entered an incorrect payment amount;
• Made payments on account that turned out to be too high;
• Amended a tax return and reduced the amount owed;
• Paid too much Corporation Tax;
• Overpaid PAYE;
• Reclaimed more VAT on qualifying purchases than the VAT due on sales;
• Become entitled to relief for a qualifying trading loss.

Not every reduction in your tax bill produces a cash refund. HMRC may sometimes use money owed to you against another tax liability instead.

Which Types of Businesses Can Get Tax Refunds?

Tax Refunds for Sole Traders

A sole trader generally pays tax on business profits through Self Assessment. You may end up paying too much tax if, for example:

• Your income falls substantially;
• Your allowable expenses were originally understated;
• You qualify for a relief that was not included;
• Your payments on account were higher than your eventual tax liability;
• You accidentally make a duplicate payment.

Payments on Account Can Create Overpayments

Many Self Assessment taxpayers make two advance payments towards their next tax bill.

These are known as payments on account. They are generally based on the previous year’s liability.

If your business subsequently earns less, you may discover that the payments you have already made exceed the tax eventually due.

Example

Suppose your payments on account total £8,000. After completing your return, your actual Self Assessment liability turns out to be only £6,000.

You may therefore be entitled to have the overpayment repaid or credited against tax you owe.

Can You Reduce Self Assessment Payments on Account Instead?

Yes. If you already know that your profits or other taxable income will be lower, you may be able to request that HMRC reduces your payments on account rather than deliberately overpaying and waiting for a refund.

Be careful not to reduce them too aggressively. If your eventual tax liability is higher than your reduced payments, interest can become payable on the shortfall.

How Does a Sole Trader Claim a Self Assessment Refund?

Once your Self Assessment return has been processed and your account shows that you have paid too much, you may be able to request repayment through your Self Assessment account.

HMRC may not necessarily send the money immediately if another Self Assessment amount becomes due shortly.

In some circumstances, the credit can instead be used against tax you owe.

What if You Made a Mistake on an Earlier Self Assessment Return?

If you discover that a previously filed return was wrong and caused you to pay too much tax, there are time limits for correcting it.

You can generally amend a Self Assessment tax return within 12 months of the normal filing deadline.

If the normal amendment period has passed, you may in qualifying circumstances make an overpayment relief claim.

The general time limit for overpayment relief is four years after the end of the relevant tax year. Do not wait indefinitely if you think you have overpaid.

Tax Refunds for Partnerships

A normal partnership works differently from a limited company. The partnership submits information showing its profits and how those profits are allocated, but the individual partners generally pay Income Tax on their respective shares through Self Assessment.

This means that when too much Income Tax has been paid, the repayment will usually relate to the individual partner’s tax position rather than the partnership receiving a Corporation Tax refund.

A partner may therefore become entitled to a repayment for reasons similar to a sole trader, including:

• Excess payments on account;
• An amended tax calculation;
• Allowable reliefs;
• An overpayment of Self Assessment tax.

Can a Limited Company Get a Corporation Tax Refund?

Yes. A limited company can receive a repayment when it has paid more Corporation Tax than it ultimately owes. This might happen because:

• The company paid too much;
• A payment was duplicated;
• The Company Tax Return was amended;
• The final tax calculation was lower than an earlier payment;
• A qualifying loss was carried back against earlier profits.

The old assumption that Corporation Tax is always 19 percent is no longer correct. Today, the general Corporation Tax structure includes:

• A 25 percent main rate for companies with sufficiently high profits;
• A 19 percent small-profits rate for qualifying companies with sufficiently low profits;
• Marginal Relief for qualifying profits between the relevant limits.

Other rules can affect how the limits apply, so a company’s actual calculation should be based on its circumstances.

How Does a Company Claim a Corporation Tax Refund?

Your Company Tax Return is normally used to tell HMRC that a Corporation Tax repayment is due.

Providing the appropriate company bank details can allow the repayment to be made directly to the company’s account.

However, HMRC can use money owed to the company against other liabilities first. For example, a repayment may be used towards:

• Other Corporation Tax owed;
• PAYE;
• VAT;
• Certain penalties or other amounts owed to HMRC.

The company then receives the balance remaining after those liabilities are dealt with.

Can a Company Get a Refund After Making a Loss?

Potentially. A trading loss does not automatically mean HMRC sends the company a cheque.

However, qualifying trading losses can sometimes be used against taxable profits.

A company may, subject to the applicable rules, use a trading loss against:

• Profits in the same accounting period;
• Qualifying profits of an earlier period;
• Future profits.

Where a qualifying loss is carried back against an earlier period in which Corporation Tax has already been paid, reducing the earlier tax liability can result in a repayment.

Example

Suppose a company previously made taxable profits and paid £20,000 in Corporation Tax.

It later makes a qualifying trading loss and successfully carries part of that loss back.

If the revised Corporation Tax liability for the earlier period falls to £14,000, the difference may potentially result in a £6,000 Corporation Tax repayment, subject to the company’s overall HMRC position and the applicable loss-relief rules.

Can a VAT-Registered Business Get a VAT Refund?

Yes. This is usually referred to as a VAT repayment. A VAT-registered business generally calculates:

• VAT due on its taxable sales; and
• VAT it is entitled to reclaim on qualifying purchases.

If the amount of VAT properly reclaimed exceeds the amount due, HMRC will normally repay the difference, subject to any checks.

Example

HMRC normally identifies the repayment from the figures submitted on the VAT Return.

Businesses that regularly invest heavily before generating substantial taxable sales can sometimes find themselves in a VAT repayment position.

Can an Employer Claim Back Overpaid PAYE?

Yes. An employer may discover that its PAYE account has been overpaid because of issues such as:

• A duplicate payment;
• Paying an incorrect amount;
• Corrections to payroll submissions;
• An overpayment brought forward;
• Certain statutory-payment adjustments;
• Construction Industry Scheme deductions in relevant circumstances.

Depending on why the overpayment arose, the employer may first need to correct its payroll records.

A credit may be used against another PAYE liability before HMRC pays a cash refund.

Does HMRC Automatically Send Every Business Tax Refund?

No. The process depends on the tax involved. Some repayments are generated through the relevant tax return, while others may require you to request repayment or correct earlier information.

HMRC can also carry out checks before paying a refund. In addition, a tax credit does not necessarily mean the full amount will arrive in your bank account.

If you owe HMRC other tax, the credit may first be used against that debt.

Do Businesses Receive a P800 Tax Refund?

Not in the way the old advice sometimes suggests. A P800 is primarily an Income Tax calculation used for individuals such as employees and pensioners when HMRC determines after the tax year that the wrong amount of tax was paid.

If you are registered for Self Assessment, your overpayment or underpayment is generally dealt with through the Self Assessment system instead.

A limited company does not receive a P800 to reconcile its Corporation Tax.

Are Business Expenses Refunded by HMRC?

Usually not. This is another distinction worth understanding. If you spend £1,000 on a qualifying business expense, HMRC does not normally send the £1,000 back to you.

The expense generally reduces the taxable profit on which your tax is calculated.

Simple Example

Imagine a sole trader has:

• £80,000 of business income;
• £20,000 of allowable business expenses.

The taxable business profit before other relevant adjustments would generally start from £60,000 rather than £80,000.

The tax benefit comes from reducing taxable profit.

It is not a pound-for-pound refund of the £20,000 spent.

VAT works differently because a VAT-registered business may separately be able to reclaim qualifying input VAT.

Common Reasons a Business May Be Due Money From HMRC

How to Claim a Business Tax Refund From HMRC

The correct process depends on the tax involved.

For Self Assessment

Check your Self Assessment account after your return has been processed and request repayment if you have an available credit that is eligible to be repaid.

For Corporation Tax

Use the Company Tax Return to report the repayment due and provide the appropriate repayment details.

For VAT

Complete your VAT Return accurately. Where the return shows a genuine repayment position, HMRC normally processes the repayment, subject to any checks.

For PAYE

Correct any payroll reporting errors where necessary and use the appropriate HMRC employer repayment process if a genuine overpayment remains.

Keep Evidence Supporting Your Refund Claim

Do not claim a refund simply because your tax account appears lower than expected.

Keep records supporting the calculation. Depending on the claim, useful records may include:

• Tax returns;
• Accounts;
• Bank statements;
• Payment confirmations;
• VAT invoices;
• Payroll records;
• Expense receipts;
• Loss calculations.

HMRC may ask for evidence before approving or after reviewing a repayment.

Be Careful With Companies Promising Large HMRC Refunds

Do not assume that because a tax-refund company says you are entitled to thousands of pounds, the claim is valid. You remain responsible for information submitted to HMRC on your behalf.

Before allowing an adviser or repayment agent to submit a claim, understand:

• What relief is being claimed;
• Why you qualify;
• How the amount was calculated;
• What fee the adviser charges;
• Who receives the repayment.

For substantial or complex claims, consider using a suitably qualified accountant or tax adviser.