UK firms overpaying billions in corporation tax, research finds
UK firms overpaid £14.2bn in corporation in the last tax year, according to research by a leading accountancy firm, as Britain’s complex financial system continues to unsettle businesses.
Chancellor Rachel Reeves has told entrepreneurs and investors that she is on the side of British business amid economic headwinds brought by President Trump’s tariffs and taxes she raised at the Autumn Budget.
But firms may face deep long-term problems as a complex tax regime has led many to overpay HMRC, according to UHY Hacker Young.
It estimates that British businesses overpaid the government £14.2bn in corporation tax in the year to April, hitting around 400,000 companies.
The findings, which are based on a Freedom of Information request, said that the overpayment for the year between 2023 and 2024 was 21 per cent than the payment for the previous tax year.
Corporation tax takes a slice out of firms’ profits and there are different bands according to how much companies are making, with the main rate being 25 per cent on companies posting a profit of over £250,000.
Accountants at UHY Hacker Young claim that HMRC leads firms to pay too high corporation tax as they may face financial penalties if profit comes in lower than what had been expected.
Adjustments can be made throughout the year to reflect estimated profits and penalties are not awarded in the case of incorrect forecasting.
The system can cause “significant cash flow problems”, researchers said, as companies have to reclaim excess payments themselves.
“Overpaying corporation tax is a double hit for struggling businesses,” Brian Carey, a partner at UHY Hacker Young, said.
“Not only do they suffer from lower-than-expected profits, but they also see vital cash locked up with HMRC.”
An HMRC spokesperson said: “UHY Hacker Young’s claims are nonsense and disappointing to see. Companies are responsible for correctly assessing their own liability to Corporation Tax.
“Any companies that get it wrong and overpay can request a repayment, which we will make in good time.”
It follows a separate report by Thomson Reuters which said that businesses now accounted for over a quarter of all UK tax receipts.
Higher receipts in corporation tax drove the increase as the government now receives over £200bn through the tax.
Meanwhile, there are fears that the HMRC are underestimating levels of tax evasion.
The Public Accounts Committee said in February that the tax gap of £5.5bn in the 2022-23 tax year was “just the tip of the iceberg”.