How to claim a tax refund

One of the fundamentals of running a small business is filling out your tax returns and paying your tax on time. Not doing either can come with some pretty hefty penalties. But what if you’ve overpaid tax to HMRC? Here, we take a look at the different ways you can register to pay tax as a small business, and how you could claim a tax refund for any overpaid tax from HMRC.

How to claim a self-employed tax refund

If you’re self-employed, you can choose to either register as self-employed, or as a private limited company, with HMRC. If you register as self-employed, you pay your income tax through a self-assessment tax return, which involves making two payments over the course of the tax year to cover your future tax liability, but can lead to overpayment.

Registering as self-employed is a popular choice, with over 60% of UK self-employed professionals choosing this route. Some of the benefits include that it costs less and requires less administrative taxes to be paid, however you’ll pay more tax overall and are solely responsible for any business debt.

How you claim a tax refund on your self-assessment income tax varies depending on whether you’re doing it for the current year, or previous years.

For the current year

You’ll be due a refund on your income tax if your income has fallen below last year’s figures, and you’ve been keeping up with your tax payments. 

You don’t need to do anything to claim this refund and it’ll be automatically paid into the bank account of your choice once you’ve filed your current self-assessment tax return. You aren’t required to file a separate tax refund claim in order to claim the money back.

For previous years

For any tax refunds for previous years, you’ll need to contact HMRC. This should be unlikely if you’ve been filling out your self-assessment tax returns correctly, however if you think you’re due a refund, it might be worth hiring an accountant to get things in order before you contact HMRC to organise a refund.

It’s worth noting that you’ll need to file a claim within four years of the tax year’s end in order to reclaim any overpaid tax.

How to claim a corporate tax refund

The other option for self-employed professionals is to register as a private limited company with HMRC. All limited companies are required to pay corporation tax, which is payable against your profits. 

Companies don’t get any tax-free allowances, however expenses and deductions can be made for things like employee salaries (even if you’re the only employee), travel and equipment. These can all help to make your total corporation tax bill smaller. The current corporation tax rate as of 11th February 2022 is 19%.

In order to claim a corporation tax refund, you’ll need to file a Company Tax Return to notify HMRC that you’ve overpaid. This can be done online and includes a space for any bank details, allowing HMRC to automatically process your claim and transfer any refund due. If you don’t submit your banking details, your refund will be used to offset any other company taxes, such as VAT or PAYE, or your next corporation tax bill.

How to claim a tax refund online with HMRC’s Making Tax Digital

If you use HMRC’s digital tax initiative, Making Tax Digital, then it’s even easier to claim a tax refund. Because you keep digital records and use an online platform to send information directly to HMRC, you don’t even need to wait to fill out a self-assessment tax return at the end of the year. Instead, send your financial details to HMRC at regular intervals to keep your records current, and you can claim any tax refund you’re owed online and automatically.

11/02/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.