How to Claim Tax Refunds for Business Expenses

When you don’t pay the full amount of tax you owe within a specific year, you often have to pay for the unpaid amount in the coming years along with additional fees as a form of penalty.

A tax refund isn’t always due and in some cases, the tax office, which in this case is Her Majesty’s Revenue and Customs (HMRC), may charge the late payments at a specified interest rate. Either way, you’ll end up spending more than you’d normally have. That’s why experts suggest paying more than the taxes you owe, if possible. Not only can you avoid any penalty, but you can also claim tax refunds if you need some funds.

tax refund

In that regard, here’s how you can claim tax refunds for business expenses:

Determine The Type Of Tax You’re Dealing With

The claiming procedure is usually straightforward, but keep in mind that the calculations for working out the amount you can refund often vary depending on the tax you’re dealing with. For example, if a small business wants to make GST Claims, they can work out the amount they can refund by adding up the Goods and Services Tax (GST) paid for business expenses and subtracting it from the GST they collected from customers on sales. On the contrary, the calculations may be more complex if you want to claim a refund on your VAT or corporate tax.

Therefore, it’s essential to first determine the type of tax you want to claim from the tax office. Below are some examples of what those may be. Keep in mind that this only applies in the UK.

Value-Added Tax (VAT)

Value-Added Tax is the flat fee customers are charged for when purchasing a product or service. If your business transactions involve VAT, then you should be able to claim a tax refund of this type. To work out the refund amount, simply subtract the VAT you pay for business expenses and the VAT your customers pay for your goods and services.

Business Rates

Any business operating in retail or office premises will have to pay property tax in the form of business rates. As one might expect, this is also refundable. This is because business rates change from time to time, so if the rate was reduced but you still had to pay the same amount after the rate reduction, that implies you’ve paid more than you owe.

Corporation Tax

Corporation tax only applies to limited companies as a form of profit tax. Again, it’s refundable as long as the corporation paid more than they owe. In this case, the corporation needs only to send a request, and the HMRC will do the rest. What makes this type of tax unique is that the refund amount takes an interest rate, so you may receive far more than what they actually owe you, depending on how long it’s been due.

National Insurance

National Insurance (NI) is money you pay to the government. While it technically isn’t a tax, it can be referred to as such. Unfortunately, one can only get a refund on NI if they can prove they’re not required to pay NI, which is highly unlikely if you’re operating your business in the United Kingdom. Therefore, it’s typically not refundable for companies.

You might be wondering, ‘Isn’t this too much for a first step?’ That may be true, but it’s worth noting that determining what type of tax you’re getting a refund for is the most challenging part of the process. Moreover, while the calculations may differ, the step-by-step process of claiming your tax refund or rebate is relatively similar across all types of taxes.

Wait For A P800 Tax Calculation

Every year, HMRC receives details relating to the income of every citizen. In the case of business owners, the tax office will require you to disclose your revenue, profits, and other details.

Using this data, the HMRC conducts a P800 tax calculation to check whether you’re paying less or more than the tax you owe. If it’s the former, they’d require you to send the remainder to their office. But if it’s the latter, the P800 letter would show that you’re due for a refund. It’ll also tell you how you can claim a refund, be it via an online bank transfer or a cheque.

accountant doing taxes

Claim The Refund As Stated In The P800 Letter

If the letter states you can claim a refund online, you may be required to go to this page. Once you fill in the form, it may take a couple of days for the money to enter your account.

On the other hand, if the letter states you can claim a refund via a cheque, you may have to wait up to 60 days before the cheque is sent to your mailbox. In the meantime, you must make sure the HMRC has the correct address so as to avoid any mistakes.

That’s pretty much the entire claiming process. The HRMC does it automatically for you, which would explain why you’d receive money out of nowhere during the tax return procedure.

But do keep in mind that the P800 calculation is only an estimate. Hence, it’s still best to do the calculations manually. And if there are indeed errors, you may have to contact HMRC.

Closing Thoughts

Obtaining funds for a business usually is very difficult, but if you’ve been a law-abiding citizen, it may not be as hard as you think. Tax refunds are a great way to obtain funding for your up-and-coming business. Not only do they come without any catch, but the process is also fairly straightforward, as you may have seen in this article. With this, you can get closer to your goal.