HMRC business tax refunds: make sure repayments go to the right bank account

A tax refund is not complete when the return shows money due back. HMRC still needs valid repayment instructions, can carry out checks and can use amounts owed to the business against other tax debts in some circumstances. Finance should track the repayment until the bank credit is identified and reconciled.

VAT Direct Debit details are not automatically used for VAT repayments

GOV.UK says HMRC does not use the bank details held for a VAT Direct Debit to make VAT repayments. To receive a VAT repayment into the bank account, the business must update the repayment bank details in the VAT online account. Otherwise HMRC can send a cheque, also called a payable order.

This is an easy trap after switching banks. A company can successfully pay VAT from its new current account by Direct Debit while HMRC still holds an old repayment account. Treat VAT collection and VAT repayment instructions as separate records and verify both after a bank switch.

Most VAT repayments are usually made within 30 days, but checks can extend the timetable

HMRC says most VAT repayments are processed automatically after the return is submitted and are usually made within 30 days. If HMRC needs to check the return or amount, it can ask for further information and the repayment can take longer.

Use the business tax account to track the status. If the account has not updated and HMRC has not contacted the company within 30 days, current guidance says the business can contact HMRC. Do not count the refund as available working capital on a fixed date if a compliance check is still unresolved.

For Corporation Tax, put the repayment bank details on the Company Tax Return

GOV.UK says a company that has overpaid Corporation Tax can tell HMRC on the Company Tax Return that a repayment is due and how it should be paid. Providing the bank account number and sort code on the return allows HMRC to refund directly to the nominated bank account and can speed processing.

The Company Tax Return guide says bank details should be entered on every relevant return, particularly where repayment or payable credits are expected. Finance should therefore verify the account before filing rather than relying on HMRC to reuse historic details from a previous period.

A Corporation Tax repayment can be used against other amounts the company owes HMRC

GOV.UK says HMRC can use money it owes the company to pay other tax liabilities, for example PAYE or VAT, and can also use it against the next Corporation Tax bill or a late-filing penalty in certain circumstances. The amount appearing as an overpayment on one tax account is therefore not always the cash amount that will reach the bank.

When forecasting a refund, check the company's wider HMRC position. If the company expects a £40,000 Corporation Tax repayment but has £15,000 of overdue PAYE, management should not automatically assume the full £40,000 will arrive as cash. Reconcile the set-off as a reduction of the other tax liability.

Update repayment details before closing or changing the business bank account

GOV.UK's VAT registration guidance says businesses can update VAT repayment bank details through the online account and should tell HMRC at least 14 days in advance when changing bank details. Build that step into the business-bank closure or switching checklist.

Do not rely on payment redirection arrangements for a material tax refund without checking the exact HMRC and bank process. If a refund is expected soon, keeping the old account open until the repayment route has been confirmed can be safer than closing first and trying to redirect government money afterwards.

Match the repayment to the tax period and separate repayment interest where applicable

When the bank credit arrives, identify whether it represents VAT, Corporation Tax, a tax credit or another HMRC repayment. Match it to the tax ledger and return. A refund of previously overpaid tax generally clears a tax receivable or liability position rather than creating new trading revenue.

HMRC can also pay repayment interest in some circumstances, including certain late VAT or Corporation Tax repayments. Record interest separately from the tax principal because it is economically different. Keep the HMRC statement, return and bank credit together so the finance team can explain exactly why the money arrived.