Non-UK resident landlord companies coming within the scope of UK corporation tax.
Non-UK resident companies that carry on a UK property business are currently within the scope of non-resident company income tax returns (Form SA700) and the taxes due are calculated on the chargeable profits of the tax year. However, 2019/20 is the final tax year where this will be the case.
- From 6 April 2020, as you may be aware, non-UK resident companies that carry on a UK property business are being brought within the scope of Corporation Tax. This will mean a number of changes and include some additional compliance burdens, however, there are some upsides too which will be explained later in this article.
- Unlike the company income tax regime, taxes will be calculated on the chargeable profits of the accounting period, not per tax year.
- The tax year 2019/20 is also the final year in which the company tax return and the settlement of the tax liability are required to be submitted by the subsequent 31 January.
Bittersweet reduction in headline tax
Despite the additional compliance burdens, many will find this change rather attractive as the chargeable profits will be subject to a competitive rate of corporation tax of 19%, from the 20% income tax regime. This change equalises the tax treatment of UK-resident and non-UK resident corporate landlords receiving UK property business income.
For companies which have accounting periods that straddle 6 April 2020, there will be a requirement to prepare and submit two tax returns: one non-UK resident company income tax return reflecting all the transactions during the 2019/20 tax year and another reflecting all the transactions from and after 6 April 2020. The same profits will, of course, not be taxed twice.
Unlike the rules for income tax, under the corporation tax regime, non-resident companies will be able to group relieve any excess property losses arising on or after 6 April 2020 to other group companies that are within the charge of UK corporation tax. However, there are restrictions where the loss has been used, or can be used, in the local territory of the non-resident company.
Income tax property losses incurred before 6 April 2020, will be carried forward into the corporation tax accounting period and will be available for offset against post 6 April 2020 UK property business profits, but not against the company’s income from other sources or against capital gains. There will be a requirement to stream the losses incurred pre and post 6 April 2020.
If profits exceed £5 million, the brought forward losses that can be offset are limited to 50% of profits above £5 million.
Property losses carried forward which were incurred on or after 6 April 2020 are restricted to 50% of rental profits where they are above £5 million.
Loan relationship rules
Unlike previously, property financing costs will no longer be tax deductible as business property expenses. There must be a clear distinction between income and expenditure arising from or on loans.
From 6 April 2020, non-UK resident corporate landlords will be subject to the Corporate Interest Restriction (CIR) rules, you can read our article on this here. These rules will affect geared property acquisitions and will restrict the interest deduction which a company can claim if its combined aggregate amount of annual interest exceeds £2 million.
What you need to do differently
You will need to write to HMRC and firstly let them know the following:
- If you no longer let out UK property or land
- If you already have a company Unique Tax Reference for corporation tax
- If you prepare your accounts and/or financial statements and do not use 5 April as your period end date
Payment of corporation tax
Another substantial change is the payment date of corporation tax. Companies which are considered to be small and medium-sized will be required to pay their corporation tax liability nine months and one day following the end of their accounting period.
This is different to the previous income tax regime, where the payment date deadline was in line with the fixed income tax self-assessment deadline, of 31 January.
For example, if an accounting period is 1 April 2020 to 31 March 2021, the corporation tax liability must be settled by 1 January 2022.
Where companies are considered large, their corporation tax liability for the accounting period is split into 4 quarterly payments, with the first payment being due seven months before the end of the accounting period.
A company is large for the purpose of corporation tax payments, when its profits, in any given accounting period exceed £1.5 million, or if its profits exceed £10m in the first year. Where these thresholds are not exceeded or met, the company will be considered small or medium-sized.
Where a company’s taxable profits exceed £20 million, they are considered to be very large. Very large companies are required to make quarterly instalment payments four months earlier than the large regime, with the first payment being due eleven months before the end of the accounting period.
The quarterly instalment payment thresholds for the large and very large companies are adjusted if a company is a member of a group or has an accounting period shorter than 12 months.
Submission of corporation tax return
Unlike the previous tax regime, the due date for the submission of the corporation tax return is 12 months following the end of the accounting period.
HMRC’s view is that, the submission of the company tax returns, follows the usual practice of UK companies and it is required to prepare and submit accounts in an iXBRL format in accordance with IFRS or UK GAAP with the tax returns to HMRC.
If your company’s annual accounts are not prepared to 5 April, your accounting periods for corporation tax will:
- Begin on 6 April 2020 and end on the same date as your company accounts if this is your first accounting period; or
- Begin and end on the same date as your company accounts for your second and subsequent accounting periods
You do not need to register with Companies House unless you have a permanent establishment in the UK.
How we can help
We can offer bespoke strategies to simplify the transition to the corporation tax regime and make it as smooth as possible.
- We can offer a high-level tax planning review, inclusive of but not limited to:
- Review of the corporate interest position of the company to identify whether the CIR rules mentioned above come into play
- Review of the losses incurred before and after 6 April 2020
- Review of the company accounting period and advise on whether a change in accounting period end will be beneficial
- Detailed review of the corporation tax payment dates and forward planning for the companies which meet or exceed the conditions of being large
Be ahead of the game
We can help businesses affected by the change of tax regime and use this transition period to work together and implement revised strategies for the new compliance environment. Please contact us to speak to a member of the tax team.