Significant changes are on the horizon for the ca. 22,000 non-UK resident company landlords that have UK property income.
Specifically, from 6 April 2020, these companies will come into the charge of UK corporation tax and will no longer be subject to the UK’s income tax regime on their profits.
Why is the change significant?
The change is significant due to the fact that the UK’s corporation and income tax regimes have some important differences, for example when it comes to rates of tax, tax payment deadlines, tax years, and filing deadlines.
These differences range from small to large. For instance, the UK tax year for income tax purposes runs from 6 April to 5 April the following year. For corporation tax purposes, the tax year runs from 1 April to 31 March the. Otherwise year – a relatively small change, all considered.
However, when you consider tax filing and payment deadlines, things start to differ notably.
Under the income tax regime, tax returns are due by 31 October following the tax year-end (if filing a paper return) and by 31 January if filing online. Any associated tax is usually paid on account.
Under the corporation tax regime, companies typically should file a return within 12 months of the end of a company’s accounting period. When it comes to paying tax, tax is due 9 months and 1 day after the end of the company’s accounting period if the company is not considered large. Otherwise, corporation tax is typically paid in instalments.
Transitional arrangements will be in place
Typically, when business shifts from being under the charge to income tax to corporation tax (for example, if a sole trader incorporates) several tax events are triggered.
However, to smooth out the process of non-UK resident company landlords moving into the corporation tax regime, HMRC is introducing transitional provisions “so that the change from Income Tax to Corporation Tax will not create a disposal event for the purposes of the Capital Allowances Act 2001 and to ensure that income is neither taxed twice nor falls out of account and that an expense is only relieved once.”
Additionally, existing losses shall be grandfathered and can be carried into the corporation tax regime. This means that the losses could be used to offset future UK property business profits, but the losses will not be able to be used to offset other types of income, nor will the losses be able to be surrendered as group relief.
Filing corporation tax returns
Non-UK resident companies with UK property income should take steps now to understand their compliance obligations once the new changes have come into effect.
For example, a corporation tax return (CT600) would need to be filed once in charge of corporation tax, rather than the SA700 that such non-resident companies previously filed.
One of the requirements that usually must be met when filing a CT600 is the iXBRL tagging requirement. Specifically, corporation tax returns should be submitted online, and the return should be tagged in Inline eXtensible Business Reporting Language (iXBRL). What’s more, a corporation tax return submission should also include a copy of the company’s accounts as well as a tax computation to support the return.
If your company is impacted by the upcoming changes and would like to find out more about how to meet the new compliance obligations, speak to a member of the DataTracks team to find out how we can help. DataTracks has over a decade of experience in providing HMRC filing services, including iXBRL conversion.