The government is moving non-resident companies receiving UK rental income into the corporation tax regime from the existing income tax regime. The upcoming tax changes for non-resident companies holding UK property will be significant, with changes to almost every aspect of how tax is calculated, paid and reported to HMRC. Non-resident landlords should seek advice sooner rather than later.
Below we set out the compliance arrangements which will be affected as a result of these changes.
From April 2020, non-resident landlords including those already known to HMRC through registration under the non-resident landlord scheme (NRLs) will need to register anew with HMRC for corporation tax and obtain a new unique tax reference (UTR) within three months of the date the company becomes chargeable to corporation tax.
Refile tax agents
Non-residents will need to re-file details of their tax agents if those agents are to continue acting on behalf of corporation tax as there is no automatic carry-over of income tax authorisation.
For those companies currently undertaking a UK rental business, the change will take place at the end of the 2019-20 tax year, with their property business (which is subject to corporation tax) deemed to cease on 5 April 2020, and a new business (subject to corporation tax) and tax period beginning on 6 April 2020. For companies that do not prepare accounts in line with the tax year, a time apportionment of income and expenses will be needed for accounting periods that straddle the commencement date. Profits or losses arising in the period to 5 April 2020 will be subject to income tax rules, with any income arising from 6 April 2020 being subject to corporation tax.
Final self-assessment return to 5 April 2020
Taxpayers will need to complete a final self-assessment return in the normal way to report the proportion of income arising up to 5 April 2020 and the filing deadline will be 31 January 2021.
Subsequent returns post 6 April 2020
A corporation tax return will need to be filed for period commencing 6 April 2020 and for subsequent accounting periods. The filing deadline will generally be 1 year after the date the accounts are made up to.
Tax payment dates
The tax payment dates for corporation tax also differ from those with which non-resident companies will be familiar. The due date for companies and groups with taxable profits up to £1.5 million (proportionality reduced for the number of companies where the ultimate shareholder has a greater than 51 per cent stake) falls nine months and one day after the end of their accounting period. Those with higher profits will need to pay their tax in quarterly instalments, which can mean corporation tax payments may need to be made prior to income tax payments. Where there is more than one company in a group, and certain conditions are satisfied, it may be possible to enter into a Group Payment Arrangements which can reduce the administration associated with making a large number of individual payments.
Claims and elections
The time limits under corporation tax are determined by different rules from those under income tax and care will be required when reviewing these. Under the income tax regime, the time limits are determined by the 31 January filing date whereas, under corporation tax these are determined by the accounting period end. Under corporation tax, there may be scope to make group relief claims for losses which were not generally available for offset under income tax. Advance planning will be critical as leaving issues until just before the legal deadline carries significant risks that claims will not be made in time and could increase tax payments unnecessarily.
There are specific online filing which are required under corporation tax. This extra administrative burden of ensuring accounts and returns are in the correct format will represent additional cost and complexity for most companies.
At RSM, our specialist real estate team can assist you to ensure that all administration matters are dealt with in a timely manner to ensure you are compliant with the changes to non-resident companies effective from April 2020.
For further information please contact Adrian Benosiglio.