Written by: Kyle Barford, Product Manager (Tax)
From 6 April 2020, non-resident landlord (NRL) companies with a property business in the UK will be taxed under the corporation tax regime rather than the income tax regime. While this will in some sense rationalise the tax treatment of corporate owned UK property businesses and provide some benefits and opportunities for NRL corporates, the transition brings up a number of questions and considerations for corporates and their advisers.
NRL corporates under the income tax regime filed form SA700 annually to report the UK property activity. 2019-20 will be the last year this form is accepted. For accounting periods starting 6 April 2020 onwards they will need to file the corporation tax return form CT600. There are key differences in the filing obligations for the CT600 including:
• The CT600 form must be filed online. Unlike the SA700 form which could not be filed online at all, there is no facility for paper filing a CT600 form.
• The first CT600 form filed for an NRL company will be for the period commencing 6 April 2020, to the accounting period end date. Unlike the SA700 which was always filed to report activity of the UK tax year, subsequent CT600 forms should be filed to report activity based on the accounting periods of the company.
• The due date for the CT600 is 12 months from the end of the accounting period covered by the return, rather than the 31 January following the tax year deadline for income tax. For practitioners acting for multiple NRL companies, the dependency on the accounting period end date may mean tracking multiple tax return due dates rather than just one.
• Tax payment due dates differ under corporation tax rules and are determined on the basis of the company’s accounting period dates rather than the fixed 31 January deadline under the income tax regime. Companies/groups with profits below the “large” company limit of £1.5 million have a single payment deadline of 9 months and 1 day after the accounting period end. Companies with taxable profits in excess of this limit need to pay tax in quarterly instalments, which fall based on the accounting period end date.
• CT600 returns should usually be accompanied by iXBRL tagged accounts. This is mandatory for companies registered with Companies House that have a CRN. Overseas companies registered with Companies House because they carry on a trade via a UK branch only require the UK branch P&L and balance sheet to be tagged in the iXBRL document. HRMC will generally accept PDF accounts in place of iXBRL accounts for overseas companies making a UK corporation tax return that are not operating through a UK branch and therefore have no CRN.
HMRC have confirmed their intention to issue new UTR numbers to all NRL corporates before April 2020, for use on CT600 forms.
NRL corporates will need to register online for corporation tax with HMRC even where companies have already registered with HMRC under the Non-Resident Landlord scheme.
Under the corporation tax rules, taxation of the UK property activity will operate in quite a different way. Amongst other things, NRL corporates will need to consider the following:
• The company needs to make a distinction between expenses directly attributable to the UK property rental business and expenses related to the management of the company as these represent separate streams. Rental expenses are available to offset UK property business income. Management expenses will only be available to offset UK property business income to the extent that the expenses are linked to the UK property business. Management expenses related to non-UK property or subsidiaries will not be available to offset UK property profits.
• An overall cap is applied to losses allowed under the corporation tax rules. There are detailed rules for the calculation of the cap, but broadly the allowance is £5 million plus 50% of the company profits above £5 million. The allowance needs to be explicitly claimed on the corporation tax computation. Certain losses will also be available for the companies to surrender for group relief.
• For companies with very high financing costs, a restriction is imposed under corporation tax rules on the amount of net interest expenses that can be claimed, on the basis of taxable profits. Advice should be taken on the Corporate Interest Restriction for affected businesses.
HMRC have also confirmed certain transitional rules including:
• A facility for pre-5 April 2020 property business income tax losses to be carried forward into the business under corporation tax. The losses will be categorised as “income tax property losses” or “ITPLs”. ITPLs will operate outside of the corporation tax loss cap and will be offset automatically against future profits of the UK property business. ITPLs will not be available to offset against any other future profits of the same company, and will not be available for group relief.
• The tax written down value of assets for capital allowances purposes can be carried over from the income tax computation to the corporation tax computation. The transition will not trigger a disposal event for capital allowances purposes, so no balancing adjustments will be required.
Changes to the CaseWare Corporation Tax template to assist users with this transition are due to be implemented in an ePack release soon after the 1 April 2020 in force date. CaseWare Corporation Tax includes an online submission module for CT600 forms, and displays filing and payment due date information both in the template itself, and can summarise portfolio status information via CaseWare Cloud on the Corporation Tax Tracker.