5th July 2016 was the commencement date for the very broad “transactions in land” legislation. Non-UK resident companies are within the scope of the legislation if they are dealing in or developing UK land, or if they have acquired UK land with the intention of realising a gain from its disposal or development. They are also within the scope if they dispose of shares in a company, at least 50% of whose value derives from UK land, as part of an arrangement to realise a gain on UK land. The double tax treaties with Jersey, Guernsey and the Isle of Man were altered at this time, so that a company resident in those jurisdictions would not have protection from a double tax treaty on such a profit or gain. The profits are taxed as trading profits.
In particular, a non-UK resident company, selling shares in a non-UK company to a buyer who is also a non-UK company, can have a UK corporation tax liability on the disposal, if the company being sold holds UK land.
Where a company was already part of an arrangement within the scope of this legislation when it was introduced, then it is deemed to have an accounting period starting on 5th April 2016, and ending on the next date to which the company has drawn up accounts. For example, that accounting period might have ended on 31stDecember 2016. If the company does not have a UK permanent establishment, or is otherwise not registered with Companies House, then it will not have been sent a UTR, and will not be on HMRC’s records. In this case, there was an obligation to notify chargeability before 31st December 2017.
It should be noted here that the amount of the corporation tax profits could be more than the company’s profits, because of the application of the anti-fragmentation rules. For example, if an offshore shareholder has lent money, it is possible that the interest cost is effectively disallowed in computing the borrower’s corporation tax liability. These rules could therefore mean that there is a taxable profit in the company in an accounting period in which there has been no disposal of the land (because of the effective add-back of interest).
Where a company has not notified chargeability by this date, it is within the “requirement to correct” rules, and unless it notifies and corrects its position by 30thSeptember 2018, it could be liable to penalties of up to 200% of the tax that has not been corrected.
The company will also have failed to pay its first corporation tax liability on time, incurring further penalties.
If you require help or advice please do not hesitate to contact one of the client team.