The extension of corporation tax to companies resident outside the UK for tax purposes is a major change to the way Non-Resident Landlords (NRLs) are taxed in the UK. Corporation tax will be charged on rental profits arising from 6 April 2020 onwards. Read More So, what will the directors of such companies need to do in preparation for this change?
Converting to corporation tax will require changes to be made in the way accounts are prepared, the contents of returns and the way in which returns are filed. The first year of the new regime may generate some problems, so company officers should plan for sufficient preparation time to ensure they are not caught out.
Contact with HMRC
HMRC announced that it would contact any companies that are already registered under the existing NRL income tax scheme by 30th June 2020 to issue it with a Unique Taxpayer Record (UTR) for corporation tax. This reference will be needed for the company to file its corporation tax returns online. Company officers must make sure that they have received a UTR and should contact HMRC to obtain one if one has not already been issued.
Companies that have appointed tax agents under the old NRL scheme, who have been registered with HMRC, will need to repeat the process of notifying HMRC with the necessary agent authorisation forms for the new corporation tax regime. The original authorisations for agents will not carry across to the company’s corporation tax record.
A corporation tax return must be accompanied by accounts. The accounts must be prepared in accordance with UK generally accepted accounting practice (“GAAP”). Company officers will need to check that accounts for the period 6 April 2020 onwards are UK GAAP compliant. The accounts will also need to be embedded with iXBRL software. This allows entries in the accounts to be tagged so that they are matched up to entries in the tax return.
Company officers will need to decide to what date the company will report its financial results. The corporation tax reporting and payment dates are different to the old income tax rules. Corporation tax must be paid 9 months after the end of a tax accounting period and the return filed within 12 months. There is no single reporting and payment deadline as there is for income tax. HMRC anticipates that most companies will use accounting periods ending on 5 April and so, in practice, the payment deadline will typically be 5 January and filing must be completed by 5 April. The first CT payment deadline for an accounting period ending on 5 April will be 5 January 2022 but that date will be earlier if a different accounting period is adopted.
Tax specific actions and information needed
Company officers will need to complete an NRL Self-Assessment returns for 2019/20 and file before 31 January 2021, paying any tax by that date. The Self-Assessment system may generate demands for payments on account for 2020/21. These should not be paid because the company will not have an Income Tax liability in 2020/21.
It is important that any Income tax losses that have arisen up to the end of 2019/20 are identified so that they can be carried forward against future CT liabilities on rental profits. HMRC has confirmed that this will be allowed but it may not be straightforward to integrate those losses into any CT reporting software; it is important that these are captured fully as part of the transition.
You should also check whether the company is charged interest on any loans it has received. The change to corporation tax will involve new rules on what interest can be claimed as a tax deduction and when. In particular, interest owed to a connected party must be paid within 12 months of the end of the accounting period to qualify for tax relief. It would be easy to continue to deduct interest that has previously been rolled up on a loan to a shareholder or parent company but the CT return will be incorrect if you do so.
Please contact us if you would like assistance with moving to the new corporation tax regime.
DON’T forget Non-Resident Capital Gains Tax
Companies resident outside the UK that make gains, directly or indirectly, on UK land or property are chargeable to corporation tax from 6 April 2019. Any chargeable gains will be reported along with the results of a company’s rental business but the rules for the timing of payment and filing returns become more complicated if a company is not already set up for reporting corporation tax. There are also special rules for computing Non-Resident Capital Gains Tax.