There have been some changes to how tax must be paid if you are a Corporate Non-resident Landlord. We are often asked by clients what these changes are and what is required in terms of reporting their property income and how to calculate tax on the profits they make.
Are you unsure what has changed and how the changes affect you?
Here we look at some of the questions asked by our clients and offer some solutions.
What has changed?
From 6 April 2020 non-resident companies that carry on a UK property business or have other UK property income will be subject to the corporation tax regime instead of the income tax regime.
What does this mean to me?
This means you can no longer prepare a simple set of rental accounts and income tax return and pay income tax on any profits made from your rental properties.
You are now required to register for corporation tax and file a company tax return (CT600).
Is that it?
No, this has also increased the level of compliance work required to be undertaken and therefore a set of accounts are required to be prepared along with the corporation tax return, both are required to be electronically filed using iXBRL (Inline Extensible Business Reporting Language) filing software.
The accounts are required to comply with UK GAAP and therefore consist of a profit and loss account and balance sheet report as opposed to the rental income and expenditure schedule prepared previously.
As a result, much more detailed information is requested than in previous years.
Companies pay less tax, don’t they?
Yes, all UK property income reported on the corporation tax return will be taxed at the applicable corporation tax rate, currently 19%, rather than being charged to income tax rates which can be higher.
Will this cost us more in fees?
Unfortunately, yes, as the changes have a significant impact on the way NRL accounts are prepared, there will be an increase in fees, this will further depend on whether the accounts are prepared under:
1. FRS105: The Financial Reporting Standard applicable to the Micro-entities Regime
2. FRS102: The Financial Reporting Standard applicable in the UK and Republic of Ireland and applying section 1A to reduce level of disclosures.
Please call us and we will aim to discuss the best way forward and provide a cost-effective fee quotation.
What are the differences between the two?
Micro entity accounts under FRS105 require the least amount of disclosure in the accounts whereas accounts prepared under FRS102 require disclosure notes to be prepared to support amounts in the balance sheet and subsequently involves more work.
How do we choose what accounts should be prepared for us?
To be eligible to prepare accounts under the micro entity regime, the company must not breach two out of the three following criteria limits below:
- turnover not more than £632,000.
- less than 10 employees,
- £316,000 or less on its balance sheet.
If two of the above limits are breached, then accounts are required to be prepared under FRS102: The Financial Reporting Standard applicable in the UK and Republic of Ireland.
There may be other factors to consider such as the company looking to take out a bank loan, and banks will prefer the accounts to be prepared under FRS102 regardless of the limits stated above, this is because FRS102 accounts provide more information by way of disclosure notes.
What information is required to prepare these accounts?
The following information will be required to prepare the full accounts.
- Property completion statements detailing the purchase price of the property.
- Cost of improvements/capital expenditure to date.
- Fair valuation of the property at each reporting date.
- Details of financing arrangements and loan statements for the year.
- Company bank statements for the year.
- Details of equity – certificate of Share capital and shareholders and directorship details.
Profit and loss
- For each let property – rents receivable
- Rental statements from agents.
- Ground rents.
- Wayleaves or rights
- Income from lodgers.
- Allowable expenditure.
- Mortgage interest certificate for each loan.
- Private usage details.
- Cost incurred to replace furniture/furnishings.
What are the corporation tax payment and return filing dates?
Payment for corporation tax is due nine months plus one day after the end of the accounting period and so for a company with a year-end date of 31 March 2021, the payment date is 1 January 2022.
The company will be required to file a company tax return (CT600) electronically no later than 12 months from the end of the accounting period which is 31 March 2022.
Are there penalties for late filing or payment of tax?
Yes, HM Revenue & Customs have implemented a penalty regime in respect of corporation tax which incorporates penalties for late filing and late payment of tax. These are summarised for your reference below:-
Late filing penalties
The deadline for filing a tax return to HMRC is 31 March 2022.
When any tax return is late, an initial £100 fixed penalty arises the day after the filing date. This applies even if there is no tax to pay or the tax due has been paid on time.
A further penalty of £100 arises if the tax return is not submitted within three months of the filing deadline.
After the daily penalties, and if the return is still outstanding six months after the filing date, a further penalty arises calculated at 10% of the unpaid tax liability.
Where the return is still outstanding after 12 months, a further penalty arises, calculated at 10% of the unpaid tax liability.
Late payment interest
Interest is charged from the day after the tax should have been paid (i.e., normally 9 months and one day after the end of your accounting period). The current corporation tax late payment rate is set at 2.75%.
For further information please contact Roman Pathak or Emerald Swe or fill out the form below and we will be in touch.
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