Why are the changes taking place?
HMRC is planning to bring all UK and non-UK property companies on to the same tax schemes.
Prior to 6th April 2020
For the 2019/20 tax year and any previous years, any non-resident limited companies that are letting out a property in the UK had to register under the Non Resident Landlord Scheme and file a self-assessment tax return (form SA700) each year. This is to declare the rental income and expenses and any other income arising in the UK up to the 5th April 2020 and pay the tax due on that income.
The 2019/20 SA700 form must be submitted by way of a paper return to HMRC by the 31st January 2021.
From 6th April 2020
For the 2020/21 tax year and onwards, Non-resident landlord companies must report their UK income by way of a CT600 return under the corporation tax system. The major difference to the old system is that accounts will need to be prepared as well as a corporation tax return (CT600). The return and accounts will need to be filed electronically using a commercial iXBRL filing software system. Unfortunately, HMRC does not provide a free HMRC corporation tax filing software.
If the company has previously registered for the Non-Resident Landlord Scheme (NRL Scheme), HMRC will automatically register them for a Corporation Tax UTR and issue a letter directly to the company outlining the transition arrangements. HMRC started issuing the letters to existing NRL scheme companies from 18th January 2020.
If the rental income commenced on or after 6th April 2020 then companies will need to register under the NRL Scheme by way of form NRL2 and HMRC will automatically register the company for corporation tax.
HMRC have advised that initially all new tax return periods will run to 5th April 2021, keeping it in line with the Income Tax year. If the company prepares its accounts to a different date the company must notify HMRC in writing of the accounts year end so they can update the new corporation tax record.
If there is already an accountant, tax agent or adviser acting on the companies behalf for self-assessment the company will need to complete a new form 64-8 to authorise HMRC to continue to deal with them on the companies behalf for corporation tax.
Where letting agents are withholding tax the rules will be changing slightly to accommodate the transition to corporation tax but the fundamentals of the regime will remain in place.
Filing the CT600 tax return and tax payment dates
Unlike the SA700 which must be filed by paper by the 31st January following the end of the tax year, the CT600 must be filed online one year after the year end date.
Under the corporation tax system, any tax liability that is due to HMRC must be paid nine months and one day after the year end date.
For example, if the year-end date is 5th April 2021, the CT600 filing deadline would be 5th April 2022 but any tax liability would be due to HMRC on the 6th January 2022.
Changes to tax rates
Currently the SA700 return is charged at the income tax rates of 20% on profits up to £50,000, 40% on profits between £50,001 and £150,000 and 45% on profits over £150,001.
Under the corporation tax scheme all profits are taxed at 19%.
More information regarding the new guidance can be found here
© Thandi Nicholls Ltd 2018 All Rights Reserved - The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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