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Annual Tax on Enveloped Dwellings | ATED Avoid Common Errors

Published by Ashmita Parajuli
Published Date: April 3, 2023

A 'non-natural person' (a company, a partnership with a company member, or a collective investment scheme and trust) that owns a residential property in the United Kingdom valued at more than £500,000 per property is required to pay and submit ATED Return annually.

ATED is a relatively new and little-discussed tax topic in comparison to other taxation-related issues. Whether you own or intend to acquire residential real estate through a corporation or LLP, you must be aware of the Annual Tax on Enveloped Dwellings (ATED) and the filing requirements.

To take advantage of the tax benefit and avoid tax liabilities resulting from noncompliance, it is crucial to comprehend ATED.

ATED Filing Deadline

Each year, the ATED return and tax due must be submitted to the HMRC by April 30.

For newly acquired residences, the return must be filed within 30 days of the acquisition date.

For a newly constructed home, the return must be filed within 90 days of the earliest of the following dates:

  • The property becoming a residence for council tax purposes.
  • The property's initial occupancy.

For instance, if a company owns a dwelling valued at more than £500,000 on 1 April 2023, the property will be subject to the ATED return for the period 2023/24 (1 April 2023 to 31 March 2024), for which the ATED return must be submitted and any tax due must be paid by 30 April 2023.

Common Mistakes with Annual Tax on Enveloped Dwellings (ATED) in UK

Image of the word 'mistake' spelled out in cubes

There are a number of common mistakes that entities make when filing their ATED returns. These include errors in property valuations, misinterpretation of ownership and lease arrangements, incorrect claims for reliefs, and missing filing deadlines. Some of these are:

1. Failure to Submit the Return

Non-natural persons who own residential property in the United Kingdom with a value exceeding £500,000 per property are required to file an ATED return.

It is an annual return that must be submitted for the period from April 1 to March 31 of the following year, regardless of the company's accounting year.

Some businesses may be unaware of this requirement and, as a result, fail to file the required return and pay any tax due, incurring penalties and interest fees.

2. Submit an Inaccurate Return

The company may submit a return which may not reflect the true value or state of the property.

For Example, 

If property has more than one dwelling, such as a building with several self-contained flats, each flat is a dwelling and should be valued separately.

ATED return must be filed for the property separately. Incorrect valuation and calculation of tax liability will be assessed if the property is partly commercialised and partly used as residential.

3. Incorrect Valuation of Enveloped Dwelling

The property must be accurately valued so that tax returns and tax payments are accurate. Following are the few areas that need to be considered for valuation:

  • Businesses must revalue their property every five years. For the chargeable period from 2023 to 2024. Companies must revalue their properties using the valuation date of April 1, 2022, or if the property is purchased after 1st April, the date of such acquisition.
  • Valuation must be done on open market basis.
  • This can be done by company or by professional valuers, but all valuations must be completed in GBP.
  • Sufficient evidence to support the valuation of records must be kept for six years after the end of the chargeable period.

4. Failure to Claim Reliefs

If you are subject to ATED, don't worry; there are exemptions and reliefs available. Failure to claim these tax relief results to overpayment of tax.

  • You have no responsibility to pay the ATED annual charge if you have a qualifying exemption.
  • You may be limited to filing a return each year with no tax obligations if you qualify for a qualifying relief.

According to HMRC, you may be eligible for relief if the property is:

  • Rental Business
  • Property Open to the Public
  • Property Development
  • Property Trading
  • Repossessed Property
  • Home Reversion Scheme
  • Employee Accommodation
  • Farmhouses
  • Social Housing

5. Not Keeping Proper Records

Companies must keep accurate records of their ATED tax calculations and payments. Failure to do so may result in problems if the company is ever subjected to an audit or investigation.

Following details must be kept for record purpose:

  • Details of any relevant transactions (contracts or conveyance, as well as any supporting maps, plans, etc.)
  • Records of any relevant payments, receipts, and financial arrangements.
  • Valuations, as well as any supporting documentation, such as accounts, books, deeds, contracts, vouchers, and receipts.
  • Records can be kept on paper or electronically
  • A maximum penalty charge of £3,000 will be imposed for failure to keep records.

ATED Penalties

Failure to comply with the UK ATED filing requirements can result in fines, interest charges.

The overall penalties for the late payment of ATED annual charge is as follows:

Any initial penalty

5% on tax unpaid at the penalty date

Any 5 month further penalty

5% on tax unpaid 5 months after the penalty date

Any 11 month further penalty

5% on tax unpaid 11 months after the penalty date.

Note that HMRC will also charge penalties for late or non-submission, even if the tax is fully exempt or exempted. 

Incase of Late Filing

Missing filing deadline

£100

3 months late

Additional £10 per day up to maximum £900

6 months late

Additional 5% of tax due or £300, whichever is higher

12 months late

Additional 5% of tax due or £300, whichever is higher

More than 12 months

Based on behaviour could range from 70% to 100% of tax amount, at least £300

Why UK Property Accountants for your ATED filing?

Working with UK Property Accountants will allow you to benefit from our knowledge and experience, ensuring that you get the most out of the ATED relief.

We can walk you through the process of bringing your tax affairs up to date and making the most of available reliefs and allowances as experienced professionals. Our professional teams of professional expertise will assist you to pay correct amount of tax and ensure compliance with the UK regulation.

Ashmita Parajuli
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