Corporation Tax Returns

What is a Corporation Tax?

A corporation tax is charged on any corporate body, including any limited companies. So, a limited company, whether it is a property SPV company or a company with other activities such as property development or property trading, falls under the charge of corporation tax.

Many landlords historically never had to worry about corporation tax as the properties were under the individual's name and were only liable to income tax and capital gain tax. However, any property purchased under the name of a Limited Company will be liable to corporation tax instead of income tax & capital gain tax. All the incomes and gains of the company are taxed as corporation tax, although the method of calculation of different sources of income is different.

All companies incorporated in the UK (i.e., registered at Companies House) are taxed in the UK. Also, any foreign companies whose place of central management and control is in the UK are taxed in the UK.

The accounting period for Corporation tax

Individual landlords are taxed based on tax year (6 April to 5 April). However, companies are chargeable to corporation tax based on the accounting period, which the company's directors can select as they wish. This provides a lot of flexibility to directors, providing better commercial & tax planning opportunities.

Although the accounting period for a company can be up to 18 months as per the Companies Act, the chargeable accounting period for corporation tax cannot exceed 12 months. Therefore, in the case of an 18-month accounting period, there will be two chargeable accounting periods for corporation tax- one of 12 months & the other of six months.

Does a company need to register with HMRC?

Yes, all companies taxable in the UK need to register with HMRC. Usually, there will be automatic registration with HMRC when the company is registered in the Companies House. In any case, UK Property Accountants will take care of this for our clients.

What is the rate of Corporation Tax?

The corporation tax rate is 19% for the year starting 1 April 2021. From rate of corporation tax and the introduction of a 19% to 25% in the main rate of corporation tax and the introduction of a 19% small profit rate of corporation tax for companies whose profit do not exceed GBP 50,000.The table below will show the corporation tax rates (as announced) for the current year and future years:

Rate Band

2021/22

2022/23

2023/24

Main rate Profits above £250,000

19%

19%

25%

Small profits rate - Profits less than £50,000

19%

19%

19%

Profits between £50,000 to £250,000 

19%

19

26.5%

 

Under new rules of corporation tax from 1 April 2023, the lower and upper limits will be proportionately reduced for short accounting periods and in case of associated companies. A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

  • one company has control of the other
  • both companies are under the control of the same person or group of persons

How taxable profits is calculated?

Although the corporation tax is the same for all types of income & gains (except ATED related gains), there is a difference in calculating taxable profit for corporation tax. The income & gains are divided between mainly following categories:

  • Trading profits
  • Profits from UK Property Business
  • Profits from Overseas Property Business
  • Surplus from non-trading loan relationships
  • Net chargeable gains
  • Non-trading income
  • Miscellaneous income

Does Section 24 apply to a Limited Company?

No, it does not. The good news is that the Section 24 interest relief restriction applies only to the individual landlords. Many property investors are moving to a corporate structure because of Section 24.

When and how should the corporation tax return be filed to HMRC?

The Corporation Tax Return (CT600) should be filed within 12 months of the end of the accounting period. For example, the filing deadline for the year ended 31 December 2018 is 31 December 2019.

Together with the CT600, the company is also required to submit a set of accounts, any other detailed analysis & computations necessary to show that the return is complete and correct. The corporation tax return must be filed online together with an iXBRL tagged set of accounts. We prepare the CT600 simultaneously with the company accounts for the companies.

What is the deadline for paying the Corporation Tax?

For small companies, the corporation tax is due nine months & 1 day after the end of the chargeable accounting period. For example, the corporation tax for the year ended 31 December 2021 is due on 1 October 2022.

The corporation tax needs to be paid on an instalment basis for large companies.

How can UK Property Accountants help you?

As many landlords have recently moved to the corporate SPV structure, corporation tax is a new tax for even experienced landlords. So, all landlords are advised to seek tax advice from a property tax specialist for corporation tax compliance. Contact us to find out more about how we can help you prepare the corporation tax return and help with the corporation tax planning.