What is corporation tax?

Corporation tax is charged on any corporate body which includes any limited companies. So, a limited company, whether it is a property SPV company or company with other types of 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 so only liable to income tax and capital gains tax. However, any property purchased under the name of Limited company will be liable to corporation tax instead of income tax & capital gains 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.

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 accounting period which the directors of the company can select as they wish. This provides a lot of flexibility to directors providing opportunity for better commercial & tax planning.

Although the length of 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. In case of 18 months accounting period, there will be two chargeable accounting periods for corporation tax: one of 12 months & other for 6 months.

Does 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 rate of corporation tax is 19% for the year starting 1 April 2021. From 1 April 2023, there is an increase in the rate from 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 current year and future years:

Rate Band

2021/22

2022/23

2023/24

Profits between £50,000 to £250,000

19%

19%

26.5%

Small profits rate - Profits less than £50,000

19%

19%

19%

Main rate Profits above £250,000

19%

19%

25%

For the details on corporation tax rates, please refer to HMRC website.

How taxable profits is calculated?

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

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

Does Section 24 apply to Limited company?

No. Good news is that the Section 24 interest relief restriction applies only to individual landlords. Actually, a lot of property investors moving to corporate structure because of Section 24.

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

Corporation tax return (CT600) should be filed within 12 months of the end of the accounting period. For example, for the year ended 31 December 2021, the filing deadline is 31 December 2022.

Together with 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 iXBRL tagged set of accounts. We prepared CT600 at the same time as the company accounts for the companies.

What is the deadline of paying corporation tax?

For small companies, the corporation tax is due 9 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.

For large companies, the corporation tax needs to be paid on instalment basis.

How can UK Property Accountants help you?

As many landlords are recently moved to corporate SPV structure, corporation tax is 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 how we can help you to prepare corporation tax return and corporation tax planning.