Corporation Tax

Corporation tax on Property

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 (5 April to 6 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 2018. But, the government announced the reduction of corporation tax rate to 17% from 1 April 2020. The table below will show the corporation tax rates (as announced) for current year and future years:

Year starting

Rate of corporation tax

1 April 2017

19%

1 April 2018

18%

1 April 2019

18%

1 April 2020

17%

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
  • Profits from Overseas Property Business
  • Surplus from non-trading loan relationships
  • 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 2018, the filing deadline is 31 December 2019.

Together with CT600, the company is also required 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 statutory 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 2018 is due on 1 October 2019.

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

How UK Property Accountants can 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 form 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.