Non-resident companies paying corporation tax
From 6 April 2020, non-resident companies that own UK real estate found themselves within the scope of Corporation Tax rather than Income Tax in respect of their rental income. Falling within Corporation Tax also brings additional complications to their tax profile as outlined below.
Companies that own UK real estate are subject to Corporation Tax rather than Income Tax. As of April 2023, the main rate of Corporation Tax is 25%, compared to the 20% basic rate under the Income Tax legislation.
However, it should also be noted that non-resident companies are not eligible to claim Corporation Tax marginal relief, in which profits below £50,000 are taxed at 19%, and will therefore pay the full 25% rate.
In addition, falling within the scope of paying Corporation Tax brings greater complexity and may limit the application of provisions that could disallow some of the company’s running costs. For example, the following is applied under Corporation Tax legislation.
- Corporate Interest Restriction — tax relief on net interest payments may be restricted to the higher of £2 million per year or Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) at 30%.
- Late interest payment rules — interest unpaid after 12 months from the end of the period may be restricted if payable to parties in certain tax jurisdictions.
- Hybrid mismatch legislation — if the same expenditure is deducted for tax purposes in two tax jurisdictions, or if expenditure is deducted in one tax jurisdiction and the reciprocal income not taxed in another jurisdiction, tax relief could be restricted.
- Quarterly instalments regime — the tax payable is required during the accounting period.
- Land Remediation Relief — one positive is that non-resident companies can now claim this relief, where they are remediating qualifying land interests, as well.
Our flowchart sets out some of the key areas that such companies will need to think through in assessing the impact of the change on their tax profile.
For further details please contact Caroline Fleet or your usual Crowe advisor.
