HMRC IS SENDING letters to some offshore (non-resident) companies that appear to have failed to notify that they own commercial property in the UK.
In today’s Shipleys Tax note we look at what this means for overseas landlords owning property in the UK and what you need to do to avoid falling foul of HMRC’s rules.
From Income Tax to Corporation Tax
Before 6 April 2020, rental income garnered by non-UK resident companies fell under the domain of income tax. However, post this date, these companies are required to adhere to corporation tax rules for any liability.
HMRC’s Requirement for Registration
HMRC is actively reaching out to companies that have so far missed registering under either of the tax rules. It appears that their knowledge about these companies and their property holdings originates from HM Land Registry or the newly established Register of Overseas Entities, which itself went live this year on 31 January 2023.
Before 6 April 2020, rental income garnered by non-UK resident companies fell under the domain of income tax. However, post this date, these companies are required to adhere to corporation tax rules…
In these letters, companies are prompted to fill out a certificate to ascertain if there’s a need to declare any unpaid tax on their rental income. Depending on the company’s declaration, they are guided either towards the voluntary disclosure procedure or, in cases of potential tax fraud, towards the contractual disclosure facility.
Additionally, the letters urge companies to evaluate if the UK’s complicated “transfer of assets abroad provisions” apply, especially concerning UK-resident individuals who might have an interest in the company’s income or capital.
Interestingly, this isn’t the first instance of such letters being dispatched. Similar letters were sent to offshore corporates owning UK properties in the past, chiefly concerning residential property income and potential tax liabilities under the annual tax on enveloped dwellings (ATED).
A Warning and the Potential Consequences
HMRC’s current communication comes with a clear warning: Companies are given a window of 40 days to either initiate the disclosure process or provide an explanation if they believe they’re exempt from disclosure. Failure to respond could see HMRC estimating what it believes the company owes, potentially sparking an investigation. This could further culminate in added penalties. The statement in the letter is quite straightforward, stating, “If we later find that you have not told us everything, we’ll view this very seriously.”
Alternative Disclosure Methods?
While the letters might sound imposing, recipients should note that they’re not legally bound to complete and return the certificates. As per the guidance from the Chartered Institute of Taxation (CIOT), there are other disclosure methods at their disposal, some of which might be more suitable than those delineated in HMRC’s letter.
Companies are given a window of 40 days to either initiate the disclosure process or provide an explanation if they believe they’re exempt from disclosure.
According to the CIOT, HMRC cannot compel a taxpayer to use any specific method for their disclosure. Depending on the situation, other methods may be more apt. Therefore, taxpayers and companies should be discerning, consider the unique facts of their situation, and seek advice on the best disclosure approach.
Conclusion
For non-UK resident companies with UK property assets, staying abreast of the latest tax regulations is paramount. With HMRC actively reaching out to those who haven’t registered under the updated tax rules, it’s crucial to understand one’s obligations and rights, ensuring compliance while also leveraging the most appropriate disclosure methods. If in doubt, always seek expert guidance to navigate these complex tax waters.
If you would like assistance, or would like more information, please call 0114 272 4984 or email info@shipleystax.com.
Please note that Shipleys Tax do not give free advice by email or telephone.
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