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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.

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.

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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FOR MANY in the UK, the tax and accounting landscape is seen as overly complicated and ever-changing, making it vital to choose a tax adviser who can effectively navigate this terrain.

In todays’ Shipleys Tax blog we look at the Top Five Reasons why selecting the right tax adviser is crucial for your overall financial health.

Does paying more save more? Let’s find out.

1. Tax Optimisation: Maximise Tax Savings

The UK tax code is a labyrinth of potential savings, but only a proficient tax adviser can unlock these opportunities. They can identify hidden deductions, credits, and exemptions tailored to your financial situation. An inexperienced adviser, on the other hand, may overlook these nuances, resulting in unnecessarily high tax liabilities. For instance, failing to utilise even simple tax reliefs such as Entrepreneur’s Relief or R&D Tax Credits can significantly inflate your tax bill.

2. Asset Protection: Safeguarding Your Wealth

Whether it’s real estate, business assets, or investments like gold and cryptocurrencies, the right tax adviser can help investors protect their wealth. They can devise strategies to shield these assets from creditors, legal disputes, and unexpected personal circumstances. They understand UK-specific legal structures and practices, like the use of LLPs, trusts or limited companies, which can effectively safeguard your wealth. However, an adviser with less experience or understanding of the UK market might lack the in-depth knowledge of these asset protection strategies, potentially leaving your assets vulnerable to financial risks.

For landlords and overseas investors in the UK property market, strategising asset protection through effective tax planning is a critical part of investment management. A seasoned tax adviser can provide invaluable guidance on utilising the UK’s tax legislation to your advantage. They can help design strategies such as setting up tax efficient structures for buy-to-let or development properties or making optimal use of tax reliefs which reduce tax exposure to taxes such VAT, SDLT, CGT or ATED. These tax planning strategies can minimise your tax liabilities and shield your investments from undue exposure. On the other hand, less experienced advisers might not have the breadth of knowledge to leverage these tax benefits effectively, which could result in higher tax payments and potential erosion of your investment returns.

3. Staying Ahead in the Crypto Game: Cryptocurrency Taxation Expertise

The new frontier of cryptocurrencies brings with it complex tax implications. A savvy tax adviser stays abreast of these changes, enabling you to comply with the law while maximising the benefits of your crypto investments. In contrast, an inexperienced adviser might not fully understand the intricacies of cryptocurrency taxation, potentially leading to compliance issues or overpayment of taxes.

4. Enhancing Stakeholder Confidence

Your financial statements are more than just numbers; they’re a reflection of your financial health and business acumen. A top-tier tax adviser will ensure your accounts are accurate, transparent, and compliant, enhancing the confidence of stakeholders like banks, HMRC, and potential buyers. In contrast, financial statements prepared by less experienced advisers may raise questions about their accuracy and reliability, potentially impacting your relationships with these crucial stakeholders.

In contrast, financial statements prepared by less experienced advisers may raise questions about their accuracy and reliability, which can have significant implications. For instance, banks may become hesitant in extending credit or approving loans if they perceive inconsistencies or inaccuracies in your financial statements. HMRC might increase scrutiny on your tax filings, possibly triggering audits and investigations. Potential buyers or investors may question the viability of your business based on these financial statements, which could affect your business’s valuation and sale prospects. Even your business partners and employees might lose confidence in the management and financial stability of the business. In essence, less precise and trustworthy financial statements can ripple through all aspects of your business, potentially affecting your reputation, financial stability, and growth opportunities.

5. Long-term Wealth Management: Planning for the Future

Effective wealth management and retirement planning require foresight and expertise. The right tax adviser can guide you towards tax-efficient investment strategies that will maximise your wealth in the long run. On the other hand, an adviser with less experience may lack the insight to effectively manage your long-term wealth, which could impact your financial comfort in retirement.

In conclusion, the importance of choosing the right tax adviser cannot be overstated. Far too often, individuals and businesses fall into the trap of seeking advice only when a problem arises, missing out on valuable opportunities for proactive financial planning and strategy.

Some may opt for inexperienced or less qualified advisers in an attempt to save costs, overlooking the fact that expert advice is an investment in itself. Like any good investment, a competent adviser can generate a healthy return in the form of tax savings, improved financial management, increased stakeholder confidence, and secured long-term wealth.

Others may hesitate to invest in high-quality advice, failing to understand that the costs of inadequate or incorrect advice can far outweigh the fees of a top-tier adviser. The risks range from missed tax savings and audit risks to reduced stakeholder confidence and compromised asset protection.

If you are affected by any of the issues above and 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.