Still time to claim super-deduction

There is still time to claim the super-deduction allowance that offers 130% first-year tax relief. The deduction is available to companies until March 2023. The super-deduction is designed to help incorporated businesses finance expansion in the wake of the coronavirus pandemic and to help drive growth.

The super-deduction tax break was introduced on 1 April 2021 and allows businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment investments that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 businesses invest they can reduce their tax bill by up to 25p. 

In addition, an enhanced first year allowance of 50% on qualifying special rate assets also applies expenditure within the same period. This includes most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances. 

Only companies can claim the the super-deduction. This means that self-employed traders are unable to benefit. However, they could benefit from the temporary increase in the Annual Investment Allowance (AIA) cap to £1 million. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit.

Non-resident company taxation

Non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency.

If the non-resident company is deemed liable to pay Corporation Tax, then its chargeable profits are:

  • any trading income arising directly or indirectly through or from the permanent establishment/branch or agency,
  • any income from property or rights used by, or held by or for, the permanent establishment/branch or agency except dividends or other distributions received from companies resident in the UK, and
  • chargeable gains falling within TCGA92/S10B.

There are however some differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

  • is not liable to account for ACT on distributions made before to 6 April 1999,
  • cannot have 'franked investment income',
  • cannot have surplus franked investment income for the purposes of ICTA88/S242,
  • cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement.

Filing and paying company tax returns

If you have recently setup a new limited company or are thinking of doing so then one of the areas that you need to be aware of is the accounts and tax filing regime for companies.

After the end of its financial year, a private limited company must prepare full annual accounts and a company tax return. In most cases a company’s tax return must be submitted within 12 months from the end of the accounting period it covers. Online Corporation Tax filing is compulsory for company tax returns. Company tax returns must be submitted using either HMRC’s own software or third-party commercial software approved by HMRC and in the required format.

The accounting period for Corporation Tax is normally the same 12 months as the company financial year covered by the annual accounts. There is a separate fixed date for the payment of Corporation Tax which is 9 months and 1 day after the end of the relevant accounting period. This means that a company is usually required to pay any Corporation Tax due in advance of the filing deadline for a company tax return.

A company has a right to amend its company return within 12 months from the statutory filing date. Examples of when a return may be amended include claims for group relief and elections rebasing for capital gains.

There are penalties for late submission of company tax returns. There is a standard penalty of £100 for a late submission of the return within 3 months of the due date and a £200 penalty if the return is over 3 months late. Companies that submit late returns for 3 or more accounting periods in a row are subject to increased penalties. There are further tax based penalties for companies that do not file a return within 18 months of the end of the relevant accounting period and which have not paid the tax due. These penalties can be either 10% or 20% of the unpaid tax depending on the lateness of the filing.

Corporation Tax – marginal relief from 1 April 2023

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000, a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.

The amount of tax you pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction is 3/200.

Accounting periods for Corporation Tax

Companies often have to contend with having two different company accounting periods. This is because there are different rules for Companies House filings and for HMRC to whom any Corporation Tax due is paid.

The accounting periods can be the same but can also differ and a change may be needed to ‘sync’ the accounting periods. As a general rule, the Companies House rules are more flexible and under certain circumstances it is possible to make a change to the year end. The Companies House accounting period can sometimes run for more or less than 12 months.

A tax accounting period for Corporation Tax purpose cannot be longer than 12 months. This can create the unusual scenario whereby a company will be required to file two returns with HMRC if an accounting year is longer than twelve months.

If your accounts cover less than 12 months, then your accounting period will normally end on the same day and will also be shorter than 12 months. This can happen if the company stops trading or shortens its company’s year-end date (also known as its accounting reference date).

Corporation Tax – reminder HMRC contact details

HMRC can be called by phone on 0300 200 3410 for help with general Corporation Tax enquiries. You will need your 10-digit Unique Tax Reference (UTR) when calling HMRC and this reference number cannot be provided over the phone.

The UTR is the primary identifier for a company and should be used whenever HMRC is contacted. The number can be found on all letters from HMRC and also in HMRC’s business tax account portal – if the company has registered for online tax services and attached the UTR to their profile.

HMRC’s Corporation Tax phone lines are open Monday to Friday: 8am to 6pm and closed weekends and bank holidays. The phone lines are typically less busy between 8.30am and 11am.

You can also write to HMRC at the following address for help with general Corporation Tax enquiries.

Corporation Tax Services
HM Revenue and Customs
BX9 1AX
United Kingdom

You should include your UTR in the letter and on the first page of any documents you send. If you are replying to a letter you’ve received about your Corporation Tax, you should use the address on that letter.

Structures and Buildings Allowances

The Structures and Buildings Allowances (SBA) allows for tax relief on qualifying capital expenditure on new non-residential structures and buildings. The relief applies to the qualifying costs of building and renovating commercial structures. 

The relief was introduced in October 2018 at an annual capital allowance rate of 2% on a straight-line basis. The annual rate was increased to 3% from April 2020, and the corresponding period reduced to thirty-three and one-third years. 

HMRC’s guidance sets out the process for making a claim. In order to make a valid claim a written allowance statement is required. 

The allowance statement must include:

  • information to identify the structure, such as address and description
  • the date of the earliest written contract for construction
  • the total qualifying costs
  • the date that you started using the structure for a non-residential activity

The claimant must also meet the necessary requirements in respect of the building itself and the chargeable period for the claim. 

The start date of the claim is the later of the following two dates:

  • the date when you started using the structure for a qualifying activity
  • the date that you are due to pay for the structure or construction.

No relief is available where parts of the structure qualify for other allowances, such as plant & machinery allowances.

Tell HMRC if your company is dormant

If a company has stopped trading and has no other income, then the company is usually classed as dormant for Corporation Tax purposes. 
A company is usually dormant for Corporation Tax if it:

  • has stopped trading and has no other income, for example investments
  • is a new limited company that hasn’t started trading
  • is an unincorporated association or club owing less than £100 Corporation Tax
  • is a flat management company.

There is a special online form that can be used to advise HMRC if a company is dormant. The form can be found at www.gov.uk/tell-hmrc-your-company-is-dormant-for-corporation-tax. In order to complete the form, you will need the company’s name, 10-digit Unique Taxpayer Reference (UTR) and the date the company ceased trading. 

HMRC can also send a notification if they think a company is dormant. This notice will state that a company or association is dormant and is not required to pay Corporation Tax or file Company Tax Returns.

Limited companies are still required to file annual accounts and a confirmation statement even if the company is dormant for Corporation Tax and dormant according to Companies House. A company defined as 'small' by Companies House can instead file 'dormant accounts' and does not have to include an auditor’s report.

A company can stay dormant indefinitely, however there are costs associated with this option. This might usually be done if for example a company is restructuring its operations or wants to retain use of a company name, brand or trademark.

How CIS off-set works in practice

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.

Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.

Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status whereby the contractor will not make a deduction, and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.

In practice the subcontractor company could apply the off-set rules and must simply reduce their PAYE, NIC, any CIS liabilities and student loan repayments due from company employees or their own subcontractor’s, by the amount of any CIS deductions the subcontractor company made from their payments. 

If in any month or quarter the company’s own CIS deductions are greater than the total liabilities due, the company can set-off the excess against future payments of PAYE, NIC, or CIS liabilities and student loan repayments due in the same tax year.

The subcontractor company must keep a record of the amounts set-off in order to fully complete the form P35 at the end of the tax year.

Global minimum Corporation Tax of 15%

A new consultation has been published by the UK government seeking views for how a worldwide 15% minimum Corporation Tax should be enforced domestically. This follows more than 130 countries signing up to a new global minimum tax framework in October 2021, after the G7 agreed in principle to this measure during UK’s presidency.

We have also seen publication of the Global Anti-Base Erosion Model Rules (Pillar Two) by the OECD/ G20 on 20 December 2021. This paper states that implementation of these new rules is envisaged by 2023.

This new agreement is expected to ensure large international firms pay at least 15% tax rate on profits in each country in which they operate, helping to tackle avoidance and ensure a more level playing field for UK businesses.

The consultation will run for 12 weeks and seeks views on the application of the global minimum Corporation Tax in the UK, as well as a series of wider implementation matters, including who the rules apply to, transition rules and how firms within scope should report and pay.