We have done our own research and established that the disposal creates a corporation tax chargeable accounting period of one day, being the date of disposal.
Please will you assist us in establishing the correct payment due date for the corporation tax liability of £332,500? The company is not a member of a group.
Propco GmbH is subject to UK corporation tax legislation, both primary and secondary, as if it were a UK resident company. The corporation tax payment due date for a small company is nine months and one day after the end of the chargeable accounting period. However, The Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998/3175) must be considered to establish whether the company is required to pay tax in instalments. There is no exception from the regulations for non-resident companies.
By virtue of CTA 2009 s9(1)(a) and s10(1)(h), the company has a tax accounting period of only one day – it came within the charge to corporation tax on its gain and then immediately ceased to be within the charge to corporation tax.
Owing to revised legislation introduced by FA 2020, the payable date for the corporation tax on the gain is 3 months and 14 days after the one-day accounting period of 16th September 2021, i.e. by 30th December 2021 – Reg 5(4) SI 1998/3175.
Explanation
The company’s chargeable gain takes it above the ‘very large’ annual profit threshold of £20 million (which equates to a daily profit threshold of £54,795). A company exceeding the threshold will be very large, even if it was not large or very large in the 12 months immediately preceding the accounting period; there is no grace period. Ordinarily, Propco would be required to pay the liability in four equal instalments under the ‘very large company’ regime.
Where the accounting period of a very large company is less than 12 months the first instalment is due 2 months and 13 days after the beginning of the accounting period, unless the final instalment is due before this date, in which case the full liability is due on the final instalment date.
If the accounting period ends on the last day of the month final instalment is due 14 days after the end of the preceding month.
If the accounting period does not end on the last day of the month, but on a day for which there is a corresponding date in the preceding month, 14 days after that date in the preceding month; or if there is no corresponding day in the previous month (periods ending on 29-31 March on non-leap years and on the 31st day of May, July, October or December) 14 days after the last day of the previous month.
But if the last instalment date falls before the beginning of the accounting period, a single payment is due on the last day of the accounting period.
Many non-resident companies with UK property could come within the ‘very large’ quarterly instalments regime because of a property disposal. A single day chargeable accounting period would trigger a payment due date being the same date as the disposal. That is an impracticable position as the company, which has been inactive up until this point, does not have a corporation tax reference number to facilitate a payment.
HM Revenue & Customs rectified this administrative anomaly by applying a concessionary treatment from April 2019 to treat these companies as ‘large’ for the purposes of instalments. For large companies with a chargeable accounting period of six months or less only one payment is due, falling on the date the final instalment is payable. That date is 3 months and 14 days after the end of the accounting period. Finance Act 2020 Paragraph 26 legislated the treatment for accounting periods beginning on or after 11 March 2020 by inserting Regulation 3(11) into SI 1998/3175.
Therefore, Propco should have paid its corporation tax liability by 30 December 2021.
The amendment to the regulations captures companies which are chargeable to corporation tax for an accounting period only because of a chargeable gain accruing to the company on the disposal of an asset and would be a very large company in respect of the accounting period if not for the amendment. It does not extend to companies who are chargeable to corporation tax on other income in the accounting period.
If Propco had been letting the property and had taxable property income of £40,000 in its chargeable accounting period of 16 days from 1 September 2021 to 16 September 2021 the exception would not apply, and Propco would be very large. The full liability of £340,100 ((£1,750,000 + £40,000) x 19%) would be due on 16 September 2021.
In the right circumstance, where there is other income within the scope of UK corporation tax (e.g. UK rental income), companies might benefit from utilising the interaction between statutory accounting period end dates and corporation tax chargeable periods. Extending or shorten a statutory accounting period to end on a day before the disposal could manufacture a one-day chargeable accounting period which is only chargeable because of a chargeable gain accruing to the company on the disposal of an asset. That period in which the gain is realised would escape the large company QIPS rules. However, remember the capital gain date is still subject to the unconditional contract rule of s28 TCGA 1992. Such planning would have to involve the cessation of rental income before the disposal of the property.
Before suggesting and embarking on a change of accounting period, remember to check the company is in time to change its accounting reference date. Beware the risk of charging your client more than you save them. Quantify any financial benefit, giving due consideration to the cost of professional fees incurred in changing an accounting period and preparing and filing additional accounts and tax returns, compared to interest charged on late instalments and balancing payments and the returns your client might make with access to the funds. Above all else, remind your client that there legal and commercial implications unique to their jurisdiction and business model that you may not have considered if it is outside of the scope of your engagement.
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