Tax advice: annual tax on enveloped dwellings deadline, corporation tax rules for carried forward losses and EMI reliefs currently withdrawn

    Annual tax on enveloped dwellings - don’t miss the deadline

    Clients who are ‘non-natural persons’ and who hold high value residential property in the UK (an enveloped dwelling) are required to complete a return for HMRC by 30 April 2018 and, in some cases, pay an annual charge to HMRC by the same date. A property is high value if it had a taxable value of more than £500,000 on 1 April 2017, or on acquisition if after this date.

    HMRC charge penalties for late filing of returns. Details can be found here.

    Late payment penalties start arising when annual tax on enveloped dwellings (ATED) is unpaid 30 days after the deadline, with further penalties if still outstanding six and 12 months later. The key payment deadlines are:
     
    • within 30 days of purchase of a new property
    • within 90 days of a new build property
    • by 30 April (following the end of the tax year) the annual charge for all other properties falling into the charge

    The charges for 2018/19 are:
     
     Property value  Charge
     £500,001 to £1,000,000  £3,600
     £1,000,001 to £2,000,000  £7,250
     £2,000,001 to £5,000,000  £24,250
     £5,000,001 to £10,000,000  £56,550
     £10,000,001 to £20,000,000  £113,400
     £20,000,001 and above  £226,950

    There are reliefs available in various circumstances, e.g. commercially let property, property developers and registered providers of social housing etc. Full details of available reliefs can be found here

    For more information regarding ATED, call 0345 223 2727 or email us.


    Corporation tax – changes to reliefs for trading losses carried forward

    Finance (No 2) Act 2017 introduced major relaxations to the corporation tax rules for carried forward losses, including trading losses. Existing rules for relieving losses against profits of the same year (within the company or by group relief) or carrying back have not changed. 

    The changes took effect from 1 April 2017. If the accounting period straddles this date, the company is treated as having two separate periods for loss relief purposes. The losses are then time apportioned between the pre and post April periods, unless another method gives a fairer result.

    'Qualifying losses' which arise from 1 April 2017 onwards and which are carried forward to later periods can now be relieved against future total profits. Previously, such carried forward losses could only be set against future profits of the same trade. The set-off against future total profits is no longer automatic either, so relief needs to be claimed in whole or in part (within two years of the end of the accounting period you want relief in), or the losses can be carried forward again to later years. There is also a new terminal loss relief for carried forward losses.

    Carried forward losses which arose up to 31 March 2017 can still only be set against future profits of the same trade, but the automatic set-off (outlined above) no longer applies to these losses either. A corporation tax loss memo will need to track the creation and use of pre and post April losses separately.

    Companies and groups of companies have a £5m 'deductions allowance', which is split between two allowances for trading profits and non-trading profits. Carried-forward losses up to the trading allowance can be relieved in full. If the losses exceed this allowance, only 50% of the profits over the trading allowance can be used to relieve carried forward trading losses.

    Various restrictions apply, e.g. for certain industries (insurance, oil and gas, creative industries) and to 'non-qualifying losses' (as they did previously) e.g. where the trade is small/negligible, farming companies, UK or overseas permanent establishments. Loss relief is only then available as for a pre April 2017 loss. There are also some anti-avoidance provisions (TAAR, loss-buying, loss refresh).

    The changes also affect (in slightly different ways) other types of carried forward losses: non-trading loan relationship deficits, UK property losses, management expenses and non-trading intangible losses.

    The legislation is lengthy and complicated and this article is only intended as a summary of the rules. Advice should be sought so if you would like any more information, call 0345 223 2727 or email us.


    EMI reliefs currently withdrawn

    On 4 April 2018, HMRC announced that the EU State Aid Exemption for enterprise management incentive
    (EMI) options would expire on 6 April 2018.  

    This creates a clash between UK and EU law: although, according to the letter of the UK legislation, HMRC would have to accept any claims for tax relief in respect of EMI options granted after 6 April 2018, there would be a risk that HMRC would be compelled by the EU to then claw-back the tax relief from the individuals and companies who benefitted from it.

    HMRC has stated that the effect of the failure to renew the EU State Aid Exemption is that they will not give relief to EMI options granted after 6 April 2018. Instead, the option may be treated as a non-tax advantaged share option.

    Any options that had been granted under an EMI scheme before 6 April 2018 are effectively ‘grandfathered’ and will continue to enjoy their tax advantaged status.

    Whilst we believe that the EU State Aid Exemption will be renewed (Sweden has recently had an exemption granted for a very similar scheme), it is difficult to give a definitive view on the timing of the EU’s decision-making process.

    In our view, companies who are working on granting EMI options should continue to make their preparations, but should wait until we have clarity on the likelihood of receiving a renewed exemption (and the date from which it will be effective) before actually granting options.  

    We also recommend that companies defer requesting valuations from HMRC SAV, as the valuations only have a limited lifespan.

    If you require further information, please contact either Reshma Johar or Thomas Dalby or call 0345 223 2727.