Corporation Tax

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.

Where a property business makes a loss, the loss can usually be carried forward and set against future rental business profits.

HMRC’s guidance is clear that any losses made in one rental business, cannot be carried across to any other rental business the customer carries on at the same time in a different legal capacity.

There is no special claim required to carry forward the losses and the losses can be carried forward indefinitely until full relief for the losses can be given.

Under some limited circumstances, the property losses can be set against general income of the same year or the following year. However, where a property business claims loss relief against general income, they must take the full amount of the loss available up to the amount of their general income.

There are exceptions to the loss relief rules for properties that are let on uncommercial terms (for example, at a nominal rent to a relative).

There are different rules which apply to different types of capital expenditure for a property business. One of the main areas to consider in deciding whether a repair is a deductible expense is whether it is revenue or capital. Capital expenditure cannot be deducted in computing the profits of a property business, however there are separate reliefs for some capital expenditure.

The cost of land and buildings is capital expenditure, this includes the cost of any new buildings erected after letting has started and any improvements. 

HMRC also list the following additional examples of capital expenses:

• expenditure which adds to or improves the land or property; for example, converting a disused barn to a holiday home,


• the cost of refurbishing or repairing a property bought in a derelict or run-down state,


• expenditure on demolishing a derelict factory to clear space for a new office building; the cost of the new building,


• the cost of building a car park next to a property that is let,


• expenditure on a new access road to a property,


• the cost of a new piece of land next to a property that is let.

In general repairs and trivial capital improvements (incidental to a repair) are usually categorised as revenue expenditure. However, the devil can be in the detail and careful consideration must be given to specific expenses. For example, alterations due to advancements in technology are generally treated as an allowable repair rather than an improvement such as replacing single glazing on windows with double glazing.

Corporation Tax relief may be available where your company or organisation makes a trading loss. The loss may be used to claim relief from Corporation Tax by offsetting the loss against other gains or profits of the business in the same or previous accounting period.

The loss can also be set against future qualifying trading income. Any claim for trading losses forms part of the Company Tax Return. The trading profit or loss for Corporation Tax purposes is worked out by making the usual tax adjustments to the figure of profit or loss shown in your company or organisation’s financial accounts.

Some of the basic requirements for a trade loss to be set off against other income sources include: 

• being within the charge to Corporation Tax 


• the trade must be carried on a commercial basis and with a view to the realisation of profit 


• at least some of the trade must be carried out within the UK

The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same time introduced new restrictions as to the amount of profits against which carried forward losses can be set. Any losses carried forward prior to 1 April 2017 fall under the old loss relief rules and must be handled accordingly. 

There are tax consequences for both companies and directors relating to the issue of director’s loans. We will examine below some of the implications if a company facilitates loans to a director. A director’s loan comprises not just an actual loan, but can also include other payments made by the company for the personal benefit of a director such as personal expenses paid for on a company credit card. These amounts are usually posted to a director’s loan account (DLA).

When and if your company has to tell HMRC about a director’s loan, depends on when the loan is repaid. Any company loans to directors outstanding at the end of the company’s Corporation Tax accounting period, have to be disclosed in the accounts and on the company tax return. There is an additional Corporation Tax (CT) bill of 32.5% of the outstanding amount (prior to April 2016 this rate was 25%) where the DLA remains outstanding 9 months after the year end.  There are also special rules to stop director’s repaying a loan and then taking a new loan out in quick succession (known as bed & breakfasting). 

Planning notes:

In most cases this extra 32.5% (25% if the loan was made before 6 April 2016) CT is not a permanent loss of revenue for the company as a claim can be made to have this CT refunded when the loan is repaid, written off or released. However, any interest paid by the company is non-refundable. To be effective, the claim to have the tax refunded needs to be made within 4 years after the end of the year in which the Director’s loan was repaid.

If the loan exceeds £10,000 at any time in the year, then the company must treat the loan as a benefit in kind and deduct Class 1 National Insurance. There is no benefit in kind to pay, if the director pays a market rate of interest due on the loan.

Please call if you need advice regarding these issues for your company.