United Kingdom

Details

  • Service: Tax, Corporate Tax
  • Industry: Government & Public Sector, Social Housing
  • Type: Business and industry issue
  • Date: 13/09/2013

Corporation tax assurance and compliance 

Understanding and managing corporation tax from a compliance perspective is a crucial part of good tax governance for social housing groups.

 

Taking time to review the group’s overall corporation tax position will not only ensure that all entities are taking full advantage of the reliefs and exemptions available, but will also ensure that corporation tax risks are properly identified and appropriately managed. The tax penalty regime focuses on taxpayer behaviour and all taxpayers, including charitable entities, are required to demonstrate they consistently take “reasonable care” in respect of their tax affairs. 

 

Many social housing groups will be able to manage their position to ensure that exposure to corporation tax is minimal, however this can only be achieved through careful planning and a good understanding of the tax regime in which they operate.

Charitable Registered Providers – avoiding unforeseen tax liabilities

 

Whilst charitable Registered Providers can benefit from corporation tax exemption on the vast majority of their income, it is important to recognise that there are circumstances where the exemptions will not apply. In this instance a charitable Registered Provider can find itself with an unexpected corporation tax liability.

 

Where a charitable Registered Provider looks to plug funding gaps by considering innovative ways to generate income, it should not be assumed that these funds will be exempt from corporation tax. In some cases the charity may be willing to accept there is a tax cost to undertaking the activity; in this case the ability to quantify this cost will be a critical part of any business plan. Alternatively the charity may wish to restructure the arrangements in a tax efficient manner; in this case the potential tax cost will need to be weighed against the costs of restructuring. In either case upfront recognition of the tax position will enable the charity to make an informed decision as to how best to proceed, and will ensure that there are no hidden corporation tax costs.  

 

Do you have a group that includes charitable entities? If so, how would you answer the following questions:

 

  • How confident are you that all of the income/gains received by the charity falls within the available tax exemptions?
  • Is the charity looking to undertake new activities? Have the corporation tax implications been considered? Where a potential liability exists has this already been factored into the business plan?
  • Is corporation tax considered to be an acceptable cost of any new activity or is restructuring to avoid such a cost considered to be a better option? What are the pros and cons of restructuring?

 

Non-charitable entities – taking full advantage of all available tax reliefs

 

Non-charitable entities exist within social housing groups for a variety of reasons, however in almost every case the intention will be to mitigate any corporation tax liability through the Gift Aid donation of their otherwise taxable profits to charitable entities within the group. Whilst the payment of intra-group Gift Aid donations is an effective way to manage corporation tax in social housing groups, it is important to recognise that this is not always a sustainable position in the long term.

 

Differences between accounting and taxable profits can have a negative impact on the company’s reserves position where Gift Aid donations are made year on year. It is therefore critical that non-charitable companies are taking full advantage of all available tax reliefs. For example, is the company able to claim capital allowances on qualifying expenditure? If so, has it properly identifying all qualifying capital spend? Currently there is no restriction as to how far back a company can go in identifying qualifying expenditure and therefore the right to claim capital allowances exists throughout the period of ownership, although there are time limits for making capital allowance claims within the company’s tax return.

 

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Contact us

Kathryn Mallett

Senior Manager, Social Housing

01293 652743

kathryn.mallett@kpmg.co.uk