Small profits rate and non-resident companies

We understand that there has been some confusion around whether non-UK resident companies that are subject to UK Corporation Tax (for example by receiving UK rental income or having a property development trade) are able to benefit from the small profits rate and marginal relief (introduced with effect from 1 April 2023), and some have filed their Corporation Tax returns using the lower rate or applied marginal relief in error.

Section 18A CTA 2010 says that the small profits rate is only charged on profits if the company is UK resident in the accounting period. But we understand that confusion may have arisen due to non-discrimination clauses in double tax treaties with the UK that some considered might apply such that the small profits rate is available to non-resident companies. However, HMRC’s view is that the non-discrimination clauses in double tax treaties based on the OECD Model Convention does not apply because a company that is not resident in the UK is not ‘in the same circumstances’ as a company that is resident in the UK and, therefore, there is no discrimination in making the small profits rate available to one but not the other (see DT1954 - Non-residents: UK income: Small profits rate and marginal relief - HMRC internal manual - GOV.UK).

HMRC have used the one-to-many program to write to non-resident companies with rental income confirming that it is the main rate of corporation tax (25% from 1 April 2023) that applies. In addition, where HMRC have identified that a company has applied the incorrect rate in its company return, or claimed marginal relief, HMRC have sent the company a CT620, ‘Notice of Correction’, setting out the additional tax that HMRC considers is payable.

For periods from 1 April 2025, there is a new code available for Box 4 on the CT600 where a company indicates what ‘type of company’ it is (see the 2025 template for the CT600 at: https://www.gov.uk/government/publications/corporation-tax-company-tax-return-ct600-2015-version-3) and this is discussed in the notes: Completing your Company Tax Return - GOV.UK. HMRC’s guidance in the COTAX Manual has been updated and this says that Type 11 is a non-resident company: COM23030 - Assessing: CTSA assessments: company type - HMRC internal manual - GOV.UK. Putting type 11 in Box 4 on the CT600 will ensure that the correct rate of Corporation Tax applies for a non-resident company. 

Prior to that update to the CT600, HMRC asked non-resident companies to use company type 2 (close investment holding company) in Box 4 on the CT600 to ensure that the main rate of 25% is applied for any part of an accounting period after 1 April 2023. HMRC confirmed that using the CIHC code would not be treated as an error when filing a return as a non-UK resident company.