Definition

In an APC context, company taxation refers to the three main tax categories affecting UK property companies and surveying firms: Corporation Tax (levied on taxable profits), VAT (a consumption tax on taxable supplies) and the Construction Industry Scheme (CIS) (a withholding tax regime for payments to subcontractors). All three are administered by HMRC and directly affect project costs, cash flow and financial modelling in the property sector.

Why this matters for Accounting Principles & Procedures

  • Level 1 knowledge: you must be able to define Corporation Tax, VAT and CIS and explain the basic mechanics of each.
  • A 5% VAT treatment instead of 20% can change the viability of a residential conversion; an incorrect CIS deduction can trigger HMRC penalties.
  • APC assessors expect candidates to know when to recommend specialist tax advice, not to provide that advice themselves.
  • VAT on property is notoriously complex; knowing the principal rules (standard rate, reduced rate, zero rate, exempt, option to tax) demonstrates commercial awareness.

Key principles

Corporation Tax

Corporation Tax is charged on the taxable profits of UK-resident companies. The main rate is 25% for profits above £250,000 and 19% for profits up to £50,000, with marginal relief between. For a property investment company, it applies to net rental income and chargeable gains on disposal. Key adjustments from accounting profit include disallowing depreciation (replaced by capital allowances, which can generate significant tax savings on embedded fixtures such as heating and lighting) and excluding entertaining expenses.

VAT on property

The sale or lease of land and buildings is generally exempt from VAT. Key exceptions: new commercial buildings attract standard-rate VAT (20%) on first sale or first long lease; residential construction is zero-rated (input VAT recoverable); and conversion of non-residential buildings to residential use attracts the reduced rate (5%). The option to tax allows owners of commercial land or buildings to elect to charge VAT on sales or lettings that would otherwise be exempt, enabling input VAT recovery on construction costs. Once made, the option is generally irrevocable for 20 years.

The Construction Industry Scheme (CIS)

CIS requires contractors to deduct tax at source from payments to subcontractors and remit it to HMRC: 20% for registered subcontractors, 30% for unregistered, nil for those with gross payment status. Property developers and many surveying firms can be contractors for CIS purposes. Non-compliance creates significant HMRC penalties for failure to register, verify subcontractors or file monthly returns on time.

Relevant RICS guidance and legislation

  • Corporation Tax Act 2009 and Corporation Tax Act 2010 — primary legislation governing the charge to Corporation Tax and the calculation of taxable profits.
  • Value Added Tax Act 1994 and associated regulations — primary legislation governing VAT, including the option to tax provisions (Schedule 10).
  • Finance Act 2004 (CIS provisions) and the Income Tax (Construction Industry Scheme) Regulations 2005 — legislative basis for the CIS regime.
  • HMRC guidance: VAT on land and buildings (Notice 742) — practical guidance on the VAT treatment of property transactions, including the option to tax.
  • RICS Rules of Conduct (effective 2 February 2022) — Rule 5 (competent service) requires members to understand the tax implications of transactions they advise on and to refer clients to specialists where the advice exceeds their competence.

Ethics and Rules of Conduct angle

Rule 5 requires competent service: in a taxation context, this means understanding enough to identify tax risks and know when specialist advice is needed. A surveyor who advises on a development appraisal without considering VAT recovery, or who fails to flag the option to tax implications of a commercial property acquisition, may be providing incomplete service. Rule 3 (integrity) requires members not to give advice on matters outside their competence without appropriate caveats and referrals.

APC-style Q&As

Q (Level 1)What is the main rate of Corporation Tax in the UK for 2024/25?

The main rate is 25% for companies with profits exceeding £250,000. A small profits rate of 19% applies to profits of £50,000 or less. Marginal relief applies to profits between these thresholds, tapering the effective rate between 19% and 25%.

Q (Level 1)What is the option to tax in the context of VAT on commercial property?

The option to tax is an election by the owner of commercial land or buildings to charge VAT at the standard rate (20%) on sales and lettings that would otherwise be exempt. The main reason for opting to tax is to recover input VAT on construction, refurbishment and professional fees. Once made, the option is generally irrevocable for 20 years.

Q (Level 2)Why does the VAT treatment of a residential conversion differ from that of a new commercial build?

A new commercial building is subject to standard-rate VAT (20%) on first sale or first long lease. Conversion of a non-residential building to residential use attracts VAT at 5% (reduced rate), reflecting policy intent to encourage housing from redundant commercial stock. New residential construction is zero-rated, with the builder charging no VAT but recovering input VAT on costs. These different treatments can significantly affect the viability of different development strategies.

Q (Level 2)Who is a "contractor" for CIS purposes and what are their obligations?

A contractor for CIS purposes is a business that makes payments to subcontractors for construction operations; property developers who directly engage subcontractors are typically contractors. A contractor must register with HMRC, verify each subcontractor's status before the first payment, deduct CIS at the correct rate (0%, 20% or 30%), file monthly returns and provide deduction statements. Failure to comply can result in HMRC penalties.

Q (Level 3)A developer client asks you to review a development appraisal for a mixed-use scheme comprising ground-floor commercial units and residential flats above. How would you approach the VAT analysis?

(example) I would flag that the VAT treatment of a mixed-use scheme is complex and that specialist advice is essential before the appraisal is finalised. In indicative terms: the residential construction is likely zero-rated; the commercial element may attract standard-rate VAT, with input VAT recovery depending on whether the developer opts to tax the commercial units. I would model the appraisal with and without the option to tax, noting the impact on cost recovery and tenants' occupation costs, and caveat the analysis clearly as subject to specialist tax advice.