Non-Resident Landlords - NRL - Overseas Tax

This user guide explains how to set up the NRL facility for overseas Landlords.

The Non-Resident Landlords Scheme (NRL) is a scheme for taxing the UK rental income of Non-Resident Landlords. CFPwinMan processes overseas tax, however, it is the letting agents responsibility to understand and apply the rules of the scheme.
http://www.hmrc.gov.uk/cnr/nrl_guide_notes.pdf 
http://www.hmrc.gov.uk/cnr/nr_landlords.htm

The scheme requires UK letting agents to deduct basic rate tax from any rent they collect for Non-Resident Landlords.

If Non-Resident Landlords have successfully applied for approval to receive rents with no tax deducted, HM Revenue & Customs (HMRC) will advise letting agents not to deduct tax where an NRL number will be issued. 

Whilst rent may be paid to the Landlord with no tax deducted, it remains liable to UK tax. Non-Resident Landlords must include it in any HMRC tax return and the quarterly reports must still be produced with a nil balance.

This article includes: 

• When to activate NRL
• Activating NRL Regulations
• Adding overseas Landlord Information
• Paying the Landlord Statement
• Pay HMRC and create quarterly and yearly reports
• Create a Schedule 23 Section 18 report for HMRC
• Differences between Period Statements and NRL report
• Landlords NRL Account
• Calculation - Non NRL Regulations
• VAT Status
• Opening Balances

When to activate NRL 

CFPwinMan recommend that you only activate NRL reporting at the beginning of a new tax quarter, just after running your last payment to HMRC on CFPwinMan. By this we mean the last non-NRL payment – i.e. the one where overseas tax is entered manually.

The reason for this is that if NRL is activated in the midst of a quarter, the calculations will only take effect from after the activation date and the tax return will be incorrect. (If you do activate NRL reporting in the midst of a quarter, the tax return should be calculated manually for the remainder of that period, and CFPwinMan adjusted to show these amounts at the end of the quarter)

Once this is done, the way to ensure that you get accurate NRL reports for each quarter and consequently each financial year is to make sure that you update the Pay HMRC screen at the start of each new quarter.

This is important, as it will give you an accurate representation not only of tax received for each Landlord during the previous quarter, but also of the income and expenditure for the same period.

The NRL scheme is operated by the CNR. CNR should be activated on CFPwinMan:

• To calculate overseas tax based on the NRL regulation
• To enable you to print NRL reports required by HMRC
• To obtain all the relevant NRL reports for the year, and,
• You should enable NRL before you enter any transactions for the new financial year 1^st April

You will be able to get quarterly reports if you activate NRL before entering transactions for the new quarter, but make sure you have entered all transactions for previous quarters, or paid HMRC on CFPwinMan first. 

This ensures that there is a clean cut off point for the transactions updated as being either post or pre NRL. 

Activating NRL Regulations

Firstly, before paying HMRC and creating the NRL reports, you will need to apply NRL regulations in User Defaults.

1. Click Defaults on the main toolbar
2. Click User Defaults from the dropdown menu
3. Click Preferences
4. In NRL, enter your agencies NRL information
5. Click Close
6. Click Close

Adding overseas Landlord Information

All information for an overseas Landlord is added to their Landlord Information.
For more information on How do I show that a Landlord lives overseas, click here

Paying the Landlord Statement

Tax is calculated at the basic rate as set on Landlord information.  If there has been a one off tax retention set up, this will be added or deducted to the tax calculated.
For more information on how to pay a Landlord, click here

Pay HMRC and create quarterly and yearly reports

To see a preview of all Landlords that have monies held in the client account which are due to be paid to the HMRC at the end of the last quarter, an NRL Quarterly or Annual Return for Overseas Landlords can be generated.
For more information on How do I produce an overseas Landlord NRL quarter and year end return, click here

Create a Schedule 23 Section 18 report For HMRC

You can create a Paragraph 1, Schedule 23 to the Finance Act 2011 Report to send to HMRC.
For more information on How do I create a Schedule 23 Section 18 Report For HMRC, click here

Differences between Period Statements and NRL reports

Different figures can occur between the NRL report and a Landlords period statement for the same date range. This is due to the dates of the receipts and expenses paid.
For more information on How do I produce a Period Statement for a Landlord, click here

Landlords NRL Account

On the Landlord Information screen, there is an NRL A/C button which will give a listing of the tax retained from the Landlord, any brought forward tax, and any paid to HMRC. 

If NRL has been activated, when viewing this account, you will be prompted to include incomplete transactions or not. 

Incomplete transactions are any income received and payments made that have not yet been paid to the Landlord or HMRC. These items will appear in red and will be due to HMRC for the relevant quarter. If a Contractor bill has been raised, this will also appear in red, but the tax portion will not be deducted from the amount due to HMRC until it has been paid. 

These items are in red, as until HMRC, the Landlord or the Contractor has been paid, the overseas tax position of the Landlord may change, thus altering the amounts due/reclaimable.

Comp codes of ‘HLSEA’ indicate the tax that has been deducted before NRL had been activated, or that a manual retention of overseas tax on a Landlord statement has been done. 

Once NRL has been activated, the individual items of income & expenses are shown with their gross amount and tax amount.

Calculation - Non NRL Regulations

Letting agents should calculate tax at the basic rate on rental income less any deductible expenses.

You should include all rental income received in the quarter along with any deductible expenses that were paid in the quarter. 

Deductible expenses exclude capital expenditure and those incurred in the quarter but not yet paid. It is the agent’s responsibility to know what is a deductible expense. 

If you are unaware of your liability in relation to the NRL Regulations, you must refer to the HMRC website: 
http://www.hmrc.gov.uk/cnr/nrl_guide_notes.pdf 
http://www.hmrc.gov.uk/cnr/nr_landlords.htm

VAT Status

1. Double click Landlords from the side menu
2. Search for the relevant Landlord using Search Text by Name, Code or Status
   1. Alternatively, find the Landlord using Additional Options from the dropdown menu
   2. Or select a Branch if multi branch is set up on your CFPwinMan
3. Select the Landlord
4. Select the Status of Overseas from the dropdown menu
5. Click the Tax tab
6. Click the NRL Scheme tab
7. In the VAT Information section, the Status for new Landlords is set to Unknown by default

The VAT Status is used in calculating the NRL Tax to be deducted or credited from income and expenses.  This is because, where receipts and expenses attract overseas tax credits/debits, the VAT portion of these receipts and expenses can also qualify to attract NRL Tax credits/debits. 

It is the agents responsibility to know for certain the Landlords VAT Status.

As per the regulations:

• NOT VAT Registered - NRL Tax must be debited from the VAT portion of any receipts, and must be credited on the VAT portion of any expenses
• VAT Registered - No NRL Tax should be applied to the VAT portion of any receipts or expenses. This is because the Landlord will already be accountable to the Inland Revenue for these VAT amounts and any deductions/credits would cause a duplication of charges/refunds
• Unknown - If the agent does not know for certain the VAT status of a Landlord, the Status of  Unknown should be used. This status automatically deducts NRL Tax from the VAT portion of any income but does not credit NRL Tax against the VAT portion of any expenses

NRL Tax Retention:

In the NRL Tax Retention section, once a figure has been entered into the NRL Tax % and/or Fixed £ fields, the Landlord qualifies as an Overseas Landlord.

NRL Approved Details:

The NRL Approved Details - Exempt from NRL Tax table, allows an NRL number and percentage of ownership to be entered for one or more individual Landlords under one Landlord code. Where there are several Landlords under one code, an NRL number must be entered for each, if the Landlord code is to be exempt from NRL Tax.

The percentage of ownership for each Landlord must be specified to determine the split of income and expense reported on the NRLY Report or NRL6 Certificates. If the percentages do not add to 100%, a warning appears when the record is saved. Correct the percentages to save the record or click on the equal percentages button.

Opening Balances

If the Landlord has had overseas tax deducted, which has not been paid over to the Inland Revenue at the going live date, this will need to be entered against the Landlord in opening balances.
For more information on Opening Balances : Kick Start, click here