7th November 2018
The Chancellor’s Budget was delivered subject to a caveat spelt out early in his speech namely, that if the fiscal outlook changes materially in-year, he will take whatever action is required, including upgrading next year’s Spring Statement to a full fiscal event. Doubtless he will be hoping that the change he initiated to having just one fiscal event a year will not prove so short-lived.
Digital Services Tax (DST) The Government has announced a DST of 2% on the revenues of certain digital businesses. It will apply from April 2020 to those businesses with global revenues of at least £500m and UK revenues in excess of £25m per annum where that revenue is from social media platforms, online marketing platforms or search engines and those revenues are linked to UK users.
The Government will consult on the detail of the legislation, including the design of a safe harbour, which is intended to reduce the impact on those with low margins or losses.
The DST will not be creditable against UK corporation tax, but will be allowable as an expense and it is not intended to be in scope of the UK’s Double Taxation Treaties.
Capital allowances A number of changes have been announced, including: From 1 January 2019 to 31 December 2020 the Annual Investment Allowance is being raised from £200,000 to £1million.
The special rate of writing down allowances on plant and machinery will be reduced from 8% to 6% from April 2019; A new 2% flat rate Structures and Building Allowance relief for nonresidential structural property will be available where the construction contract is entered into on or after 29 October 2018; and A four year extension of the 100% first year’s allowance for electrical charging points to 2023.
Budget 2018 Sharing knowledge. Building trust. Corporation tax loss relief The corporation tax loss relief rules are being changed to restrict the offset of capital losses to 50% of capital gains. The change will take effect from 1 April 2020 and companies will be able to use capital or income losses of up to £5m each year without restriction.
Offshore receipts in respect of intangible property Following a consultation on broadening the scope of the UK’s royalty withholding tax rules, measures have been announced that will impose a UK income tax charge on amounts received in low tax jurisdictions by companies in respect of intangible property to the extent that those amounts are referable to the sale of goods or the provision of services in the UK.
The charge will only apply to entities resident in jurisdictions with which the UK does not have a tax treaty containing non-discrimination provisions (in addition to other exemptions). These measures will have effect from 6 April 2019.
Preventing abuse of the Research and Development (R&D) tax relief for small and medium- sized enterprises (SMEs) Finance Bill 2019-20 will introduce a limit on the amount of payable tax credit that can be claimed by a company under the R&D SME tax relief rules. The limit will be set at three times the company’s total PAYE and National Insurance contribution (NICs) payment for the period. The change will have effect for accounting periods beginning on or after 1 April 2020. Any loss that cannot be surrendered for a payable credit can be carried forward and used against future profits. The Government will consult on this change.
Reinstatement of relief for goodwill The Government has announced a partial reinstatement of tax relief for acquired goodwill on the acquisition of businesses with eligible intellectual property. It is intended this measure will have effect from April 2019. Proposals are expected to be published on 7 November 2018, followed by a brief consultation.
De-grouping for intangibles the Government has announced a reform of the de-grouping rules in respect of post 2002 intangible fixed assets, such that they are more closely aligned with the equivalent chargeable gains rules. In short, this should prevent de-grouping charges from arising where the disposal giving rise to the de-grouping event qualifies for relief under the substantial shareholding exemption. This measure will have effect for de-grouping events occurring on or after 7 November 2018.
Non-resident chargeable gains tax (NRCGT) As announced at Autumn Budget 2017, the Government will legislate in Finance Bill 2018-19 to bring disposals of all forms of UK land made by non-residents into the scope of UK tax from April 2019. This will include both direct disposals of UK land, and indirect disposals of entities that predominantly derive their value from UK land. Non-resident companies will be chargeable to corporation tax on their gains. Further details, including details of how the rules will apply to funds, will be published on 7 November 2018.
UK property income of non-UK residents As previously announced, from April 2020, non-resident companies will be chargeable to corporation tax, rather than income tax, on UK property income. As a result, from this date such companies will be subject to existing corporation tax rules on matters such as loan relationships, derivative contracts and losses. Updated draft legislation was published alongside the Budget but still does not address the position of the filing of tax returns by non-UK resident companies that invest only through large, transparent collective investment funds. The reporting obligations of those funds remains under discussion.
In addition, a Targeted Anti-Avoidance Rule (TAAR) has been introduced that allows HMRC to counteract any arrangements entered into on or after 29 October 2018 that seek to secure a tax advantage in relation to the transition to the new rules. HMRC expects to publish further guidance during 2019.
Entrepreneurs Relief (ER): restrictions to relief ER applies a reduced 10% capital gains tax (CGT) rate on certain disposals by an individual selling shares in their ‘personal company’. Two changes are being made to the relief such that ER will only apply where: the individual holds a 5% interest in both the distributable profits and net assets of the company in addition to the existing 5% voting and share ownership tests; and - the relevant conditions for relief have been met for a period of 24 months, previously 12 months. The extension to the 5% test will apply to disposals occurring on or after 29 October 2018. The extension to 24 months will apply to disposals occurring on or after 6 April 2019.
Entrepreneurs Relief (ER): dilution below the 5% threshold
As announced in Autumn Budget 2017, the Finance Bill 2018-19 will contain provisions to allow ER to be obtained by individuals whose holding has been diluted below the 5% qualifying threshold on gains up to the point of dilution. Minor changes have been made to the legislation which have been published today.
These rules will apply for shares held at the time of dilution events which take place on or after 6 April 2019.
Private residence relief Two changes to restrict Private Residence Relief (PRR), the relief exempting gains realised on the disposal of a taxpayer’s main residence from CGT, were announced. These are as follows:
Currently, PRR automatically applies to the final 18 months of ownership of a property which is, or has been, a main residence. This period will reduce to 9 months. - ‘Lettings Relief’, which provides an exemption from CGT on gains, up to a maximum of £40,000, during a period when a main residence is let will be restricted to apply only to periods where the owner jointly occupies the property.
Both changes will apply from 6 April 2020.
Off payroll working The Chancellor confirmed that the proposed reform to the taxation of personal service companies (PSCs) in the private sector will be implemented and will come into effect from 6 April 2020. The responsibility for undertaking employment status assessments and operating PAYE and NICs will move from the PSC to the end-user. An exemption will apply for small businesses.
Short term business visitors (STBVs) Following a consultation over the summer, the Government has decided to extend the current special PAYE arrangement for STBVs in two ways. Firstly, the number of UK workdays an STBV may have that are subject to the special arrangement will be doubled from 30 to 60 days per tax year. In addition, the deadline for submission of the reporting required will be extended from 19 April to 31 May following the end of the tax year.
A consultation will be launched in January 2019 on a stamp duty land tax surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Stamp taxes on shares consideration A targeted market value rule for Stamp Duty and Stamp Duty Reserve Tax (SDRT) will be introduced for listed securities transferred to connected companies. Where the rule applies, the transfer will be chargeable based on the higher of the amount or value of the consideration (if any) for the transfer or the market value of the securities. The new rule will apply from 29 October 2018. The Government will also consult on aligning the Stamp Duty and SDRT consideration rules and introducing a general connected party market value rule. The consultation will be published on 7 November 2018. VAT Groups It has been confirmed that the VAT grouping rules will be amended to permit certain non-corporate entities, e.g. individuals and partnerships, to be members of VAT groups. In addition, HMRC proposes to alter its guidance to VAT groups that buy in services via overseas branches and to provide clarity about HMRC’s ‘protection of the revenue’ powers and treatment of UK fixed establishments. The changed guidance is to come into force from 1 April 2019. Unfulfilled supplies The Government has announced that, from 1 March 2019, VAT will be due on all prepayments for goods and services, even when the underlying supply does not take place, unless the customer receives a refund. At present, some ‘forfeited deposits’ (e.g. on a hotel booking where the hotelier collects a nonrefundable deposit and the customer cancels the booking) can be treated as compensatory and VAT-free.
Single use plastics The Government intends to introduce a tax on the production and importation of plastic packaging from April 2022. It proposes to tax plastic packaging that does not contain at least 30% recycled plastic, and to reform the Packaging Producer Responsibility System, to increase the producers’ responsibility for the costs of their packaging waste, provide an incentive for producers to design packaging that is easy to recycle and penalise the use of hard to recycle packaging. A consultation about the tax is to be launched in the coming month.
VAT registration threshold to remain unchanged The VAT registration and deregistration thresholds are to remain at their current levels (£85,000 and £83,000 respectively) for a further 2 years, until 1 April 2022.
The Government has announced that, from 6 April 2020, the order of distribution for assets from insolvent companies will be changed so that HMRC will have greater priority to recover taxes. The reform will apply to taxes paid by employees and customers (including VAT, PAYE, employee National Insurance Contributions and Construction Industry Scheme deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer National Insurance Contributions.