By David Hughes & Helena Kanczula, Blick Rothenberg Limited, London
Draft legislation and explanatory notes to the UK Finance Bill 2019-20 were published on 11 July. Much of the legislation was anticipated with some further clarifications provided.
Here we focus on the key proposals which may be of relevance to international businesses.
UK digital services tax
Draft legislation and supporting documents on a digital services tax were included in the UK Finance Bill 2019-20 release.
A policy paper on a UK digital services tax was first published following the Autumn Statement in November 2018. The government considers that multinational groups should be taxed in the countries where value is generated. However, for digital businesses, this will require a reform of the international corporate tax framework.
The government will, therefore, introduce an interim measure to raise revenue from digital businesses with UK participation.
From 1 April 2020, very large groups that generate global revenues of more than £500 million per annum from the provision of certain digital services (£25 million or more attributable to UK users), such as social media platforms and online marketplaces, will be subject to a 2% digital services tax on revenues they earn which are linked to UK users.
Digital businesses will want to review their business structures and transfer pricing policies. Whilst the digital services tax will not apply once a permanent international measure is introduced, this may be some time in the future.
Further, the legislation clarifies that digital services might include an associated online advertising business.
Capital gains tax and intangible asset rules
Capital losses
The UK Finance Bill 2019-20 release includes draft legislation to restrict the amount of capital gains realised by companies which can benefit from capital losses brought forward.
From 1 April 2020, only 50% of gains can be sheltered in excess of the deductions allowance of £5 million which applies on a group basis and (which will cover both income and capital losses).
These rules are anticipated to be of particular relevance to property investment groups which, in certain cases, may have significant brought forward capital losses.
Deferral of corporation tax on EEA group asset transfers
The transfer of assets between two UK corporate members of the same group can generally take place on a nil gain nil loss basis.
This is applied to both chargeable gains assets and intangible fixed assets (as defined under the intangible asset rules).
However, a transfer to another group company in the European Economic Area (EEA) (or outside the EEA) may attract a tax charge.
A recent First Tier Tribunal case, Gallaher v HMRC [2019] UKFTT 207 decided that this was in contravention of the freedom of establishment rules.
From 11 July, companies in the EEA may however apply to defer this tax which will then be payable in six annual installments.
This provides a degree of temporary relief for those groups looking to reorganise in anticipation of Brexit.
Income tax
IR35 is designed to combat tax avoidance by workers who supply their services through an intermediary such as a personal company.
As expected, under the published legislation, responsibility for operation of PAYE and NIC will now pass from the intermediary to the private sector company engaging the worker.
The changes which had been delayed will take effect from April 2020.
Small organisations will be exempt and HMRC will provide support and guidance to medium-sized and large organisations to assist them with implementation. However, this measure will increase compliance costs and businesses should review the impact as soon as possible.
Future announcements
Other announcements in the UK Finance Bill 2019-20 release are of less relevance to international businesses.
We point out, though, that once the situation with the UK’s withdrawal from the European Union is more certain, it is widely expected that there will be an ‘emergency’ budget depending on the timing of the UK’s exit.
David advises high net wealth and entrepreneurial clients including non-UK domiciled individuals and those wishing to invest into the UK.
David has written many articles on taxation issues published in both the UK and International professional press. He has written CCH’s Tax Digest explaining the 2008 changes to the non-domiciled tax regime. His book Corporate Residence was published by Bloomsbury Professional in October 2013.
David sits on various institute committees; he is also a member of STEP and has lectured on taxation matters.
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Helena graduated from Cambridge University with a degree in economics and is a Chartered Accountant who trained with a Big 4 firm in London.
Helena now specialises in advising a broad range of large multinational groups which invest into the UK, including groups which have parent companies based in Asia. She has also advised companies operating in the renewable energy and green fuel sectors.
Helena regularly presents on specialist areas of taxation. She has also written for the taxation press including articles for Taxation and Tax Adviser magazines on various aspects of the UK tax legislation.
Latest posts by Helena Kanczula (see all)
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