The Finance Bill 2020 has progressed steadily with the draft legislation currently open for consultation until 5 September 2019 and will then be confirmed at the Budget (scheduled for 9 October 2019).  

This includes the outcomes of consultations on several tax policies which were announced in the 2018 Budget. Most of the new law is due to take effect from April 2020 but this could be subject to change, particularly with a new Prime Minister and Chancellor now in situ. Below is a recap of the key measures impacting corporates.

Off-payroll working rules

Possibly the most significant change announced, intended to bring medium and large private businesses in-line with the regulations for public sector on off payroll workers from April 2020. The reform makes private organisations responsible for assessing whether their contractors are employees and ensuring the relevant employment taxes are paid if they are. The current position whereby a company is afforded protection if the contractor provides their services through a personal service company or umbrella company will come to an end.

For more details on these measures, see our expanded article.

Corporate capital loss restriction

A new capital loss restriction for corporates that will limit the use of carried forward capital losses to 50% of the amount of the annual capital gains where the £5m loss deduction allowance has been utilised. This brings capital losses in line with the existing treatment for other carried forward corporate losses. Exemptions will be available for certain industries including oil and gas (ring-fenced) and Real Estate Investment Trusts.

Digital services tax

A new 2% tax on the revenues of search engines, social media platforms and online marketplaces where value is derived from UK users. Applicable to multinational groups with annual revenues in excess of £500m, including £25m from the UK.

The introduction departs from the usual approach of corporate taxes being levied on profits rather than revenue. The measure is designed to ensure large multinational business pay their fair share towards our public services.

Stamp taxes on share consideration

An extension of the Finance Act 2019 market value rule to prevent arrangements involving transfers of listed securities to connected companies. The rule will now also apply to the transfer of unlisted securities.

Anti-avoidance – misuse of company insolvencies

New rules are being introduced to prevent the misuse of company insolvencies to avoid the payment of tax. Directors and potentially others connected to the company may be held jointly and severally liable for tax owed by the company when it enters into an insolvency procedure. The rules are targeted at companies that have engaged in tax avoidance or evasion, and where the individuals were either responsible for the company’s conduct, enabled, facilitated or benefited from it. This measure will be effective from the date of the Finance Bill being passed and will have a limited element of retrospective effect.

In addition to these measures, HMRC will also gain preferential creditor status for debts in respect of VAT, PAYE and CIS.

Loans to traders

The current income tax and CGT reliefs under the “loans to traders” provisions are limited to companies or businesses located in the UK. Further to a ruling that this limitation was a breach of the EU rules for free movement of capital, the reliefs will now apply to loans to companies or businesses anywhere in the world. The change will apply for new loans from 24 January 2019, the date of the EU ruling.

Deferral of tax on EU/EEA group asset transfers

Where an immediate payment of tax on the transfer of assets to a group member would potentially infringe the right to freedom of establishment, the new measure provides for companies to apply to pay the tax over a period of up to 5 years. This is applicable for accounting periods ending on or after 10 October 2018.

Spreading of transitional adjustments on new lease accounting

The Finance Act 2019 introduced legislation requiring businesses adopting IFRS 16 to spread the tax impact of any transitional lease accounting adjustment over the average remaining lease term. This measure makes minor amendments to the spreading rules to put beyond doubt that they apply to all lessees adopting the new accounting standard for any period of account.

Other measures of interest – Enterprise Investment Scheme funds

In addition to the main measures above there is also draft legislation to bring into effect the previously announced ‘knowledge intensive fund’ for EIS investments. This enables EIS funds investing in these businesses a longer period to invest the funds and gives the individual investor more flexibility as to when they can claim the tax relief.