On July 11th, 2019, the UK government released draft legislation for the next Finance Bill due to come into effect on April 2020.
These new tax laws impact UK employers, investors, and business owners and include highly debated regulations like IR35, digital service tax, and new property tax laws.
Join us as we explore the latest updates and keep you informed on UK tax laws.
Blanket Disclosure for UK Trusts
The 2020 finance regulations include the introduction of blanket disclosure for all UK trusts. Trusts will now have to submit ownership details to the UK Trust Register in an attempt to gain greater transparency and clarity.
This new legislation is a direct result of the EU’s 5th money laundering directive (5MLD), which came into effect on July 2018. Trustees that fail to comply may face civil and criminal sanctions. If you’re a trustee, make sure you register your details before the deadline to avoid any negative fallout.
Corporate Tax Relief
The Finance 2020 bill also includes provisions for changing corporation tax relief restrictions. On April 1st, 2019, HMRC issued regulations that restricted corporate tax relief for goodwill and relevant assets, but businesses and tax agents lacked clarity on what qualified and how to claim tax relief.
HMRC has finally published guidance. Businesses can now claim tax relief for purchases of goodwill or relevant assets made on or after April, 1st 2019 under certain conditions. To qualify, you need to have purchased the assets when buying a business with qualifying intellectual property or if the assets are part of the company accounts. You can also claim tax relief on these assets if your business is liable for corporation tax.
Digital Service Tax
While Digital Service Tax has been in the works for a while, HMRC has finally confirmed that it’ll go ahead from April 2020. Companies will now need to pay a 2% digital service tax (DST) on UK derived revenue from social media platforms, search engines, or online marketplaces.
At the moment, DST will only impact large corporations with global revenue of over £500 million, £25m of which come from UK customers. As a new UK tax, companies will only have to pay DST on revenue after 1st April 2020. It’s also important to note that unlike most corporate taxes, DST only applies to revenue rather than profits.
To avoid double taxation, only 50% of revenue resulting directly from online transactions will be taxed. Furthermore, one of the users must be located in a country with DST laws for the regulation to apply.
You can learn more about DST in the government’s draft guidance. It explains the activities subject to DST and how you can determine your exposure.
Confirming IR35
The UK government has finally confirmed that IR35 will come into force for the private sector from April 2020.
IR35 attempts to stop contractors from avoiding national insurance contributions and PAYE taxes. Under new regulations, businesses will be responsible for declaring if a contractor falls inside or outside IR35. If a contractor falls inside IR35, they’ll be responsible for the same taxes as a full-time employee, which mitigates the financial benefits of contracting.
You can read more about IR35 and how to prepare for these changes here.
Corporate Capital Losses
From April 1st, 2020, companies will only be able to set 50% of their capital losses against their annual gains. However, this does not include the £5m loss deduction allowance, so it only applies to anything over this limit. These new regulations don't impact some industries, like oil and gas, real estate investment trusts, and insurance. Additional provisions have also been made for one-day accounting periods, connected party losses, and loss streaming rules.
You can read more about this new regulation at EY.
Stamp Duties
Stampy duty and reserve tax often cause challenges for those looking to reorganize shares amongst a group of companies. As such, professional bodies have frequently requested relief for transactions like demerging unlisted companies or capital reduction arrangements.
The Finance Bill 2020 introduces new regulations to make it easier for companies to transfer unlisted securities to connected companies. Under the new rules, companies can transfer shares at market value to others in their group, which means they won’t need to create disqualifying arrangements.
Read more about this legislation here.
Worldwide Investment
Previous CGT and income tax reliefs for loans to traders (TCGA 1992, s 253) and share loss relief (ITA 2007, s 131) provided relief only to investments made in UK businesses. However, on January 24th, 2019, it was ruled that these reliefs by only applying to investments in UK businesses violated the EU rules for free movement of capital.
The Finance Bill 2019/20 responds to this ruling by extending the reliefs to apply for investments in any business in any country. The rules also apply to any loans made for traders and shares subscribed in unlisted companies made after January 24th, 2019.
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