The UK Government has published draft legislation for the next Finance Bill, including provisions for the new digital services tax, integrity changes intended to tackle employment status-related tax avoidance and capital gains tax changes.
Digital Tax Services
Plans to introduce the 2% digital services tax were confirmed in the 2019 Budget. The Government has proposed that the tax will apply to revenues generated by search engines, social media platforms, and online marketplaces, from activities that are linked to the participation of UK users.It will apply only to groups that generate global revenues from in-scope business activities in excess of £500m (USD626m) per year. Businesses will not have to pay tax on their first £25 million of UK taxable revenues.
The regime will include a safe harbour provision that will exempt loss-making businesses as well as provisions that will reduce the effective rate of tax on businesses with very low-profit margins. The levy will be introduced starting April 2020.
Meanwhile, the changes to the off-payroll working rules – known as IR35 – are intended to ensure that individuals who work as employees, but through companies, pay similar taxes to other employees.
Newly from April 2020, businesses in the private sector will become responsible for assessing an individual's employment status and determining whether the IR35 rules apply. Where it is determined that the rules apply, the business, agency, or the third party paying the worker's company will be required to deduct income tax and employee National Insurance contributions (NICs) and pay employer NICs. These rules have applied to the public sector since 2017. They will not apply to the smallest 1.5 million businesses.
- The UK Digital Tax | Coming In 2020
- Shedding Light On The Digital Tax Debate
- Ireland Stepping Up Brexit Preparations
- UK Preparing For Making Tax Digital
Private Residence Relief Form
The UK has also released legislative provisions to amend the private residence relief (PRR) rules under the capital gains tax regime. At Budget 2018, the Government announced that two of the ancillary reliefs would change to better target PRR at owner-occupiers.
Specifically: the final period exemption will be reduced from 18 months to nine months; the special rules that give those with a disability, and those in care, an exemption of 36 months will not change; and lettings relief will be reformed so that it only applies where an owner is in shared occupancy with a tenant.
The draft Finance Bill also makes an immediate change to UK tax law concerning the deferral of corporation tax payments on EU group asset transfers. It is intended to remove uncertainty about the compatibility of EU law with the UK rules for taxing gains realised on the transfer of assets within a group of companies.
The change introduces a new deferred payment option for corporation tax that is charged on profits or gains arising from certain transactions with a member of the same group of companies resident in another European Union or EEA state. A company can apply to defer payment of that tax over a period of up to five years. The change has effect from 11 July 2019, for transactions occurring in accounting periods ending on or after 10 October 2018.
- The draft Finance Bill also includes proposed changes to tax law concerning:
- Taxable benefits and rules for measuring carbon dioxide emissions;
- Income tax relief and the Enterprise Investment Scheme approved knowledge-intensive fund;
- Income tax and the treatment of expenses for voluntary office holders;
- Corporate capital loss restriction for corporation tax;
- Capital gains tax relief on loans to traders;
- Income tax and corporation tax rules for spreading transitional adjustments on new lease accounting;
- Share loss relief for income tax and corporation tax;
- The treatment of the transfer of unlisted securities to connected companies for stamp duty and stamp duty reserve tax purposes;
- Inheritance tax and excluded property added to and transferred between trusts;
- Rules to measure carbon dioxide emissions for Vehicle Excise Duty;
- Medical courier charities exemption from Vehicle Excise Duty;
- Changes to protect tax in insolvency cases;
- Changes to tackle tax abuse using company insolvencies;
- Technical and procedural amendments to the general anti-abuse rule; and
- Windrush Compensation Scheme payments exemptions from income tax, capital gains tax, and inheritance tax.
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