Today, UK’s Chancellor announced the first post-Brexit Budget, a fiscal stimulus package of £30 billion. As expected from the Conservative Party’s 2019 election manifesto, there are no changes to the headline rates of corporation tax, income taxes, capital gains tax or VAT. As anticipated, there are a number of short-term coronavirus-specific measures. Here’s a summary of significant tax provisions in the Budget of interest to UK businesses and individuals, and non-UK multinationals.
- Corporation tax: As previously announced, the headline corporation tax rate will stay at 19%, overriding a previously legislated reduction to 17% that would have taken effect from April 2020.
- Corporate capital loss restriction: As announced at the UK Budget on 29 October 2018 (2018 Budget), from 1 April 2020, the proportion of annual capital gains that can be relieved by brought-forward capital losses will be restricted to 50%. As part of this measure, the government included an allowance giving companies unrestricted use of up to £5 million capital or income losses each year. This restriction does not apply to oil and gas companies making ring-fenced gains.
- Digital services tax: As announced at the 2018 Budget, the government will introduce a new 2% digital services tax on the revenues certain digital businesses earn from 1 April 2020. This will apply to large businesses providing internet search engines, social media platforms and online marketplaces to UK users that generate worldwide revenue of more than £500m (at least £25m of which comes from UK users).
- Intangible fixed assets: Currently, if an intangible fixed asset was created or acquired from a third party before 1 April 2002, the asset cannot be amortised. With effect from 1 July 2020, a company may amortise such assets even if they are acquired from a related party. Examples include goodwill, patents, copyrights, trademarks and franchises.
- Capital allowances: The 2018 Budget announced the introduction of a separate “structures and buildings allowance” (SBA) available for certain investments in constructing new, or renovating old, non-residential structures and buildings. From April 2020 the SBA rate will be increased from 2% to 3%.
- Business rates: The previously announced business rates discount of 50% from 1 April 2020 to 31 March 2021 for properties with a rateable value of less than £51,000 will be expanded to 100% relief and will be further expanded to include hospitality and leisure businesses.
- UK funds regime review: The government has committed to undertake a review of the UK’s funds regime, including direct and indirect taxes and relevant areas of regulation, with a goal of implementing tax policy changes to incentivize funds to manage assets in the UK. VAT treatment of fund management fees and other aspects of the funds regime are also on the table.
- Hybrid mismatch rules consultation: The government will publish a consultation on the corporation tax rules that apply to hybrid mismatch arrangements. Broadly speaking, these are cross-border structures that exploit different countries’ tax treatment of the same entity or financial instrument, leading to reduced taxes, tax deferral or non-taxation. The goal of the consultation will be to ensure the hybrid mismatch rules work proportionately and as intended.
- Rates: There are no changes to current rates of income tax and capital gains tax for individuals.
- Entrepreneurs’ relief: Effective immediately, and following a government review, the lifetime limit for gains qualifying for entrepreneurs’ relief will be reduced from £10m to £1m. Entrepreneurs’ relief offers a reduced rate of 10% (instead of the 20% headline rate) on an individual’s disposition of all or part of a business where certain criteria are met, subject to a lifetime limit.
- National insurance: Effective 6 April 2020, the threshold income for those who must make national insurance contributions will rise from £8,632 to £9,500, saving employees just over £100.
- Capital gains tax: Effective 6 April 2020, the annual exempt amount applying to capital gains realized by individuals will be increased from £12,000 to £12,300.
- Off-payroll working rules: As previously announced, the off-payroll working rules (IR35) as reformed in Finance Bill 2020 for the private sector, will come into effect on 6 April 2020. The effect of IR35 is to recharacterize independent contractors as employees, and therefore subject to PAYE withholding for income tax and national insurance contributions.
- EMI scheme: The government announced a review of the Enterprise Management Incentive (EMI) scheme, which is a government-backed incentive-based option program used by small to mid-sized businesses to share company successes with employees.
- Fund management: As announced on 4 March 2020, the government will clarify when fund management services are exempt from VAT. This is part of a wider review into the UK funds regime, in an effort to incentivize funds to manage assets in the UK.
- Financial services: Again as part of the UK funds review, the government will set up an industry working group to review how financial services are treated for VAT purposes. Under EU law, services provided by certain investment companies and trusts were exempt from VAT.
- Stamp duty land tax (SDLT): Effective 1 April 2021, a 2% SDLT surcharge will be imposed on non-UK residents purchasing residential property in England and Northern Ireland. The additional tax is intended to support UK residents moving up the housing ladder.
- Promoter strategy: As part of Finance Bill 2020-21, HMRC will publish an ambitious strategy to combat tax avoidance schemes, focusing on promoters. The goal is to introduce policy, operational and communications interventions to drive promoters out of the market, disrupt the supply chain of marketed tax avoidance, and deter taxpayers from taking up the schemes.