A summary of recent UK corporate tax changes that have either already come into force for 2017 and 2018 or are proposed, subject to the relevant legislation becoming enacted, to apply for 2019 and 2020.
Please note that the legislation may change before finally being enacted and therefore advice should be sought before relying on any proposed future changes
summarised in this document.
Changes that came in during 2017 have been included for completeness, as these will be relevant for any tax periods that are filed in relation to year ends ending after 1 April 2017.
In the UK, corporate income tax computations are filed 12 months after the accounting year end. For example, for the year ended 31 March 2018 the tax return will be due to be filed by 31 March 2019, earlier period changes will therefore require due consideration before filing.
Below provide a summary of:
The main changes are:
These relaxations should mean that more share sales should meet the SSE conditions and fall within the exemption.
It is proposed that from 1 April 2020 capital losses will be brought within the new loss restriction rules and the same £5 million allowance. HMRC is currently consulting on the mechanics of how this change will work.
Corporate with capital losses from 1 April 2020.
Where they do apply, the rules restrict the amount of UK interest deduction where a group’s net interest expense is above £2 million, to the lower of:
If the worldwide group is more leveraged than the UK sub-group, then a ‘group ratio’ election could be made if this gives a better result.
The legislation is complex and requires consideration where the £2 million exemption is breached.
These measures criminalise corporates that don’t do enough to prevent the facilitation of tax evasion.
Criminal liabilities can be attributed to a firm when its employees or associates are seen to be helping taxpayers evade tax.
The rules capture tax evasion which occurs anywhere in the world by an employee / a person where they are acting on behalf of a firm which is caught by the legislation.
The offence is automatically considered to apply unless the organisation can plead a defence that it has put in place “reasonable measures, procedures and safeguards” to prevent the facilitation of the tax evasion.
Penalties for an offence are unlimited.
When a company makes a capital disposal, it was entitled to indexation allowance up to the date of disposal.
Indexation allowance has been removed for periods after 1 January 2018.
Therefore, for capital disposals on or after 1 January 2018, companies will only be entitled to indexation allowance up to December 2017.
The structures and buildings allowance (SBA) is a new relief that is available on the construction of non-residential structures and buildings (land and dwellings will not be eligible for relief).
The relief provides a flat rate 2% per year allowance based on the original building expenditure.
The relief applies from when a building is first brought into use.
There are no balancing allowances or balancing charges in relation to the SBA on a future disposal of the building.
Any UK companies involved in non-residential construction (which is treated as a fixed asset rather than stock).
Applies to physical construction contracts entered into on or after 29 October 2018.
The substantial shareholdings exemption (SSE) was introduced in 2002 and provides an exemption from capital gains for disposals of shares by companies that meet the relevant conditions.
Where SSE applies, degrouping charges on capital gains assets which had been transferred inter-group within six years and left the group as part of the share sale are also exempted from tax.
However, different rules applied for intangible fixed asset disposals within six years, which were deemed to be realised and reacquired at market value on the date of departure from the group.
These rules have now been changed for intangible fixed assets which leave a group after 7 November 2018.
No intangible fixed asset degrouping charge will now crystallise where SSE applies.
Any corporate sale of shares that qualifies for the substantial shareholdings
UK businesses get relief for qualifying capital expenditure by way of capital allowances.
The capital allowance annual investment allowance (AIA), which provides 100% relief in the year of acquisition, increases to £1 million (previously £200,000) for qualifying expenditure for the two year period from
1 January 2019 to 31 December 2020.
The main pool capital allowance rate remains at 18% writing down allowance per year.
Whereas, the capital allowance special rate allowance will reduce from 8% to 6% per year from April 2019.
UK businesses with qualifying capital expenditure.
The UK leaves the European Union on 29 March 2019 with a transitional period to 31 December 2020.
Tax relief for goodwill was withdrawn for disposals on or after 8 July 2015.
It is now proposed to reinstate relief for the costs of acquired goodwill. Relief will be available for up to six times the value of eligible intellectual property (IP) assets acquired with the business.
The categories of eligible assets compared against for the six times test are: patents; registered trade marks; registered designs; copyright and design rights, and plant breeders’ rights. Customer-related intangibles are not included.
Relief for eligible goodwill will be based on a fixed rate of 6.5% of the cost per year rather than on an accounting basis.
No relief will be available in relation to internally-generated goodwill acquired in relation to a related party transaction.
All disposals of UK property (residential and non-residential) by non-residents will be brought within the scope of UK taxation.
Properties will be treated as being rebased on 1 April 2019. Any capital gains which accrue on an uplift in value after 1 April 2019 will be subject to UK capital gains tax.
For corporate entities this will be charged at the rate of UK corporation tax, currently 19% reducing to 17% in 2020.
Exemptions will be introduced for institutional investors, such as pension funds.
Businesses with turnover above the VAT threshold (£85,000) will have to keep their VAT records digitally and submit their VAT data to HMRC through compatible software.
The proposed rules prevent companies, partners or UK individuals from moving profits offshore by way of a ‘transfer of value’ to a low tax entity resulting in less UK tax being paid. This could be by decreasing UK income or increasing UK expenses.
The rules apply where the UK individual or someone connected with them then benefits from those offshore profits.
When considering whether there has been a transfer of value from a business, the transfer can be traced through any number of individuals, companies, partnerships, trusts or other entities.
The rules include an 80% payment test, comparing the tax suffered on the alienated profits against that due in the UK. Broadly, a UK tax mismatch adjustment will be required where the tax paid offshore is less than 80% of that which would be due in the UK.
Under these anti-avoidance rules the fragmented profits are taxed as UK profits, with payment of tax being due 30 days after HMRC issue a preliminary notice of taxation.
6 April 2019 (for individuals)
It is proposed that the UK’s current withholding tax regime will be extended to royalty payments and payments for certain other intellectual property rights, made to connected companies, in low tax or no tax jurisdictions in connection with sales made to UK customers.
It is intended that the rules will apply even where the payer has no UK taxable presence.
Where the rules apply they will potentially create a significant additional tax and administrative burden.
Corporate entities will no longer be subject to income tax on income received from UK property.
from 1 April 2020, non-resident companies will be subject to 19% corporation
tax (reducing to 17% in 2020) on any income or capital gains that arise from UK
A proposed extension of the current non resident capital gains tax regime (NRCGT).
It is proposed that UK Capital Gains Tax on the sale of any residential property will be subject to new payment on account rules.
Under the proposal, the sale will both need to be notified to HMRC within 30 days of the disposal being completed and a payment on account of the Capital Gains Tax due will also potentially become payable at the same time.
Innovative businesses that are involved in research and development (R&D) can claim R&D tax relief to either lower their tax bill or if they have tax losses, these can be surrender for cash from HMRC.
Small and medium companies can claim additional relief of up to £33.35 for every £100 of qualifying R&D spend.
From 1 April 2020 the amount of repayable cash credit claimable from HMRC in any one year will re restricted to three times the company’s total PAYE/NIC bill for the year.
Any tax loss that is restricted and cannot be surrendered for a repayable credit can be carried forward against future profits.
Any small and medium company making an R&D relief claim and seeking a cash credit from HMRC.
The UK government is proposing to move forward with, and is currently consulting on, a unilateral Digital Services Tax (DST) in the absence of a global OECD solution.
The proposal is for a 2% tax on revenues derived by businesses providing search engine services, online marketplaces and social media platforms to UK users (‘UK revenue’). The first £25 million of UK revenues will be exempt from DST. Where UK revenues are combined with out of scope activities an apportionment will need to be made.
There will be an annual filing for the DST tax and tax payments would be made via quarterly instalments.
Examples of activities in scope are revenue from adverts displayed to UK users; payments for subscriptions and commissions from UK users.
Under the proposals, the provision of radio and television broadcasting services; online content; payment and financial services platforms and the sale of own goods are all excluded.
It is proposed that the 2% tax will be treated as a tax deductible expense for UK corporation tax purposes.
Businesses with revenues of more than £500 million who have UK revenues from relevant activities in excess of £25 million.