A summary of the main UK corporate tax changes that have either already come into force for 2017, 2018 and 2019 or are proposed, subject to the relevant legislation becoming enacted, to apply for 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.
Below provides a summary of:
The main changes are:
These relaxations 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. Where accounting periods straddle 1 April 2020 then transitional provisions will apply.
Corporate businesses 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 apply to 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.
Indexation allowance was 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 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, 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, increased 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 reduced from 8% to 6% per year from April 2019.
UK businesses with qualifying capital expenditure.
From 1 April 2019 tax relief is reinstated for the costs of acquired goodwill where is it acquired as part of the acquisition of a business and 'qualifying IP assets' are also acquired. Relief will be available for up to six times the value of qualifying IP assets.
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.
Residential properties have been within the scope of non-resident capital gains tax since 2015.
All disposals of UK property (residential and non-residential) by non-residents are brought within the scope of UK taxation from 6 April 2019.
Non-residential properties will be treated as being rebased on 6 April 2019. Any capital gains which accrue on an uplift in value after 6 April 2019 will be subject to UK taxation on the capital gain.
The capital gains disposal must be reported online to HMRC within 30 days of completion using the non-resident capital gains tax return.
The tax due must also be paid within this 30 day period.
For corporate entities this will be charged at the rate of UK corporation tax, currently 19% reducing to 17% in 2020.
Indirect disposals of UK property and land also fall within the rules. This occurs where a non-resident, who has at least a 25% investment, sells shares in a ‘UK property rich’ entity. Broadly, this is a company that derives 75% or more of its gross asset value from UK land. Indirect disposals are based on the value of the asset being disposed of, rather than the value of the underlying UK land. An exemption exists where the property asset is used for trading purposes.
Qualifying institutional investors can claim exemption from the NRCGT rules in certain situations.
Businesses with turnover above the VAT threshold (£85,000) are required to keep their VAT records digitally and submit their VAT data to HMRC through compatible software.
These rules prevent companies, partners or UK individuals 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 is able to 'enjoy' or benefit from those offshore profits.
When considering whether there has been a transfer of value from a business, the transaction must be considered excessive when compared to the activities being undertaken. The transfer can be traced through any number of individuals, companies, partnerships, trusts or other entities.
The rules include an 80% tax mismatch 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.
6 April 2019 (for individuals)
These rules target large multinational groups that hold intellectual property rights, such as patents and trademarks, in low tax jurisdictions and derive more than £10 million of UK sales from the sale of goods and services in the UK which relate to those intangibles.
Where the rules apply an income tax charge at the rate of 20% will be charged on the low tax entity which holds the intellectual property rights. This will be based on the proportion of their gross income received from the sale of goods and services in the UK. An exemption exists where the tax payable by the overseas entity is at least 50% of the UK income tax charge or if the income is received in a country with which the UK has a full tax treaty.
The overseas entity will be required to submit a UK income tax return and self-assess the tax due. The tax due can be collected by HMRC from the overseas entity or, if it they fail to pay, it can be collected from any other UK company that is in the same control group.
HMRC is currently consulting on further amendments to these rules which will provide additional clarity. It is expected that these amendments will be enacted during 2019/20.
The transfer of an asset between UK group companies, which are subject to corporation tax, is generally treated as not giving rise to an immediate tax charge for the transferor.
Whereas, a transfer of an asset between the UK and another group company resident in the EU or another EEA state does give rise to a chargeable transfer based on the market value of the asset at the date of transfer. The transferor is then taxed on the profit or gain that arises in the accounting period in which the transfer occurs.
Following a recent tax case, this difference in treatment is considered to be a restriction of rights under the freedom of establishment rules, unless the UK company was given the option to pay the additional tax over a period of five years.
Where these are met, a payment plan application can be made to HMRC.
Should the transferor and transferee cease to be a member of the same group, then any deferred tax remaining unpaid under the payment plan would immediately become payable.
The UK is due to leave the European Union on 31 October 2019 with or without a deal. With a transitional period to 31 December 2020, unless extended, if a deal is reached.
Corporate entities will no longer be subject to income tax on income received from UK property.
Instead, from 5 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 property.
In the year of changeover, different tax rules will need to be observed. Income tax returns, payments and filing deadlines will be required for the period up to 5 April 2020; with corporate tax returns, payments and deadlines being required for the period from 6 April 2020. Amounts will potentially need to be time apportioned between the two periods.
Once entities are subject to corporation tax, all the UK’s corporation tax rules will be in point and will require consideration.
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 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.
For accounting periods beginning on or after 1 April 2020, it is proposed 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.
Following an HMRC consultation in May 2019, there may be further changes to the above proposal.
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 has recently consulted 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. Groups can nominate an entity to fulfil these responsibilities. Otherwise, the ultimate parent of the group will be responsible.
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.