Draft Finance Bill 2018/19
After initial consultation in the summer on a number of the new measures, the Government published a full draft of the Finance Bill (No. 3) 2017-19 on 7 November 2018 together with supporting documents. These provide detail on many important tax changes - some of which will have an immediate impact on the taxpayers they affect.
Indirect and other taxes
Taxing UK property gains of non-UK residents
Draft legislation has now been published to bring most gains realised by non-UK residents arising from disposals of both direct and indirect interests in UK property within the UK tax net.
The legislation is largely in line with the original consultation proposals (published alongside the Autumn Budget 2017) although, happily, there have been some modifications to accommodate issues raised in responses to the original consultation. Read the detailed changes
The Finance Bill draft clauses include some significant changes to capital allowances that were unexpected and some will have an immediate impact. Read more.
New tax reliefs for intangible fixed assets
Alongside the Finance Bill, the Government has published the consultation responses and its updated proposals for reform of the UK’s tax regime for corporate intangible fixed assets. These will lead to further clauses being added to the Bill so that new rules apply to de-grouping tax events that occur on or after 7 November 2018 and a reintroduction of amortisation for goodwill acquired from 1 April 2019. Read more.
Taxation of offshore receipts from intangible property
From 1 April 2019, the Government will introduce a new income tax charge on certain receipts of non-UK residents holding intangibles in offshore territories – although the original proposals for a withholding tax have been revised. Read more.
Changes to the diverted profits tax
The diverted profits tax has only been operational since 2015 but the Government has already chosen to overhaul it by adding new anti-avoidance rules and administrative adjustments. Read more.
Digital services tax
The Government’s high profile proposals on creating a new unilateral tax on digital services have now been published. This tax would ensure certain businesses pay tax reflecting value that they derive from UK users. Read more on the design of this new tax.
Amendments to corporate loss relief carry-forward rules
The Government reformed the corporate loss relief rules from 1 April 2017 but now says that these can give more carry-forward relief than was intended. It has published draft legislation to tighten up some areas of the rules from 1 April 2019 and introduce a new restriction on the use of brought forward capital losses from April 2020. Read more
Corporate interest restriction adjusted
The corporate interest restriction continues to be fine-tuned following its introduction, with a number of changes being made to both the operation and administration of the rules that should be helpful to businesses. Changes have also been made to account for the new IFRS 16 leasing rules. Read the details
Loan relationship mismatches
Schedule 11 of Finance Bill 2018-19 introduces new provisions to prevent a tax mismatch where a company borrows funds and lends them on to group companies. The new rules apply where a company has:
- An external loan relationship accounted for on a fair value basis; and
- A connected company loan relationship that is taxed on an amortised cost basis.
Where there is a ‘qualifying link’ between the two loan relationships, the external loan relationship will also be taxed on an amortised cost basis. A qualifying link exists if the money received under the external loan relationship is wholly or mainly used by the company receiving it to lend on under one or more connected company loan relationships.
The new rules apply to accounting periods beginning on or after 1 January 2019. An accounting period straddling 1 January 2019 is split into two deemed accounting periods.
If there is a difference between the adjusted carrying value of the external loan on 31 December 2018 and on 1 January 2019, the difference will be brought in to account in the 2019 period as a debit or a credit in accordance with generally accepted accounting practice.
Changes to implement EU Anti Avoidance Directive
The EU Anti-Tax Avoidance Directive (ATAD) sets out minimum standards across a range of anti-avoidance measures that Member States are obliged to implement. Finance Bill 2018-19 includes changes to existing rules to implement ATAD. The changes apply to corporates and will be effective from 1 January 2020. The changes will affect corporate tax exit charges, the rules for controlled foreign companies and the UK’s anti-hybrid rules. Read more
UK property income of non-UK resident companies
The Draft Finance Bill includes clauses to make non-UK resident companies that carry on a UK property business or have other UK property income liable to corporation tax. The change takes effect from 6 April 2020 onwards (rather than the usual 1 April start date for corporation tax changes) as such property income is currently liable to income tax and a change on the 6 April means that company tax returns for 2019-20 tax year can be prepared entirely under the current rules.
Despite the announcement in Budget 2018 that the off-payroll rules will be extended to private sector businesses from April 2020, we have yet to see the promised consultation or new legislation published on the vexed area of employment status. However, Finance Bill 2018-19 does contain legislation to tidy up some benefit in kind issues. Calculating the benefit in kind charge on cars under the optional remuneration rules will be simpler, the tax-free status of workplace charging for electric cars is confirmed and the Government’s view of the future treatment of employee expenses has been set out. Read more
Rule changes affecting lessees in 2019
Clauses in the draft Finance Bill 2018-19 seek to address the many tax issues that will arise for lessees of companies which apply IFRS/FRS 101 and will, therefore, be obliged to adopt IFRS 16. Read more.
Entrepreneurs’ relief changes
After the surprising announcement in Budget 2018 that new restrictions would apply to entrepreneurs’ relief (ER) on shares, broadening the 5% test, we now have draft legislation on how this will work: many company shareholders may no longer qualify for ER on a disposal of their shares. Read more.
Capital gains tax payments
UK residents that make disposals of UK residential property on or after 6 April 2020 will have to make a payment on account of any capital gains tax (CGT) due on the disposal within 30 days under new draft legislation. The payment will act as a credit against the total income tax and CGT liability for the relevant tax year.
At present an exit charge may be realised where a Trust ceases to be UK resident or an asset leaves the trade of certain non-UK resident individuals. In recent cases before the European Courts, the compatibility of such exit charges with the Freedom of Establishment of EU nationals was considered.
Following the decisions in these cases, the Government is intending to introduce ‘payment plans’ for the settlement of the exit charge by instalment from 6 April 2019. Where certain conditions are met, an application may be made to HMRC to pay the tax in six equal yearly instalments, although interest will apply from the due date of the first payment. Trustees and individuals will need to consider these conditions carefully before relying on a payment plan being available.
VAT groups eligibility extended
After a lengthy consultation process, draft legislation has been published detailing plans to widen the eligibility rules for membership of a VAT group registration. Read more
VAT treatment of vouchers
New VAT draft legislation has been published which will affect all vouchers issued on or after 1 January 2019. The legislation will incorporate into UK law new provisions that harmonise the treatment of vouchers across the EU and could have a significant impact on businesses using and trading in vouchers. Read more
Interest harmonisation and sanctions for late VAT payments
The government has published draft legislation confirming that it will introduce a new system of penalising taxpayers for late VAT payments to replace the current VAT default surcharge regime for VAT periods beginning on or after 1 April 2020. Read the details
Gaming duty changes confirmed
The Draft Finance Bill contains legislation on previously announced changes to Gaming Duty, which will take effect from 1 October 2019. Businesses liable to Gaming Duty will be required to complete returns on a six-monthly basis and will no longer be required to make payments on account part way through their accounting periods. This measure also allows businesses to carry forward losses from one accounting period to be offset against future Gaming Duty liabilities.
VAT Split payment mechanism
Alongside the Finance Bill, the Government has published its commentary on responses to a consultation on proposals to compel online marketplaces to pay the VAT on each sale directly to HMRC on behalf of the retailer. Read more.
Stamp duties – shorter deadline to file and pay
For transactions on or after 1 March 2019, the deadline for filing the stamp duty land tax (SDLT) return and paying the tax due will be 14 days (reduced from the current 30 day time limit). In certain circumstances, a second SDLT return is required for a transaction. As a transitional measure, such follow-on returns that stem from a pre-March 2019 transaction will retain the 30 day time limit.
Legislation has also been introduced to give relief from SDLT (and Stamp Duty and SDRT) where assets held by failing financial institutions are transferred under the Bank of England’s special resolution regime powers.
Enforcement and HMRC powers
The government continues to enhance and refine HMRC’s tax enforcement powers in every Finance Bill. This round of draft legislation includes an extension of offshore time limits for enquiries, new rules to ensure tax compliance by users of online business platforms and clauses expanding the circumstances in which HMRC can demand tax security deposits. Read the detail
Power to implement EU rules on disclosable tax arrangements
The draft Finance Bill includes enabling legislation that will allow the government to create new regulations implementing the EU directive on mandatory tax disclosure rules for cross border arrangements. The regulations do not have to be in place until the end of 2019; when they come into force, all relevant arrangements entered into after 25 June 2018 will have to be disclosed. Read more