Draft Finance Bill 2019/20 – Tax Help & Advice
Amidst Brexit uncertainty and the Conservative Party leadership contest, the Government has published draft clauses for Finance bill 2019/20.
Key measures include:
Off-payroll working in the private sector
Following consultation that concluded earlier in the year, new legislation will be introduced with effect from 6 April 2020 requiring businesses to operate PAYE and National Insurance Contributions where they engage with workers through limited companies and those workers would otherwise have been employees but for the interposing of the limited companies.
The proposed legislation largely mirrors the existing public sector legislation which took effect from April 2017.
The legislation will include an exemption for small businesses.
For further details see our detailed note.
Principal private residence relief
Principal private residence relief provides relief from capital gains tax on the disposal of a property that has been an individual’s main residence. Under the current rules, the exemption applies to periods that the property has been occupied, or deemed to be occupied, as the individual’s main residence, as well as the final 18 months, irrespective of whether they continued to occupy it during that period.
The new legislation will reduce that final period to 9 months. This will be of particular concern to those who have moved to a new home but have yet to sell their previous one.
The new legislation will also restrict lettings relief. This relief applies where a property which has been an individual’s main residence has also been let out at some point. Under the current rules the relief can exempt up to £40,000 of gains on disposal. However, the new legislation will restrict the relief to instances where the property is in shared occupancy with a tenant.
For further details, see our detailed note.
Share loss relief
Income tax share loss relief applies where an individual who has subscribed for newly issued shares in unlisted small or medium-sized trading companies disposes of those shares at a loss.
Such losses can be offset against the individual’s income of the same or previous tax year.
Given the ability to offset income which is typically taxed at a higher rate than capital gains, the ability to claim income tax relief is particularly valuable in these instances and may provide an additional incentive for would be investors weighing the potential investment risks of subscribing for shares in a small unlisted company.
The relief will be extended so that it applies to companies located anywhere in the world rather than companies that carry on businesses wholly or mainly in the UK.
HMRC Draft Finance Bill 2019/20 – Tax Relief on Loans to Traders
Liquidation and capital reduction demergers typically require the interposition of a new holding company. Section 77 FA 1986 provides relief where the shareholdings of the new holding company mirror those of the target; however, the wide-ranging anti-avoidance provisions of Section 77A block the relief where there are arrangements for a change of control of the holding company which will often be the case in a demerger.
New legislation intends to limit the scope of the anti-avoidance provisions so that a person who has held 25% or more of the issued share capital of the target throughout the three years to the share-for-share exchange of the target company for the holding company.
More details can be found here.
Digital Services Tax
The Government confirmed its intention to push on with the introduction of a new Digital Service Tax (DST) in Finance Bill 2019/20.
This unilateral move is despite stating that the most sustainable long-term solution to the challenges posted by digitalisation is a multilateral one such as that being developed by the OECD.
It will serve as a temporary measure pending the conclusion of a long-term solution after which it will be disapplied.
The proposed DST will apply to businesses providing a social media platform, search engine or online marketplace to UK-based users. Such businesses will be liable to the DST when the group’s worldwide revenues from these digital activities exceed £500 million and more than £25 million derive from UK users.
Revenues from UK users will be taxed at a rate of 2% to the extent that they exceed an allowance of £25 million, which means that a group’s first £25 million of UK revenue will not be subject to the new tax.
For further details, see our detailed note.
Corporate capital loss restriction
Following the introduction of a corporate loss restriction in 2017, the Government will introduce a new corporate loss restriction, limiting the use of carried forward capital losses to 50% of the chargeable gains.
The limitation is subject to an annual deductions allowance of £5m.
Measures to protect taxes on insolvency
Under proposed measures, when a business enters insolvency, HMRC will become the preferred creditor for taxes paid by the business’s customers and employees. HMRC will be a secondary preferential creditor in respect of PAYE, employee NIC, VAT, CIS and student loan deductions.
HMRC will continue to be an unsecured creditor for other taxes.
Further measures will permit HMRC to issue “joint liability notices” to directors, shadow directors, LLP members and others involved in avoidance, evasion or phoenixism. Before issuing such a notice, various conditions will need to be satisfied including that insolvency is under way or there is serious potential for insolvency to occur, the company or LLP has engaged in avoidance or evasion, the person to be issued with the notice was responsible for the company or LLP’s conduct, enabled it or benefited from it, a tax liability is expected to arise from the avoidance or evasion, and there is a serious possibility that tax will not be paid.
The new rules will also enable HMRC to issue a notice where an individual is involved in repeated insolvency and non-payment.
We have produced further detailed notes as follows:
The final contents of Finance bill 2019/20 will be subject to confirmation at Budget 2019. Given the appointment of a new Prime Minister and Cabinet including Chancellor, and ongoing Brexit uncertainty, the draft clauses are unlikely to be the only thing to make it into the final bill.
For more info on the Finance Bill 2019/20 and taxation please contact a member of our helpful tax advice team. You can also read more about Tax Policy below.