We were worried…
… but this Budget brought some positives for the UK corporation tax framework as the current UK corporation tax rate (which is already the lowest in G20 at 19%) is still on course to be reduced to 17% by 1 April 2020.
The VAT registration threshold will be maintained at the current level of £85,000 of annual supply of services and goods for a further 2 years until April 2022.
What is new
There is one surprise for the corporate tax world – a new Digital Service Tax (DST) applicable from April 2020 to profitable high tech companies making sales in the UK. There is a double threshold for the DST to apply: threshold of £25 million annual UK profit and £500 million annual profit worldwide. A 2% charge will apply on the UK revenues of ‘specific digital business models’ that are restricted to search engines, social media platforms and online marketplaces. The obvious targets for the new taxation that come to mind are tech giants such as eBay, Amazon, Google, Airbnb, Apple and others. Although the Government has confirmed that it will only apply the DST until an appropriate long-term solution (e.g. international agreements) is in place, US officials have already started expressing concern over the DST. As the DST appears to mainly target US tech giants, it is possible that the US will introduce retaliatory measures.
There is some good news for the US and for business, as visitors from the States, as well as Australia, New Zealand, Canada and Japan will be more welcome in the UK. It is proposed that e-passport gates – currently available to European citizens – will be offered for nationals of these countries which means no more horrendous queues for passport control in Heathrow and other UK airports.
New non-residential structures and buildings will be eligible for a 2% capital allowance where all the contracts for the physical construction works are entered into on or after 29 October 2018. This is known as structures and buildings allowance (SBA).
Technology is changing, so is the environment and the Government has proposed a new tax on packaging using less than 30% recycled plastics from April 2022.
Old but modified
The Budget announced a new structures and buildings allowance of 2% as well as a temporary increase in the Annual Investment Allowance (AIM) from £200,000 to £1 million, to support business investment. The structure and buildings allowance will apply to expenditure on a construction project and will be applied on a straight lane basis. Interestingly, there will be no system of balancing charges or allowances. A purchaser will simply take over the existing position and continue to claim 2% of the original cost each year.
A consultation paper has been published on a new measure to restrict the use by companies of carried forward capital losses to 50% of their capital gains arising in an accounting period. Companies will be given an allowance permitting unrestricted use of up to £5 million of capital or income losses per year. In practice, only very large companies are likely to be impacted by this new restriction.
The UK will retain Entrepreneurs’ Relief (ER) but a minimum qualifying period, during which shares must be held in a company is extended from 1 year to 2 years.
Finally, from the offshore structuring viewpoint, as announced in the Autumn Budget 2017, the Government is introducing legislation in the Finance Bill 2018-19 to tax income from intangible property held in low-tax jurisdictions with a UK presence (previously Royalties Withholding Tax). This measure will come into effect from April 2019 and include:
- collecting the tax by directly taxing offshore entities that realise intangible property income in low-tax jurisdictions, rather than through applying a withholding tax;
- broadening the income in scope of the measure to include embedded royalties and income from the indirect exploitation of intangible property in the UK market through unrelated parties;
- introducing a de minimis UK sales threshold of £10 million, an exemption for income that is taxed at appropriate levels, and an exemption for income relating to intangible property that is supported by sufficient local substance; and
- anti-avoidance provisions will apply from 29 October 2018 to counteract arrangements entered into with a main purpose of avoiding a charge under this new measure.
For further information please do not hesitate to contact Elena Solovyeva – Corporate Tax Manager.
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