The Government have consulted on a number of tax policies announced at Budget 2018. Today, the Government are publishing responses to these consultations alongside draft legislation to be included in the Finance Bill 2019-20. This is in line with the Government’s commitment to publish the majority of tax legislation in draft before it is introduced to Parliament.
Policy decisions in response to consultation
In response to consultation, the Government have made a number of policy decisions which are reflected in the draft legislation, relating to:
Off-payroll working rules from April 2020—the Government have previously announced that they will improve compliance with the off-payroll working rules in all sectors by bringing them into line with the public sector from April 2020. The reform will make organisations responsible for determining whether the existing rules apply to the contractors they hire and ensuring the necessary employment taxes are paid. As announced at Budget 2018, outside the public sector, this change will only apply to medium and large-sized organisations. The draft legislation makes clear when non-public sector organisations, including unincorporated organisations, will be considered to be small and therefore not within the scope of the reform. The draft legislation also includes provisions to ensure that all parties in the labour supply chain are aware of the organisation’s decision and the reasons for that decision, and will introduce a statutory, client-led status disagreement process to allow individuals and fee-payers to challenge the organisation’s determinations.
Digital services tax—the Government have previously announced a tax on the UK-linked revenues of certain digital services to ensure that large multi-national businesses pay their fair share towards the public services we all rely on. Following consultation, the Government have made changes to the detailed design to better ensure the legislation delivers on its objectives. The treatment of cross-border marketplace transactions will be changed in cases where a transaction involves a non-UK user located in a country that levies a DST on similar transactions. There will be various changes to the administrative framework. The DST will now be payable annually rather than in quarterly instalments, and it will be assessed on a group-wide basis. An exemption for financial and payment services from the definition of an online marketplace will also be included.
Corporate capital loss restriction—the Government are introducing a new corporate capital loss restriction that will restrict the use of carried-forward capital losses to 50% of the amount of annual capital gains from April 2020. The draft legislation maintains the fundamental design features that were set out at consultation such as the commencement date and the amount of annual deductions allowance. The exemption for the policyholder share of basic life assurance and general annuity business (BLAGAB) gains and losses has been extended to cover all BLAGAB losses that offset BLAGAB gains, and some clarifications have been made to ensure that the regime operates as intended. The Government will also provide exemptions for gains within the oil and gas ring-fence and the REIT property rental business ring-fence. Further provisions have been made in respect of one day accounting periods, connected party losses and loss streaming rules.
Stamp taxes on shares consideration rules—The Finance Act 2019 introduced a targeted market value rule to prevent contrived arrangements involving transfers of listed securities to connected companies to minimise stamp taxes on shares liability. Following consultation, the Government are extending the market value rule to the transfer of unlisted shares to a connected company. The draft legislation also removes an anomaly where a double-charge can arise on certain company re-organisations.
Technical tax changes
In addition, the Government are publishing a small number of technical tax changes that need to be made to ensure legislation works as intended. These include measures relating to:
Capital gains tax: Relief for loans to traders—extending the scope of the capital gains tax relief in respect of loans to traders, so that it applies to loans made to traders located anywhere in the world and not just the United Kingdom.
Share loss relief—extending the scope of the income tax and corporation tax share loss relief, so that it applies to shares in companies carrying on a business anywhere in the world, and not just the United Kingdom.
Legislation with immediate or retrospective effect
The Government have published legislation for the following measures that will have immediate or retrospective effect:
Deferred corporation tax payments on cross border transfers—this legislation will allow companies to defer payment of tax that arises on certain transactions with group companies in the European economic area. This is intended to provide certainty for UK business following a recent first-tier tax tribunal decision. The legislation will apply to corporation tax that becomes payable for accounting periods that end on or after 10 October 2018.
Scope clarification: lease accounting standards—minor amendments to clarify the scope of legislation on changes to lease accounting standards introduced in Finance Act 2019.
Previously announced policy changes
The Government are also publishing legislation for the following policy changes announced earlier this year:
Windrush compensation scheme—payments will not be subject to income tax, capital gains tax or inheritance tax when made under the Windrush compensation scheme.
The Government previously consulted on proposals and subsequently draft legislation last year to reform penalty regimes for late filing and late payment across taxes. The Government remain committed to these reforms. The timing and details of implementation will be announced at a future fiscal event.
As announced at Budget 2018, to tackle the hidden economy, the Government are considering a tax registration check linked to renewal processes for some public sector licences. This is known as “conditionality”. The timing of any change will be announced at a future fiscal event.
For other consultations, the Government are continuing to consider the responses and will respond in due course.
Draft legislation is accompanied by a tax information and impact note (TIIN), an explanatory note (EN) and, where applicable, a summary of responses to consultation document. All publications can be found on the gov.uk website. The Government’s tax consultation tracker has also been updated.