The theme of the Budget 2018 for large corporates and international businesses was of continually increasing regulation and a focus on reducing perceived avoidance of tax by multinational corporates. This is not surprising, given the recent trend in a more globalised tax system, with tax authorities across the world being able to share and access data more readily than ever before, and increased reliance on tax payers to self-assess and self-report. Over the last few years the introduction of Country by Country Reporting, increased emphasis on the Senior Accounting Officer rules and the requirement for companies to publish their tax strategies all demonstrates the direction of travel for larger and multinational companies.
Many of the measures announced in the Budget focused solely on larger corporates. For instance, the introduction of the Digital Services Tax is targeted specifically at large global digital organisations with global turnover in excess of £500m per annum, with an exemption available for the first £25m of revenue. This tax is not anticipated to bring in a large amount of tax revenues and the tax rate is indeed lower than the rate first suggested by the EU. It will also be interesting to see how this new tax interacts with double tax treaties. More detail will be revealed in the consultation process.
The changes to the way the private sector is able to engage with contractors and personal service companies has again been restricted to medium and large businesses, though we are yet to have confirmation of what is meant by 'medium and large'.
Focus was also placed on ensuring that large companies pay tax when they make significant capital gains (in excess of £5m), with an extension of the corporation tax loss restriction rules (of 50%) to capital losses; meaning that the use of brought forward capital losses will be restricted only where large capital gains are made by a company.
With effect from 6 April 2019, income from intangible property that is held in low-tax jurisdictions will be taxed in the UK to the extent it relates to UK sales. This will be regardless of whether there is a UK taxable presence. A de minimis of £10m was included in the rules,which again suggests that this is aimed at tightening up tax for big businesses. Targeted anti-avoidance measures are in place with effect from 29 October 2018.
There were some positive announcements that will benefit the sector, including the introduction of a targeted relief for goodwill in the acquisition of businesses with eligible intellectual property (IP) and the relaxation of taxation when intellectual property leaves a group. This will be welcomed by those investing in IP in the UK, and is consistent with the UK’s drive to make the UK a more attractive location for investment in IP-rich businesses.
Changes to capital allowances including the temporary increase in the Annual Investment Allowance to £1m and the new Structures and Buildings Allowance will be a great incentive to large scale investment by businesses. The reduction in the rate of special rate pool allowances will result in a longer period over which relief can be claimed to more closely match average accounts depreciation.
Minor changes were announced to the Corporate Interest Restriction rules to ensure the regime operates as intended, specifically after the introduction of IFRS 16. Modifications and clarifications to the existing Diverted Profits Tax rules are being made as part of HMRC’s mandate to tackle erosion of the UK tax base.
From an employment tax perspective, relaxation of the eligibility criteria for Short Term Business Visitors (STBVs) by increasing the UK workdays limit to 60 days also means that fewer STBVs will need to be reported through payroll on a monthly basis, which will help to ease the administrative burden for businesses.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.