Given the level of Government focus on the financial services (FS) sector in recent years, it is perhaps then welcome news that relatively few tax changes for FS businesses were announced by the Chancellor in the 2018 Budget. This is not surprising in view of Brexit and the government trying to position the UK as a global leader in the FS sector.
A lot of headlines have been created by the introduction of the new Digital Services Tax (DST). This tax will apply to revenue from search engines, online market places and social media platforms, and it is worth noting that financial and payment services are specifically scoped out of the rules, so the good news is that the impact on FS businesses is expected to be relatively limited at this stage.
There were changes to the hybrid rules that are aimed at maintaining the minimum standards as set out in the Anti-tax Avoidance Directive. One such change which is being brought in with effect from 1 January 2019 involves amending the definition of regulatory capital for the purposes of the hybrid mismatch rules. Further changes are also proposed to the taxation of hybrid capital instruments in order to reflect their economic substance. These changes will affect a number of FS businesses including insurers and banks alike and may increase tax costs.
The Government intends to reform the corporate intangibles regime in order provide partial relief for the cost of goodwill on the acquisition of a business with eligible intellectual property, and removal of de-grouping charges in certain share disposals. These should have a positive impact on the FS sector generally and in particular with the restructuring of businesses in light of Brexit uncertainties.
From 1 April 2020, the Government intends to align the utilisation of brought forward capital losses with the existing 50% restriction on corporate income losses. In overview, if FS companies make chargeable gains after 1 April 2020, the offset of brought forward capital losses against these gains could well be restricted up to 50% of the gains.
Changes are being made to ease the burden of operating PAYE on short term business visitors and to extend the anti-avoidance rules around the taxation of contractors and personal service companies to the private sector with effect from 6 April 2020. In short, if FS businesses have employees working cross borders, and/or are using freelance workers, then consideration should be given to these changes now.
There were a number of new VAT measures announced, including one that will specifically impact the insurance sector. New rules are being introduced in order to prevent UK intermediaries from recovering input VAT where supplies are made to off-shore brokers or insurers but the underlying contract is with a party in the UK. Accordingly, where an off-shore insurer has UK insureds, and contracts with a UK insurance intermediary, the VAT position and impact will need to be considered in more detail. This measure has been introduced to counteract perceived VAT avoidance in cross border structures, though could ultimately increase the cost of operating insurance businesses going forward.
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.