The UK government published the draft clauses today for the next Finance Bill due this autumn. They addressed the main issues impacting the asset management industry as follows:
- A new digital services tax will be introduced for revenue earned from April 1, 2020. The tax will apply to businesses that provide a social media platform, search engine or online marketplace to UK users. It will apply to businesses whose global revenue exceeds £500 million of which £25 million is derived from UK users. Where these conditions are met, any revenue in excess of £25 million, which is derived from UK users will be subject to a DST @ 2%. This can be deducted as an allowable expense against UK corporation tax. There is a carve out in the draft legislation for activities in the financial services sector, which will be welcomed, although it's not entirely clear how effectively this will operate. Draft guidance has now been published which is subject to consultation. Responses are invited by September 5, 2019.
- Off-payroll working provisions (IR35) will be extended to include all medium and large-sized companies in the private sector, as well as the public sector. Responsibility for determining whether these rules apply will rest with the medium or large company; it will move away from the responsibility of the intermediary, although there will be a client-led status disagreement process where the individual disagrees with the status determination. This measure will be effective from April 6, 2020.
- Carry forward capital losses can only be used against 50% of a chargeable gain made by a company which accrues after April 1, 2020. Transitional arrangements will apply. The restriction will not apply to real estate investment trusts that make property income distributions.
- Introduction of an "approved knowledge-intensive" fund, which will require the fund to focus investment in knowledge-intensive companies. Investment in these companies may qualify for Enterprise Investment Scheme (EIS) relief, subject to the usual conditions.
- Where existing legislation means that an immediate UK corporation tax charge arises on the transfer of assets from a UK company to an EU/EEA group company, measures are to be introduced to enable the corporation tax due to be spread over five years. Any deferred corporation tax will be subject to interest at the prevailing rate of interest on late paid corporation tax. This measure is in response to a challenge that the existing UK legislation in relation to the transfer of assets abroad is incompatible with existing EU law. However, it is unclear how the deferred corporation tax payments will prevent a successful challenge to the existing UK legislation.
As a reminder, items already announced, which will be introduced next year, are as follows:
- Reduction in the rate of corporation tax to 17% with effect from April 1, 2020; and
- Non-resident property companies will be subject to corporation tax rather than income tax from April 6, 2020.
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