Last week's Budget came a few days before Halloween and just a week before Bonfire Night. Happily, however, there were no particularly frightening or explosive tax announcements. That said, a number of interesting announcements were made. I set out below (in no particular order) my 10 key business tax takeaways from the Chancellor's Budget.
- Entrepreneurs' Relief (1): from April 2019, the minimum holding period for ER purposes will be increased to 2 years (from 1 year, currently).
Entrepreneurs' Relief (2): from 29 October 2018, 2 new conditions must be met for a shareholder seeking ER. In addition to holding at least 5% of ordinary share capital and voting rights, the shareholder must be beneficially entitled to at least 5% of the company’s distributable profits, and 5% of its assets available for distribution to "equity holders" in a winding up.
The Government's stated view is that the effect of these 2 changes will be to introduce ER requirements that are "more characteristic of entrepreneurial activity".
- Digital Services Tax: from April 2020, a new 2% digital services tax will be introduced on UK revenues from search engines, social media platforms and online marketplaces. The exact scope of the new DST is to be determined by way of consultation but note that (i) the new UK DST will not be introduced if an "international solution" to digital taxation is achieved before April 2020; (ii) the new UK DST is intended to hit the "tech giants" not start-ups (there is to be a £25m UK revenue threshold, and a separate £500m global revenue threshold); and (iii) the Government says it expects the new DST to raise £1.5bn over 4 years.
- Intangible fixed assets de-grouping charge: from 7 November 2018, no IP de-grouping charge will arise in connection with sales of companies that qualify for the UK's "substantial shareholding exemption".
- Stamp duty: a new market value rule (so that stamp duty is charged on the higher of actual consideration and market value of the shares) will apply for share transfers executed on or after 29 October 2018 where "listed" shares are transferred to a company and the transferor is connected with the transferee company (but not in such cases where stamp duty group relief is available).
- VAT and "offshore looping" by insurance intermediaries: from March 2019, a form of VAT avoidance by insurance intermediaries is to be closed down. This, currently, involves insurance intermediary companies entering into arrangements with non-EU entities to resupply or 'loop' services back to UK consumers. This arrangement takes advantage of current UK VAT rules which allow the insurance intermediary to recover its associated input VAT.
- Insolvency: from April 2020, HMRC will regain 'preferred creditor' status in respect of VAT, PAYE income tax, employee NICs and construction industry scheme (CIS) deductions (i.e. taxes the insolvent business collected on behalf of other taxpayers).
- 'IR35' rules for private sector employers: from April 2020, private sector employers will be subject to the same 'IR35' rules as public sector employers are currently subject to. The IR35 rules apply (potentially) to payments made to contractors supplying services through personal services companies. Accordingly, from April 2020 it will be the responsibility of the private sector employer (and not the personal services company) to assess whether payments to the company should be subject to tax/NICs (and to account for the same to HMRC). Only large- and medium-sized employers will be affected by this change.
- Termination payments and NICs: the introduction of employer NICs on termination payments over £30k has been pushed back another year (to April 2020).
- SDLT: possible SDLT surcharge of 1% for non-residents purchasing residential property in England and Northern Ireland (to be consulted on in January 2019).
- Gains realised by non-residents on UK property sales: from April 2019 non-residents selling UK property will be subject to UK tax. It has now been confirmed that collective investment schemes (CISs) and alternative investment funds (AIFs) will be treated as companies for the purposes of these new rules (unless partnerships). If the CIS or AIF is "property rich" (ie at least 75% of gross assets derived from UK land) then a non-resident disposing of an interest in the CIS or AIF will be subject to the new "indirect disposal" tax charge from April 2019.