The UK Chancellor of the Exchequer has presented the Spring Budget. Mr Sunak’s speech falls firmly within the context of introducing measures to boost the economy, as well as protect and support people and businesses who are affected by coronavirus.
While the Budget speech itself leaned heavily on the £30 billion stimulus package, it was rather light on the details regarding the proposed tax changes. These were hidden in the details that appeared on the UK Treasury website after the Chancellor sat down.
Below is a summary of the key announcements that may have an impact on offshore tax payers.
Review of the UK funds regime
The government will undertake a review of the UK’s funds regime during 2020. This will cover direct and indirect tax, as well as relevant areas of regulation, with a view to considering the case for policy changes. The review will begin with a consultation, published in the Budget, on whether there are targeted and merited tax changes that could help to make the UK a more attractive location for companies used by funds to hold assets. The review will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime.
This provision appears to suggest that the UK government might seek to reduce the comparative attractiveness/ benefits of utilising offshore intermediate holding companies in fund structures.
The Jersey fund industry will need to keep a watchful eye on the outcome of this consultation to consider whether it may have any adverse impact on the local industry.
Non-UK resident Stamp Duty Land Tax (SDLT) surcharge
The government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021. This will help to control house price inflation and to support UK residents to get onto and move up the housing ladder. The money raised from the surcharge will be used to help address rough sleeping to establish deliberate non-compliance.
Corporation tax (CT) rate
The government will legislate to retain the current 19% rate in April 2020.
The repeal of the proposed reduction in the corporation tax rate from 19% to 17% was generally anticipated by the business community and is therefore unlikely to come as a surprise to many taxpayers. This will be of note for non-resident landlord companies who are due to migrate from the income tax regime to corporation tax on 06 April 2020.
Capital Allowances: Structures and buildings allowance (SBA) rate
The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2% to 3%. The change will take effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax.
While this provision is likely to be generally welcomed, non-resident landlord’s in particular might hope to benefit from this change.
Corporate capital loss restriction
As announced at Budget 2018, from 1 April 2020, the government will restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. This measure includes an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year.
The potential impact of these provisions are likely to depend on whether provisions limiting the number of associated companies which can avail of the £5 million of unrestricted losses a year. This could impact on non-resident landlord’s upon disposal of any properties held on a portfolio basis.
Large business notification
From April 2021 large businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge. This policy will draw on international accounting standards which many large businesses already follow. The government will consult shortly on the detail of the notification process.
The potential ramifications arising from this provision are likely to turn significantly on the specific definitions included therein, particularly whether the definition of a ‘large business’ is drafted such that relatively small CI situate businesses with a UK presence, which are part of a large group will be caught.
We note from the accompanying policy costings document that “large” for these purposes represents turnover in excess of £200 million per year, or a balance sheet total of more than £2 billion.
Digital services tax (DST)
As widely anticipated, the government announced the introduction of a new 2% tax on the revenues certain digital businesses earn from 1 April 2020. This will seek to ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base. Legislation will require businesses to pay the DST on an annual basis, consistent with the draft legislation published in July 2019. The government will continue to give consideration to how the legislation applies to marketplace delivery fees and whether that application is consistent with the policy rationale of the DST. The government remains committed to developing a multilateral solution to the challenges digitalisation has created for the corporate tax system and will repeal the DST once an appropriate global solution is in place.
These measures specifically target “search engines, social media services and online marketplaces”. FinTech however appears to have been excluded from the scope where it is providing “online marketplaces” for “financial services providers”. It remains to be seen how Digital Jersey businesses could be affected by this.
Tackling promoters of tax avoidance
The government will legislate in Finance Bill 2020-21 to take further action against those who promote and market tax avoidance schemes.
On top of the legislative changes the government will introduce in Finance Bill 2020-21, HMRC will publish a new ambitious strategy for tackling the promoters of tax avoidance schemes. This will outline the range of policy, operational and communications interventions both underway and in development to drive those who promote tax avoidance schemes out of the market, disrupt the supply chain to stop the spread of marketed tax avoidance, and deter taxpayers from taking up the schemes.
Local businesses will need to keep a watching brief over developments in this area, especially as default penalties could be high.
The government has already announced that, for one year from 1 April 2020, the business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50% and will be expanded to include cinemas and music venues. To support small businesses in response to COVID-19 the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses for 2021.
This provision could result in some benefits for non-resident landlord companies however, given the quantum in question it is unlikely to give rise to any significant changes.
The government is launching a fundamental review of business rates to report in the autumn. The Terms of Reference for this review are published alongside this Budget and a call for evidence will be published in the spring.
For more information about the tax implications of the 2020 Spring Budget for your organisation, please contact one of our tax team opposite.