The UK Government has announced the publication of the draft Finance Bill 2019-20, which includes several different measures in relation to income tax, chargeable gains, corporation tax, and others. Some of the main measures affecting companies include the following:
Corporate capital loss restriction for Corporation Tax
For accounting periods ending on or after 1 April 2020 companies making chargeable gains will only be able to offset up to 50% of those gains using carried-forward capital losses.
A Corporate Income Loss Restriction (CILR) for carried forward income losses was introduced in 2017 which included an allowance that the first £5 million of profits could be offset with carried-forward losses before the 50% restriction is applied.
The deductions allowance may be set against capital gains. This will ensure that over 99% of companies are unaffected by the restriction.
Deferral of Corporation Tax payments on EU group asset transfers
This measure adds an option to existing legislation governing when Corporation Tax payments must be made in respect of profits or gains, that are charged to tax on certain transfers of assets to a member of the same group of companies, that is resident in another European Union (EU) or EEA state.
Where immediate payment of the tax would potentially infringe the right to freedom of establishment of any company, the measure provides that the UK taxpayer can apply to pay that tax over a period of up to 5 years.
The deferred payments are subject to interest at the same rate as late paid Corporation Tax.
Share loss relief for Income Tax and Corporation Tax
This measure widens the scope of the Income Tax and Corporation Tax share loss relief, so that it applies to shares in companies carrying on a business anywhere in the world and not just the UK. A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.
Introduction of the new Digital Services Tax
From April 2020, the government will introduce a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users.
The Digital Services Tax will apply to businesses that provide a social media platform, search engine or an online marketplace to UK users. These businesses will be liable to Digital Services Tax when the group’s worldwide revenues from these digital activities are more than £500m and more than £25m of these revenues are derived from UK users.
If the group’s revenues exceed these thresholds, its revenues derived from UK users will be taxed at a rate of 2%. There is an allowance of £25m, which means a group’s first £25m of revenues derived from UK users will not be subject to Digital Services Tax.
The provision of a social media platform, internet search engine or online marketplace by a group includes the carrying on of any associated online advertising business. An associated online advertising business is a business operated on an online platform that facilitates the placing of online advertising, and derives significant benefit from its connection with the social media platform, search engine or online marketplace. There is an exemption from the online marketplace definition for financial and payment services providers.
Click the following link for the supporting documents for the measures of the draft Finance Bill 2019-20.
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