Spring Statement 2019: Corporate and Business Tax
Businesses face much uncertainty with Brexit looming, so the Chancellor’s main announcements were simply a development of those previously made. Aside from the tax measures, the Chancellor announced that audit committees of listed companies must now report on payment practices as a measure to tackle the problem of late payments to SME clients. This will bring into sharper focus those companies that put the squeeze on their suppliers by paying them late.
Preventing abuse of the R&D tax relief for SMEs
A consultation on the measure was announced at Budget 2018, as part of the package on tax avoidance. This consultation will focus on how the measure will be applied, to minimise any impact on genuine businesses.
From April 2020, the amount of payable credit that a qualifying loss-making business can receive through R&D relief in any one year will be capped at three times the company’s total PAYE and NICs liability for that year.
This measure was intended to tackle fraudulent R&D claims by sham companies but could feasibly apply to genuine companies with very few employees. The consultation is welcome to ensure that genuine companies who rely on R&D tax credits as a funding lifeline are not unfairly penalised.
Structures and Buildings Allowance
The draft legislation to introduce a new permanent allowance for investments in non-residential structures and buildings to create a more competitive tax regime for businesses has been released.
The publication of draft legislation is a good indication that the government is pushing forward its earlier popular announcement.
The new Structure and Buildings Allowance is expected to give a 2% per annum tax deduction based on the original cost of construction or renovation regardless of ownership changes. Relief will not be available for structures or buildings where a contract for the physical construction works is entered into before 29 October 2018.
This is a welcome relief, similar to the Industrial Buildings Allowance which was abolished in 2011. Businesses will finally be able to receive tax relief where they are constructing new buildings or purchasing those same buildings within the first 50 years of their construction.
Corporate Capital Loss Restriction
A consultation will commence on a change announced at Autumn Budget 2018 to restrict, from 1 April 2020, the amount of carried-forward capital losses a company can offset to no more than 50% of the chargeable gains arising in a later accounting period.
It is still expected that the previously announced threshold of £5m will apply, so this capital loss restriction should only apply to companies with large losses. However, we await detail.
Digital Services Tax
A consultation on the detailed design and implementation of the Digital Services Tax that will take effect from 1 April 2020.
The UK continues to push ahead with its own flavour of a Digital Services Tax without waiting for other countries to adopt the same. So, although this implementation will go towards ensuring that the very large digital businesses pay the right amount of tax, it may in the short term make the UK appear unattractive when compared with its international neighbours.