This guide is available to subscribers.
An update of recent and upcoming changes to company tax.
What's new?
Corporation Tax rates
The planned reduction in Corporation Tax rates from 19% to 17% on 1 April 2020 was reversed by the government. The rate remains at 19% until further notice.
Accounting for companies
Companies House
The normal Companies House filing deadline for private limited company accounts is nine months from the year-end date.
Due to the Coronavirus pandemic, a three-month filing extension was announced in respect of accounts from 25 March 2020. This now applies automatically until April 2021.
- A late filing extension also applies to certain other statutory filings, the amount of time given is dictated by the type of filing.
See COVID-19: Companies House filings
Changes to lease accounting
A new lease accounting standard (IFRS16) became mandatory for users of International Financial Reporting Standards (IFRS) for periods beginning on or after 1 January 2019 which removes the distinction between finance and operating leases.
- The new rules require the lessee to spread any transitional adjustment recognised upon adoption of IFRS 16 over the average remaining length of leases which have given rise to the adjustment.
- No similar changes are planned for UK Generally Accepted Accounting Practice (GAAP) (other than for users of FRS 101) at present.
An amendment is included in Finance Act 2020 which is treated as always having had an effect:
- To Finance Act 2019 to clarify that the spreading rules apply to all lessees adopting International Financial Reporting Standards (IFRS) 16 for any period of account.
See Leases: Plant and machinery and Changes to lease accounting
Company Losses
Company losses can generally be offset against profits of the same trade or claimed against other profits or group relieved.
- The Corporation Tax loss regime was reformed on 1 April 2017 providing more flexibility for the use of carried-forward trading losses.
- Corporate capital losses can only be used against capital gains.
Corporate capital losses
From April 2020:
- Finance Act 2020 introduces new measures to restrict the proportion of corporate annual capital gains that can be relieved by brought-forward capital losses to 50%. This only applies where there are profits and gains totalling more than £5 million per company or group.
See Losses: Trading and other losses
Case round-up
- In LINPAC Group Holdings Ltd v HMRC [2020] TC7556, the First Tier Tribunal (FTT) found that EU group relief claims did not replace earlier domestic claims to relief. The UK claims remained valid.
- In Spring Capital Ltd v HMRC [2019] TC7471, the First Tier Tribunal (FTT) dismissed a claim for the carry forward of Corporation Tax losses on the transfer of a trade; liabilities not transferred exceeded the corresponding level of assets.
Non-resident companies
Prior to 2019 non-resident companies owning UK rental property were under the Income Tax regime and the non-resident landlords' scheme in respect of their rental profits and the Capital Gains Tax (CGT) regime when their properties were sold.
From 1 April 2019
- Disposals are subject to Corporation Tax rather than CGT.
- This applies to all UK property or land gains for all non-resident companies.
From April 2020
Finance Act 2019 provides that:
- The UK property income of non-UK resident companies currently under the Non-resident landlord's scheme will fall within the Corporation Tax regime.
See Non-resident CGT: UK residential property
Corporation Tax (CT) payments
- A ‘large company’ must pay Corporation Tax by quarterly instalments.
- For accounting periods starting on or after 1 April 2019, 'larger' companies and groups have earlier payment dates. A larger company or group is one with profits of £20 million or more.
- All other companies must pay their Corporation Tax within nine months of the end of their accounting period.
- Tax payments may be due before final accounts figures are known meaning that CT may be under or overpaid.
Claims for early repayment of CT
- In June 2020 HMRC updated its Corporation Tax guidance covering situations where a company seeks repayment of tax before a return has been filed, as may be the case where a business knows that it has suffered large losses due to the Coronavirus.
See COVID-19: Early Corporation Tax repayment
Quarterly instalment payments of Corporation Tax for larger companies
From 11 March 2020
- Companies that have short accounting periods and are only chargeable to Corporation Tax and 'larger' for the purposes of the quarterly payment regime because of a capital gain realised in the period, will not be treated as 'larger' and will instead be 'large'.
- This is to formalise the concessionary treatment applied by HMRC since April 2019.
See Corporation Tax instalment payments
Digital Services Tax (DST)
The DST is a new tax on the UK revenues of large digital businesses which derive significant value from user participation. It is intended to be temporary pending a global solution and will be subject to a formal review in 2025.
From April 2020 under Finance Act 2020:
- A 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users.
- This applies only to large multi-national enterprises with revenue derived from the provision of a social media service, a search engine or an online marketplace for UK users.
- It only affects groups generating global revenues from activities of over £500m a year and subject to a £25m per annum allowance.
See Digital Services Tax.
Personal Service Companies (PSC) & IR35
HMRC define a service company as a company that generates the majority of its income from supplying services rather than goods to clients.
- A Personal Service Company (PSC) derives its income from the activities of one individual. It is also a close company for tax purposes.
- When IR35 applies to an engagement the PSC applies Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) to the fees received for the supply of its worker. The resulting net pay is then treated as employment income of the worker.
- Since April 2017 all PSCs working for the public sector have been subject to the Off-Payroll Working regime.
From 6 April 2021, delayed from 6 April 2020
- The Off-Payroll Working rules will extend to the private sector.
- The change will only apply to engagements by medium or large-end clients. PSCs working for small engagers will be unaffected and will continue to self-assess under the existing IR35 rules.
Case round-up
- In HMRC v Kickabout Productions [2020] UKUT 0216, the Upper Tribunal (UT) allowed HMRC’s IR35 appeal finding that a radio presenter was an employee. TalkSPORT was obliged to provide work and this outweighed all other factors of employment status.
- In HMRC v Professional Game Match Officials Limited [2020] UKUT 0147 (TCC), the Upper Tribunal found that certain football match referees were self-employed and dismissed HMRC’s arguments on mutuality of obligation.
- In Red, White and Green Limited v HMRC [2020] TC7603, the First Tier Tribunal (FTT) held that income received by Eamonn Holmes’ Personal Service Company was within IR35. If he had provided services directly to ITV it would have been a contract of employment.
- In Fastklean Limited v HMRC [2020] TC2004, an employer who filed Employment Intermediaries Returns to please HMRC was successful in claiming reasonable excuse for late filing. Tax counsel had advised that no returns were due.
- In Angela Salazar v HMRC [2019] TC7398, the First Tier Tribunal (FTT) allowed an appeal against employment intermediary return late filing penalties. They were raised against the wrong person and the taxpayer had a reasonable excuse.
R&D and intangibles
Intangibles
Since July 2015 there has been no Corporation Tax relief available for amortisation on Goodwill or other customer-related intangibles, regardless of whether they were acquired from a related party or a third party.
- Corporation Tax relief has never previously been available for goodwill acquired from a related party that already held it on 1 April 2002.
For assets acquired on or after 1 July 2020:
- Finance Act 2020 includes measures to allow the tax treatment of intellectual property under the intangible fixed asset regime to be adjusted so that all pre-Finance Act 2002 intangible assets acquired from related parties will come within the intangible fixed asset regime, subject to certain transitional provisions in respect of related party acquisition costs.
See Goodwill and the intangibles regime
Research and Development (R&D) relief
R&D Relief is a Corporation Tax relief. There are two schemes for claiming relief, depending on the size of the company or organisation:
- The Small or Medium-sized Enterprise (SME) Scheme.
- The Repayable Credit Large Company Scheme or R&D Expenditure Credit 'RDEC'.
R&D relief is given in two different ways, by enhanced deduction or by payable credit.
R&D for SME's
From April 2021 (as delayed from April 2020) it is proposed that:
- The amount of payable credit that a qualifying loss-making business can receive through R&D relief in any one year will be capped.
- The cap will be three times the company’s total PAYE and NICs liability for that year.
- Claims below £20,000 will not be subject to the cap.
- Relevant related party PAYE and NICs can be taken into account when calculating the cap.
See R&D: SME tax credit scheme.
Research and Development Expenditure Credit (RDEC)
From 1 April 2020
- The RDEC credit increases from 12% to 13%.
See R&D RDEC.
Recent Consultations on R&D
- HMRC published Preventing abuse of the R&D tax relief for SMEs: Second consultation in March 2020. This looks at the role of Externally Provided workers and the management of IP. The closing date for this consultation is extended to 28 August 2020.
Capital allowances
- The Annual Investment Allowance (AIA) is a capital allowance that provides a taxpayer 100% tax relief on the cost of capital equipment purchased for use in a business or employment.
- A Structures and Buildings Allowance (SBA) was introduced for qualifying expenditure on the construction of structures and buildings brought into use for qualifying activities and incurred on or after 29 October 2018. It was originally at 2% on a straight-line basis.
Annual Investment Allowance (AIA)
The Annual Investment Allowance increased to £1 million for two years from 1 January 2019 to 1 January 2021 and the increase has not, to date, been extended.
- Transitional rules apply when it reverts to £200,000 at the end of this year.
Structures and Building Allowance (SBA)
From April 2020
- The Structures and Building Allowance rate is increased to 3%.
- Full relief for qualifying spend will be available over 33⅓ years rather than 50.
- Applies to all qualifying spend incurred on non-residential buildings on or after 29 October 2018 where the structure or building has been brought into use and not just to new spend from April 2020.
From 11 March 2020
- There are provisions to deny double relief where Research & Development allowances are available.
Retrospectively, from 29 October 2018:
- There can be reliance on verbal construction contracts as well as those in writing.
- Relief will be available for the first day of qualifying use.
- Simplified calculations can be used for all qualifying non-residential structures or buildings.
See Structures & Buildings Allowance
Company vehicles
Where an employer provides an employee or a director with a company car, the employer is providing a taxable employment-related benefit.
- The taxable amount of the benefit depends on the vehicle’s power supply, its cost and CO2 emissions.
- A taxable benefit in the form of a Van Benefit Charge (VBC) arises when an employee is provided with a company van and it is used for personal journeys. This is at a flat rate regardless of the list price of the vehicle.
Company cars
From 6 April 2020:
- The measure for CO2 emissions is changed for cars registered from 6 April 2020 from the New European Driving Cycle (NEDC) system to the Worldwide Harmonised Light Vehicle Test Procedure system (WLTP) system.
- The multiplier for the car fuel benefit charge increases from £24,100 to £24,500.
See Company Cars.
Company vans
- The flat-rate van benefit charge is increased from £3,430 to £3,490.
- The flat-rate van fuel benefit charge increases from £655 to £666.
- Between 6 April 2015 to 5 April 2022, there is a phased reduction in the exemption from the Vans Benefit Charge (VBC) applies for zero-emission vans.
Proposed from 6 April 2021:
- The government proposes to reduce the Van Benefit Charge (VBC) to nil for zero-emission company vans which are provided to employees and available for their private use.
- This measure was tabled for inclusion in Finance Act 2020 but has been moved to Finance Bill 2021.
See Company Van Benefit Charges.
Case round-up
- In Payne & Ors v HMRC [2020] EWCA Civ 889, the Court of Appeal found that the VW Kombis and Vauxhall Vivaro were cars and not vans for the purpose of assessing employee car benefits.
Capital allowances: Zero-emissions vehicles
- Finance Act 2020 failed to include any of the capital allowance policy changes on zero-emissions vehicles that had been proposed back in March and which were meant to be effective from April 2021. Nothing has yet been published in the first draft 2020-21 Finance Bill proposals. It is assumed that the government will make changes in a future bill, or maybe not.
- See Capital allowances: Four wheels
Stamp Duty
Stamp duty is payable on the transfer of shares by the purchaser unless exemptions or reliefs apply.
Transfers to a connected company
From 22 July 2020 under Finance Act 2020:
- A new market value rule will apply to transfers of unlisted securities between connected companies where contrived arrangements are used to minimise tax in circumstances where Stamp Duty relief is not available. It will also prevent two charges arising on most capital reduction partition demergers.
See Budget 2018: Stamp Duty connected companies.
Making Tax Digital (MTD)
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax Digital rules for their first return starting on or after April 2022.
- Self-employed businesses and landlords with business turnover above £10,000 will need to follow the rules for MTD for Income Tax from their (current or next account period) following April 2023.
- Businesses, self-employed people and landlords may voluntarily use the MTD Income Tax pilot.
See Making Tax Digital (index)
MTD for VAT
- The requirement to add digital links to your functional compatible software has been postponed by a year due to the COVID-19 crisis.
See MTD for VAT
VAT
Option to tax deadline extended
The supply (i.e. sale or letting) of commercial property is generally exempt from VAT unless its owner has made an Option to tax the property. Once opted to tax, any income deriving from the sale or letting of that property becomes standard-rated for VAT.
- HMRC has announced that they are extending the deadline for notifying them about an option to tax land and buildings from 30 days to 90 days due to the Coronavirus pandemic. The extension applies to decisions made between 15 February and 31 October 2020 (previously 30 June 2020).
See COVID-19: Option to tax deadline extended
Construction Industry Scheme (CIS) VAT reverse charge
From 1 March 2021 (delayed in September 2019 to October 2020 due to Brexit then, in June 2020 due to COVID-19).
- As announced at Autumn Budget 2017, a VAT domestic reverse charge is being introduced to prevent VAT losses through so-called ‘Missing Trader’ fraud.
- When the reverse charge applies the customer accounts for the supplier's output VAT.
- It only applies to construction supplies made business to business.
See Construction Industry Scheme VAT reverse charge: At a glance
Zero-rating of e-publications
Books, newspapers and periodicals are zero-rated for VAT but electronically supplied publications have always been standard rated.
The government has accelerated changes to apply a permanent zero rate of VAT to supplies of certain electronic publications ('e-publications') from 1 May 2020. It was previously scheduled for 1 December 2020.
- Supplies of e-books, e-newspapers, e-magazines and academic e-journals will now be entitled to the same VAT treatment as supplies of their physical counterparts.
Tax abuse and insolvency
- One of the challenges HMRC faces relates to how debts are established under the tax framework.
- There is scope for a company to go into insolvency after a tax liability has arisen but before the debt is enforceable as there is a time difference between:
- When a tax return is filed and
- when an assessment or determination establishing liability is issued by HMRC following an enquiry into that return.
Following consultation, from December 2020 (previously this was April 2020):
- It is proposed to make HMRC a secondary preferential creditor where a company goes into insolvency with unpaid taxes collected from customers and employees such as VAT, PAYE, CIS deductions and Employee NICs.
- Legislation is included in Finance Act 2020 which also includes measures to prevent the abuse of corporate insolvencies by making directors and other connected persons jointly and severally liable for the avoidance, evasion or phoenixism tax debts of the corporate entity with effect from 22 July 2020.
Disguised remuneration and the loan charge
The loan charge applies to disguised remuneration loans outstanding on 5 April 2019 and charges them to Income Tax and employee NIC unless a settlement is reached with HMRC by 30 September 2020.
- The loans must be reported under Self Assessment and the tax paid, by 30 September 2020 or penalties will apply.
Following a review of the loan charge in late 2019, Finance Act 2020 provides for several changes to the charge:
- Loans taken out before 9 December 2010 are excluded.
- Loans taken before 5 April 2016 which were disclosed to HMRC and where they failed to take any action, are also excluded.
- Taxpayers can elect to spread their loan balances over three tax years, 2018/19, 2019/20 and 2020/21.
- Time to pay arrangements are available.
- Employed individuals with outstanding loan balances to report should speak to their employer to manage their payments of tax through the employer.
See Disguised remuneration loan charge (subscriber guide).
Tax avoidance case round up
- In Qubic Tax and others v HMRC [2020] TC7701, HMRC successfully made information requests on tax advisers selling and engaging in tax avoidance schemes in order to check on commission payments made to introducers and the validity of the tax schemes.
- In HMRC v NCL Investments Limited, Smith & Williamson Corporate Services Limited [2020] EWCA Civ 663, the Court of Appeal dismissed HMRC’s appeal finding that the costs of issuing share options through an Employee Benefit Trust (EBT) were deductible.
- In Chalcot Training Ltd v Ralph & HMRC [2020] EWHC 1054 (Ch), a test case, an attempt to reverse an ‘E Shares’ tax scheme failed. HMRC can now fully challenge the scheme through the tax tribunal.
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