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Finance Bill 2020: Proposed tax changes

15th Jul 2019
Tax Writer Taxwriter Ltd
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Draft legislation and policy documents have just been published for 21 new tax measures. Rebecca Cave has read through the lot to uncover the important bits and highlight any nasty surprises.

Consultation period

These measures will form the backbone of the Finance Bill 2019-20 which will become FA 2020, assuming it is passed in March 2020. Most of the new tax law is due to take effect from 1 or 6 April 2020 but the details and commencement dates could be changed following this consultation, which closes on 5 September 2019.

In addition, the new Chancellor of the Exchequer appointed by the new Prime Minister may well have fresh ideas on whether these proposals should be implemented as drafted. There is also a significant risk of a general election being called before Spring 2020, so goodness knows who will be in charge then and what their views will be on these proposed changes.

I have sorted the proposals into categories: important, interesting and surprising. There are other proposals I haven’t expanded on here: the tweaking of EIS rules, the measurement of CO2 for car benefit and VED purposes, IHT on excluded property added to trusts, and corporation tax relief for transitional leasing adjustments.

Important

Off-payroll working

This is the reform of the IR35 rules for the private sector, which will largely mirror the changes introduced for public sector contracts in April 2017. It is clear that the helpful suggestions made during the consultation on these rules have not been taken on board, apart from small tinkering around the edges.

Rebecca Seeley Harris has examined the detail of these new proposals.  

Residential property

Many people believe they have an automatic right to receive a tax-free gain when they sell their home, but that CGT exemption only exists because it is provided by main residence relief. This applies for periods in which the owner is in occupation or is deemed to be in occupation. I outlined the proposed changes to CGT for homeowners as they were announced in Budget 2018.

The draft law confirms the following changes will apply from 6 April 2020:

  • cut in the final period of deemed occupation from 18 months to 9 months
  • removal of lettings relief for periods when the owner is not also in occupation
  • exemption history not transferred with property ownership to spouse
  • deemed occupation at start of ownership to be limited to 24 months (currently concession D49)
  • late claims for nomination of main residence clarified (currently concession D21)      

Lettings relief is very valuable as it can be worth up to £40,000 per owner per property. It is often claimed by landlords who let out their former home instead of selling when they move up the property ladder.

From 6 April 2020, very few sellers will qualify for lettings relief and any accrued lettings relief will be lost, as no apportionment can be made between gains attributable to pre and post 6 April 2020 disposals.

The cut in the final period of deemed occupation is likely to hit owners who leave the home for unplanned reasons before sale, such as a lengthy hospital stay. If the owner or spouse moves into a residential care-home or is disabled, the final deemed period of occupation remains at 36 months.

Anti-avoidance rules

No Finance Bill is complete without some anti-avoidance legislation. This year the general anti-abuse rule (GAAR), which was supposed stem the tide of anti-avoidance legislation (it didn’t), is itself amended to allow HMRC longer to collect evidence in order to make a GAAR adjustment.   

A new anti-avoidance rule is proposed to tackle the misuse of company insolvencies to avoid payment of tax. The directors and other people connected to a company may be made jointly and severally liable for tax debts owed by the company when it is subject to an insolvency procedure. However, all of the following conditions must also apply:

  • the company has engaged in tax avoidance or evasion
  • the person was responsible for the company’s conduct, enabled or facilitated it, or benefited from it
  • there is likely to be a tax liability arising from the tax avoidance or evasion
  • there is a serious possibility some or all of that tax liability will not be paid

There are also provisions to discourage the phoenixism of companies to avoid tax debts.

These measures will take effect for tax periods ending on or after the date the Finance Bill 2019/20 is passed, and for penalties determined and issued after that date.

Interesting

Corporate capital losses

Where capital losses are carried forward by a company and set against gains that arise on or after 1 April 2020, only 50% of those gains will be available to set against losses. This will only apply where the £5m loss deductions allowance has already been used. Various sectors are excluded such as oil and gas, real estate investment trusts (REITS) and insurance.

Blood bikes

Vehicle excise duty (VED) or road tax is paid on most road vehicles except for cars classified as vintage and emergency vehicles such as police cars and ambulances. From April 2020 blood bikes and other vehicles used by medical courier charities to transport medical products will be exempt from VED if they are registered to a charity.

Stamp duties

Stamp duty and stamp duty reserve tax can cause problems when reorganising the shares within a group of companies.

The professional bodies have been asking for stamp duty reliefs when demerging unlisted companies and for capital reduction arrangements. It appears that solutions to these issues have been found which will take effect for transfers made from Royal Assent of the Finance Bill.

There will be no 1% SDLT surcharge imposed for non-residents on the purchase of UK property, as was suggested in Budget 2018.   

Digital services tax (DST)

This is a proposal for a completely new tax of 2% on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users. It would only apply where the annual revenues of the group exceeded £500m and more than £25m of that was in the UK.

Only revenues earned from 1 April 2020 would be taxed and HM Treasury would have to review the operation of DST by 31 December 2025. The DST does not seek to tax digital sales more generally. 

The DST is a departure from most corporate taxes as it applies to revenues not profits.

Surprising

Worldwide investment

The CGT and income tax reliefs given under the existing “loans to traders” (TCGA 1992, s 253) and “share loss relief” (ITA 2007, s 131) rules currently limit those reliefs to investments made in companies or businesses located in the UK. This restriction to UK-only businesses was judged to breach the EU rules for free movement of capital in a ruling given on 24 January 2019.

The Finance Bill 2019/20 proposals extend the scope of those reliefs where an individual has invested in a business located anywhere in the world and will have effect for loans made to traders or shares subscribed for in unlisted companies from 24 January 2019.

Compensation exemptions

The governments of Germany and the UK have recently provided compensation payments to groups of people who have been wronged by government or national action. These amounts of compensation will be exempt from the following taxes:

Replies (6)

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By Paul Soper
15th Jul 2019 10:10

Surely there is now a link between the proposed extension of IR35 and the measure concerning shareholder joint and several liability for tax debts. Since IR35 was introduced the use of a company as an intermediary was advisable because if the worst happened and HMRC successfully challenged employment status the potential liability died with the company. Now, as the revenue will, almost certainly, regard successful challenges to employment status to evidence avoidance activity the potential liability will no longer die with the company. This seems to represent a danger not only for the contractor who may now become personally liable (just as though this was a managed service company) but for any adviser involved who will, almost certainly, be regarded by the client as being at fault. At best you lose the client, at worst you are sued for negligence...

Thanks (3)
Replying to Paulsoper:
By cfield
15th Jul 2019 11:16

Don't these new rules apply only to existing tax debts when the company is liquidated as opposed to potential ones? Otherwise, directors of any company of any size could be affected years after it has been liquidated for any reason.

If no IR35 investigation is under way when the company is liquidated and the director had good reason to believe IR35 did not apply (as is often the case), would that not be exempt?

It seems to me the people most at risk here are those who take all the money out of their company as dividends or other taxable income, but have good reason to believe they are outside IR35, such as a contract review, so there is no cavalier behaviour.

At present, you can't be made to personally pay your company's IR35 bills if it has insufficient assets to do so itself unless you have been negligent. Even then, it is very unlikely they would do so as it would be so hard to prove. I haven't heard of any cases where they've gone down this route.

Sounds to me like all that's going to change, but surely they would still have to prove there was negligence, in the sense that the engagement was caught by IR35 hook line and sinker; e.g. a classic Friday to Monday case.

Ditto advisors. They could always say they relied on the director's assurances as to the control they had over the work, etc. At the end of the day the decision is theirs, not the accountant. We can only advise them based on what they tell us. So long as you don't give them false hope of avoiding IR35 when they've been totally frank about the limits to their freedom of action under the contract, it seems to me you're in the clear.

Thanks (1)
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By Paul Soper
15th Jul 2019 11:42

Wish I had your confidence - the most likely circumstance runs like this... Individual sets up company to work through, believes outside IR35; several years later HMRC challenge, after several years case reviewed, couple of years later eventually reaches Tribunal who find for HMRC. At this point the company is now insolvent and the individual decides to abandon the company. HMRC use new provisions to chase the individual who sues his adviser - you... of course he might not win but your professional indemnity insurer decides that the case isn't worth fighting and settles... leaving you...?

Thanks (1)
7om
By Tom 7000
15th Jul 2019 15:28

You are more or less saying that Ltd liability no longer applies to crown debts...

That will be a concern to many people, I would have thought?

Thanks (0)
Chris M
By mr. mischief
15th Jul 2019 16:05

I think we're getting a bit carried away here. For one thing, we are up against a bunch of clueless plonkers who consistently lose when it matters most a.k.a. the HMRC IR35 unit.

As long as you've documented the evidence you have that client X is outside of IR35 - which I do, and every year I raise any weakness issues with each client - then there is not much to worry about.

I mean, if you imagine you are Novak Djokovic and you're drawn against the number 200 player in the world and think you will lose, then worry. Because that's what I feel like these days in tax enquiries against HMRC. i.e like I am Novak up against a raw 17 year old kid who's just left the juniors.

Thanks (1)
Replying to mr. mischief:
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By Paul Soper
15th Jul 2019 18:22

Part of the problem is that those useless plonkers have discovered a wheeze so that they no longer have to battle. It will now be large companies and medium sized companies who, just like the public sector since 2017, who will have the responsibility and contractors could find themselves pitted against their engagers. I hope we're not getting carried away but the new powers HMRC have taken to transfer liabilities to others, both in last year's Finance Act and now the draft bill means that you MUST keep the evidence as you've suggested and become more proactive in looking after client's affairs. Of course if people don't...

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