The Chancellor’s key announcement was the introduction of a new Digital Service Tax, aimed at technology giants with a global revenue above £500m. A 2% tax will be payable on the revenue generated from the UK and is designed to make digital platform business pay a more appropriate amount of tax. There was also a boost for Annual Investment Allowances with the limit rising to £1 million for a limited time only, as well as changes to Entrepreneur’s Relief and Capital Allowances.
1) Digital Services Tax (DST) was one of the headlines from the Autumn Budget 2018 and will be introduced from April 2020. The DST is a new 2% tax on the revenues generated from UK users for certain digital businesses will be applied, pending an appropriate international solution.
The tax will apply to where ‘UK’ revenues are above £25m from activities relating to search engines, social media platforms and online marketplaces and their global revenue is above £500m. For example, if a business generates revenues from targeting adverts at UK users, the ad revenues will be subject to the 2% tax.
Loss-makers will be exempt and businesses with very low profit margins will be subject to a reduced effective rate.
2) The Annual Investment Allowance (AIA) amount for qualifying investment in plant and machinery will increase from the current limit of £200,000 up to £1,000,000 for a 2-year period. The increase will apply to investments made on or after 1 January 2019 until 31 December 2020.
Where a charging period straddles the 1 January 2019, an apportionment can be applied for the periods falling before and after 1 January 2019.
3) The Capital Allowances special rate will be reduced from 8% to 6% starting from 6 April 2019. In addition, a new 2% capital allowance on non-residential Structures and Buildings Allowance is available. This will apply where contracts for physical construction works are entered into from 29 October 2018.
Existing legislation on capital allowances will also be amended to clarify the treatment of alterations to land. Capital allowances will only be available where the alteration in land is made for the installation of plant and machinery.
There is also the end of the energy and water efficient first year allowance, whilst the first-year allowance for electric charge points will be extended to 2023.
4) The 50% restriction on trading losses brought forward will be extended to Corporate Capital Losses restriction. Starting from 1 April 2020, annual capital gains over the £5m allowance relieved by brought-forward capital losses will be limited to 50%.
5) Only employers with employer National Insurance Contributions (NICs) below £100,000 in their previous tax year will be eligible for NIC Employment Allowance from April 2020.
6) Entrepreneurs’ Relief (ER) has received a revamp to the qualifying conditions from disposals made from 29 October 2019. Along with individuals having to own 5% of the voting right, they will now also be beneficially entitled to 5% of both the distributable profits and the company’s assets in a winding up of the company.
The qualifying period has also been doubled from 12 months to 24 months prior to the disposal.
Draft legislation has also been published which will entitle individuals who cease to qualify due to no longer fulfilling the 5% requirements, to make a claim for ER up to the date they ceased qualifying. The election can only be made in cases where the individual’s interest has been diluted below the threshold due to new shares issued in the company consisting wholly of consideration in cash.
7) A restriction on Research & Development (R&D) tax credits will be applied from April 2020. The credits for a loss-making company will be restricted to three times the company’s total PAYE and NIC liability.
