Budget offers tax stability for affected corporations, in wake of other UK economic challenges
KPMG UK reports that the lack of any major sweeping tax reforms or significant new tax regimes within the United Kingdom's 2020 budget may offer a welcome sense of stability from a tax perspective to multinationals with operations in the UK. The budget was delivered on March 11, 2020. It confirms that the corporate tax rate will stay at 19%, and that the UK will not be moving forward with a previously proposed reduction to 17%, consistent with the government's pre-election plan.
KPMG UK also notes that, while the UK budget announces targeted measures supporting smaller businesses in the wake of COVID-19—including those to help small businesses meet the costs of an expanded statutory sick pay regime—similar direct support was not extended to large businesses.
Some of the UK's 2020 budget highlights that could be of interest to multinationals who operate in the UK are outlined below.
Notification of uncertain legal interpretations
The budget proposes a new measure that would require large businesses (i.e., with turnover above £200 million per year, or a balance sheet total of more than £2 billion) to notify the UK's tax authority if they are relying on an uncertain legal interpretation that is likely to be challenged by that tax authority. This measure will be in force as of April 1, 2021. The UK says it will initiate a consultation process regarding this change. Few details are available so far, except that the policy will draw on international accounting standards.
Digital services tax
The UK's 2% digital services tax is still on track to be effective as of April 1, 2020. The tax will be levied on gross revenues connected with digital services activities, such as the provision of a social media platform, search engine or an online marketplace to UK users. The tax applies to groups who:
The UK reaffirms its commitment to repeal the tax if a global solution on taxation of the digital economy is reached.
Anti-hybrid regime update
The budget includes a welcome update stating that the UK's far-reaching and complex anti-hybrid regime will be up for consultation, to address potential regime glitches.
Increase to R&D credit
The budget increases the UK's Research and Development Expenditure Credit to 13% (from 12%). It also announces that the UK will initiate a consultation on whether expenses related to data and cloud computing may qualify for R&D tax credits.
Increase in structures and buildings allowance
The budget increases the structures and buildings allowance rate to 3% (from 2%).
New Stamp Duty Land Tax surcharge for non-residents
The UK is proposing a 2% stamp duty land tax surcharge (SDLT), which would affect non-UK residents purchasing UK residential property, effective April 1, 2021. The introduction of the proposed surcharge follows a consultation announced in the 2018 budget and held in 2019. The SDLT surcharge will apply in addition to ordinary SDLT rates that would otherwise apply.
Intellectual property update
The UK budget announces the tax treatment of intellectual property under the intangible fixed asset regime will be amended. This measure may encourage on-shoring of intellectual property by allowing tax relief to be claimed for pre-April 2002 intellectual property acquired from overseas group companies from July 2020.
For more information, contact your KPMG advisor.
Information is current to March 17, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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