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Welcome to the August 2019 Newsletter from Certax Accounting

July 25, 2019

The government recently published draft legislation for Finance Bill 2019-20, outlining amendments to its Digital Services Tax (DST) plans, alongside further details on the extension of off-payroll working rules to the private sector.

Meanwhile, in a new report, the Office of Tax Simplification (OTS) has put forward a range of recommendations designed to help simplify the UK's inheritance tax (IHT) system, including reducing the current seven-year gifting rule to five years.

 

Government publishes Finance Bill 2019-20 draft legislation

The government has published draft legislation for Finance Bill 2019-20.

One of the primary objectives included in the draft legislation is to 'update tax policies for the digital age'. The legislation outlines that, from April 2020, large digital firms will be required to pay a new Digital Services Tax (DST). The DST will apply a 2% tax to the revenues of certain digital businesses.

Commenting on plans for the new DST, Jesse Norman, Financial Secretary to the Treasury, said: 'The UK has always sought to lead in finding an international solution to taxing the digital economy. This targeted and proportionate DST is designed to keep our tax system in this area both fair and competitive, pending a longer-term international settlement.'

Additionally, the draft legislation also provides further details on the extension of off-payroll working rules to the private sector. The extension will take effect from April 2020, and will 'ensure that two people working side-by-side in a similar role for the same employer pay the same employment taxes'.

Provisions to combat tax abuse using company insolvencies are also included in the draft legislation. According to the government, the measure aims to 'tackle the small minority of taxpayers who artificially and unfairly seek to reduce their tax bill through the misuse of the insolvency of companies'.

Regarding corporation tax, the draft legislation outlines that, for accounting periods ending on or after 1 April 2020, businesses making chargeable gains will only be permitted to offset up to 50% of those gains using carried-forward capital losses. The government stated that this will 'ensure that large firms pay tax for each accounting period in which they realise substantial capital gains'.

Consultations on the draft legislation are set to close on 5 September 2019.

 

 
OTS outlines alterations to IHT system

In a new report, the Office of Tax Simplification (OTS) has outlined a series of recommendations designed to 'simplify the UK's inheritance tax (IHT) system'.

Following a consultation on the matter, the OTS revealed many areas where IHT is 'either poorly understood, counter-intuitive, requires substantial record-keeping, creates distortions, or where the application of the law is simply unclear'.

In the report, the OTS urged the government to reduce the current seven-year gifting rule to five years. It also suggested abolishing the taper relief system and replacing the many forms of lifetime gifts with a 'personal gift allowance'. In addition, the OTS recommended reducing the complexity in the interaction between IHT and capital gains tax (CGT).

Commenting on the report, Bill Dodwell, Tax Director at the OTS, said: 'The taxation of lifetime gifts is widely misunderstood and administratively burdensome.

'We recommend replacing the multiplicity of lifetime gift exemptions with a single personal gift allowance, to be set at a sensible level, and incorporating an increased lower threshold for small gifts.

'Where there is IHT to pay on lifetime gifts, the OTS recommends the government explores options for simplifying and clarifying the rules on who is liable to pay this tax, and how the £325,000 threshold is allocated between different recipients.'

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