Corporate tax is changing all the time, with different aspects of the rates charged and how submissions are processed being amended every year. Here is a quick list of the recent 2020 changes to corporate tax submissions.
1. Digital Services Tax
The proposed Digital Services Tax is to go ahead. The tax is 2% on any revenues that have been collected for services rendered for search engines, online marketplaces or social media platforms.
This applies to businesses that generate more than £500 million in revenue and who derive at least £25 million within the UK.
Companies that provide radio, television, online content, financial or payment services will be exempt from the Digital Services Tax.
There will be an annual filing for the Digital Services Tax and the payments will be quarterly. Groups will be able to nominate an entity to complete these responsibilities, or the ultimate group parent can be responsible for completing the tax return.
Examples of the activities that will be covered by this tax include:
- Revenues from adverts displayed to users within the UK
- Payments users make for subscriptions
- Commissions when a UK user makes a purchase/interacts with advertising
The 2% will be a tax-deductible expense when it comes to UK corporation tax. It came into force in April 2020.
2. Research & Development Tax Relief
Businesses who undertake research and development can claim tax relief or reduce their tax bill through the research and development tax relief system. If corporations have made tax losses, cash from the HMRC can be surrendered. Every small and medium company is now allowed to claim an additional £33.35 of relief for every £100 of Research and Development expenditure.
From April 2020, the repayable cash credit that can be claimed from the HMRC in any one year will be restricted. Limits placed on the claim amounts will be no more than three times the company’s PAYE/NIC bill for the accounting year.
Tax losses are restricted. Companies will not be allowed to carry forward repayable credit for future profits. You can read more about this here.
3. Changes to Capital Gains Tax
There have been some changes to Capital Gains Tax for non-residents and residential properties. Corporate organisations will not be subject to any income tax from revenues generated on UK properties. Instead, from April 2020, all non-resident companies are subject to a 19% corporation tax on revenues, income and capital gains that are derived from properties within the UK borders.
During the changeover year, there will be different tax rules. Therefore, all deadlines for payments, tax returns and filing deadlines up to the tax period of 5 April 2020 will have to be observed.
From 6 April 2020, all corporate deadlines for tax and payments will have to be followed carefully. There may be amounts that will need to be apportioned between the income and corporate tax periods.
As soon as corporations are processed under corporate tax laws, all UK corporation laws will require consideration.
In addition, there is an extension to the NRCGT rules. There will be a UK Capital Gains Tax that is applicable to the sale of residential properties within the UK. All sales of residential properties will need to be recorded with the HMRC within 30 days of the sale completion. Payment for the tax will also need to be made within this time period. This applies to any person or corporate entity that is selling a residential property within the UK from 6 April 2020.
4. Making Tax Digital
All corporate entities that have a turnover in excess of the VAT threshold (£85,000) will be required to keep all VAT records digital. In addition, all VAT data will need to be submitted through software that is HMRC-compatible.
This will present a significant change to the VAT processes for numerous businesses, especially if they have previously relied on spreadsheets to comply with VAT obligations in the past. There are numerous software options available that can help with this.
5. Reduced VAT rate
The UK Government announced in July 2020 that VAT-registered businesses working within the hospitality, hotel/holiday accommodation or attraction sectors need to apply a temporary lower VAT rate of 5%. These changes were brought in to stimulate the economy during the Covid-19 pandemic and will apply until 12 January 2021.
As this period is in the middle of a tax year, good record keeping will need to be maintained to ensure accurate corporate tax and VAT returns.
Keeping track of future corporate tax changes
If you’re a corporate business, or an accountant looking after numerous clients’ accounts, then you know that keeping track of all the changes that might be applicable to you can be challenging and time-consuming. But good record keeping and corporation tax software can allow you to manage your corporation tax with ease.
Not only will you make the right tax submissions, but you will get accurate reports on what is owed to the HMRC and when it will need to be paid. This can help improve profits and make investors happy. You can also ensure you are maximising your investments by claiming the right amount of tax-deductible expenses.
About the Author
Tim Pearce manages the Sales team at BTCSoftware UK and is focused on helping new customers achieve a measurable ROI for all their tax deployments. BTCSoftware is a provider of feature-rich affordable accounting and tax software designed to simplify the lives of accountants, businesses and individuals.