The UK government has published draft legislation for the next Finance Bill, including, among proposals from Budget 2018, the new digital services tax. Consultations on the draft legislation will run until 5 September.

This Finance Bill, published in draft form, aims to ensure that from April next year:

  • large digital businesses pay a new Digital Services Tax that reflects the value derived from their UK users
  • off-payroll working rules will ensure that two people working side by side in a similar role for the same employer pay the same employment taxes
  • when a business becomes insolvent, more of the taxes paid in good faith by its employees and customers will go to fund public services as intended, rather than being distributed to other creditors such as financial institutions

Off-payroll rules

ACCA is already urging the government to delay introduction of IR35 changes until 2021, to allow a full appraisal of the proposed rules and consider the best way forward. ACCA tax and business law manager Jason Piper said, “IR35 rule changes will require the private sector to implement public sector rules in relation to the contract employment market. ACCA believes a sound UK tax system requires certainty, simplicity and stability. The IR35 proposals do not provide these qualities, and the change comes at the worst possible time for the UK.

“It provides uncertainty, as employers will effectively be unable to budget or plan for their future actions. The change will result in many large companies having to rewrite complex pay roll systems to incorporate the new legislation, and is likely to significantly impact the IT sector and extend further to the multinational companies engaging in their services.

“Workers potentially affected form the bedrock of sound financial, business management, technological and cyber security advice that enables the production of world leading goods and services that set the UK ahead.”

BDO tax partner Paul Falvey noted that: “The greatest burden will fall on larger businesses which will pick up responsibility for administering the system. With all the political changes ahead you have to wonder if this is the right time to put more burdens on businesses.

“It is helpful that the proposed exemption for small businesses seems fairly straightforward: they must test themselves against the Companies Act thresholds at the end of their accounting year – if the qualify as small then, they are outside the rules for the whole of the next tax year. For example if you are small for your accounting year to 31 December 2019, you do not fall within these rules for the 2020/21 tax year.

“It is also good news that the legislation has introduced a means of dealing with disputes; it provides for the client benefiting from the PSC worker’s labour to notify the worker whether or not they are treating them as a deemed employee. The formal process will allow the individual to dispute the decision and the client has 45 days to respond and either change the decision or explain their reasoning for it. While this is helpful to PSCs, unsurprisingly, HMRC will not get involved in this process so it will clearly put a further administrative burden on businesses who have make these decisions.

“Today, HMRC has again promised extensive support and guidance for businesses and to update its Check Employment Status for Tax (CEST) tool this year to help them decide on the status of workers. If HMRC’s past performance on helping businesses with IR35 and employment status issues is anything to go by, many will worry that this help will not appear in time for 2020. If it doesn’t, the Government should delay the new rules until proper guidance is available.”

Digital Services Tax

On the digital services tax, ACCA’s Piper said, “ACCA is supportive of the treasury protecting UK tax, but we believe DST would not the best way ahead. The tax is ring-fenced, high threshold and turnover based, any one of which alone would be a warning sign in a new tax measure. The OECD is already working towards a global solution to what is undoubtedly a global problem, and unilateral actions risk undermining the impetus for coordinated action. We await the outcome of discussions at the G7 Finance Ministers meeting next week… introduction of DST is a long-term decision. The need for any change should always be considered carefully, as should the mechanics of its implementation and its interaction with the rest of the tax system, both domestically and internationally.”