A summary of some of the headline legal changes relevant to commercial organisations anticipated in 2019:
1. Capital allowances
To stimulate capital investment from 1 January 2019 (until 31 December 2020) the Annual Investment Allowance (AIA) will be temporarily increased from £200,000 to £1 million for all qualifying investments in plant and machinery (i.e. taxpayers will be entitled to claim capital allowances at the rate of 100% on expenditure on of up to £1 million on plant and machinery in the given tax year).
Timeframe: The change will have effect in respect of qualifying expenditure incurred from 1 January 2019 to 31 December 2020.
2. Corporate governance
The Companies (Miscellaneous Reporting) Regulations 2018 come into force on 1 January 2019 and will require the following additional reporting requirements for financial years beginning on or after that date:
- In the strategic report – an explanation as to how directors have had regard to the matters listed in section 172 Companies Act 2006 – for companies meeting two out of three of the following: (i) a turnover of more than £36 million; (ii) a balance sheet total of more than £18 million; and (iii) more than 250 employees;
- Statement of engagement with employees – for companies with more than 250 UK employees;
- Statement of engagement with customers and suppliers -– for companies meeting two out of three of the following: (i) a turnover of more than £36 million; (ii) a balance sheet total of more than £18 million; and (iii) more than 250 employees;
- Statement of corporate governance arrangements – for companies that have either 2000 or more employees, or both a turnover of £200 million and a balance sheet total of over £2 billion (unless already required to report on corporate governance);
- CEO pay ratios - for quoted companies with more than 250 employees;
- Outcome of long-term incentive plans – for quoted companies.
The new, voluntary Wates Corporate Governance Principles for Large Private Companies provide a framework for large private companies to comply with the new reporting reguirements. A new 2018 UK Corporate Governance Code for premium listed companies will apply to accounting periods beginning on or after 1 January 2019.
Timeframe: Applicable to financial years beginning on or after 1 January 2019.
3. Pensions – IORP II
Regulations implementing IORP II will introduce more wide-ranging requirements for the effective management and governance of UK occupational pension schemes. Trustees of occupational pension schemes are required to establish and operate an ‘effective system of governance including internal controls’, proportionate to the size, nature, scale and complexity of the activities of the scheme and the Pensions Regulator will implement a new Code of Practice to provide further clarity on what constitutes an effective system of governance.
‘Pension benefit statements’ will also have to be provided on an annual basis to active and deferred members of IORPs.
It is also anticipated the powers of the Pensions Regulator will be strengthened.
Timeframe: The new regulations will apply from 13 January 2019.
4. Trade marks
New trade mark regulations come into force in January which will bring about some changes to trade mark registrations, including:
- the requirement for graphical representation removed;
- changes to the absolute and relative grounds for refusal;
- a new right in relation to infringing preparatory acts;
- changes to the scope of the trade mark proprietor’s rights;
- a change to the date for calculating the period of non-use.
Timeframe: The Trade Mark Regulations 2018 come into force on 14 January 2019.
5. Disclosure pilot
Disclosure (the mechanism by which parties exchange all documentation that is relevant to a dispute) usually requires parties to exchange all documents that either support their case or adversely affect any party’s case.
A new pilot is looking to create a more flexible process to ensure the costs of disclosure are proportionate in each case.
The mandatory two-year disclosure pilot scheme will run in the Business and Property Courts from 1 January 2019.
Timeframe: From 1 January 2019
6. Stamp duty land tax
The time limit to comply with Stamp Duty Land Tax (SDLT) obligations (filing of the SDLT return and payment of SDLT) is to be reduced from 30 days to 14 days following the effective date of a land transaction.
Timeframe: The shortened time limit will apply to transactions with an effective date on or after 1 March 2019.
The UK is expected to formally leave the EU on 29 March 2019. There are a number of Brexit-related acts and bills progressing through Parliament, including: the European Union (Withdrawal) Act 2018, the Trade Bill 2017-19 and the Taxation (Cross-Border Trade) Act 2018. Also anticipated are an Environment Bill, an Immigration Bill and, if the negotiated withdrawal agreement is approved by parliament, the European Union (Withdrawal Agreement) Bill.
Timeline: 29 March 2019
8. Capital allowances
A new capital allowances relief, the Structures and Buildings Allowance (SBA), will enable property investors to claim the SBA in respect of any expenditure on constructing (or extending or converting) commercial buildings and structures.
For both income and corporation tax purposes, the SBA will provide relief on eligible construction costs at an annual rate of 2% on a straight-line basis once the property is brought into qualifying use (i.e. over a period of 50 years).
Timeframe: SBA will be available in respect of all eligible expenditure incurred where all the contracts for the construction works for the commercial structures and buildings are entered into on or after 29 October 2018, but the relevant legislation will be finalised in the Finance Bill 2018-19 (Royal Assent expected in March 2019).
9. VAT grouping
Currently, only limited companies and limited liability partnerships can join VAT groups. Under new legislation, non-corporate entities, such as sole traders and partnerships, will be allowed to join the VAT group of their subsidiaries if they otherwise satisfy the VAT group eligibility requirements. This will help to reduce VAT accounting obligations for specific types of business structures.
The non-corporate entity must demonstrate that it controls all of its corporate subsidiaries. Control here means that it holds 51% or more of its shares and enjoys 51% or more of its voting rights.
Timeframe: Legislation will be introduced following Royal Assent of the Finance Bill 2018-19 (expected in March 2019).
10. Modern Slavery Act Review
An independent review of the Modern Slavery Act 2015 (MSA 2015) is being conducted.
The review will consider, among other things, the effectiveness of the provisions in the MSA 2015 which requires companies with an annual turnover of £36 million or more to publish a statement on their website outlining what they are doing to prevent and tackle modern slavery in their operations and supply chain and any potential improvements. Steps may be taken to strengthen the existing legislation and minimise the risk that the goods and services available in the UK are produced through forced labour and slavery.
Timeframe: A report to the Home Secretary is expected by the end of March 2019.
11. Tax on non-UK resident companies’ gains from sale of non-residential UK property
Corporation tax will extend to gains realised by non-UK resident companies on the sale of UK non-residential property.
Currently, non-UK resident companies only pay UK corporation tax on gains realised on the sale of UK residential property. With effect for disposals on or after 6 April 2019, non-UK resident companies will also be subject to UK corporation tax on gains realised on the sale of UK non-residential property.
Timeframe: The new measure will have effect for disposals made on or after 6 April 2019.
12. Energy and carbon reporting
With the CRC Energy Efficiency Scheme being abolished from the end of March 2019, the UK government has introduced a simplified business energy and carbon reporting framework, partly to replace the carbon reporting requirements of the CRC Energy Efficiency Scheme. The new framework is known as Streamlined Energy and Carbon Reporting (SECR) and make changes to the reporting requirements required of quoted companies and will also apply to large (as defined in the Companies Act 2006) UK incorporated unquoted companies (with at least 250 employees or an annual turnover greater than £36m and an annual balance sheet total greater than £18m).
Timeframe: The changes will be implemented by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 which come into force on 1 April 2019 and will have effect in respect of financial years beginning on or after 1 April 2019.
13. Disguised remuneration scheme
A decision by the Supreme Court in July 2017 to tax payments made through Employee Benefit Trusts (EBTs) as income as opposed to a loan has raised concerns that a large number of corporates could be running similar disguised remuneration schemes.
When a sum is established as being employment earnings, tax cannot be avoided by diverting or paying the earnings to someone else. The Supreme Court’s decision impacts on a wide range of earnings-related disguised remuneration schemes including EBTs, employer-funded retirement benefit schemes, contractor loans schemes and self-employed benefit schemes.
Timeframe: On 5 April 2019, any unsettled tax liabilities may be assessed by HMRC and will become due in one tax year (known as the ‘loan charge’).
14. Itemised Payslips
The Taylor Review of Modern Working Practices report made a number of recommendations to improve the working conditions of atypical workers and individuals working in the gig economy.
During 2018, the government published various consultations and draft legislation to address some of the issues raised in the report.
This includes the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 and the Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No 2) Order 2018 which will bring into force the government's commitment in its response to the Taylor Review to require employers to:
- itemise payslips to show the number of hours paid for, where a worker is paid on an hourly rate basis. Different figures must be provided where an employee is paid a different rate of pay for different types of work;
- provide itemised payslips to all workers, not just employees.
Timeframe: The orders are due to come into force on 6 April 2019.
15. National Minimum Wage
From April 2019 the national minimum wage will be increased to:
- Apprentices: £3.90 an hour;
- 16 to 17-year-olds: £4.35 an hour;
- 18 to 20-year-olds: £6.15 an hour;
- 21 to 24-year-olds: £7.70 an hour;
- National living wage (workers aged 25 and over): £8.21 an hour.
Timeframe: The rises will take effect from April 2019.
16. Minimum Energy Efficiency Standard
The Minimum Energy Efficiency Standard (MEES) came into effect on 1 April 2018 for new commercial lettings to improve the energy efficiency of rented property in England and Wales. Landlords are not permitted to let a commercial property with an EPC rating below E unless they have first made all possible cost-effective energy efficiency improvements, or one of the exemptions applies.
A similar requirement has applied to residential properties with effect from 1 April 2018, but residential landlords are only obliged to make any energy efficiency improvements that can be made at no cost to them. From a date in 2019 this will change in that residential landlords will be obliged to outlay up to £3,500 of their own money to make any required improvements to move the energy efficiency of the property to E, or to as near E as possible.
From 1 April 2020 (for residential property) or 1 April 2023 (for commercial property) this requirement to bring the property up to an E rating will apply to all let commercial and residential properties, so long as they have an EPC, or an exemption must be registered.
Timeframe: From a date in 2019 (yet to be announced) and also from 1 April 2020 or 1 April 2023.
17. Tenant fees
The Tenant Fees Bill 2017-2019 is progressing through parliament and is intended to make residential property renting ‘easier and fairer’ for tenants by reducing costs at the outset of a tenancy.
Timeframe: The government has indicated that it is committed to bringing the bill into effect in 2019.
The Law Commission is expected to publish its final recommendations regarding the use of e-signatures, the government’s response to a report on sexual harassment in the workplace is expected and ethnic pay gap reporting may become mandatory.
If you would like further information about any of the anticipated changes, please do not hesitate to get in touch or contact us online.