Finance Bill (Third sitting)
David Gauke Excerpts(7 years, 10 months ago)
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Rebecca Long Bailey (Salford and Eccles) (Lab)
Who knows what adventures the Finance Bill will take us on today? Hopefully the sittings will be a little more sedate than last week’s.
I will first address clause 50 and schedule 8, and then move on to clause 51 relating to television and video games tax relief. Clause 50 brings in schedule 8, which introduces a new relief for orchestral concerts, provides for consequential amendments to other parts of taxes Acts as a result, and arranges for the commencement of the relief. First announced in the autumn of 2014, the new tax relief for orchestral production will allow qualifying companies engaged in the production of concerts to claim an additional deduction in computing their taxable profits and, where that additional deduction results in a loss, to surrender the losses for a payable tax credit. The additional deduction and the payable credit are calculated on the basis of European Economic Area core expenditure, up to a maximum of 80% of the total core expenditure by the qualifying company. The additional deduction is 100% of qualifying core expenditure, and the payable tax credit is 25% of losses surrendered.
The credit is based on the company’s qualifying expenditure on the production of a qualifying orchestral concert. The expenditure must be on activities directly involved in producing a concert, such as rehearsal costs. Qualifying expenditure will not include indirect costs, such as financing, marketing and accountancy and legal fees, and at least 25% of the qualifying expenditure must be on goods or services that are provided from within the EEA. Concerts that have among their main purposes the advertising of goods and services or the making of a recording, or that include a competition, will not qualify for relief.
The stated objective of the measure is to support the creative sector and sustainably promote British culture. I certainly back that approach, not least because the BBC Philharmonic orchestra is based in my constituency and continues to attract many like-minded orchestral organisations to my city. On the machinery of the calculations, however, as the deduction of credit is calculated on the basis of EEA core expenditure, what assessment has the Minister made of amendments that might need to be made to the clause as a result of Britain’s exit from the EU?
I am pleased that the Government took the time to consult on the measure, and I note that the summary of responses published in March 2015 indicates that the industry welcomed the introduction of the relief. I am also pleased that the Government took heed of the Opposition’s concerns about the initial proposal exempting brass bands from the relief, effectively introducing a brass band tax, and that the Government subsequently included brass bands in the relevant definition in March 2015. The draft Bill and a policy paper were published in December 2015, and the Government did not make any substantive changes after the technical consultation exercise, so I am confident that the legislation will do what it says on the tin.
The measure is expected to cost the Exchequer £5 million in the financial year 2016-17 and £10 million every financial year thereafter until 2019-20. The Opposition agree with the principle of supporting the UK’s creative industries and therefore support clause 50 and schedule 8, but we are concerned that we keep creating relief after relief. Why does this targeted measure take the form of a tax relief, rather than a grant? Also, the industry is concerned that the relief does not support commercial music production, which is supported in other countries. Will the Minister clarify today, or indeed in a written response after today, what support is in place for this important industry?
Finally, what modelling have the Government done to ensure that the legislation is rigorous enough to prevent use of the relief for avoidance purposes? I understand that there were some issues about film tax relief and avoidance, and I am also concerned that the wording in proposed new section 1217RL to the Corporation Tax Act 2009 may not be very robust, especially with reference to those tax avoidance arrangements that fall within the ambiguous term, “understanding”; I am sure that the Minister will agree that by their very nature those will not be contractual. Will he confirm whether he has given thought to additional resources that Her Majesty’s Revenue and Customs might need if it is adequately to investigate such scenarios?
Clause 51 simply makes minor, consequential amendments to the Taxation of Chargeable Gains Act 1992 and the Corporation Tax Act 2010, substituting the words “section 1218B” for “section 1218”. The Opposition support television and video games tax relief, as we introduced it. We see no issue with this technical clause.
The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship again this morning, Mr Howarth. I welcome the hon. Member for Salford and Eccles to the Committee. She has taken on a substantial workload in the past few days. Having had experience of performing her role of holding the Government to account in the Finance Bill, I recognise how challenging it can be. I wish her luck in that; if I may say so, she has made an excellent start, raising important points about this group of clauses.
I will start with a few words about clauses 50 and 51 and schedule 8, and then I will respond to the hon. Lady’s questions. The Government have supported our world-leading creative and cultural sectors, which have entertained millions worldwide while attracting significant investment into the United Kingdom. Clause 50 and schedule 8 provide further support by introducing a new corporation tax relief for the production of orchestral concerts. The Government recognise the cultural value and artistic importance of Britain’s orchestras. The relief is intended to support them in continuing to perform for a range of audiences, and in contributing to British culture.
Clause 51 makes minor consequential amendments to the Taxation of Chargeable Gains Act 1992 and the Corporation Tax Act 2010 as a result of the introduction of video games tax relief in the Finance Bill 2013. The change is not expected to have an impact on businesses that claim the relief.
The UK is home to some exciting, world-famous orchestras. The relief introduced by clause 50 recognises their artistic importance and cultural value. Its objective is to support orchestras so that they can continue to perform for a wide range of audiences. To deliver that support, the Government are building on the success of existing creative sector tax reliefs available for the production of film, high-end television and children’s television, video games, animation and theatre. Those reliefs have shown how targeted support can make a real difference, not only by promoting economic activity, but by promoting British culture and the way that the UK is viewed internationally.
Clause 50 will introduce a new corporation tax relief and payable tax credit for the qualifying costs of producing an orchestral performance. It will support a wide variety of ensembles and performances, from chamber orchestras to large brass bands playing music ranging from jazz to blues. It will allow production companies to claim a payable tax credit worth up to 25% of the cost of developing an orchestral concert, with effect from 1 April this year.
In 2013, minor consequential amendments were made to the Corporation Tax Act 2010, as some sections were renumbered following the introduction of video games tax relief in the Finance Bill 2013. Clause 51 makes a further consequential amendment to the Act and the Taxation of Chargeable Gains Act 1992; it is not expected to have an impact on any business claiming that relief.
The Government are grateful for the constructive and positive engagement with the industry since the policy was announced, and during consultation in 2015. That has enabled us to understand better how the orchestra industry operates, and to design a relief that will work across the sector. The director of the Association of British Orchestras, Mark Pemberton, has commented that the relief
“will make a big difference to our members’ resilience in these challenging times, helping them to continue to offer the very best in British music-making to audiences both here in the UK and abroad.”
The hon. Lady asked whether there was a risk of the relief being abused. Effective anti-avoidance rules are critical to the long-term success and stability of orchestra tax relief. Rules similar to those applied to the creative industry reliefs aim to prevent artificial inflation of claims. In addition, there will be a general anti-avoidance rule based on the GAAR denying relief where there are any tax-avoidance arrangements relating to the production—and, of course, HMRC will monitor for abuse once the regime has been introduced. On HMRC resourcing, I point the Committee in the direction of the £800 million announced in last year’s summer Budget, which provided further investment in HMRC to deal with avoidance and evasion measures more generally.
I come back to the point the hon. Lady raised about film tax relief and how that was abused. It is true that an earlier design of film tax relief was brought in by the previous Labour Government and was abused. That relief was abandoned by that Government, and the replacement model has been much more successful. It has provided the support that the film industry needs and benefits from, and that has helped to ensure that we have a thriving film industry without anything like the risks of abuse we saw formerly. In the measures that we have taken, we have learned from the previous approach.
The hon. Lady referred to making use of an EEA definition, and understandably asked what the implications are of the vote to leave the European Union. It is too early to say exactly how that will work. We are not sure what relationship we will have with the European Union, other than that we will be leaving it. It is quite possible that EEA definitions and so on will remain relevant, but we currently remain members of the EU and are considering legislation that takes effect in April, so it is necessary to comply with the rules as they stand. If it is necessary to review definitions, that is something we will have to look at, but that will depend on the future renegotiation.
The hon. Lady expressed the concern that perhaps we have too many tax reliefs. As the Chancellor made clear in the House of Commons yesterday, there is a place for reliefs, but our general and main focus has been on lowering corporation tax rates, and that continues to be the case. There is scope for using tax reliefs to support investment in growth through the tax system, and that is why we provide a range of tax reliefs and allowances. The Government have restricted a number of tax reliefs and allowances; for example, we have introduced a cap on income tax reliefs, restricted relief for buy-to-let landlords and capped the amount of losses through which banks can reduce their tax, so we have taken action on reliefs where we feel that their use is disproportionate to the benefits for the wider economy.
On orchestras, the Government are committed to supporting the arts through both spending programmes and tax reliefs. The orchestra tax relief is intended to complement current funding. It is specifically aimed at supporting orchestras in continuing to produce high-quality music that is enjoyed by a range of audiences. In those circumstances, we think it is justifiable. I hope that the clause has the support of Members in all parts of the Committee.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 51 ordered to stand part of the Bill.
Clause 52
Banking companies: excluded entities
Question proposed, That the clause stand part of the Bill.
Mr Gauke
I am grateful to the hon. Lady for her support for clauses 52 and 53, which will ensure that the exceptional tax treatment of banks’ crisis-related losses is maintained in the light of the wider changes to the UK loss relief regime announced in the Budget. They will also amend the definition of a bank used in tax legislation to ensure that bank-specific tax measures are targeted as intended.
Clause 52 will change the definition of an investment bank to ensure that legislation is appropriately targeted. We have been clear that banks should make a fair contribution to reflect the risks they pose to the UK economy, and we have taken several steps to ensure that they do make that contribution. The Chancellor introduced the bank levy—a tax on banks’ balance sheets—in 2011 and removed tax relief for banks’ compensation in relation to misconduct and mis-selling from July 2015. We restricted the amount of profit that banks can offset with historical corporation tax losses, and we introduced a new supplementary tax of 8% on banking sector profit from 1 January 2016.
Those policies, which are forecast to raise more than £28 billion between 2015 and 2021, rely on there being an appropriate definition in tax legislation of a bank. That definition is based broadly on the extent to which a company is regulated and the nature of the activities that it undertakes. Concerns have been raised that the existing definition has the potential to go further than intended and bring into scope companies that are not undertaking retail or investment banking activities. We seek to address that through clause 52, which will make a minor technical change that is expected to have a negligible cost to the Exchequer and will ensure that legislation is fair and appropriately targeted. The clause will ensure that banking taxes are targeted appropriately at banks and that legislation remains simple, certain and effective.
Clause 53 will reduce from 50% to 25% the amount of profit that banks can offset with historical losses for corporation tax purposes from 1 April 2016. When a company makes a loss for corporation tax purposes, it is able to offset that loss against the profit of a group member in the same year. If that is not possible, companies are able to carry forward their losses and offset them against future profits. Companies’ ability to carry forward losses is an important feature of the corporation tax system. It means that companies with volatile income streams are not subject to higher effective rates of tax on their long-term profits. In the 2014 autumn statement, the Chancellor announced that the proportion of taxable profit that could be offset by banks’ pre-April 2015 losses would be limited to 50% from 1 April 2015. That exceptional treatment recognised the significant losses that banks had carried forward from the financial crisis and the subsequent misconduct scandals, and the impact that those losses were having on banks’ corporation tax payments. It was forecast to increase corporation tax receipts by £2 billion between 2015 and 2020.
In the March 2016 Budget, fundamental reforms were announced to the treatment of carried-forward losses across all industry groups, to take effect from April 2017. First, there will be greater flexibility regarding the profits against which carried-forward losses can be offset. Secondly, the amount of profit that can be offset by carried-forward losses will be restricted to 50% from April 2017, subject to a £5 million allowance. Those reforms will create a more modern loss relief regime in the UK that is competitive with those in other G7 countries and better aligned with how businesses operate.
The changes made by clause 53 will maintain the exceptional treatment of banks’ historical losses by reducing from 50% to 25% the amount of profit that banks can offset with historical carried-forward losses from 1 April 2016. That will increase banks’ corporation tax payments by around £2 billion over the next five years. The existing reliefs for losses incurred by new entrant banks and building societies will be maintained; those will continue to be treated in the same way as losses in other industry groups.
On the hon. Lady’s question about timing, these measures, taken together, will raise about £5 billion in 2016-17 alone. It is important that the banking sector’s tax contribution is made when it is most needed during this period of fiscal consolidation. I take the point about the changed circumstances in the light of the vote to leave the European Union. It is also important that we make progress in reducing the deficit, and that we demonstrate that the Government are fiscally responsible. That is what we are doing. This measure is part of a plan to make progress to reduce our deficit further. Having given the Committee those points of information, I hope that these clauses can stand part of the Bill.
Question put and agreed to.
Clause 52 accordingly ordered to stand part of the Bill.
Clause 53 ordered to stand part of the Bill.
Clause 54
Reduction in rate of supplementary charge
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 55 to 59 stand part.
Clause 128 stand part.
New clause 3—Corporation tax treatment of the oil and gas industry—
‘The Chancellor of the Exchequer shall, within six months of the passing of this Act, commission a comprehensive review of the corporation tax rates and investment allowances applicable to companies producing oil and gas in the UK or on the UK continental shelf, and publish the report of the review.’
New clause 6—Oil and gas: decommissioning contracts—
‘(1) The Chancellor of the Exchequer shall commission a review of the ways in which the tax regime could be changed to increase the competitiveness of UK-registered companies in bidding for supply chain contracts associated with the decommissioning of oil and gas infrastructure.
(2) In undertaking the review, the Chancellor shall consult the Department for Business, Innovation and Skills, the Oil and Gas Authority; Scottish Ministers; and any other stakeholders that the Chancellor thinks appropriate.
(3) The Chancellor shall report to Parliament on the results of his review within six months of the passing of this Act.’
The Chair
I remind the Committee that I will put the question on clause 128—and new clauses 3 and 6, if required—without further debate when we reach them.
Clause 60
Profits from the exploitation of patents etc
The Chair
With this it will be convenient to discuss the following:
Government amendments 51 to 115 and 136.
Clause stand part.
Government amendments 116 to 121.
That schedule 9 be the Ninth schedule to the Bill.
Mr Gauke
Clause 60 and schedule 9 make changes to ensure that the UK’s patent box operates in line with a newly agreed international framework resulting from the base erosion and profit shifting action plan. The Forum on Harmful Tax Practices—the international group leading work on action 5—focused on harmonising the level of substantive activity required for access to preferential intellectual property regimes such as the patent box. This was linked to the BEPS action plan’s overall aim of aligning taxation with economic substance. The framework applies to all patent and innovation box-type regimes that apply preferential tax treatment to IP income in OECD, G20 and EU countries. It ensures that preferential tax treatment cannot be offered for as little as simply registering ownership of IP in a jurisdiction offering such a regime. While the UK’s patent box includes adequate safeguards to address these concerns, this framework will ensure that robust standards apply internationally.
The new framework also takes a slightly different approach from the UK patent box, so amendments to the current regime are required. In particular, the international framework links the availability of a lower tax rate offered by a preferential IP regime to the proportion of the development expenditure on the IP that the claimant taxpayer incurred, directly or through a third-party subcontractor. This means that if, for example, a claimant taxpayer directly incurred only half of the expenditure on a patent, with the other half of the expenditure being on acquisition, IP, or outsourcing to a related party, only half the profit derived from that patent will benefit from a lower tax rate.
Mr Gauke
I thank the hon. Lady for her broad support for the patent box. What we sought to do with the patent box—both when it was introduced and now—is ensure that we have incentives in our tax system to encourage internationally mobile activity. This is about bringing jobs and investment to the United Kingdom. It is not about artificial profit shifting. On the Government’s wider approach to the international tax system, we believe that there should be close alignment between economic activity, the profits that relate to that, and where those profits are taxed. That is why the UK has taken a leading role in the OECD’s base erosion and profit shifting process. Of course, any process like BEPS requires compromise, but the direction in which we believe the international tax system should go—towards closer alignment—is the one that BEPS has pursued, and we are pleased with the outcomes.
The changes to the patent box reflect a degree of compromise, but in essence, thanks to the patent box, the UK continues to offer an attractive place in which intellectual property may be developed. That is something that we wish to continue. I have to pick up on three of the points made by the hon. Member for Salford and Eccles. In the context of the EU, I will make a similar point to one I made earlier: we are still in the EU and a negotiation has yet to be undertaken to know where we stand exactly. There is also a wider point: when addressing the challenges of the international tax system, much of the legislation would apply whether we were in the EU or not, because the OECD BEPS process applies to all OECD countries. I do not think that anyone is proposing a referendum on whether we should leave the OECD—it is not one that I would welcome. In these circumstances, we expect to comply with the OECD standard, and that is very much our approach.
The hon. Lady also made a couple of technical points, the first of which was about what constitutes exceptional circumstances. For example, IP might have been purchased but turned out to be worth less, so that its contribution to the fraction is out of line with the cost. Obviously I cannot be exhaustive, but I hope that example is helpful in illustrating the types of things we are talking about. She also asked about tracking and tracing at an individual product level, and why that is not the approach we have taken. Companies will be able to track and trace at IP product level, so I hope that she is reassured, but I will write to her with further information.
Amendment 50 agreed to.
Amendments made: 51, in clause 60, page 94, line 38, leave out “either”.
Amendment 52, in clause 60, page 94, line 43, leave out “multi-IP” and insert “IP”.
Amendment 53, in clause 60, page 94, line 43, at end insert
“, or
(c) a sub-stream consisting of income properly attributable to a particular kind of IP process (a “process sub-stream”)”.
Amendment 54, in clause 60, page 95, line 1, leave out from “See” to second “and” and insert
“subsection (5) for the meaning of “IP item” and “IP process””.
Amendment 55, in clause 60, page 95, line 2, before “further” insert
“see subsections (5A) and (6) for”.
Amendment 56, in clause 60, page 95, line 2, at end insert “and process sub-streams”.
Amendment 57, in clause 60, page 95, line 12, at end insert—
“But see section 357BIA (which provides that certain amounts allocated to a relevant IP income sub-stream at Step 3 are not to be deducted from the sub-stream at this Step).”
Amendment 58, in clause 60, page 95, leave out lines 13 to 17.
Amendment 59, in clause 60, page 95, line 19, leave out from beginning to “deduct” in line 20.
Amendment 60, in clause 60, page 95, leave out lines 40 to 47 and insert—
“(5) In this section—
“IP item” means—
(a) an item in respect of which a qualifying IP right held by the company has been granted, or
(b) an item which incorporates one or more items within paragraph (a);
“IP process” means—
(a) a process in respect of which a qualifying IP right held by the company has been granted, or
(b) a process which incorporates one or more processes within paragraph (a).
(5A) For the purposes of this section two or more IP items, or two or more IP processes, may be treated as being of a particular kind if they are intended to be, or are capable of being, used for the same or substantially the same purposes.”
Amendment 61, in clause 60, page 95, line 48, leave out
“which is properly attributable to a multi-IP item”.
Amendment 62, in clause 60, page 95, line 49, after “sub-stream” insert “or process sub-stream”.
Amendment 63, in clause 60, page 96, line 5, at end insert—
‘( ) Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.”
Amendment 64, in clause 60, page 98, line 2, leave out “357A” and insert “357A(1)”.
Amendment 65, in clause 60, page 98, line 21, after first “income” insert “, finance income”.
Amendment 66, in clause 60, page 100, line 41, at end insert—
“357BIA Certain amounts not to be deducted from sub-streams at Step 4 of section 357BF
(1) This section applies where a company enters into an arrangement with a person under which—
(a) the person assigns to the company a qualifying IP right or grants or transfers to the company an exclusive licence in respect of a qualifying IP right, and
(b) the company makes to the person an income-related payment.
(2) A payment is an “income-related payment” for the purposes of subsection (1) if—
(a) the obligation to make the payment arises under the arrangement by reason of the amount of income the company has accrued which is properly attributable to the right or licence, or
(b) the amount of the payment is determined under the arrangement by reference to the amount of income the company has accrued which is so attributable.
(3) If the amount of the income-related payment is allocated to a relevant IP income sub-stream at Step 3 of section 357BF(2), the amount is not to be deducted from the sub-stream at Step 4 of section 357BF(2) unless the payment will not affect the R&D fraction for the sub-stream.”
Amendment 67, in clause 60, page 104, line 6, leave out from beginning to end of line 31 on page 105.
Amendment 68, in clause 60, page 108, line 13, at end insert—
“(3A) If an election made by the company under section 18A of CTA 2009 (election for exemption for profits or losses of company’s foreign permanent establishments) applies to the relevant period, expenditure incurred by the company during the period which meets conditions A and B—
(a) is not “qualifying expenditure on relevant R&D undertaken in-house”, but
(b) is “qualifying expenditure on relevant R&D sub-contracted to connected persons”,
so far as it is expenditure brought into account in calculating a relevant profits amount, or a relevant losses amount, aggregated at section 18A(4)(a) or (b) of CTA 2009 in calculating the company’s foreign permanent establishments amount for the period.”
Amendment 69, in clause 60, page 108, line 22, leave out
“incorporated in a multi-IP item”
and insert
“—
(i) to which income in the sub-stream is attributable, or
(ii) which is incorporated in an item”.
Amendment 70, in clause 60, page 108, line 23, at end insert
“, or
(c) in a case where the sub-stream is a process sub-stream, relates to a qualifying IP right granted in respect of any process—
(i) to which income in the sub-stream is attributable, or
(ii) which is incorporated in a process to which income in the sub-stream is attributable.”
Amendment 71, in clause 60, page 109, line 8, leave out “65% of any” and insert “the”.
Amendment 72, in clause 60, page 109, leave out lines 10 to 15 and insert
“in making payments within subsection (2).
(2) A payment is within this subsection if—
(a) it is made to a person in respect of relevant research and development contracted out by the company to the person, and
(b) the company and the person are not connected (within the meaning given by section 1122).”
Amendment 73, in clause 60, page 109, line 15, at end insert—
“(3) If an election made by the company under section 18A of CTA 2009 (election for exemption for profits or losses of company’s foreign permanent establishments) applies to the relevant period, expenditure incurred by the company during the period in making payments within subsection (2)—
(a) is not “qualifying expenditure on relevant R&D sub-contracted to unconnected persons”, but
(b) is “qualifying expenditure on relevant R&D sub-contracted to connected persons”,
so far as it is expenditure brought into account in calculating a relevant profits amount, or a relevant losses amount, aggregated at section 18A(4)(a) or (b) of CTA 2009 in calculating the company’s foreign permanent establishments amount for the period.”
Amendment 74, in clause 60, page 109, line 23, after “means” insert “the total of—
(a) any expenditure which is “qualifying expenditure on relevant R&D sub-contracted to connected persons” as a result of section 357BMB(3A) or 357BMC(3) (certain expenditure attributed to company’s foreign permanent establishments), and
(b) ”.
Amendment 75, in clause 60, page 109, line 23, leave out “65% of any” and insert “the”.
Amendment 76, in clause 60, page 109, leave out lines 25 to 30 and insert
“in making payments within subsection (2).
‘(2) A payment is within this subsection if—
(a) it is made to a person in respect of relevant research and development contracted out by the company to the person, and
(b) the company and the person are connected (within the meaning given by section 1122).”
Amendment 77, in clause 60, page 109, line 39, leave out from “company” to end of line 41 and insert
“in making during the relevant period payments within any of subsections (1A), (1B) and (1C).
(1A) A payment is within this subsection if it is made to a person in respect of the assignment by that person to the company of a relevant qualifying IP right.
(1B) A payment is within this subsection if it is made to a person in respect of the grant or transfer by that person to the company of an exclusive licence in respect of a relevant qualifying IP right.
(1C) A payment is within this subsection if—
(a) it is made to a person in respect of the disclosure by that person to the company of any item or process, and
(b) the company applies for and is granted a relevant qualifying IP right in respect of that item or process (or any item or process derived from it).
(1D) Where the company has incurred expenditure in making a series of payments to a person in respect of a single assignment, grant, transfer or disclosure, each of the payments in the series is to be treated for the purposes of this section as having been made on the date on which the first payment in the series was made.”
Amendment 78, in clause 60, page 110, line 2, leave out
“incorporated in a multi-IP item” and insert “—
(i) to which income in the sub-stream is attributable, or
(ii) which is incorporated in an item”.
Amendment 79, in clause 60, page 110, line 4, at end insert
“, or
(c) in a case where the sub-stream is a process sub-stream, a qualifying IP right granted in respect of a process—
(i) to which income in the sub-stream is attributable, or
(ii) which is incorporated in a process to which income in the sub-stream is attributable.”
Amendment 80, in clause 60, page 110, line 22, leave out “357BME” and insert “357BMD”.
Amendment 81, in clause 60, page 111, leave out from beginning of line 8 to “, and” in line 11 and insert
“in each of subsections (1A), (1B) and (1C) the word “relevant” were omitted”.
Amendment 82, in clause 60, page 112, line 25, leave out “357A” and insert “357A(1)”.
Amendment 83, in clause 60, page 112, line 46, at end insert—
“Small claims treatment
357BNA Small claims treatment
(1) This section applies where—
(a) a company carries on only one trade during an accounting period,
(b) section 357BF applies for the purposes of determining the relevant IP profits of the trade for the accounting period, and
(c) the qualifying residual profit of the trade for the accounting period does not exceed whichever is the greater of—
(i) £1,000,000, and
(ii) the relevant maximum for the accounting period.
(2) The company may make any of the following elections for the accounting period—
(a) a notional royalty election (see section 357BNB),
(b) a small claims figure election (see section 357BNC), and
(c) a global streaming election (see section 357BND).
This is subject to subsections (3) and (4).
(3) The company may not make a notional royalty election, a small claims figure election or a global streaming election for the accounting period if—
(a) the qualifying residual profit of the trade for the accounting period exceeds £1,000,000,
(b) section 357BF applied for the purposes of determining the relevant IP profits of the trade for any previous accounting period beginning within the relevant 4-year period, and
(c) the company did not make a notional royalty election, a small claims figure election or (as the case may be) a global streaming election for that previous accounting period.
(4) The company may not make a small claims figure election for the accounting period if—
(a) the qualifying residual profit of the trade for the accounting period exceeds £1,000,000,
(b) section 357C or 357DA applied for the purposes of determining the relevant IP profits of the trade for any previous accounting period beginning within the relevant 4-year period, and
(c) the company did not make an election under section 357CL for small claims treatment for that previous accounting period.
(5) In subsections (3) and (4) “the relevant 4-year period” means the period of 4 years ending with the beginning of the accounting period mentioned in subsection (1)(a).
(6) For the purposes of this section, the “qualifying residual profit” of a trade of a company for an accounting period is the amount which (assuming the company did not make an election under this section) would be equal to the aggregate of the relevant IP income sub-streams established at Step 2 in section 357BF(2) in determining the relevant IP profits of the trade for the accounting period, following the deductions from those sub-streams required by Step 4 in section 357BF(2) (ignoring the amount of any sub-stream which is not greater than nil following those deductions).
(7) For the purposes of this section, the “relevant maximum” for an accounting period of a company is—
(a) in a case where no company is a related 51% group company of the company in the accounting period, £3,000,000;
(b) in a case where one or more companies are related 51% group companies of the company in the accounting period, the amount given by the formula—
where N is the number of those related 51% group companies in relation to which an election under section 357A(1) has effect for the accounting period.
(8) For an accounting period of less than 12 months, the relevant maximum is proportionally reduced.
357BNB Notional royalty election
(1) Subsection (2) applies where a company has made a notional royalty election for an accounting period under section 357BNA(2)(a).
(2) In its application for the purposes of determining the relevant IP profits of the trade of the company for the accounting period, section 357BHA (notional royalty) has effect as if—
(a) in subsection (2) for “the appropriate percentage” there were substituted “75%”, and
(b) subsections (3) to (6) were omitted.”
357BNC Small claims figure election
(1) Subsection (2) applies where a company has made a small claims figure election for an accounting period under section 357BNA(2)(b).
(2) In its application for the purposes of determining the relevant IP profits of the trade of the company for the accounting period, section 357BF(2) (steps for calculating relevant IP profits) has effect as if in Step 6—
(a) for “marketing assets return figure” there was substituted “small claims figure”, and
(b) for “(see section 357BL)” there was substituted “(see section 357BNC(3))”.
(3) Subsections (4) to (9) apply for the purpose of calculating the small claims figure for a relevant IP income sub-stream established at Step 2 in section 357BF(2) in determining the relevant IP profits of a trade of a company for an accounting period.
(4) If 75% of the qualifying residual profit of the trade for the accounting period is lower than the small claims threshold, the small claims figure for the sub-stream is 25% of the amount of the sub-stream following Step 4 in section 357BF(2).
(5) If 75% of the qualifying residual profit of the trade for the accounting period is higher than the small claims threshold, the small claims figure for the sub-stream is the amount given by—
where—
A is the amount of the sub-stream following the deductions required by Step 4 in section 357BF(2),
QRP is the qualifying residual profit of the trade of the company for the accounting period, and
SCT is the small claims threshold.
(6) If no company is a related 51% group company of the company in the accounting period, the small claims threshold is £1,000,000.
(7) If one or more companies are related 51% group companies of the company in the accounting period, the small claims threshold is—
where N is the number of those related 51% group companies in relation to which an election under section 357A(1) has effect for the accounting period.
(8) For an accounting period of less than 12 months, the small claims threshold is proportionately reduced.
(9) Subsection (6) of section 357BNA (meaning of “qualifying residual profit”) applies for the purposes of subsection (4) and (5) of this section.
357BND Global streaming election
(1) Subsection (2) applies where a company has made a global streaming election for an accounting period under section 357BNA(2)(c).
(2) In its application for the purpose of determining the relevant IP profits of the trade of the company for the accounting period, this Chapter has effect with the following modifications.
(3) In subsection (2) of section 357BF (relevant IP profits)—
(a) omit Step 2,
(b) in Step 3 for “each of the relevant IP income sub-streams” substitute “the relevant IP income stream”,
(c) in Step 4—
(i) in the words before paragraph (a), for “each” substitute “the”,
(ii) for “sub-stream”, in each place it occurs, substitute “stream”,
(d) in Step 6—
(i) at the beginning insert “If the relevant IP income stream is greater than nil following Step 4,”,
(ii) for the words from “each” to “Step 4” substitute “the stream”,
(iii) for “sub-stream”, in the second place it occurs, substitute “stream”,
(e) in Step 7—
(i) for “each relevant IP income sub-stream” substitute “the relevant IP income stream”,
(ii) for “sub-stream”, in the second place it occurs, substitute “stream”,
(f) omit Step 8, and
(g) in Step 9 for “given by Step 8” substitute “of the relevant IP income stream following Step 7”.
(4) In subsection (3) of that section for “given by” substitute “of the relevant IP income stream following the Steps in”.
(5) In subsection (4) of that section for “given by” substitute “of the relevant IP income stream following the Steps in”.
(6) Omit subsections (5), (5A) and (6) of that section.
(7) In section 357BIA(3) (certain amounts not to be deducted from sub-streams at Step 4 of section 357BF)—
(a) for “a relevant IP income sub-stream” substitute “the relevant IP income stream”;
(b) for “sub-stream”, in the second and third places it occurs, substitute “stream”.
(8) In section 357BJ (routine return figure)—
(a) for “sub-stream”, in each place it occurs, substitute “stream”, and
(b) in subsection (1) for “Step 2” substitute “Step 1”.
(9) In section 357BL (marketing asset return figure) for “sub-stream”, in each place it occurs, substitute “stream”.
(10) In section 357BLA (notional marketing royalty)—
(a) for “sub-stream”, in each place it occurs, substitute “stream”, and
(b) in subsection (1) for “Step 2” substitute “Step 1”.
(11) In section 357BLB (actual marketing royalty) for “sub-stream”, in each place it occurs, substitute “stream”.
(12) In section 357BM (R&D fraction: introduction)—
(a) for “sub-stream” (in each place it occurs) substitute “stream”, and
(b) in subsection (1) for “Step 2” substitute “Step 1”.
(13) In section 357BMA(1) (R&D fraction) for “sub-stream” substitute “stream”.
(14) In section 357BMB(4) (qualifying expenditure on relevant R&D undertaken in-house) for the words after “1138)” substitute “which relates to a qualifying IP right to which income in the stream is attributable”.
(15) In section 357BME(2) (qualifying expenditure on acquisition of relevant qualifying IP rights) for the words from “means” to the end substitute “means a qualifying IP right to which income in the stream is attributable”.
(16) In section 357BMG (cases where the company is a new entrant with insufficient information about pre-enactment expenditure) for “sub-stream”, in each place it occurs, substitute “stream”.
(17) In section 357BMH (R&D fraction: increase for exceptional circumstances) for “sub-stream”, in each place it occurs, substitute “stream”.
(18) In section 357BNC (small claims figure election)—
(a) for “sub-stream”, in each place it occurs, substitute “stream”;
(b) in subsection (3) for “Step 2” substitute “Step 1”.”
Amendment 84, in clause 60, page 113, line 17, at end insert—
“( ) Where section 357BF applies by reason of this section for the purposes of determining the relevant IP profits of a trade of a company for an accounting period, the company may not make a global streaming election for the accounting period under section 357BNA(2)(c).”
Amendment 85, in clause 60, page 113, leave out lines 34 to 44 and insert—
“(a) the company and the person who assigned the right or granted the licence were connected at the time of the assignment or grant,
(b) the main purpose, or one of the main purposes, of the assignment of the right or the grant of the licence was the avoidance of a foreign tax,
(c) the person who assigned the right or granted the licence was not within the charge to corporation tax at the time of the assignment or grant, and
(d) the person who assigned the right or granted the licence was not liable at the time of the assignment or grant to a foreign tax which is designated for the purposes of this section by regulations made by the Treasury.”
Amendment 86, in clause 60, page 114, line 1, leave out “(9)(b)” and insert “(8)(d)”.
Amendment 87, in clause 60, page 114, line 4, at end insert—
“( ) Regulations may not be made under subsection (8)(d) after 31 December 2016.”
Amendment 88, in clause 60, page 114, line 21, leave out “(b)” and insert “(c)”.
Amendment 89, in clause 60, page 114, line 24, leave out
“and each product sub-stream”
and insert
“, each product sub-stream and each process sub-stream”.
Amendment 90, in clause 60, page 114, line 32, leave out
“and product sub-streams”
and insert
“, each of the product sub-streams and each of the process sub-streams”.
Amendment 91, in clause 60, page 114, line 42, leave out “a multi-IP item” and insert
“an IP item or IP process”.
Amendment 92, in clause 60, page 114, line 44, after “sub-stream” insert “or process sub-stream”.
Amendment 93, in clause 60, page 114, line 45, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 94, in clause 60, page 115, line 1, after “item” insert “or process”.
Amendment 95, in clause 60, page 115, line 4, after “item” insert “or process”.
Amendment 96, in clause 60, page 115, line 8, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 97, in clause 60, page 115, line 9, leave out “item or items” and insert “items or processes”.
Amendment 98, in clause 60, page 115, line 11, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 99, in clause 60, page 115, line 13, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 100, in clause 60, page 115, line 17, after “sub-stream” insert “or process sub-stream”.
Amendment 101, in clause 60, page 115, line 18, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 102, in clause 60, page 115, line 20, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 103, in clause 60, page 115, line 24, after “sub-stream” insert “or process sub-stream”.
Amendment 104, in clause 60, page 115, line 26, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 105, in clause 60, page 115, line 27, after “sub-stream” insert “or process sub-stream”.
Amendment 106, in clause 60, page 115, line 27, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 107, in clause 60, page 115, line 29, after “items” insert “or processes”.
Amendment 108, in clause 60, page 115, line 31, leave out “a multi-IP” and insert
“an IP item or IP process”.
Amendment 109, in clause 60, page 115, line 35, after “items” insert “or processes”
Amendment 110, in clause 60, page 115, line 35, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 111, in clause 60, page 115, line 38, after “items” insert “or processes”.
Amendment 112, in clause 60, page 115, line 38, leave out “multi-IP item” and insert
“IP item or IP process”.
Amendment 113, in clause 60, page 115, line 40, at end insert—
“( ) In section 357FB (tax advantage schemes)—
(a) in subsection (2)(b) (list of ways by which deductions can be inflated)—
(i) omit “or” at the end of sub-paragraph (ii), and
(ii) after sub-paragraph (iii) insert “, or
(iv) an R&D fraction (see subsection (4A)) being greater than it would be but for the scheme.”, and
(b) after subsection (4) insert—
“(4A) The reference in subsection (2)(b)(iv) to an R&D fraction is a reference to such a fraction as is mentioned at Step 7 of section 357BF(2).””
Amendment 114, in clause 60, page 115, line 40, at end insert—
“( ) After section 357GC insert—
“Transferred trades
357GCA Application of this Part in relation to transferred trades
(1) Where—
(a) a company (“the transferor”) ceases to carry on a trade which involves the exploitation of a qualifying IP right (“the relevant qualifying IP right”),
(b) the transferor assigns the relevant qualifying IP right, or grants or transfers an exclusive licence in respect of it, to another company (“the transferee”), and
(c) the transferee begins to carry on the trade,
the following provisions apply in determining under this Part the relevant IP profits of the trade carried on by the transferee.
(2) The transferee is to be treated as not being a new entrant if—
(a) an election under section 357A(1) has effect in relation to the transferor on the date of the assignment, grant or transfer mentioned in subsection (1)(b) (“the transfer date”), and
(b) the first accounting period of the transferor for which that election had effect began before 1 July 2016.
(3) The relevant qualifying IP right is to be treated as being an old qualifying IP right in relation to the transferee if by reason of section 357BP it is an old qualifying IP right in relation to the transferor.
(4) Expenditure incurred prior to the transfer date by the transferor which is attributable to relevant research and development undertaken by the transferor is to be treated for the purposes of section 357BMB as if it is expenditure incurred by the transferee which is attributable to relevant research and development undertaken by the transferee.
(5) Expenditure incurred prior to the transfer date by the transferor in making a payment to a person in respect of relevant research and development contracted out by the transferor to that person is to be treated for the purposes of sections 357BMC and 357BMD as if it is expenditure incurred by the transferee in making a payment to that person in respect of relevant research and development contracted out by the transferee to that person.
(6) Expenditure incurred prior to the transfer date by the transferor in making a payment in connection with the relevant qualifying IP right which is within subsection (1A), (1B) or (1C) of section 357BME is to be treated for the purposes of that section as if it is expenditure incurred by the transferee in making a payment in connection with that right which is within one of those subsections.
(7) Expenditure incurred by the transferee in making a payment to the transferor in respect of the assignment, grant or transfer mentioned in subsection (1)(b) is to be ignored for the purposes of section 357BME.
(8) In this section—
“trade” includes part of a trade, and
“relevant research and development” means research and development which relates to the relevant qualifying IP right.
(9) For the purposes of this section research and development “relates” to the relevant qualifying IP right if—
(a) it creates, or contributes to the creation of the invention,
(b) it is undertaken for the purpose of developing the invention,
(c) it is undertaken for the purpose of developing ways in which the invention may be used or applied, or
(d) it is undertaken for the purpose of developing any item or process incorporating the invention.””
Amendment 115, in clause 60, page 116, line 9, for “357A” substitute “357A(1)”.—(Mr Gauke.)
Clause 60, as amended, ordered to stand part of the Bill.
Schedule 9
Profits from the exploitation of patents etc: consequential
Amendments made: 116, in schedule 9, page 330, line 30, at end insert—
“1A In section 357B (meaning of “qualifying company”), in subsection (3)(b)(ii), for “section 357A” substitute “section 357A(1)”.”
Amendment 117, in schedule 9, page 331, line 20, at end insert—
“( ) In subsection (6), in paragraph (a)(ii) of the definition of “relevant accounting period”, for “section 357A” substitute “section 357A(1)”.”
Amendment 118, in schedule 9, page 331, line 24, leave out paragraph 9 and insert—
“9 (1) Section 357CL (companies eligible to elect for small claims treatment) is amended as follows.
(2) In subsection (1) for “elect” substitute “make an election under this section”.
(3) In subsection (6) for “section 357A” substitute “section 357A(1)”.”
Amendment 119, in schedule 9, page 332, line 16, at end insert—
“13A In section 357EB (allocation of set-off amount within a group) in subsection (3)(a) for “section 357A” substitute “section 357A(1)”.
13B In section 357ED (company ceasing to carry on trade etc) in subsection (2)(c) for “section 357A” substitute “section 357A(1)”.”
Amendment 120, in schedule 9, page 332, line 18, at end insert—
“14A In section 357FB (tax advantage schemes) in subsection (4)(b) for “section 357A” substitute “section 357A(1)”.
14B (1) Section 357G (making an election under section 357A) is amended as follows.
(2) In the heading, for “section 357A” substitute “section 357A(1) or (11)(b)”.
(3) In subsection (1) for “section 357A” substitute “section 357A(1) or (11)(b)”.
14C (1) Section 357GA (revocation of election made under section 357A) is amended as follows.
(2) In the heading, for “section 357A” substitute “section 357A(1)”.
(3) In subsection (1) for “section 357A” substitute “section 357A(1)”.
(4) In subsection (5) for “section 357A” substitute “section 357A(1)”.”
Amendment 121, in schedule 9, page 332, line 28, at end insert—
“16A In section 357GE (other interpretation), in subsection (1), at the appropriate place insert—
“payment” includes payment in money’s worth,”.”— (Mr Gauke.)
Schedule 9, as amended, agreed to.
Clause 61
Power to make regulations about the taxation of securitisation companies
Question proposed, That the clause stand part of the Bill.
Rebecca Long Bailey
I want to say a few words about the clause; although it might not seem exciting at first glance, it really is, so listen carefully to what I am about to say.
Three principal themes underpin the Labour party’s approach to the provisions in clauses 61 and 64, which we will come to later—in particular, those relating to the taxation of financial products. First, we need to ensure that, when the UK leaves the EU, its arrangements for regulating taxation and financial activity serve the country best and protect it from abusive practices such as tax avoidance and financial crime. Those arrangements must demonstrate the highest levels of transparency and probity.
Secondly, we need to ensure that the infrastructure supporting the UK economy accords with international standards on taxation and regulation, including the relevant OECD and International Accounting Standards Board models, which are applicable to this Bill. Finally, we need to secure Britain’s place in the world by ensuring that it maintains the highest international standards.
The Bill’s proposals on the taxation of financial instruments may appear on the surface to be merely technical, but they raise a number of significant questions about the organisation of our economy and infrastructure in the near future. Clause 61 appears to be a simple extension of the corporation tax treatment of securitisation companies to the taxes Acts generally. However, in 2008 the non-existent regulation of securitisation structures amplified a medium-sized storm in the US real estate market, and it became a fully-fledged banking crisis. I would like to ask the Minister how closely HMRC and the Treasury have considered the risks that the provision will be used for tax avoidance purposes.
Experience suggests that, if we alter the basis on which tax is levied, financial institutions will attempt to create derivative products that generate losses for tax purposes on, before and after the transition between the two tax codes, as we saw in the case of Inland Revenue Commissioners v. Scottish Provident Institution 2003 and many other cases in Hudson’s “The Law on Financial Derivatives”.
Just in the reported cases, there are several examples of financial institutions using slippery derivative products, for want of a better phrase, to avoid tax liability, such as Prudential plc v. Revenue and Customs Commissioners 2008. In that case, Chancellor Morritt held that banks should not be entitled to dictate the tax consequences of their transactions by attributing particular descriptions to them. That sort of tax avoidance, using changes in the tax treatment of products, has been criticised by Professor Alastair Hudson as
“a veritable industry in off-the-peg tax avoidance schemes”
in his book “The Law on Financial Derivatives”. Has the Minister considered the misdescriptions that might be possible under this provision?
To return to the particulars of clause 61, securitisation structures operate by transferring assets—whether subprime mortgages, credit card receivables or similar cash flows—into off balance sheet special purpose vehicles. Ordinarily, the profits, or cash flows, received from those assets pass through the special purpose vehicle to the investors who have acquired bonds in the special purpose vehicle. Usually, the residual amounts—the focus of clause 61—that are left in the special purpose vehicle are small, compared with the sums paid to the investors. However, as with all such artificial financial structures, it is possible to manipulate those amounts.
If the residual amounts held by special purpose vehicles are to be saved from withholding tax, as clause 61 proposes, and are to be treated in a different manner for tax purposes—although the provision does not make plain exactly what the different tax treatment will be—that makes it possible for the payment flows through a special purpose vehicle to be raised artificially so that larger sums could benefit from this different tax treatment.
Will the Minister confirm what is stopping an unscrupulous financial institution involved in the off-the-peg industry of tax avoidance derivatives from passing large sums—otherwise subject to withholding tax as payments of interest, for example—through special purpose vehicles? Have the Government considered in detail how such cash flows should be treated to prevent artificial or abusive tax avoidance?
Furthermore, securitisation products, in the form of collateralised debt obligations, use complex derivatives as part of their structure—namely, credit default swaps. The purpose of credit default swaps has always been to permit two things: first, speculation on the creditworthiness of companies and Governments issuing bonds; and secondly, a form of artificial insurance. A feature of credit default swaps and all other credit derivatives is that they are flexible tools—so flexible, in fact, that they are ideal for manipulating tax statutes for tax avoidance purposes.
Professor Alastair Hudson has described the inherent flexibility of financial derivatives in his book “The Law on Financial Derivatives”, which I recommend to the Minister for his summer holidays. Professor Hudson states that
“different legal structures and different pricing structures can generate different commercial and structural results out of substantially similar subject matter”.
As he shows, it is possible for options contracts to be reorganised as swaps, and vice versa, so the possibilities for tax avoidance are endless. Consequently, it would be simple for financial institutions to repackage their payment obligations to achieve whatever characteristics are most helpful for tax purposes. I fear that clause 61 is really only the tip of the iceberg. There is a serious general point behind the specificity of my concerns about the clause.
The Chair
It may help all Committee members if I point out that if you want to take part in the debate—and everyone is encouraged to take part in the debate—it is usually a good idea to signify that by some means: a nod, a smile or even, more obviously, by rising to your feet. Otherwise, I am as much in the dark as everyone else.
Mr Gauke
Clause 61 will make a simple technical change to widen the scope of the power to make regulations about the taxation of securitisation companies included in the Corporation Tax Act 2010. It will enable the Government to make changes in regulations to remove uncertainty over the tax treatment of what are referred to as residual payments in the securitisation sector. That uncertainty generates a large number of requests to HMRC for clearances, which creates an administrative burden on both businesses and HMRC. Making the tax position clear will improve the customer experience. It has been welcomed by the securitisation sector and will improve the UK’s competitiveness as a financial centre.
Securitisation companies are a particular type of financial entity in which financial assets such as loans are transferred to a special purpose vehicle as security for debt issued to investors in the capital markets. Securitisation is an important way of getting more credit or liquidity flowing into the economy and of keeping down the costs of UK businesses’ borrowing and finance. The securitisation regime has worked well since its introduction, but the current rules have been in place since 2006. They need updating, to reflect recent changes to accounting standards and market developments.
One area of uncertainty that has grown as the securitisation sector has developed over recent years involves residual payments. Residual payments arise because securitisation companies typically contain more financial assets than are likely to be required in order to repay investors, meet transactions costs and retain a small profit. That excess protects against possible poor performance of the assets and allows the securitisation company to obtain an attractive credit rating. The uncertainty that arises is that residual payments may, in limited circumstances, be treated as annual payments for tax purposes and therefore be subject to withholding tax under the Income Tax Act 2007. Whether or not residual payments are treated as annual payments will depend on the facts of each case.
Uncertainty over the withholding tax rules affects the ability of law firms to issue a legal opinion on which ratings agencies can base the credit rating of the securitisation. That has a negative impact on the competitiveness of the UK securitisation sector. Currently, the uncertainty is addressed by companies writing to HMRC to seek clearance that residual payments will not be annual payments and so can be paid without withholding tax. That is an administrative burden for businesses. We would like to clarify the position by removing the potential withholding obligation in regulations, but the existing power is not wide enough to do so.
The changes made by the clause will amend the existing power to make regulations concerning the application of the Corporation Tax Acts to securitisation companies. The clause will extend the power to cover the wider taxes Acts, including the income tax Acts. That will permit changes to be made in regulations to ensure that the requirement to deduct income tax from annual payments will, as intended, not apply to residual payments made by securitisation companies. It will have a negligible cost to the Exchequer. Updated regulations under the amended power will be developed in consultation with interested parties.
The hon. Member for Salford and Eccles raised the role of securitisation in the financial crisis, which we could have spent plenty of time debating. However, while there were significant problems and faults in the US securitisation market, the UK and EU securitisation markets remained relatively robust. The global regulatory framework for securitisation has been completely overhauled since the crisis, including through increased capital requirements, reform of the oversight of credit ratings agencies and improved transparency rules.
The clause will not mean that securitisation companies pay less tax or face less scrutiny from HMRC. There is no statutory definition determining whether a payment is an annual payment. That must be decided based on characteristics established in case law. HMRC’s view is that the overwhelming majority of residual payments will never be annual payments. The change will clarify the position by placing the tax treatment on a statutory footing, removing uncertainty for taxpayers. There is no policy change here.
In terms of what is to stop large sums from being artificially passed through these vehicles, the notes have to be issued wholly or mainly to external investors. The SPVs are conduits and do not retain the profits. On how we treat such cash flows to prevent avoidance, under the payment rules an SPV is taxed on a small retained profit that has to be paid out to investors within 18 months.
This simple change to primary legislation has been welcomed by the industry. It will allow changes to be made in regulations to make the tax rules applying to securitisation companies work as intended. It will also make it easier for UK businesses to raise finance through securitisations, making those businesses and the UK securitisation sector more competitive. It will remove uncertainty over the appropriate tax treatment and need for businesses to consult HMRC on this issue before entering into securitisation transactions and it will ensure that the tax treatment of residual payments will be treated consistently. I therefore hope that the clause will stand part of the Bill.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
Hybrid and other mismatches
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 10 be the Tenth schedule to the Bill.
Rebecca Long Bailey
The same general points that I made about clause 61 broadly apply to this clause. The United Kingdom finds itself occupying a new place in the world and the provisions in the clause relate to the difficult business of double tax treaties. Such treaties currently need to be negotiated on a bilateral basis with countries that are outside large trading blocs such as the EU. They are therefore a model for the sort of issues that will be vital for the UK outside the EU.
There are model double tax treaties created by the OECD, which will guide our work. A future Labour Government would be outward looking in forging alliances of the sort possible under the OECD umbrella to create viable tax regulation and financial regulation internationally. However, there are some contexts in which the provisions in schedule 10, which the clause introduces, appear to be a little vague. For example, proposed new section 259BD(8) prevents a company from being “under taxed”, by identifying the highest rate at which tax is charged and asking whether that is lower than the company’s full marginal rate of tax should have been.
That is to be done by taking into account, on a “just and reasonable basis”, any credit for underlying tax. The reference to just and reasonable appears somewhat vague when contrasted with, for example, provisions governing international accounting standards in earlier clauses. As a survivor of the legal world, will the Minister confirm what “just and reasonable” is intended to mean and how HMRC will use that broad measuring stick in practice? Does he think that is a sufficiently clear mechanism for identifying whether sufficient tax has been paid, or do the Government simply seek to grant HMRC as much slack as they can?
Mr Gauke
Clause 62 and schedule 10 make changes to tackle multinationals that avoid UK corporation tax through cross-border business structures known as hybrid mismatch arrangements. We are building on the new rules announced at autumn statement 2014 and extending them, not least so that they also cover overseas branches, leading the way on implementing international best practice in this area.
The changes will neutralise the tax effect of hybrid mismatch arrangements and effect the recommendations of action 2 of the G20-OECD base erosion and profit-shifting project. In addition, they will neutralise the tax effect of hybrid mismatch arrangements involving permanent establishments. That means that the measure will tackle aggressive tax planning where, within a multinational group, either one party gets a tax deduction for a payment while the other party does not have a taxable receipt or there is more than one tax deduction for the same expense. The aim is to eliminate the unfair tax advantages that arise from the use of hybrid entities, hybrid instruments, dual resident companies and permanent establishments. That will encourage businesses to adopt less complicated cross-border investment structures.
In 2013 the OECD and the G20 countries adopted a 15-point action plan to address base erosion and profit shifting. BEPS refers to tax-planning strategies that exploit gaps and mismatches in the tax rules of different countries to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity but where the tax rates are low, resulting in little or no overall corporate tax being paid. The BEPS action plan is aimed at ensuring that profits are taxed where the economic activities generating the profits are performed, and where value is created.
Rebecca Long Bailey
I will be brief. The provision raises some seemingly technical questions on the taxation of loan relationships and derivatives—concepts that are closely linked in tax law. As with the other clauses, it requires deeper thought as the UK prepares to leave the EU. What precise changes, which HMRC has presumably observed in the financial markets, have prompted the reforms proposed in clause 63?
The role of insurance companies, particularly naive participants such as AIG before 2008, in derivatives markets must give us all pause for thought when considering how to regulate and tax them in the future. Those enormous insurance companies are involved in vital financial services for our citizens as well as extraordinarily complex financial instruments, such as credit default swaps. We must therefore be concerned that the reforms to the treatment of insurance companies are considered necessary. Will the Minister confirm what work the Treasury has done on assessing the future treatment of derivatives and similar markets and their impact on the UK economy? It is important for the future health of the UK economy that careful analysis of those markets is conducted as we prepare to leave the EU.
Mr Gauke
Clause 63 makes changes to ensure that corporation tax rules applying to insurance companies carrying on long-term business produce the appropriate policy results. A new regime for the taxation of life insurance companies was introduced in the Finance Act 2012 and was widely welcomed. However, putting that into practice has uncovered some specific issues that must be resolved for the regime to operate smoothly and effectively. HMRC has worked with industry to identify those issues, which relate to three main areas: intangible fixed assets, deemed income and trading losses.
Clause 63 will make minor technical changes to that legislation to ensure that it operates as intended. The cost to the Exchequer is negligible. For intangible fixed assets, clause 63 will allow debits to be set against the income for the accounting period in which they are incurred. That will bring the rules into line with those for companies that are not life insurers. For deemed income, clause 63 will prevent unused interest expenses from being set against the minimum profits charge in any circumstances. That will mean that any such charge is always fully taxed. For trading losses, clause 63 will mean that their use is no longer restricted to a company’s net position on its derivative contracts in the same period, which will bring stability into that calculation. The changes are relatively minor in nature and will have a small impact on insurers’ profits. However, they are important as they will ensure that the legislation delivers the intended policy objectives.
As I said, the Finance Act 2012 introduced a fundamental rewrite of life insurance company taxation. Such major reforms are always likely to necessitate some minor adjustments when put into practice and HMRC has worked with the industry to identify a handful of issues where the legislation does not work as intended. The changes will simply ensure the legislation operates as initially intended, which is why we are making them. Of course, all these matters are kept under review. Again, the hon. Lady raises the point about EU membership and so on. I am not sure I have much to add to what I previously said on that matter. I hope that the clause stands part of the Bill.
Question put and agreed to.
Clause 63 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mel Stride.)
Finance Bill (First sitting)
David Gauke Excerpts(7 years, 10 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship, Sir Roger, and I welcome you to the Chair. It is a great relief to see you here today; your guidance will be much appreciated by all the Committee members from right across the House.
Let me take this opportunity to say a bit about clause 1 as well as responding to amendment 6. Income tax is the Government’s biggest revenue source, making up 32% of revenues in 2015-16. The annual charge legislated for by Parliament in the Finance Bill is essential for the tax’s continued collection.
Clause 1 states that UK taxpayers will pay income tax at the same rates as in 2015-16, meaning that we meet our commitment to ensuring that there will be no increases to the main rates of income tax in this Parliament. When that is taken together with commitments on the personal allowance and the higher rate threshold, which I will come to, it means that we are delivering an income tax system in which working people on low and middle incomes receive tax cuts. The latest statistics show that the top 1% of earners have paid over 27% of income tax receipts—more than in any year under the last Labour Government.
Let me turn to amendment 6, which was tabled by the Opposition. As Finance Bill regulars will know, it is a familiar one. The amendment proposes that the Chancellor publish a report reviewing the impact of setting the additional rate of income tax at 45p and 50p within three months of the passing of the Act, and on the effect on the tax liabilities of typical individuals with annual incomes of over £150,000.
As I have said on a number of occasions, for such analysis to be credible, it needs to look at how such different income tax rates affect individual behaviour, for example through affecting work incentives. Simply looking at theoretical income tax liabilities when changing taxes is not enough. Further, this is something that anyone can do if they have the time and inclination.
The Government already consider the behavioural impact of decisions taken, as did the report by Her Majesty’s Revenue and Customs on the additional rate, which was published at the 2012 Budget. That report concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast, due to large behavioural effects. It even said that it is quite possible that the 50p rate could have reduced income tax revenue instead of increasing it. Indeed, the evidence so far is that despite the reduction of the additional rate, the top 1% of income tax payers are contributing a greater share of income tax receipts than in any year under the last Labour Government. In addition, the 50p rate was one of the most uncompetitive income tax rates in the G20. It would be illogical to re-introduce a tax rate that is ineffective at raising revenue from high earners.
On a practical level, the Government need to spend their resources effectively. The Treasury and Her Majesty’s Revenue and Customs have no plans to introduce rolling annual reports on the impact of changes to tax rates. That notwithstanding, the Government always keep tax rates under review and monitor receipts. On that basis, the amendment is unnecessary
We accept that income tax receipts can move from one year to another, and that there is a degree of flexibility as a consequence of changes to rates. We have always been clear that there is some income shifting in response to the changes to income tax rates, just as there was under the previous Government, when they introduced the additional rate of tax. We made it clear that we expected that to happen. However, it is clear that the 50p rate was distorting and an economically inefficient way of raising revenue. The latest statistics show that, following the reduction in the top rate of tax to 45p, the amount of tax paid by additional rate taxpayers is expected to grow from £46 billion in 2013-14 to £47.3 billion in 2016-17.
Clause 1 ensures that the Government can collect income tax for the year 2016-17. It means that the main rates of income tax faced by UK taxpayers will remain unchanged, and will help the Government to achieve their aim of a tax system that is fair for everyone, while rewarding those who want to work hard and progress. I therefore propose that the clause stands part of the Bill without the amendment proposed by the Opposition.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
I beg to move amendment 3, in clause 2, page 2, line 4, at end add—
“(3) The Chancellor shall assess the effect on taxation revenue of increasing the basic rate limit in line with the Consumer Prices Index for 2017-18 and by no more than increases in that index until 2021-22.”
It is a great pleasure, Sir Roger, to be with you again in this Public Bill Committee. Last year I served on this very same Committee, and it led to one of the great interventions, which was of great assistance to me at the time. I hope that there is not the same occurrence this time. I can see that some hon. Members are rather confused; I will explain it to them later.
Some hon. Members will be aware that I raised a point of order in the House about whether, in the current circumstances—after the referendum—we should be proceeding as we are with the Bill. To my mind, more important things have occurred that need debating. None the less, we are here. I intend to adopt the rather rare, for me, practice of speaking in this Committee only when I have something to say. Our contributions may be slightly fewer than they were in the past, but they will be no less worthy—[Interruption.] How helpful I am.
This is a rather simple amendment, which we will not press to a Division, probing the Government on the proposed increase in the basic rate limit. Particularly at a time of austerity, when people are having to make such great sacrifices, the decision to give this boost to those with significantly above-average earnings strikes us as worthy of further explanation from the Government. The amendment is a sensible proposal that the Government report on and model what would happen if the rise in the basic rate limit was restricted to consumer prices index levels year after year. It is so self-explanatory that I need not detain the Committee any longer.
Mr Gauke
It is a great pleasure to respond to the hon. Gentleman. I note that he will speak only when he has something to say—an approach that he contrasted with that of the previous year. I feel that that is a little harsh on his contributions last year, which were always valuable and welcomed by the Committee. No flies on him; that is the recollection of one or two of us.
Before turning to the amendment, let me say a word about clause 2, which sets the income tax basic rate for 2017-18. The change takes a significant step towards meeting my party’s manifesto commitment to increase the threshold at which people pay the higher rate of tax. It will ensure that the Government continue to encourage those who want to progress, while lifting over half a million people out of the higher tax band altogether. This Government have already made significant progress on cutting taxes for working people and ensuring that those on the very lowest incomes pay no income tax at all.
In addition to supporting the low-paid, the Government are committed to supporting those on middle incomes who want to progress. The number of families who have to pay the higher rate of income tax has grown almost without fail over the past three decades. Upon its introduction in 1988, it was paid by around one in 18 taxpayers. Without the action taken at Budget 2016, it was projected to rise to one in six—that is more than 5 million individuals paying income tax at 40%. That is why we committed to increasing the point at which the higher rate of income tax is applied to £50,000 by the end of this Parliament. Summer Budget 2015 took the first steps to meeting that commitment, increasing the higher rate threshold from £42,385 in 2015-16 to £43,000 from April this year.
This Finance Bill goes further. Clause 2 will increase the basic rate limit from £32,000 in 2016-17 to £33,500 in 2017-18. That is the amount of income on which the 20% tax is due. The income tax higher rate threshold, which is the sum of the personal allowance and the basic rate limit, will therefore increase from £43,000 in 2016-17 to £45,000 in 2017-18. Above that level, 40% tax is due. That increase to the higher rate threshold will be the biggest above-inflation cash increase since it was introduced by Lord Lawson in 1988-89. By 2017-18, some 585,000 fewer individuals will be paying the higher rate of tax than did in 2015-16—a reduction of more than 10%. As a result, a higher number of taxpayers on modest incomes will benefit from a lower rate of tax, including our most highly qualified and experienced nurses and teachers.
The amendment requests that the Government report on the impact of increasing the basic rate limit in line with inflation, rather than increasing the basic rate limit as set out in clause 2. I can confirm that the cost to the Exchequer of increasing the basic rate limit to £33,500 was published in the 2016 Budget. As such, the relevant information is already freely available to the hon. Gentleman and to members of the public. I can also confirm, however, that not implementing the clause would mean increasing the income tax paid by some families by £220 in 2017-18, dragging more middle earners into paying the higher rate of tax and breaking an important manifesto commitment that the British people elected the Conservative party to deliver. I urge the Committee to reject the amendment.
The clause will allow the Government to make progress on our commitment to increasing the threshold at which people pay the higher rate of tax, while supporting those on middle incomes who want to progress. It will ensure that there are more than half a million fewer higher rate taxpayers in 2017-18, compared with 2015-16, and will cut the income tax bill of millions of taxpayers on modest incomes. I commend the clause to the Committee.
The Chair
Mr Mullin, you now have the opportunity to respond. You must also indicate whether you wish to press your amendment to a vote or withdraw it.
Roger Mullin
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clause 3
Personal allowance for 2017-18
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 3 sets the income tax personal allowances for 2017-18. The change will help working people to keep more of what they earn, and it is a big step towards keeping our manifesto commitment to a £12,500 tax-free personal allowance by the end of the Parliament. The Government’s record on personal allowances is already strong. Over the previous Parliament, the personal allowance increased by more than 60%, from £6,475 in 2010-11 to £10,600 in 2015-16. Our reforms have already taken 4 million people out of paying income tax altogether.
The Government want to go further by increasing the personal allowance to £12,500 by the end of the Parliament and by ensuring that no one working 30 hours a week on the national minimum wage pays any income tax at all. Clause 3 marks another significant step towards our meeting those commitments by raising the personal allowance from £11,000 in 2016-17 to £11,500 in 2017-18 —an increase of £500. The change made by the clause will ensure that 30 million people pay less tax in 2017-18 than at the start of this Parliament, with 1.3 million taken out of paying income tax altogether. Therefore, by April 2017, a typical basic rate taxpayer will pay over £1,000 less income tax than when we took office six years ago.
Clause 3 builds on the Government’s determination to support those in work by ensuring that people can keep even more of the money they earn. It takes a significant step towards meeting our commitment to raise the personal allowance to £12,500 and means that more of the lowest-paid are taken out of paying income tax altogether. I commend the clause to the Committee.
Rob Marris
We support the clause, but I caution the Government that, in terms of the benefits it will produce for lower-income families, there is a law of diminishing returns, particularly for those who are in part-time paid employment. They will already be below the income tax threshold of £11,200, which the clause will raise to £11,500. That rise will not benefit such families at all.
I urge the Minister to look at reviewing national insurance contribution thresholds, so that there is greater alignment. I am not suggesting complete alignment, because it is a national insurance scheme and people receive certain benefits or prospective benefits in the comfort of knowing that, having paid national insurance contributions, they have a health service, unemployment benefits and disability benefits, were they to be injured at work and so on. They benefit from that insurance, even if they do not need to draw upon it, as they would hope not to—who wants to be unemployed or in hospital, or whatever?
The Government need to review the thresholds, because there is a growing discrepancy for low-income families between the relatively benign nature of the income tax regime and how national insurance contributions bite at much lower levels of income.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 39 stand part.
That schedule 6 be the Sixth schedule to the Bill.
Mr Gauke
Clause 4 will introduce a personal savings allowance that means basic rate taxpayers can receive up to £1,000 of interest or other savings income without any tax being due. Higher rate taxpayers can receive up to £500. Because the vast majority of taxpayers will have no tax to pay on any of their savings income, clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay.
As the Committee will be aware, over recent years low interest rates have helped households and businesses through difficult economic times by keeping mortgage payments down, but at the same time, low rates have made it difficult for people’s savings to grow. Economists, including Nobel prize-winning economist James Meade and Sir James Mirrlees, have long pointed out that ordinary savings are over-taxed compared with other types of investment. The Government believe that in such circumstances it is right to reward and support savers by cutting the tax they pay on their savings. In addition, customer research has shown that individuals do not understand how their savings are taxed. As a result, many low-income savers were paying too much tax by not registering bank accounts for gross interest, even though they were eligible to do so. Simplification of the system is therefore long overdue.
The changes will benefit 18 million savers. From this year, 95% of taxpayers will no longer need to pay tax on their savings. With the personal allowance, dividends tax allowance and 0% starting rate for savings, it is now possible for a taxpayer to receive up to £22,000 of income without paying any tax at all, and that is on top of any income from ISAs. As well as providing a tax cut for millions of savers, the change also simplifies the rules. The vast majority of savers will have no tax deducted from their savings income and will have no tax to pay or reclaim. Most will therefore have no need to contact HMRC about their savings. Crucially, the change removes the possibility that lower-income savers will pay too much on their account interest.
For the minority who do still have tax to pay, most will declare their savings income by completing a tax return, as they currently do. In other cases, where a taxpayer does not complete a return, HMRC will collect tax through pay-as-you-earn, where possible. That will involve changing tax codes based on the information that customers or banks and building societies provide about account interest received or paid.
Clause 4 will introduce a new nil rate of tax for savings income within an individual’s savings allowance. Each individual will have an annual savings allowance of £1,000, unless they have any higher rate income for the year, in which case their allowance will be £500, or any additional rate income, in which case their allowance will be nil. The allowance can be used for any of the individual’s savings income. It also includes income from alternative finance arrangements, income equivalent to interest, purchased life annuity payments and gains from certain contracts for life insurance.
Clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay. The clause will add bonds offered by National Savings and Investments, including its highly successful 65-plus guaranteed growth bonds, to the list of products that pay interest without tax being deducted.
The changes made by those clauses will provide the most significant reform to the taxation of savings for a generation. That will reward and support millions of savers by reducing the tax they pay and provide a long-overdue simplification of tax rules that have been poorly understood in the past. I therefore hope that the clauses will have the support of both sides of the Committee.
Rob Marris
I thank the Minister for that lucid explanation. I fear that this measure may not be the simplification that he prays in aid. Taken in reverse order, clause 39 is, in a welcome sense, rough and ready, with a £1,000 allowance or nil rate for basic rate taxpayers—call it what one will, but that is important for the accountants and I concede that I do not entirely understand the difference. For a higher rate taxpayer, that figure drops from £1,000 to £500. My understanding from a press release issued in February by the Low Incomes Tax Reform Group, to which I am indebted, is that the drop is a cliff edge, so someone who moves into the higher rate tax band finds their allowance suddenly drops from £1,000 to £500 on the tax at source proposals under clause 39.
If there is a cliff edge, I urge the Government to look at that again, though I appreciate that that is difficult when going for the rough and ready simplification that we broadly support. However, taking these sorts of measures together, it is not clear that there will be the simplification that the Opposition and the Government would wish for. There is often a balancing act when various measures interact, and we will come on to that.
On simplification, the Low Incomes Tax Reform Group fears—I understand this fear—that a number of taxpayers will find it difficult to disaggregate, work out and understand the interconnection between the tax-free savings allowance, the starting rate for savings and the tax-free £5,000 dividend allowance, which is all to do with what we used to call unearned income. That is a problem.
The cliff edge is a problem, though it may be one we have to accept for simplification. However, in terms of the interaction, I start to get quite questioning when the Minister helpfully gives us an example—he will correct me if I have got it wrong—where, in a certain confluence of circumstances, someone could have an income of £22,000 plus ISA income on top and be paying no income tax at all. In particular, later in the Bill—I cannot remember the clause but the Minister will—we will get on to heritable ISAs, which allow surviving spouses to take over ISAs and therefore have the benefit of the tax advantage of the deceased’s ISAs.
We would all like those at the lower end of the income scale to get a better deal on income tax. That is what progressive tax is about. We might interpret how progressive it should be, as we did in clause 1, and so on, but as an overall concept, I think there is broad support for the progressive nature of income tax in our society as a measure of those with the broadest shoulders and so on. However, we have that example of someone who could have an income well above £22,000: because ISAs have been around for so long, there are people with £1 million in ISAs and all the income on that is tax free. That is quite legitimate and not immoral at all as any of us would see it; they just built it up year on year, using the ISA allowance for however many years ISAs have existed, which is perhaps 25 years. Because of the interaction of various measures, people can now have quite a substantial income and pay no income tax at all on it. I get a little bit uneasy about that, but overall we support clause 4 and clause 39.
Roger Mullin
This is a very important move by the Government, and we broadly welcome it for two main reasons. First, as the Minister has already rightly indicated from comments by people such as Professor Mirrlees and others, ordinary savings have been overtaxed for many years. Ordinary savings are increasingly important for a lot of people who have lived their working lives on modest incomes. For example, there was a demonstration yesterday by Women Against State Pension Inequality—the so-called WASPI women, many of whom have very modest savings. The measure is of some assistance, albeit small, to many of the people who are in the most vulnerable of circumstances. That must be welcomed.
Secondly, there is always the dilemma of simplification. When moving towards something that is relatively sophisticated, trying to simplify it normally introduces some hazards, so I am particularly interested in the Minister’s response to the questions posed by Labour Front Benchers in that regard. On the whole, we think the right thing is being done, so we will support it.
Mr Gauke
I am grateful to both hon. Gentlemen for the points raised on these measures, and I am grateful to the hon. Member for Kirkcaldy and Cowdenbeath for his strong support. He is absolutely right on the concerns of the overtaxing of ordinary savings. The hon. Member for Wolverhampton South West essentially raised two concerns—one about cliff edges and one about circumstances that could involve a substantial amount of income on which no tax is paid. My first point is that both circumstances are likely to be pretty unusual.
First, the allowance has been set at a level at which 95% of savers will not have tax to pay on their savings income, so the question of a cliff edge simply does not apply for the majority of savers. Had we not designed it in such a way, and had there been a differential treatment in terms of the size of allowance for higher rate taxpayers versus basic rate taxpayers, I suspect the Committee would criticise us for the fact that the largest beneficiaries, in terms of the cash benefit, would be higher rate taxpayers and not basic rate taxpayers.
The design of the personal savings allowance means that no one can gain by more than £200 a year, regardless of their circumstances, which is an important means to ensuring that there is no disproportionate benefit to higher rate taxpayers. That is why there is a difference. Our concern is that trying to address the cliff-edge problem would add a degree of complexity to the tax system that would be unfortunate and disproportionate, given the nature of the issue that has been identified.
Secondly, I certainly do not deny that someone could have £22,000 of tax-free income with a combination of all the various policies in this area. That is absolutely true if we take into account the tax-free personal allowance, the starting rate for savings, the personal savings allowance and the dividend allowance. However, in reality that is an uncommon set of circumstances that we believe will be extremely rare. Again, it is not apparent to me how we could try to address that problem without adding considerable further complexity—for example, a system in which, if someone made use of one allowance, they could not use another allowance—and we would be rightly open to criticism for adding that unnecessary complexity to the system.
We are trying to end the distortive effects that we have had up to now, to come back to the comments of Professor Mirrlees and others on the effect of the existing taxation system on savings. That is why we have taken these decisions. I hope that that helps the Committee and that, notwithstanding the perfectly fair points made by the hon. Member for Wolverhampton South West, it will support these clauses.
Clause 4 ordered to stand part of the Bill.
Clause 5
Rates of tax on dividend income, and abolition of dividend tax credits etc
Mr Gauke
Clause 5 and schedule 1 make changes to the taxation of dividends by abolishing the dividend tax credit and introducing a new £5,000 tax-free dividend allowance. They will also set the tax rates charged on dividend income above the dividend allowance at 7.5% for dividend income within the basic rate band, 32.5% for dividend income within the higher rate band, and 38.1% for dividend income within the additional rate band. The dividend trust rate will also be increased to 38.1% and so will continue to mirror the highest rate of dividend tax. These changes will raise more than £2.5 billion a year by the end of this Parliament. As well as helping to reduce the deficit, these reforms have enabled the Government to reduce corporation tax by addressing the growing incentive for individuals to incorporate in order to lower their tax bill.
The reforms also offer much-needed simplification to an outdated, opaque and complex system. The current system of tax credits on dividends is a legacy from the days of advance corporation tax, which some Members may remember. That system was designed more than 40 years ago, when corporation tax was more than 50% and the total tax bill on dividends for some people was more than 80%. Tax rates have fallen significantly since then and advance corporation tax has been abolished. Since the dividend tax credit was made non-payable, leaving it as a notional tax credit for use only in tax computations, it has been an outdated and complex feature of the tax system. The Government, along with the Office of Tax Simplification, have worked hard to simplify the tax code across a wide range of areas, and we will continue to do so over the remainder of this Parliament. Clause 5 forms part of that agenda.
The reforms enacted by clause 5 also play their part in the Government’s long-term economic plan. Since 2010 the Government have presided over significant reductions in corporation tax in order to support investment and growth. That is a central part of the Government’s economic strategy. The strategy is working: 2.25 million jobs have been created by the private sector since 2010. Overall, cuts to corporation tax delivered since 2010 will be worth almost £15 billion a year to business by the end of this Parliament.
However, lowering corporation tax does increase the incentive for people to incorporate and remunerate themselves through dividends rather than salary. That behaviour already creates a significant cost to the Exchequer. The Office for Budget Responsibility estimates that new incorporations will cost an additional £2.4 billion a year by the end of the Parliament. Without these changes to dividend tax, the OBR estimates that the cost of the new incorporations will be nearly £800 million higher a year by 2020, making these reforms an important part of this Government’s fiscal plan to reduce the deficit.
Clause 5 will spell the end of the dividend tax credit, replacing it with a much simpler tax-free dividend allowance. In practice, that means that, beyond that allowance, the headline rates of dividend tax will be the rates of tax that are actually paid. Clause 5 will also set the dividend tax rates, as outlined in my introduction, and schedule 1 will make consequential amendments required to introduce these changes.
As a result of these changes, around one million individuals will benefit from a tax reduction on their dividend income and 95% of all taxpayers will either gain or be unaffected. The new £5,000 dividend allowance will protect ordinary investors, meaning that only those with significant amounts invested in shares, or who take a significant part of their income as dividends, will pay more tax.
The Government have tabled seven amendments to schedule 1. The amendments result from technical oversights during the drafting process and will not materially affect the measure. Amendment 127 will stop tax being treated as paid on certain types of income received on shares held in an estate. That will align the taxation of that income with other taxpayers and other types of income received by the estate. Beneficiaries will be given a credit for the tax relief paid on their income. Overall, the change will not increase the tax that is due.
Amendment 128 will ensure that all company distributions received by members of partnerships will continue to be taxed on the tax year basis, rather than by reference to the partnership’s accounting period. That will provide consistency of treatment for all partnerships receiving that type of income, and remove the need for more complicated transitional rules.
Amendment 130 will ensure that the beneficiary of a trust receives full credit for all the tax already paid by the trustee. That will prevent income being taxed twice. Amendments 129, 131 and 133 are consequential amendments following those first three changes.
Amendment 4 would require the Chancellor to report to Parliament on the impact of the dividend tax reforms on the incomes of directors of microbusinesses within six months of the passing of the Bill. That would require information from the self-assessment process that would not be available until 2018, so the amendment would be impossible to deliver in practice.
More fundamentally, small company owners have benefited from a range of recent tax changes made by the Government, including, for example, cuts to corporation tax and business rates, and the introduction of the employment allowance. The Government therefore believe that it would paint only a partial picture to examine just the impact of the dividend tax changes. Of course, the Government keep all tax policy under review and assess its impact on an ongoing basis.
It is customary at this point for me to try to urge the hon. Member for Kirkcaldy and Cowdenbeath to withdraw his amendment. Perhaps on this occasion I should not urge him to withdraw the amendment but urge the Committee to reject his amendment. That is very much in his hands.
I will briefly pick up a couple of points made by hon. Members. I was asked why we have not undertaken a full assessment of the impact on owners of microbusinesses. I would just point out HMRC does not have ready access to data on owners of microbusinesses as a specific group of firms to enable a separate assessment for this group in advance of the measure taking effect. However, the Government have considered the general economic impact of the changes. As the tax information impact note sets out, the measure is not expected to have any significant macroeconomic impacts.
Mr Gauke
I am grateful for the hon. Lady’s concern about my back, which is appreciated.
I want to reiterate a point I made earlier, which is that one behavioural impact of the current tax system is that it tends to encourage people to incorporate. The tax system tends to favour incorporated microbusinesses over those that are unincorporated. It is not obvious that that should happen.
The other point, of course, is that we continue to be engaged with organisations such as the FSB, and the Government have done a lot to support microbusinesses. However, one behavioural effect in the light of what has happened with corporation tax reductions, which I strongly defend, is that people who otherwise would not incorporate have been doing so. Often they face burdens and form-filling that they probably do not want, but they incorporate for an understandable reason: to take advantage of a more beneficial tax regime. However, I think that we should seek to rebalance that, if I may put it that way.
I, too, have met Jason Kitcat of Crunch Accounting. We have looked at his analysis and there are some complicated issues with regard to the impact of the changes. However, I reiterate that the dividend tax remains progressive overall. Those with higher incomes will pay more tax on their dividends than those on lower incomes. Achieving a perfectly smooth result would require a more complex system, and that is why we have not gone down that route. However, we continue to be engaged. I hope that I have provided the Committee with some reassurance.
Roger Mullin
I thank the Minister for his comments, some of which have been helpful, although they have not fully persuaded me that the Government have fully thought through the impact on microbusinesses. There are many reasons why very small business operators might choose to move from being unincorporated to being incorporated. For example, if such businesses have wide seasonal fluctuations in income, it is one way of adapting their way of taking income out of the business—without having to take out a regular income in the traditional way. That is only one of many reasons why a company might make that decision.
I am grateful to the Minister for his explanation. Although I shall withdraw the amendment, I intend to return to the matter on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 ordered to stand part of the Bill.
Schedule 1
Abolition of dividend tax credits etc
Amendments made: 127, in schedule 1, page 259, line 20, at end insert—
In section 651 (meaning of “UK estate” and “foreign estate”)—
(a) in subsection (4), for “680(3) or (4) (sums” substitute “664(2)(c) or (d) or 680(4) (sums not liable to tax and sums”, and
(b) in subsection (5), for “680(3) or (4)” substitute “664(2)(c) or (d) or 680(4)”.
In section 657 (tax charged on estate income from foreign estates), for “680(3) or (4)”, in both places, substitute “680(4)”.
In section 663 (applicable rate for purposes of grossing-up under sections 656 and 657), after subsection (4) insert—
(5) The aggregate income of the estate, so far as it consists of income within section 664(2)(c) or (d), is treated for the purposes of this section as bearing income tax at 0%.”
In section 670 (applicable rate for purposes of Step 2 in section 665(1)), after subsection (4) insert—
“(4A) The aggregate income of the estate, so far as it consists of income within section 664(2)(c) or (d), is treated for the purposes of this section as bearing income tax at 0%.”
In section 680 (income of an estate that is treated as bearing income tax)—
(a) in subsection (2) omit “(3) or”, and
(b) omit subsection (3) (sums treated as bearing tax at the dividend ordinary rate).
In section 680A (estate income treated as dividend income), in each of subsections (1)(a) and (4)(a), after “at the dividend ordinary rate” insert “or as bearing tax at 0% because of section 663(5)”.”
Amendment 128, in schedule 1, page 259, line 20, at end insert—
In section 854(6) (carrying on by partner of notional business: meaning of “untaxed income”)—
(a) omit the “or” at the end of paragraph (b), and
(b) after paragraph (c) insert—
“(d) income chargeable under Chapter 5 of Part 4 (stock dividends from UK resident companies), or
(e) income chargeable under Chapter 6 of Part 4 (release of loan to participator in closed company).””
Amendment 129, in schedule 1, page 265, line 31, at end insert—
( ) in paragraph (b), for “680(3)(b) or (4)” substitute “680(4)”, and”
Amendment 130, in schedule 1, page 265, line 39, at end insert—
‘( ) In section 498 (discretionary payments by trustees: types of tax to be included in trustees’ tax pool)—
(a) in subsection (1)—
(i) in Type 1 (tax at special rates for trustees on income not attracting tax credits), omit “2, 3 or”, and
(ii) omit Types 2 and 3 (tax at dividend trust rate on income attracting dividend tax credits), and
(b) omit subsection (2) (interpretation of Types 2 and 3).”
Amendment 131, in schedule 1, page 269, line 8, at end insert—
( ) the amendments in section 854(6) of ITTOIA 2005,”
Amendment 132, in schedule 1, page 269, line 9, leave out “sections 425,” and insert “section 425 except the amendment in section 425(5)(b), and the amendments in sections 498,”
Amendment 133, in schedule 1, page 269, line 33, at end insert—
‘( ) The amendments in sections 651 to 680A of ITTOIA 2005 (but not the repeal of section 680(3)(a) of that Act) and the amendment in section 425(5)(b) of ITA 2007—
(a) so far as they relate to income within section 664(2)(c) of ITTOIA 2005 (stock dividends), have effect in relation to stock dividend income treated as arising in the tax year 2016-17 or at any later time, and
(b) so far as they relate to income within section 664(2)(d) of ITTOIA 2005 (release of loans), have effect in relation to amounts released or written off in the tax year 2016-17 or at any later time.”—(Mr Gauke.)
Schedule 1, as amended, agreed to.
Clause 6
Structure of income tax rates
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 6 separates the rates of income tax that apply to savings income from the main rates of income tax. These changes ensure that the Government meet their commitment to guaranteeing that MPs representing constituencies in England, Wales and Northern Ireland are given the decisive say on any income tax rates that affect only their constituents. As hon. and right hon. Members are aware, earlier this year the Scotland Act 2016 received Royal Assent. It provides the Scottish Parliament with unprecedented powers over income tax, including the ability to determine the rates of income tax on earned income at the points at which those apply to Scottish taxpayers.
The fiscal framework agreed by the UK and Scottish Governments confirms that the powers will take effect in 2017-18. This means that from April 2017 Members of the Scottish Parliament will have the final say on Scottish income tax. As a matter of fairness, it is only right that, once these powers come into force, MPs in England, Wales and Northern Ireland are given the decisive say over rates of income tax that affect only their constituents.
The clause separates out the main rates of income tax into three distinct groups in order to meet this objective. The main rates will continue to apply to non-savings, non-dividends income, such as employment, pensions and property income, for taxpayers in England, Wales and Northern Ireland. The savings rates will apply to savings income of all UK taxpayers. The default rates will apply to a limited category of income tax payers who will not fall into either of these two categories; the category is made up primarily of non-residents and some trustee income. This will mean that, from April 2017, changes to the main rates of income tax will no longer affect Scottish taxpayers. Changes to the savings rates or default rates will continue to remain a reserved matter for the UK Government, in line with the recommendations of the Smith commission.
The clause will meet the Government’s commitment to ensuring that English votes for English laws applies to income tax. As a result, following the Finance Bill 2017, MPs representing constituencies in England, Wales and Northern Ireland will have a decisive say on the main rates of income tax that affect only their constituents.
Rob Marris
I appreciate the recommendation of the Smith commission, but the clause simply introduces a further layer of complication to the overall tax regime in the United Kingdom—we are still the United Kingdom, of course. As I understand it, we are now almost back to how it was in my youth—and, I suspect, yours as well, Sir Roger—with the differential rates on earned and unearned income and all that sort of stuff, because EVEL is now bleeding into the income tax regime, depending on whether a certain source of income is a reserved or a devolved matter.
I tend to agree with my hon. Friend the Member for Rhondda (Chris Bryant), the former shadow Leader of the House, who called the current EVEL procedure an “incomprehensible mess”. I also tend to agree with the Chair of the Procedure Committee, the hon. Member for Broxbourne (Mr Walker), who described the proposals as “over-engineered”. It will get incredibly messy unless there is full fiscal devolution—another debate we may or may not get on to today.
On a technical matter, I am indebted to the Chartered Institute of Taxation, as I suspect many hon. Members are, for its helpful suggestions, and this is an arena in which we get to put forward some of its suggestions. One of its technical suggestions is about the table in clause 6. It wonders whether including a table of rates in the statute, which is introduced as having a general effect, might as a matter of statutory interpretation cause issues if the general effect conflicts with a specific effect of other provisions. I hope the Minister can come up with a short piece on that, as regards statutory interpretation.
Kirsty Blackman (Aberdeen North) (SNP)
We argued against English votes for English laws all the way through. It was a dreadful initiative. The Government intend to reassess English votes for English laws at the end of this year and look at how it has worked, so I think we might be jumping the gun on some of the income tax measures. I will not move against them, but this is possibly doing things a bit too soon. Obviously, we will have our own Scottish rate of income tax, which we can set; it is fabulous that the devolved Administration will be able to do that. However, Scottish MPs will be excluded from discussions on income tax—a major, serious part of the Finance Bill—and that further compounds the difference between Scottish MPs and English and Welsh MPs in this House. The impression given to the general public by the change in the law to enable that to happen will be even worse, and that will hasten the break-up of the United Kingdom.
Mr Gauke
First, I will respond to the hon. Lady. I have certainly heard the comment by the likes of the hon. Member for Perth and North Perthshire (Pete Wishart) that the people of Scotland could not care less about English votes for English laws. He changed his position, and then found himself somewhat outraged by EVEL.
It is perfectly reasonable that when measures affect one part of the UK but not another, those MPs who represent the constituencies affected by it are able to express their views on it and vote on it, and that any such measure should have the support of people representing that part of the UK.
Kirsty Blackman
I understand that the issue is whether or not a measure affects people in those areas, but will the Minister not concede that changes on income tax rates might have a knock-on effect, albeit indirect, on people in Scotland, particularly those who live around the borders?
Mr Gauke
I suppose that is true, but if one wanted to follow the logic of that argument through, independence for Scotland would certainly have a very significant knock-on effect on people living south of the border, and I suspect that the hon. Lady does not advocate any future referendum on that issue requiring the consent of the whole of the United Kingdom. Sir Roger, we could debate this matter for some time, but I suspect the Committee’s appetite to do so is not great.
I do not think that this measure particularly adds to complexity. Non-savings income and non-dividend income, such as employment income, are already taxed differently from other sources of income, such as savings and dividends, so separating out in legisation the rates of income tax on non-savings and non-dividend income from savings will not introduce any real additional complexity. Employees, individuals and pension providers will see no changes to the level of tax paid or the way they pay tax as a result of legislation being introduced in the Finance Bill to separate out the main rates of income tax.
On the specific technical point made by the hon. Member for Wolverhampton South West, if I may, I will write to him on that.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 19
Standard lifetime allowance from 2016-17
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 4 be the Fourth schedule to the Bill.
Mr Gauke
Clause 19, together with schedule 4, reduces the lifetime allowance from £1.25 million to £1 million from April 2016. This change will restrict the benefits of pensions tax relief for the wealthiest pension savers, ensuring that the pensions tax system is fair, manageable and affordable.
Pensions tax relief is one of the Government’s most expensive reliefs. In 2013-14, the Government spent or forwent revenue of more than £34 billion on income tax relief for pensions. That has increased from £17.6 billion in 2001. About two thirds of pensions tax relief currently goes to higher and additional rate taxpayers. In the last Parliament, we took steps to control that cost, in order to ensure that pensions tax relief is appropriately targeted. This clause takes further significant steps to help us achieve that.
As I have said, the changes made by clause 19 will reduce the lifetime allowance from £1.25 million to £1 million. As I have also said, the lifetime allowance is the maximum amount of tax relief on pension savings that an individual can build up over a lifetime. Only 4% of individuals who are currently approaching retirement have a pension pot worth more than £1 million; reducing the allowance will make sure that the wealthiest pension savers do not receive a disproportionate benefit from the pensions tax system. However, it would be unfair for the lifetime allowance to be eroded by future inflation, so the clause also makes provision for the lifetime allowance to be uprated in line with the CPI from 2018, which will maintain fairness between those retiring this year and those retiring in the future.
Rob Marris
Oh, I do wish I could declare an interest in this clause.
We welcome the transitional protections—the fixed protection and the individual protection—and, indeed, the clause’s overall architecture. Schedule 4, though—not many of us are that technical about this stuff, but schedule 4 runs to 17 pages. Talk about complexity in the tax regime!
On the overall approach, I am delighted that the Government are moving in a direction that I urged on the Labour Government back in 2002, when the forgone revenue was £18 billion a year, from memory—it was £17.6 billion in 2001, as the Minister said—first because the pension tax regime is very regressive, and secondly because there was no evidence then that that tax relief encouraged people to save for pensions. Earlier this year I checked with the Library for an update on the situation, and it could find hardly any evidence that the forgone tax revenue, which is now £34 billion per year, encourages the very behaviour it is intended to encourage. It is probably the biggest single tax relief in the whole tax regime; it is regressive; and it does not do what it is intended to do. This pottiness continues, though clause 19 and schedule 4 make some welcome steps in the right direction.
I have a more minor point, connected to HMRC’s cuts in staff numbers—although those have increased a bit—and its unfortunate proposal to close a whole load of offices. The tax information and impact note published on 9 December 2015 estimated that the additional cost to HMRC of administering and monitoring the protection regimes would be £2.4 million for IT and—get this—£500,000 for staff resources over a five-year period. On average, that is £100,000 a year in extra staffing costs due to the protection regime.
Perhaps the Minister can assure me that I am misinterpreting the situation. If not, HMRC is living in a different world. As he pointed out, 4% of individuals might be caught by having a pension pot approaching or exceeding £1 million, and therefore might face the protection regime, whether fixed or individual. That 4% of pensioners is not just a whole lot of people, but people with around £1 million in their pension pot. They are likely to be some of the most educated and articulate pensioners, or prospective pensioners, and are certainly some of the most prosperous. I may be misinterpreting this, but does HMRC really think that an average of £100,000 a year in additional staffing costs will deal with the protection regime, the queries arising from it and so on? How will that 4% of pensioners or prospective pensioners who are likely to raise queries, quite properly, with HMRC be dealt with on £100,000 a year?
Mr Gauke
This is an area where HMRC has some experience, from making changes to the lifetime allowance. It is therefore in a position to assess how many customer contacts it will receive and is well placed to assess the various demands likely to result from the transitional arrangements. It is also worth pointing out that HMRC is moving to digital processes, allowing the organisation to reduce numbers and making processes simpler and easier to use, so that individuals can self-serve. I argue that the assessment was made in good faith, based on previous experience.
Rob Marris
I will enable the Minister to gather his thoughts. The figure that I have devolved upon—I appreciate that it is an average; £500,000 over five years is £100,000 a year—is, very roughly, three members of staff, depending on their seniority and so on. That is three members of staff dealing with, potentially, thousands of prospective pensioners of the sort who will, quite properly, get in contact. It does not seem enough. Am I missing something in the equation? Technology alone will not solve it.
Mr Gauke
On the ability to cope with additional phone calls and so on, let us remember that in some cases these people will be well advised. The hon. Gentleman makes the point that, often, they will be the people best placed to understand the changes, and many will also be well placed to make use of new technology. On the demands likely to be placed on HMRC over the next few years, it is difficult to argue that they are likely to be particularly significant. To make a point that applies more widely than the transitional regime, this is similar to what we have done in the past and there is some experience of how it will operate, so I think that it is reasonable.
HMRC will keep the matter under review. If there is evidence that further resources are needed to deal with it, then of course resources will be redeployed in that area. With that reassurance, I hope that this measure will have the support of the Committee.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 20
Pensions bridging between retirement and state pension
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 20 makes changes to help align the tax rules on the payment of bridging pensions for the introduction of the single-tier state pension. As the Committee will know, bridging pensions are paid by some occupational pension schemes for members who start to receive their scheme pensions but are yet to reach state pension age. The purpose is to level the amount of regular income that some members receive from the date they retire. When the individual reaches state pension age, their scheme pension is reduced by approximately the level of the state pension, thereby providing the individual with a level income throughout retirement.
Currently, the maximum amount by which the bridging pension can decrease is calculated by reference to the old state pension applied prior to April 2016. If no change were made to the legislation, any reductions made for members entitled to the new single-tier pension could result in unintended tax consequences for the individual concerned. The changes made by the clause, together with forthcoming regulations, will therefore enable schemes to reduce bridging pensions in an appropriate way when the members concerned become entitled to the single-tier state pension. The clause will allow pension schemes to continue to provide their members with a bridging pension from retirement to state pension age, which will provide individuals with a level income throughout retirement and prevent any unintended tax charges.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mel Stride.)
Finance Bill (Second sitting)
David Gauke Excerpts(7 years, 10 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
Welcome to the Chair, Mr Howarth; it is a great pleasure to see you again. I am pleased to see the Gale-Howarth team reunited.
The clause makes changes to simplify the administration of dependants’ scheme pensions. At present, when an individual who is entitled to a scheme pension dies, their dependants may be entitled to receive a scheme pension from the deceased’s registered pension scheme. The value of that dependant scheme pension must be tested annually to ensure that an individual has not avoided paying a lifetime allowance charge by setting aside excessive amounts to fund a pension for their dependants.
That test applies to all members who died on or after 6 April 2006, having reached age 75 and either started to take a scheme pension on a date from 6 April 2006 onwards or died without starting to take their scheme pension. That is the case even if their pension savings are small or with modest benefits for dependants where there is little chance of manipulating the lifetime allowance. As a result, the industry faces a substantial administrative burden, carrying out unnecessary tests on modest pension savings where the risk from abuse is low.
The changes made by the clause will remove the vast majority of dependants’ scheme pensions from the current test, thereby reducing the administrative burden for industry. New and simpler tests will be applied to determine whether the total of all the deceased’s pensions savings used to fund dependants’ scheme pensions are below a certain threshold. The threshold for this tax year will be either the total amount of the individual scheme pension at their death or, if higher, £25,000.
The clause also makes provision for an annual increase in both thresholds by 5%, or the rate of inflation if that is higher, so that more dependants’ scheme pensions are not drawn back into the current tests over time. The clause will exempt those cases where the deceased had already had all their pension savings tested against the lifetime allowance at age 75, before their death, or where the deceased had had enhanced protection since 2006, so that they are not subject to the lifetime allowance charge on their pensions during their lifetime. As a result of those changes, more than 90% of dependants’ scheme pensions will fall within the exclusions provided by the clause, which will mean that the current tests will focus on the larger dependants’ scheme pensions that remain, reducing administrative costs and making the scheme easier to operate.
The current tests serve a useful purpose as they prevent individuals from avoiding the lifetime allowance charge, but we want to reduce the administrative burdens where we can. The clause has been introduced to make the alteration of dependants’ scheme pensions simpler and to support the Government’s policy to reduce the administrative burden on UK industry. I hope the Committee will agree that the clause should stand part of the Bill.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Pension flexibility
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 134.
That schedule 5 be the Fifth schedule to the Bill.
Mr Gauke
The clause makes changes to ensure that the historic pension flexibility measures that we introduced last April are working as intended for everyone. As the Committee will be aware, from April 2015 individuals with defined contribution pension savings have been able to access their entire pension flexibly, subject to their marginal rate of tax. The Government introduced that historic reform because they believe that individuals who have worked hard and saved responsibly throughout their lives should be trusted to make their own decisions with their pension savings. In general, the flexibilities have been working well, and so far more than 230,000 people have benefited from pension flexibility in the first year of operation. However, there are a few minor points in the legislation that have not been working as intended. The Government therefore propose a series of small changes to ensure the new pension flexibility works for everyone.
The first change being introduced by the clause relates to serious ill health lump sums. Serious ill health lump sums are paid when an individual can produce medical evidence that they are expected to have fewer than 12 months to live. Before the introduction of pension flexibility, those lump sums were paid tax-free if the individual was under 75 and taxed at 45% if they were aged 75 or over. That was in line with the taxation of certain lump sum death benefits and was intended to ensure that tax considerations did not drive whether pension lump sums were taken before or after an individual dies.
From 6 April this year, the rules around death benefits have changed. Now, when someone dies having reached age 75, the lump sum death benefit is taxable at the marginal rate of the individual who receives it, not 45%. Under the clause, where someone takes a serious ill health lump sum having reached age 75, it will be taxed at the recipient’s marginal rate instead of 45%. The clause will therefore realign the tax treatment of serious ill health lump sums with that of the lump sum death benefits.
In addition, the clause makes changes to help people with a pension who have become seriously ill. Under the current rules, serious ill health lump sums can only be paid from the pension savings that have not been accessed at all. The current legislation was appropriate for a world in which people could either access the whole of their pension or not access it at all, but it now means that people could be disqualified from taking a serious ill health lump sum if they take a small lump sum from their pension and then become seriously ill later in life. The clause will remove the rule that prevents serious ill health lump sums being paid from the unaccessed portion of partially accessed funds. The changes bring the taxation of such lump sums into line with the treatment of comparable lump sum death benefits, while ensuring that there is flexibility in the system.
The second change relates to charity lump sum death benefits. Under current rules, when a pension scheme member dies leaving certain unused pension savings and uncrystallised funds, a lump sum death benefit can be paid to any beneficiaries, including a charity. That is tax-free if the member is under 75 at death, but the payment needs to be made within a two-year period, or it is taxed at a separate rate of 45% if paid to a charity. The changes being made by the clause will ensure that unused funds at the member’s death can be used to pay a charity lump sum death benefit completely tax-free, whatever the age of the member or length of time taken to pay.
The third change relates to dependants’ flexi-access drawdown funds. Before pension flexibility was introduced, children of a deceased member who wanted to claim funds from a drawdown account had to use all of this fund by the age of 23. Any remaining funds paid to them after reaching that age would be taxed at rates of up to 70%. The reforms last year enabled any nominated beneficiary, including a member’s child aged 23 or over at their parent’s death, or a member’s step-child of any age, to inherit their parent’s pension and receive drawdown pension payments at any age. However, the current legislation still means that children aged under 23 at their parent’s death have to draw all of their funds before they turn 23 in order to avoid paying 70% tax on those funds. Schedule 5 will amend legislation to allow dependants with drawdown accounts to access their funds as they wish without incurring a 70% tax charge from their 23rd birthday.
The fourth change relates to trivial commutation lump sums. Before pension flexibility, the option of trivial commutation existed for both defined-contribution and defined-benefit pensions. That allows individuals aged 60 or over with total pension savings of £30,000 or less to withdraw all of their savings as a lump sum, with the first 25% of any previously untouched savings paid tax-free. Since April 2015, pension flexibility changes allow anyone aged 55 or over to withdraw some or all of their funds that they have yet to access as a lump sum, 25% of which is tax-free. Trivial commutation was therefore removed for defined-contribution pensions and limited to defined-benefit arrangements, which were not affected by the introduction of pension flexibility.
Under the defined-benefit arrangement, the only kind of pension possible is a scheme pension, although some people have scheme pensions that come from a defined-contribution fund. As such, under current rules, if a defined-contribution scheme pension is already in payment, it cannot be taken as a trivially commuted lump sum. Schedule 5 will allow defined-contribution scheme pensions that are already in payment to be paid as a lump sum, if they satisfy all the other requirements of trivial commutation.
The fifth change brought about by this legislation relates to the top-up of dependants’ death benefits. Some pension schemes specify a minimum amount that dependants are entitled to receive when the member dies. If there is not enough money in the member’s pension pot when they die, their employer will top it up to ensure that it reaches the minimum amount. Under current rules, certain lump sum death benefits funded by an employer top-up will count as an unauthorised payment and be taxed at rates of up to 70%. Schedule 5 will address that issue by allowing employer top-ups to fund certain dependants’ death benefits to be paid out as authorised payments and therefore not be taxed at those rates.
The sixth and final change introduced by the clause relates to inheritance tax in respect of alternatives to annuities for dependants. At present, some schemes can pay an annuity to a deceased member’s surviving spouse, civil partner or dependant if the deceased had the option for a lump sum to be paid to personal representatives instead. The lump sum is not included in the estate of the deceased member for inheritance tax purposes. Pension flexibility changes mean that, after an individual’s death, an annuity may be paid to someone other than a spouse or partner or dependant, such as a nominee. However, nominees are currently not included in the inheritance tax exclusion, so if an annuity is payable to a nominee, any alternative lump sum payment could be subject to inheritance tax. The changes made by the clause will provide for the same treatment as in April 2015 and keep annuities for nominees out of inheritance tax.
Government amendment 134 to schedule 5 clarifies that the sums or assets available to fund a lump sum death benefit are valued immediately after the member’s death. The change is a minor, technical one to provide clarity and to ensure that the legislation works.
To conclude, the Government introduced pension flexibility because we believe that individuals who have worked and saved responsibly throughout their life should be trusted to make their own decisions about their pension savings. The changes made in the clause will help to ensure that the flexibilities work for everyone. I hope that it may stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to appear before you again, Mr Howarth.
The Labour party supports clause 22, schedule 5 and the amendment, which will come as no surprise. Pension flexibility was in the manifesto on which you and I got elected, Mr Howarth, and we support it. I have a few technical questions that the Minister may wish to write to me about, or not. As ever, I was helped by the Chartered Institute of Taxation briefing, which, in reference to paragraph 6(3) of schedule 5, on page 297 of the latest print edition of the Bill, states: “This is complicated, although we agree that it achieves the stated aim. However, it is not clear to us what exactly paragraph 6(3) is trying to do, and it is unclear whether the ‘person’ is the dependant or the original member.” Perhaps the Minister will clarify that.
More importantly, the CIOT goes on to state: “It will be very complicated in future to determine who might be a dependant for various legislative purposes.” Thirdly, it said that it contacted Her Majesty’s Revenue and Customs about various typographical errors. Perhaps the Minister will reassure the Committee about that, or look into it to ensure that any of the errors CIOT discovered have been tidied up, or will be on Report, if necessary. Notwithstanding all that, we welcome the five small changes to which the Minister referred.
Mr Gauke
I thank the hon. Gentleman for his support for pension flexibility, which I debated with some of his colleagues and predecessors over many months in the previous Parliament. Inevitably, when a fundamental change is undertaken in how we address these matters, there will be areas that require refinement and correction, and that is what we are doing.
Rob Marris
Sometimes it is helpful to sort this out in Committee, because it goes on the record in Hansard. However, if the Minister is unable immediately to bring the answer to mind, I appreciate that he might clarify later the contents of paragraph 6(3).
Mr Gauke
For paragraph 6(3), guidance will be produced dealing specifically with that point. I hope that is helpful and that the clause will be accepted by the Committee.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Schedule 5
Pension flexibility
Amendment made: 134, in schedule 5, page 299, line 9, after “immediately”, insert “after”.—(Mr Gauke.)
Schedule 5, as amended, agreed to.
Clause 23 ordered to stand part of the Bill.
Clause 24
Fixed-rate deductions for use of home for business purposes
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 24 makes changes to ensure that businesses that operate through a partnership have clarity on how they should apply the simplified expenses regime. The Finance Act 2013 introduced a new simplified expenses regime for small unincorporated businesses. Two of the simplifications relate to the expenses of premises used for both personal and business use. As originally enacted, it could be difficult to interpret how a partnership business should apply the provisions. The changes made by clause 24 will enable unincorporated partnerships to apply these rules with clarity and in line with the original policy objective.
The changes will achieve two things. First, where partners occasionally work from home, they can also apply the fixed-rate deductions, subject to the partnership applying the provision consistently and ensuring that any hour worked at the home is counted only once, no matter how many people work at the home at the same time. Secondly, if only some members of the partnership live on the business premises—for example, a pub, restaurant or B and B—the partnership can apply the fixed-rate adjustments for the non-business costs based on the number of occupants in the same way as for individual traders.
The clause will clarify the rules and ensure that partnerships can apply the simplification as intended. Overall, the clause will put partnerships on the same footing as businesses operated by individuals and I hope it stands part of the Bill.
Rob Marris
I have one or two minor technical issues to raise, the first of which has been brought to my attention by the ever helpful Association of Taxation Technicians. It tells me, and I quote, “The current wording of section 94H(4)”—this is set out on page 32 of the Bill —“is silent on how any overlap of hours worked should be treated,” so there may be a technical issue when more than one person is working in the premises under consideration.
The Chartered Institute of Taxation says: “It would appear that clause 24 is actually restricting the claim that can be made for use of a home by an individual, compared to what is in existing 94H.” Proposed new section 94H(4B) of the Income Tax (Trading and Other Income) Act 2005 states:
“Where more than one person does qualifying work in the same home at the same time, any hour spent wholly and exclusively on that work is to be taken into account only once”.
The CIOT continues: “There was no similar restriction in existing section 94H, which defined number of hours worked.” Will the Minister look at those two technical points, if he does not have the answer immediately to hand? Will he also give us an indication of what take-up there has been of these deductions and so on, since they were introduced in 2013?
Mr Gauke
Let me turn first to section 94H(4). The simplified expenses option is designed to cover all the expenses of the home. Many of those are not affected by the number of people working in the home at any one time. Some other expenses, such as telephone and broadband costs, can be claimed separately. In line with the desire to provide simplicity, any hour is counted only once, no matter how many people are working in the home at the time. It is also worth bearing in mind, in the context of these provisions, that this regime is optional. Nobody needs to make use of it if they do not want to or if they find themselves disadvantaged by it.
It was also asked whether the need to record the actual hours worked in the home would make things more complicated, especially where individuals work in the home at different times. Ensuring that any overlap hours are counted only once does require some element of calculation, but we still believe that simplified expenses is an easier calculation for businesses to make than measuring the actual expenses incurred and then correctly apportioning these between business and private use. In any case, where a home is used extensively for business, it is likely that simplified expenses will not be appropriate. It is also worth drawing the Committee’s attention to the fact that the gov.uk website has a straightforward, simplified expense checker, which allows a business to quickly see whether using the fixed-rate amounts would be to their benefit.
As for whether we should backdate this change to the start date of the simplified expenses regime in 2013-14, it is three years since the option to use simplified expenses became available. This measure is a clarification, and Her Majesty’s Revenue and Customs will accept partnerships applying the pre-existing legislation in the same way when making tax returns covering a period before the legislation has effect. I hope that is helpful.
On wider issue of take-up, I am not sure how much information I can provide at this point—[Interruption]—although if I think long and hard about it, my recollection is that we have no analytical data available to answer that question. The self-assessment returns used by unincorporated businesses do not require businesses to separately identify if they have used the simplified expenses or not. Information from HMRC’s customer call handlers is that some callers found the simplified expense approach useful, in particular the fixed-rate deductions for working from home. I am not sure I can provide any more information than that. I hope that provides useful clarification for the Committee and that the clause will stand part of the Bill.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Averaging profits of farmers etc
Question proposed, That the clause stand part of the Bill.
Rob Marris
I have a couple of technical points and an opening comment. Clause 25 is about averaging profits of farmers. I am a great believer in averaging income. I first filled in an income tax form many years ago—I think it was called a T4 then; it might still be called that in Canada—in the days of automatic income tax averaging. As a fairly impecunious student, I benefited from that as my income rose over the years. I do not know whether it was done by computers in those days, but income tax averaging makes a lot of sense and the clause will extend it from two to five years. I gather there was a consultation on it, which closed on 27 September last year, but that there were only 26 respondents, 17 of whom thought the two-year option should be retained.
The Chartered Institute of Taxation has raised a technical issue. It likes the idea of retaining both the two-year system and the five-year system. That was its suggestion, and fair enough: the CIOT is not always right, but it is very helpful to all parts of the House. The CIOT cross-references clause 25 with HMRC’s “Making tax digital” approach, with its quarterly reporting or quarterly records being lodged, or whatever term we used to use—I realise they are technically not quarterly returns. The CIOT says: “We wonder how something like farmers’ averaging is going to work, given that taxable profits will depend on averaging calculations over a number of years, so rendering quarterly figures pretty much meaningless.” Perhaps they are meaningless; perhaps they are not. Will the Minister say a little about that?
Mr Gauke
Clause 25 will give self-employed farmers the option to average their profits over five years as well as the existing option to average over two years. Farmers typically have volatile profits, often due to uncontrollable factors such as the weather, disease or fluctuating product prices. Farming is a highly capital-intensive sector, the volatility of which makes it difficult for farmers to plan and invest for the future. It is a long-standing feature of our income tax system to allow farmers to average their profits over two consecutive years for income tax purposes, smoothing their tax bills over consecutive good and bad years, which prevents them from having to pay significantly higher amounts of tax in the good years. The clause will give farmers additional flexibility and protection from volatile profits by allowing them to choose to average their profits over a two-year or five-year period. More than 29,000 self-employed farmers could benefit from the additional option, with an average saving of around £950 on their income tax bill each year.
As for online digital accounts, it is expected that annual claims such as the averaging of profits will be incorporated into the design of the “Making tax digital” programme as it develops. However, I stress that quarterly reporting is not a quarterly calculation or a quarterly return. It is not about being taxed on the basis of what is earned in the quarter; it is about the provision of information. HMRC is well aware that issues such as seasonal work mean that one quarter may be very different from the next—it is certainly alive to that. As more information on HMRC’s thinking is put into the public domain, people will be reassured that the “Making tax digital” programme should not in any way undermine the policy objectives set out in clause 25.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26 ordered to stand part of the Bill.
Clause 27
Individual investment plans of deceased investors
Question proposed, That the clause stand part of the Bill.
Rob Marris
I would like to make a general comment, which is partly related to clause 26, which we have just covered. With all the changes to inheritance tax—this is tangentially related to that, of course, and I referred to it this morning when I spoke about inheritable individual savings accounts—it is time to look at the whole issue of taxes related to death, if I can put it that way. Because of the huge changes to inheritance tax there is now effectively a £1 million threshold for those who own an expensive house. It is time to look again at the whole panoply of death-related taxes, to which the clause relates.
Mr Gauke
I shall not run through all the aspects of the clause. The change it contains builds on earlier individual savings account changes we have made. It will allow us to remove unfair tax charges and simplify the tax-advantaged transfer of ISA savings after death. I note the hon. Gentleman’s remarks about the tax treatment of death and look forward to Opposition Front Benchers putting forward their policy proposals, which we will no doubt scrutinise closely.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
EIS, SEIS and VCTs: exclusion of energy generation
Rob Marris
I beg to move amendment 135, in clause 28, page 2, line 42, at end add—
‘(7) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report giving the Treasury’s assessment of the effect of excluding energy generation from EIS/SEIS/VCT schemes on—
(a) the renewable energy sector,
(b) community energy projects, and
(c) the energy sector”.
Rob Marris
I hope the amendment is fairly clear. It is a standard amendment of the sort we are all used to, requiring the Chancellor of the Exchequer to publish a report. There is concern that the leverage afforded by the three types of tax advantage scheme referred to in the clause will be completely removed if all energy-generation schemes are removed from those fiscal schemes. I appreciate that the risk factor of several types of energy-generation schemes has dropped so much that the use of such tax measures is no longer efficacious, because they are giving people a tax break for doing something that used to be very risky but no longer is—namely, the development of technology—but it seems a little strange to remove tax breaks for energy generation completely. Will the Minister say something about that?
Mr Gauke
The clause makes changes to exclude all remaining energy-generation activities from the tax advantage venture capital schemes, thereby ensuring that the schemes continue to be well targeted towards high-risk companies and that the tax reliefs are in keeping with the original policy intent.
The venture capital schemes offer generous tax reliefs to encourage investment in small and growing higher- risk companies that cannot otherwise access finance. In recent years, there has been a significant increase in tax-advantaged investment in energy-generation companies. Such activities are generally lower risk, with predictable, reliable and regular income streams. The Government have previously made changes to exclude from the schemes those companies that have benefited from guaranteed income streams for the generation of energy. However, those exclusions have resulted in investment shifting to other forms of energy generation, rather than to the higher-risk investment that the schemes are intended to support. The changes made by this clause will ensure that the Government remain consistent in their approach by keeping the venture capital schemes targeted at higher-risk companies.
The clause will exclude all forms of energy generation from qualifying for the venture capital schemes, including the seed enterprise scheme, the enterprise investment scheme and venture capital trusts. The Government also intend to apply the exclusions to the social investment tax relief once it is enlarged. The measure is expected to yield £95 million annually from 2016-17 onwards, helping the Government to deliver on their commitment to tackle the budget deficit.
Amendment 135 would require a report to be published on the impact of the exclusion of energy generation from the venture capital schemes on the renewable energy sector, community energy projects and the energy sector. Such a report would need to be published within one year of the Bill becoming an Act. The Government provide a range of support for renewable energy, and that support will double over this Parliament, reaching more than £10 billion in 2020-21. That represents a sixfold increase in spend since 2011-12. The relief schemes I have mentioned serve a different purpose: to help smaller, higher-risk companies across a range of sectors to access the investment they need to grow and create jobs.
Energy generation is typically a lower-risk activity for which investment can be secured without tax relief. Allowing it to qualify for tax relief diverts investment away from the companies that need it most. In addition, from a practical perspective, companies that raised investment for the purpose of energy generation before its exclusion have up to two years to spend the money. A report in just one year’s time would therefore serve little purpose.
A report as suggested by the amendment would have little value from a practical point of view. The exclusion of energy from the venture capital schemes is a principled decision based on the lower risk profile of the activity. The Government therefore believe the amendment is unnecessary, and I hope it will be withdrawn.
Kirsty Blackman (Aberdeen North) (SNP)
With all the changes the Government are making to the support of energy policy and with the lack of a pot 1—established technologies—contracts for difference round in the near future, does the Minister not feel that projects such as onshore wind are much less likely? This measure has to be taken in the round. It may cause problems because the Government are doing many other things that go against, in particular, onshore wind generation.
Mr Gauke
Where I agree with the hon. Lady is that these things should be looked at in the round. The Government are committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy while ensuring security of energy supply and avoiding unnecessary burdens on businesses and households. We are making great strides towards our commitments, with emissions down 30% since 1990. Support for renewables from taxpayers and bill payers will double over this Parliament, reaching more than £10 billion in 2020-21, as I mentioned. That is a sixfold increase in spend since 2011-12. We have more than trebled our renewable electricity capacity since 2010. In the round, the Government’s record is strong.
We are committed to supporting small and growing businesses. The presence of low-risk, asset-backed investments such as those described today crowds out investment in higher-risk propositions. It is right that the Government act to exclude such investors.
Rob Marris
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 28 ordered to stand part of the Bill.
Clauses 29 to 32 ordered to stand part of the Bill.
Clause 33
Transactions in securities: company distributions
Question proposed, That the clause stand part of the Bill.
Rob Marris
I beg your pardon, Sir—I am shuffling a lot of papers—and I am grateful to you for your guidance.
Amendment 7 is the usual amendment—no doubt the Minister will say the timeframe is too premature—to have a report from the Chancellor of the Exchequer within one year, on how efficient or otherwise the provisions in clause 35 are at deterring tax avoidance during wind-ups.
Clause 33 relates to transactions and securities. We welcome the tax avoidance measures introduced by the Government. I understand from a response from HMRC that guidance is due to be published on these sorts of issues. Can the Minister say when that is likely to be?
Mr Gauke
Clauses 33 and 34 will amend the transactions in securities legislation, which focuses on transactions where one of the main purposes is to obtain a tax advantage. Clause 35 will introduce a new targeted anti-avoidance rule aimed at preventing an unjustified tax advantage being obtained from distributions in the winding up of a company. Together, these changes will raise £80 million by the end of this Parliament. As well as helping to reduce the deficit, they will protect revenue raised from the reform of dividend taxation by ensuring that those who should pay income tax on dividends cannot convert their income into capital, which is chargeable at lower capital gains tax rates.
Companies usually distribute profits to shareholders by way of dividends, which are subject to income tax when received by individuals. There is an incentive for some people, particularly those running owner-managed companies, to convert this income into a capital receipt, which would attract lower capital gains tax rates. This incentive will be increased by the proposed reform to dividend taxation.
Clauses 33 and 34 deal with the changes to the transactions in securities legislation, strengthening and modernising those rules. They will apply where there is a transaction in securities, such as a disposal of shares, and where one of the main purposes of the transaction is to obtain a tax advantage by manipulating the border between income and capital. They will ensure that people who should pay income tax on distributions do so.
Clause 35 addresses the phenomenon of “phoenixism”, whereby a person carries on the same trade or activity through a succession of companies, extracting the profits as capital by winding the companies up rather than paying dividends. The new rule is carefully targeted and will not affect the vast majority of companies that are being wound up—for example, where a shareholder sells the trade or is retiring—but it will spell the end of companies being wound up by people seeking to obtain an unfair tax advantage.
The changes will introduce additional safeguards, including a connected parties rule, and modernise the way in which the rules are applied. They remove some of the archaic mechanisms that applied to the compliance process. Like the new “phoenixism” rule, the changes will not affect transactions that are undertaken for normal commercial reasons and they will only apply to transactions that have as one of their main purposes the aim of obtaining a tax advantage. Without these changes, the owners of some companies would be able unfairly to reduce their income tax liability simply by changing the form in which they take money out of a company, which would put at risk revenue from the dividend tax reform.
The Opposition’s amendment to clause 35 seeks to explore how the Government will determine the effectiveness of the measures to deter tax avoidance that it contains. I quite understand the hon. Gentleman’s interest in this issue; it is an interest that I share. The Government expect that the clause will be effective in closing off the great majority of tax avoidance in this area, as it involves very specific arrangements that the legislation has been carefully designed to address.
In practice, determining the clause’s deterrent effect will require information from the self-assessment process that would not be available until 2018 at the earliest. [Laughter.] Again, the hon. Gentleman anticipates the point that I was going to make. For that reason, we will be unable to report within a year on its effectiveness as the amendment proposes we should, so I hope that he will understand if we are not minded to accept the amendment. HMRC will publish guidance on the new rules as soon as possible and before the end of the year, when any tax that is due under the new rules will first become due.
In summary, this reform strengthens and modernises the rules that prevent tax advantages from being unfairly obtained by a minority of shareholders who artificially convert income into capital. It also protects revenue accruing from the dividends tax reform and makes the UK a fairer place to do business. Therefore, I hope the clause will stand part of the Bill.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clauses 34 and 35 ordered to stand part of the Bill.
Clause 36
Disguised investment management fees
The Chair
With this it will be convenient to discuss the following:
Amendment 8, in clause 37, page 58, line 26, leave out from “is” to end of subsection and insert “100%”.
Government amendments 43 to 49.
Clauses 37 and 38 stand part of the Bill.
Mr Gauke
With your permission, Mr Howarth, my remarks will cover clauses 36, 37 and 38, and amendments 43 to 49. I will also touch on amendment 8.
These clauses introduce a test to limit the circumstances in which performance-based rewards paid to asset managers will be taxed as chargeable gains. The main test will be introduced by clause 37. Clause 36 will change some related definitions in the disguised investment management fees rules. Clause 38 sets out how the rules will work with regard to individuals coming to the UK. Taken together, these clauses will ensure that only fund managers engaging in long-term investment activity pay capital gains tax on their performance-related reward or carried interest; otherwise, that form of remuneration will be fully charged to income tax.
In 2015, we legislated to ensure management fees are always subject to income tax. Where carried interest is taxable as a chargeable gain, the full amount will be taxable without reduction through arrangements such as base cost shift. These clauses build on the previous legislation. They will ensure that capital gains treatment for carried interest is reserved only for those managing funds that are genuinely long-term investments. Treating carried interest as a capital gain rather than an income is the right approach and keeps the UK in step with other countries. It is also the approach that has been adopted consistently by previous Governments in this country over a long period. However, to ensure the regime is fair and not open to abuse, these changes limit capital gains tax treatment to those managers who can demonstrate long-term investment activity by the fund they manage.
Clauses 37 and 38 will insert a test that applies to all payments of carried interest. On receipt of carried interest, asset managers will be required to calculate the average holding period of the investments in the fund. If the average holding period is less than 36 months, the payment will be subject to income tax. If the period is more than 40 months, the payment will be subject to capital gains tax. There is a taper in between those two time limits, and targeted anti-avoidance rules to ensure that the rules cannot be exploited. The rule is slightly different for managers of debt funds, turnaround funds or venture capital funds, reflecting the specific investment strategies of those kinds of funds.
Clause 38 specifically sets out how individuals who move to the UK will be taxed in certain situations. It will apply in the first five years after an individual moves to the UK when he or she receives a reward that is taxable to income under the time held test, which I referred to earlier. Where the reward relates to services performed outside the UK, before they were resident in the UK, it will be charged to UK tax only when it is remitted to the UK. That reflects the fact that the reward relates to work done before the individual lived in this country, and it will help to ensure these rules do not make it harder for UK asset managers to attract the best talent in the global labour market.
Clause 36 will amend definitions in the disguised investment management fees rules to ensure the rules introduced by clauses 37 and 38 work as intended, especially in relation to more complicated investment fund structures.
The Government tabled seven amendments to clause 37. They are technical changes to ensure the provisions operate as intended. Amendments 43, 46 and 48 make the same technical change in three of the specialised rules we have included in clause 37. Each rule will apply a targeted calculation rule to a particular type of fund investment strategy—for example, a fund that invests in real estate or provides venture capital—thus ensuring that the average investment holding test accurately captures a fund’s underlying activity.
A fundamental concept in all these rules is that of a relevant disposal. A relevant disposal is, in effect, a disposal that is taken into account when calculating a fund’s average holding period. These changes will ensure that the legislation uses a consistent definition throughout the various specialised regimes that is clear and understood by industry and its advisers.
Amendments 44, 45 and 47 will correct a technical error that would have prevented the relevant provisions from working in practice.
Amendment 49 will expand the definition of a secondary fund to include the acquisition of investment portfolios from unconnected investment schemes. Stakeholders have informed us that many secondary funds undertake that type of activity, and that amendment is necessary to ensure that the relevant rules still apply to those funds.
The Opposition’s amendment 8 would remove the taper rule that I have described. The decision to introduce a taper rule followed extensive engagement with interested parties to examine the impact of such a measure on the market. Removing that rule would create a cliff edge—a concern that the Opposition raised in another context—so that marginal differences in the average time for which a fund held its assets could lead to radically different tax treatment for its managers. That cliff edge would lead to a market-distorting incentive for fund managers to dispose of assets earlier than was optimal, to the detriment of investors and with no policy benefits. For those reasons, I urge that that amendment is not pursued.
Clauses 36 to 38 will ensure that only those managers engaged in genuinely long-term investment activity pay capital gains tax on their performance-related rewards, and I therefore hope that those clauses stand part of the Bill and amendments 43 to 49 are made.
Rob Marris
This series of clauses is an interesting mixture of the technical, the conceptual and the political. Technically, the clauses are complex and lengthy, and the Government have been forced to table several amendments because of the complexity of these issues and the way that they have gone about dealing with them.
The conceptual point is about whether we go for a simpler and more rough and ready approach or a lengthy one. Professor Sol Picciotto at Lancaster University said about these clauses that instead of going for a broad provision to allow carried interest to be treated as income, the Treasury and HMRC had, typically for them, preferred long and complex statutory provisions that would keep tax lawyers happy and spawn more avoidance. These provisions are very lengthy.
The political point is highlighted by amendment 8. Our wording of that amendment may well be deficient, but it is not designed to create a cliff edge; it is designed to remove the table on page 58 completely, so that there is no taper and all carried interest is treated at 100%—that is, taxed as if it were income. As I understand it, that is in line with the OECD recommendations. Ministers properly say that when we engage in double taxation agreements, which the Minister and I have discussed on several occasions in different Committees, Her Majesty’s Government’s starting point is the OECD model, and I quite understand that, but suddenly we are not going along with an OECD suggestion when it comes to carried interest. That is obviously guidance and has no direct statutory relevance, but it is issued by the OECD, which is made up of our sister advanced countries. Instead of going for a simpler approach in which carried interest is straight income—that is what amendment 8 is designed to introduce—we have ended up with 21 pages of complex provisions in the Bill, which necessitate 10 pages of explanatory notes.
I hope that the Minister will say a little more about that conceptual point and why we do not just follow the OECD guideline. To those of us who are politicians and not tax experts, it appears quite just for carried interest, which has on occasions been used for legitimate tax avoidance, to be knocked on the head simply by being treated and taxed as income, as the OECD suggests.
As far as my excellent researcher Imogen Watson could find, there is no tax information and impact note. If that is the case, I hope that the Minister will outline—or perhaps write to members of the Committee to outline—what the Government think the impact on the Exchequer will be, and the number of taxpayers the Government expect to be affected by the provisions.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
It is a pleasure to serve under your chairmanship again, Mr Howarth. I will be brief. We on the Scottish National party Benches support the amendment. The issue of carried interest has also been of interest to us, as the Minister knows only too well. I commend the amendment, and if the Labour party wishes to press it to a vote, we will certainly support it.
Mr Gauke
Let me address the issue of complexity; I hope I can be helpful to the Committee on that. The new rules replace the badges of trade that previously outlined the tax treatment of carried interest. The badges of trade are based on complex case law, which means that the law was determined by a wide range of varied and outdated judicial decisions. Bringing these new rules into legislation removes ambiguity and makes the tax code easier to follow. Furthermore, much of the detail of the legislation comprises bespoke rules that apply to specific types of funds. Those specialised rules will help reduce the compliance burden for funds in practice. Asset managers are sophisticated taxpayers who often have personal advisers; we therefore anticipate it being easy for those individuals to follow these rules.
Very often, the measure of tax complexity is taken to be the length of the tax code. I confess that I have sat where the hon. Member for Wolverhampton South West is sitting and made that point myself; he has heard me make it. In this example, there are additional pages of legislation; however, they are replacing legislation that took up fewer pages but was based on case law, which can be very complicated. It is worth pointing out the limitations of pages as a measurement of complexity.
On the OECD recommendations, treating carried interest as a capital gain rather than income is the right approach. It keeps the UK in step with other countries and, as I said, it is the approach adopted consistently by previous Governments in this country over a long time. There is nothing particularly unusual about the way in which we treat carried interest in this country. I am conscious that this is a matter that we debate on a fairly regular basis; it is the second time we have debated it in a week. We are being consistent with what we have done in this country for some time and with what other countries do. I hope those points are helpful, but if the hon. Gentleman presses amendment 8, I will urge my colleagues to oppose it.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Income-based carried interest
Amendments made: 43, in clause 37, page 67, line 45, leave out “value” and insert “amount”.
Amendment 44, in clause 37, page 68, line 41, leave out “company” and insert “underlying scheme”.
Amendment 45, in clause 37, page 68, line 43, leave out “a company” and insert “an underlying scheme”.
Amendment 46, in clause 37, page 68, line 47, leave out “value” and insert “amount”.
Amendment 47, in clause 37, page 70, line 15, leave out “company” and insert “underlying scheme”.
Amendment 48, in clause 37, page 70, line 21, leave out “value” and insert “amount”.
Amendment 49, in clause 37, page 70, line 34, at end insert
“, or the acquisition of portfolios of investments from,”.— (Mr Gauke.)
The Chair
With this it will be convenient to discuss the following:
Government amendment 21.
Clause stand part.
Government new clause 7—Receipts from intellectual property: diverted profits tax.
Government new clause 8—Deduction of income tax at source: intellectual property.
Government new clause 9—Receipts from intellectual property: territorial scope.
Mr Gauke
For the benefit of the Committee, I will discuss clause 40 together with new clauses 7 to 9, as they collectively implement the royalty withholding tax policy that the Government announced at Budget 2016.
Together with the new clauses, clause 40 strengthens our regime for the deduction of income tax at source from payments of royalties overseas. It introduces a rule to prevent the abuse of the UK’s tax treaties. It will prevent multinational enterprises using conduit arrangements and other schemes to exploit the provisions of tax treaties to avoid UK taxes on royalties.
New clause 8 broadens the categories of royalties from which tax must be deducted at source in the UK when they are paid abroad. Going forward, all payments considered to be royalties under internationally recognised criteria will be subject to withholding tax in the UK unless a specific exemption applies.
Mr Speaker—sorry, Mr Howarth.
The Chair
I am sure that there will be lots of changes of personnel over the next few days, but I can assure the Minister that that will not be one of them.
Mr Gauke
Thank you, Mr Howarth, although such is the fast-moving nature of British politics at the moment that who knows?
New clause 9 introduces rules to ensure that royalties paid by non-residents have a UK tax charge if they are paid in connection with a trade carried on in the UK through a permanent establishment. New clause 7 introduces consequential changes to the diverted profits tax to ensure that no advantages accrue to entities within its charge as a result of the changes I have described.
Taken together, the clauses mean that all payments of royalties from the UK will now be subject to withholding tax, unless we have explicitly given up our taxing rights under an international agreement or domestic law. The new regime will provide a robust defence against those wishing to use royalty payments to shift profits to jurisdictions where there is little, if any, taxation.
Most countries tax non-residents on royalties that arise in that country. They generally require the payer of the royalty to withhold tax from the payment and account for it to the tax authorities. The UK is no exception to this practice. The withholding requirement is subject to tax treaties, of which the UK has more than 120, and the EU interest and royalties directive. Many of those treaties provide that royalties are taxable only in the country where the royalty payment is received. The Government think that that is an appropriate treatment, as it removes tax obstacles from cross-border investment and provision of services.
However, the UK gives up its taxing rights under tax treaties only in the expectation that the royalties will be paid for the benefit of a resident of a treaty partner country. It is a frustration, and not the intention of a tax treaty, that a person resident in a third country can use a bilateral tax treaty with the UK to extract tax-free royalties from the UK, especially if no tax is paid on the receipt and no substantive activity is taking place in that third country.
It has become increasingly prevalent for multinational groups to derive large sums from the exploitation of intellectual property and cross-border royalty payments. The need to ensure that they are taxed appropriately is more important than ever. Some multinational groups have put in place arrangements under which intellectual property is held in jurisdictions where no tax is paid and no substantive activity takes place. They structure the payments of royalties to such companies in a way that takes advantage of the UK’s tax treaties with other countries, depriving the UK—the country in which the royalty arises from sales or other activity—of the right to tax. Had the royalty been paid direct to that ultimate jurisdiction, the UK would have retained its taxing rights on the basis that there was no treaty in place between the UK and that jurisdiction.
For that reason, many tax treaties in the EU interest and royalties directive contain anti-abuse provisions to prevent so-called treaty shopping and other abuses by third country residents. The OECD has recognised such abuses as a problem and, as part of its recent work to counter base erosion and profit shifting, has recommended that countries adopt regimes, either in their tax treaties or in domestic law, to counter such treaty shopping.
Not all of the UK’s tax treaties contain anti-abuse provisions that frustrate treaty shopping arrangements and other abuses. The Government have therefore introduced a targeted domestic anti-abuse rule based on the rule recommended by the OECD and aimed at royalty payments between related parties that seek to take advantage of the UK’s tax treaties. The rule took effect for royalties paid on or after 17 March 2016. As part of this approach to tackling tax avoidance, new clause 8 will bring the definition of royalties on which non-residents are required to withhold tax into line with the OECD definition of royalties used in tax treaties. At present, payments for the right to use trade names and trademarks are subject to UK withholding tax only if they are annual payments. New clause 8 will ensure that all such payments will be subject to withholding tax.
The third part of the Government’s reform, which goes hand in hand with the anti-abuse element introduced by clause 40, is to change what is meant by royalties arising in the UK—that is, to define whether they come from a source in the UK. At present, there is no statutory definition of what constitutes a UK source for royalties. As a result, it is not clear that all royalty payments connected to a permanent establishment that a non-resident has in the UK have a UK source. New clause 9 will introduce a new rule to ensure that all royalties have a UK source where the payment is connected with activities taking place through a permanent establishment that the payer has in the UK. Royalties paid by a non-resident to another non-resident that are connected to a UK permanent establishment of the payer will now be taxable in the UK, and the non-resident payer will be expected to withhold tax and account for it to Her Majesty’s Revenue and Customs.
However, where there is a tax treaty between the UK and the country of residence of the beneficial owner, that treaty will govern the taxation of the payment. Where that treaty follows the OECD model and the anti-abuse rule does not apply, the taxation rights will continue to belong exclusively to that other country. New clause 7 is being introduced to ensure equal treatment between cases where a non-resident company maintains an actual permanent establishment in the UK, and cases where a person has contrived to avoid a taxable presence in the UK in circumstances that bring them within the diverted profits tax.
The changes made by the clauses are fairly simple. Clause 40 inserts a rule that denies the benefit of a tax treaty in the face of abuse. New clauses 8 and 9 extend the definition and territorial scope of royalty payments within the charge to tax in the UK. Finally, new clause 7 amends the diverted profits tax to ensure that entities within the scope of that tax are subject to the changes being made. The changes bring the UK into line with accepted international practice in respect of the taxation of royalty income arising in a state. The benefits of tax treaties and the interest and royalties directive will remain available, except where taxpayers have entered into transactions internationally recognised as abusive.
Before I conclude, I will speak briefly to amendments 20 and 21, also tabled by the Government. The amendments are being introduced to ensure that royalty payments subject to the anti-abuse rule include those payments brought within the scope of withholding tax by new clause 8. Together, the proposed new clauses will protect the UK from arrangements that seek to avoid UK tax through the use of royalty payments.
I hope that my explanation helps the Committee to understand the issues set out both on the odd-numbered pages and on the even-numbered pages.
Amendment 20 agreed to.
Amendment made: 21, in clause 40, page 81, line 12, at end insert—
‘(3) In relation to payments made (under any such arrangements) on or after 17 March 2016 and on or before the day on which this Act is passed, section 917A of ITA 2007 as inserted by subsection (1) has effect as if the definition of “intellectual property royalty payment” in that section were as follows—
““intellectual property royalty payment” means—
(a) a payment of a royalty or other sum in respect of the use of a patent,
(b) a payment specified in section 906(1)(a) (as originally enacted), or
(c) a payment which is a “qualifying annual payment” for the purposes of Chapter 6 by virtue of section 899(3)(a)(ii) (royalties etc from intellectual property);”.
(4) In relation to payments made (under any such arrangements) on or after 28 June 2016 and on or before the day on which this Act is passed, section 917A of ITA 2007 as inserted by subsection (1) has effect as if “intellectual property royalty payment” also included (so far as it would not otherwise do so) any payments referred to in section 906(2)(a) or (3)(a) of ITA 2007 as substituted by section (deduction of income tax at source: intellectual property).’—(Mr Gauke.)
Clause 40, as amended, ordered to stand part of the Bill.
Clause 45
Loan relationships and derivative contracts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 9, in schedule 7, page 305, line 3, leave out
“the preceding provisions of this section”
and insert
“Part 4 of TIOPA 2010”.
Amendment 10, in schedule 7, page 305, line 9, leave out
“the preceding provisions of this section”
and insert
“Part 4 of TIOPA 2010”.
That schedule 7 be the Seventh schedule to the Bill.
Mr Gauke
Clause 45 introduces schedule 7, which deals with three different issues that can arise from interactions between accounting rules and tax rules. These changes will prevent some unintended and unfair outcomes. I welcome the opportunity to debate amendments 9 and 10, tabled by the hon. Member for Wolverhampton South West, which are linked to the clause and which I will turn to later.
All three of the issues being addressed arise when loans made by companies are interest-free or otherwise involve financial instruments on non-market terms. Typically, those will happen in the context of commercially driven funding arrangements where loans are between companies that have some connection. Some of the issues have come about because of recent changes to accounting standards. The changes will support the Government’s policy of simplifying taxation, ensuring businesses pay the right tax at the right time.
Accounting standards can now require an interest-free loan, or other loan taken out on non-market terms, to be recognised in accounts at a lower value than the actual amount of the loan. That can lead to an interest cost being shown in the accounts of the borrower, even when no interest has actually been paid. This cost can lead to a tax deduction for the borrower, but no matching tax liability for the lender. That is an unfair outcome. The changes made by schedule 7 address this unfair situation by putting the borrower back in the position that applied before the changes to accountancy rules, to make sure that they do not benefit unfairly from the new rules.
The second issue also involves adjustments that apply when a loan or financial derivative is not made at arm’s length. Tax law means that an adjustment is made to the amount brought into account for tax on the loan. The adjustments can have the effect of restricting the deductions that can be claimed by the company for tax purposes. However, under the current rules a corresponding amount can be taxed in full later. The changes made by schedule 7 ensure that in these circumstances the company will not be taxed on amounts if it has not been given a tax deduction for corresponding amounts previously. Again, this restores the position before the accounting changes were made.
The final issue addressed by schedule 7 concerns the application of the transfer pricing divisions to exchange gains and losses. In some circumstances these provisions can give companies a tax charge or benefit from foreign exchange movements, even when there is no commercial exposure to foreign exchange. Schedule 7 will make minor technical changes so that the transfer pricing will not create an overall foreign exchange exposure for tax purposes in cases where the company is commercially hedged.
The changes made by schedule 7 ensure that the rules operate as intended. The impact on the Exchequer will be negligible. Only companies or other corporate bodies will be affected by the changes, and the impacts will be negligible as companies learn the new rules. Moving forward, we expect companies’ costs to be reduced as the legislation will be simpler to use in practice.
Let me take the opportunity to discuss amendments 9 and 10, which concern paragraphs 3 and 4 of schedule 7 respectively. They propose that the new legislation dictating the tax treatment of loan relationships and derivative contracts be linked directly to the transfer pricing rules. The Government have looked closely at that suggestion but concluded that the amendments are unnecessary.
Transfer pricing adjustments in respect of loans and derivatives are already given effect by sections 446 and 693 of the Corporation Tax Act 2009 respectively. That includes a situation in which deductions are decreased. This point was considered and confirmed by the tax tribunal last year, in the case of Abbey National Treasury Services plc v. Her Majesty’s Revenue and Customs. It is therefore right that the changes introduced by clause 45 do not refer directly to the transfer pricing rules but instead refer to sections 446 and 693, which apply them to loans and derivatives. To be clear, the exclusion of credits as a result of paragraphs 3 and 4 of schedule 7 applies to cases where deductions have been reduced as a result of the transfer pricing rules operating through sections 446 and 693 respectively. The rules therefore work as currently drafted.
The amendments could give rise to problems. In particular, they could have the effect of the exclusions applying more widely than intended. In addition, the amendments would go against the decision in the Abbey National case. For those reasons, it is important that the limitations link through sections 446 and 693.
Schedule 7 addresses three situations in which the interaction of accounting and tax rules may lead to unintended and unfair outcomes. It supports the Government’s policy of simplifying taxation by giving certainty to the rules and making them easier to comply with, and I therefore invite the hon. Gentleman to withdraw the amendment. I am grateful for the opportunity to provide some clarity to the Committee on the technical concerns that have been expressed. I hope that clause 45 and schedule 7 will stand part of the Bill.
Rob Marris
I had forgotten about the legal case to which the Minister referred. I will not press either of my amendments.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clauses 46 to 49 ordered to stand part of the Bill.
The Chair
I am grateful to the hon. Gentleman. He has effectively taken himself out of the Committee. Strictly speaking, it is not a point of order, but the Committee is grateful for the information he has given, because obviously it will affect the future conduct of the Committee.
The Chair
Strictly speaking, that was not a point of order and there should not even be a “Further to that point of order”, but in these exceptional circumstances I will stretch the point.
Mr Gauke
Further to that non-point of order, Mr Howarth. I want to put on the record my thanks to the hon. Member for Wolverhampton South West. He has performed his role with great diligence, good humour and common sense. He has performed the role extremely well in sometimes difficult circumstances. Whatever the future holds for his party, I wish him well. I am sure he will continue to be an excellent and dedicated Member of Parliament.
The Chair
On behalf of Sir Roger Gale and myself and the Officers of the House, I thank the hon. Member for Wolverhampton South West for his kind words.
Finance Bill
David Gauke Excerpts(7 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The First Deputy Chairman of Ways and Means (Mrs Eleanor Laing)
Before I call the Minister to move Government amendment 114 and for the sake of clarity, I grant the Minister the Chair’s permission and the House’s sympathy in respect of his requirement to stand throughout the proceedings—or, indeed, to be in whatever position suits him so that he can spend several hours at the Dispatch Box with his current disability. He has the House’s sympathy, as I said, and he may do as he sees fit.
Clause 144
General anti-abuse rule: provisional counteractions
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move amendment 114, page 194, leave out lines 12 to 15 and insert—
“( ) notifies the person of the person’s rights of appeal with respect to the notified adjustments (when made) and contains a statement that if an appeal is made against the making of the adjustments—
(i) no steps may be taken in relation to the appeal unless and until the person is given a notice referred to in section 209F(2), and
(ii) the notified adjustments will be cancelled if HMRC fails to take at least one of the actions mentioned in section 209B(4) within the period specified in section 209B(2).”
The First Deputy Chairman
With this it will be convenient to discuss the following:
Clause stand part.
Government amendments 115 to 174, 178, 175 to 177 and 179.
Clause 145 stand part.
Government amendments 82 to 86.
Amendment 4, in clause 146, page 209, line 25, leave out from “penalty” to end and insert
“shall be 100% unless the GAAR Advisory Panel or an officer duly delegated by that panel considers that there are exceptional reasons for lessening that percentage.”
Government amendments 87 to 99.
Clauses 146 and 147 stand part.
Government amendments 100 to 110.
Government amendments 112, 111 and 113.
Schedule 18 stand part.
Government amendments 69 to 81.
Clauses 148 and 149 stand part.
Amendment 1, in schedule 19, page 516, line 21, at end insert—
‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.
(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”
Amendment 5, page 516, leave out line 39 and insert—
‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 6, page 517, line 1, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 7, page 517, line 5, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 8, page 517, leave out lines 11 to 15 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 9, page 517, line 15, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Amendment 10, page 518, leave out line 24 and insert—
‘(2) The director or directors of the head of the group are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 11, page 518, line 29, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 12, page 518, line 33, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 13, page 518, leave out lines 39 to 43 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 14, page 518, line 43, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Amendment 15, page 520, leave out line 12 and insert—
‘(2) The director or directors of the company are personally jointly and severally liable to a penalty of £25,000 if:”.
Amendment 16, page 520, line 17, leave out
“head of the group is”
and insert
“director or directors, held jointly and severally liable, of the head of the group are”.
Amendment 17, page 520, leave out lines 27 to 31 and insert—
‘(5) At the end of that period, the director or directors of the head of the group—
(a) are personally jointly and severally liable to a further penalty of £25,000, and
(b) where the failure mentioned in sub-paragraph (4)(b) continues, are liable to a further penalty of £25,000 at the end of each subsequent month in which no such group tax strategy is published.”
Amendment 18, page 520, line 31, at end insert—
‘(6) Any director held personally liable to pay a penalty under this Part cannot be reimbursed by the head of the group or any entity within or associated with that group.
(7) If the head of the group or any entity as described in subsection (6) is found to have either fully or partially reimbursed a director or directors for the penalty for which they were personally liable, the head of the group or the entity will in turn be liable for a penalty of £100,000.”
Schedule 19 and clause 150 stand part.
Amendment 19, in schedule 20, page 534, line 23, at end insert
“, or P has introduced Q to a person R with whom P has a business relationship, where P knows or should know that R is likely to facilitate Q to carry out offshore tax evasion or non-compliance.”
Amendment 20, page 535, line 5, at end insert
“; and P will be deemed to have known if P wilfully or recklessly failed to make such enquiries that a reasonable and honest person would have made”.
Schedule 20, clause 151, schedule 21, clauses 152 and 153, schedule 22 and clause 154 stand part.
New clause 4—Report on the workings of the General Anti-Abuse Rule—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the workings of the General Anti-Abuse Rule.
(2) The report must include but need not be limited to—
(a) the number of meetings held by the General Anti-Abuse Rule Advisory Panel;
(b) the date by which the procedures of the Advisory Panel were published;
(c) the number of cases referred to the Advisory Panel and by whom;
(d) the number of cases on which a decision has been made by the Advisory Panel;
(e) the number of outstanding cases on which a decision has not been made by the Advisory Panel, and the dates on which those cases were first referred to the Advisory Panel.”
New clause 5—Report on the number of deliberate tax defaulters—
The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report containing the number of deliberate tax defaulters whose details have been published, and an estimate of the number of taxpayers who have been deterred from deliberately defaulting as a result of the provisions contained in section 94 of FA 2009 as amended by this Act.”
New clause 6—Report on the asset-based penalty for offshore inaccuracies and failures—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the asset-based penalty for offshore inaccuracies and failures.
(2) The report must include but need not be limited to—
(a) how much tax revenue has been recouped due to this measure;
(b) the amount of monies paid in asset-based penalties; and
(c) the number of persons upon whom asset-based penalties have been levied.”
New clause 7—Report on the impact of the criminal offences relating to offshore income, assets and activities—
‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of the criminal offences relating to offshore income, assets and activities.
(2) The report must include but need not be limited to—
(a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of TMA 1970;
(b) the number of persons who have been convicted of any such offence;
(c) the average fine imposed; and
(d) the number of people upon whom a custodial sentence has been imposed for any such offence.”
New clause 8—Whistleblowing in relation to tax evasion—
The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector in relation to the disclosure of suspected tax evasion, and report to Parliament within six months of the passing of this Act.”
New clause 9—Estimated impact of extending the scope of the Register of People with Significant Control Regulations 2016—
The Chancellor of the Exchequer must, within 12 months of this Act coming into force, publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the requirement placed on UK-incorporated companies by the Register of People with Significant Control Regulations 2016 to publish a register of people with significant control to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.”
This new clause would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information about people who have significant control over them to companies incorporated in the Crown Dependencies and the Overseas Territories which have significant levels of trading activity within the UK.
Mr Gauke
I begin by expressing my gratitude for your dispensation, Mrs Laing. I will, of course, take interventions, and I hope it will not disconcert Members if I remain standing at the Dispatch Box while doing so. There is a great deal to cover and a large number of amendments have been tabled by Opposition Members, many of which I shall have to cover briefly. I shall try to provide as much information as I can as quickly as I can and respond to points raised in the course of the debate.
Clauses 144 to 146 make administrative changes to the general anti-abuse rule—the GAAR procedure—and introduce a new penalty for those who enter into abusive tax arrangements. Clause 144 allows Her Majesty’s Revenue and Customs to make a provisional GAAR counteraction where it believes additional tax is due but the assessment time limits are due to expire. Clause 145 is an administrative change to strengthen the GAAR’s procedural efficiency. The GAAR procedure currently requires each user of the same type of marketed tax avoidance arrangements to be referred separately to the GAAR advisory panel. This is an inefficient use of HMRC’s and the advisory panel’s resources, so clause 145 corrects this. Clause 146 introduces a new penalty of 60% for taxpayers who enter into abusive tax arrangements that are counteracted under the GAAR.
The Government have tabled 84 amendments to clauses 144 to 146, making minor changes to ensure that the legislation works as intended, but let me respond now to new clause 4 and amendment 4, which relate to the GAAR clauses I have just outlined. New clause 4 asks the Government to conduct a review of the GAAR in a year’s time. The GAAR advisory panel is already required to publish anonymised reports of the cases it considers. It is difficult to see how this new clause could provide a better insight into GAAR cases than this.
Amendment 4 proposes that a penalty of 100% is introduced for the GAAR. While under HMRC’s existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, it is right for the GAAR penalty to sit just below this. Under the new measure, tax avoiders can be charged penalties under the existing penalty rules and the GAAR penalty up to a maximum of 100%. As such, the amendment does little more than what we are already suggesting, and I therefore urge the House to reject it.
Clause 147 and schedule 18 introduce the new serial avoidance regime and a new threshold condition for the existing POTAS—promoters of tax avoidance schemes— regime introduced by clause 148. The new serial avoidance regime will tackle those tax avoiders who use multiple tax avoidance schemes. It will work by putting avoiders on notice when HMRC defeats a scheme they have used. If they use further schemes and HMRC defeats them, they will face serious and escalating sanctions, including a penalty starting at 20% of tax understated and reaching 60% for a third scheme defeat while under notice. Clause 148 introduces a new threshold condition for the promoters of tax avoidance schemes regime so that promoters who have promoted three schemes that have been defeated by HMRC over an eight-year period risk entering the POTAS regime.
The Government have tabled 27 amendments to clause 148 and schedule 18. The amendments to schedule 18 provide for those who try to avoid tax through companies they own or partnerships to be brought within the scope of the new regime. Amendments to clause 148 provide for POTAS to cover circumstances where tax avoidance is promoted through associated persons. The remaining amendments make minor changes to ensure the schemes work as intended.
Clause 149 introduces a new requirement for large businesses to publish their tax strategies, ensuring greater transparency about their tax approach to HMRC, shareholders and the public. Transparency promotes good tax compliance while providing a fairer, more stable and competitive environment in which to do business. The strategy published by businesses must cover the areas specified in legislation, be updated annually and remain accessible. A penalty may be chargeable if a strategy is not published or if the information contained does not meet the requirements of the legislation.
The Government are also committed to tackling cases of aggressive tax planning. Schedule 19 introduces a new special measures process which will apply sanctions to large businesses that persistently undertake aggressive tax planning or refuse to work with HMRC in a collaborative and transparent way. Taken together, clause 149 and schedule 19 will help to reduce the appetite for aggressive tax planning and improve large business tax compliance.
On the amendments tabled by the Opposition, amendments 5 to 18 would collectively introduce a requirement for directors of a business to be personally, jointly and severally liable for a penalty of £25,000 should the business fail to comply with the legislation, rising to a monthly charge of £25,000 after the initial 12 months have passed. Amendments 9, 14 and 18 also propose that the said named directors should not be reimbursed in any way and would impose further penalties.
These amendments are disproportionate and go against the principle of encouraging behavioural change across businesses. Boards take a collective responsibility for any decisions made on behalf of their businesses and their tax strategy is no exception. Ultimately, this Government believe any penalty is a business responsibility, not one to be pursued across a group of directors. In summary, these amendments would result in less clarity around any sanctions, not more, and I urge the House to reject them.
The amendment to clause 149, tabled by the right hon. Member for Don Valley (Caroline Flint), seeks to require large multinational enterprises to publish a country-by-country report on their activities within their published tax strategy. As I have set out, this Government fully share her aims of increasing transparency and clamping down on avoidance and evasion wherever it occurs. Indeed, this Government have led the way in calling at an international level for public country-by-country reports. However, I do not believe that her amendment would help to achieve the objectives that we all share. It is technically flawed, and hence would not achieve the stated transparency or pro-business objectives that we all espouse.
The right hon. Lady has said that multinational businesses such as Google would be forced to publish headline information about where they do business, the money that they make and the tax that they pay, but that is not the case. According to Government legal advice, the amendment would, in practice, place such a requirement only on UK-headquartered multinationals. Foreign-headquartered multinationals such as Google would not be caught at all, and that undermines the transparency objective of the amendment.
The amendment also risks putting UK multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market. For example, a company headquartered in the UK, whether on the mainland or in Northern Ireland, would have to file public reports, but a company headquartered in the Republic of Ireland—or, indeed, pretty well anywhere else—would not. That, I think, contradicts the level playing field objective whose importance the right hon. Lady has emphasised. At a time of increased uncertainty, we should be particularly cautious about disadvantaging UK-based businesses and imposing on them a further commitment that does not apply to their foreign competitors.
Dame Margaret Hodge (Barking) (Lab)
I am grateful to the Minister for giving way, especially as he is in pain. He said earlier that the amendment was “technically flawed”, but that is not the advice that my right hon. Friend has received. It seems to me that, in reality, the Government are more driven by their ideas about tax competition. Will the Minister confirm that that is the case? If it is, I suggest to him that transparency is more important for the British people in particular, and that if any global company chooses to leave the UK simply because of demands for transparency and demands that it pay fair tax, which will be a rare occurrence, it may well be that it is not the sort of company that we want to be headquartered here.
Mr Gauke
There are some issues of timing, but I must emphasise that the only companies that would fall within the scope of the amendment would be UK-headquartered companies. The Googles of this world would be unaffected. We believe that all this should be done on a multilateral basis, and—although my timing may be slightly unfortunate—I should point out that considerable progress has been made at European Union level. Indeed, the relevant commissioner has said that we are on the cusp of a deal and that he hopes that it will be concluded during the course of the Slovakian presidency, in the second half of this year. The UK has been leading the way in that debate, and, indeed, we have been calling for the Commission to toughen up its rules.
Several hon. Members rose—
Mr Gauke
I will just finish what I am saying before I give way. I am being bombarded by distinguished right hon. Members.
We know that the debate on corporation tax tends to focus on companies’ sales, but corporation tax is not based on sales; it is based on activity. If a company takes part in a lot of activity in the UK but makes a lot of sales in another jurisdiction, it is likely to pay a lot of tax in the UK, but not a lot of tax in other jurisdictions where there is little or no activity but a great many sales. If the UK is the only jurisdiction that is putting out this information, or requiring its companies to put it out, there will be many examples of UK companies that are acting completely properly in foreign jurisdictions and not paying a lot of tax in those jurisdictions, but are vulnerable to criticism. It would be very much easier for all businesses to be able to point to an Italian, German, French or Swedish company that is in the same position, with a lot of activity in its own jurisdiction and a lot of sales in another jurisdiction, and is paying its tax where the activity is, not where the sales are. If the UK is acting unilaterally, I worry about unfair reputational criticism of our companies. As the right hon. Member for Barking (Dame Margaret Hodge) knows very well, reputational damage to a business can damage its commercial interests,.
Caroline Flint (Don Valley) (Lab)
Surely the problem is that so much of what we are finding out about companies—about where they do their business, where their profits are, and where they pay their taxes—is emerging through leaks. Massive reputational damage is being done to those companies. The amendment gives us a chance to put things on a much better footing by providing not all the information about companies, but the baseline headlines about where they do business, where they trade and where their profits are. Surely that is something on which we can lead.
Mr Gauke
I think that the principle and the destination are pretty clear. We are moving in the direction of companies’ publishing this information, and I believe that the UK should be leading the way in working out a multilateral deal in which a number of countries impose essentially the same requirements. That, I think, would help to improve transparency and would provide a level playing field.
I do not think that the UK should be the last mover in this respect by any means. The United States seems to be some way away from moving in this direction, and I do not think that we should wait for the United States; I think we should be there before it. We should be able to deliver, especially given that such good progress is being made at European Union level. We remain members of the European Union, and there is appetite for this in other EU states. I have no doubt that, if no progress has been made in a year or two, the right hon. Member for Don Valley will come back and ask, “Why has this not happened?”, and in that event her case would be strengthened. However, I think that until we have given the deal a fair wind, it would be premature to act unilaterally.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
The Minister has a perfectly justified and extremely good reputation for being sympathetic in driving this agenda forward. He will recall our discussions, both in opposition and back in 2010, about precisely the point that is addressed in the amendment. We all agree that companies should pay tax where their profits are earned.
The Minister knows as well as I do that some of the poorest people in the world live on top of some of the richest real estate, and that extraction taxes should be paid where those profits are earned. May I ask him to respond fully to the point that is being made by the right hon. Member for Don Valley (Caroline Flint)? If he thinks that her amendment is defective in some way, will he commit the Government to looking at those defects and considering whether they can frame a clause that would address the first part of what she said, with which I understood him to say he agreed?
Mr Gauke
The Finance Bill is not the ideal way in which to address this issue fully. I make no criticism whatsoever of the right hon. Member for Don Valley, who has shown much ingenuity in managing to ensure that her amendment is in order, but this is essentially an issue for company law.
We are keen to implement public country-by-country reporting, and we want to do it on a multilateral basis. As I have said, if there was a lack of progress the Government would obviously want to return to the issue, given the concerns that I think are felt by Members in all parts of the House. However, I think that we are in a position to aim for what I am sure we all agree would be the best result: achieving our aims on a multilateral basis.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Will the Minister give way?
Meg Hillier
It is clear that the Minister has some sympathy with the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint) and most of the Public Accounts Committee, along with many other Members in many parties. Rather than requiring my right hon. Friend to come back to the House, will he therefore commit the Government to looking at this matter unilaterally if multilateral agreement is not achieved? Or will he go even further today and agree to a sunrise clause to add to the proposals that my right hon. Friend and I, and others, have put forward, so that this can come into action if the multilateral agreement that he is hoping for does not come to fruition?
Mr Gauke
We are in quite a fast-moving area, and the progress that has been made in recent months has been considerable. Just at the beginning of this year, it looked unlikely that a deal would be possible, but now it looks as though the EU is heading in that direction. As I have said, the EU Commissioner has said that something is likely to happen by the end of this year. I must add the slight caveat that we will have a new Prime Minister by then, but it is certainly my view that if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again. I do not want to make a full commitment on this because—I am standing here desperately with the Dispatch Box as a source of support—I might no longer be in this position by then. I make that caveat, but I believe that there is every chance of an agreement. I would be disappointed if we did not make progress, but in the event of that happening—I hope it is unlikely—we would need to look at this again. I suspect that there is agreement between us here that it would be better for us to get a multilateral agreement than for us to go off alone.
David Mowat (Warrington South) (Con)
I think I have heard the Minister say that there will not be a multilateral agreement that includes the United States. So is it the Government’s position that we do not want to act unilaterally for the UK, but we will act unilaterally within the EU—even if we are not in it—even though the EU itself contains only 20% of the world’s multi- nationals? Is he saying that this does not need to be multilateral, and that it just needs to be EU-lateral?
Mr Gauke
I do not think that this has to be universal, but there would be disadvantages for the UK if we were the only country to do it. There is a sense that UK companies would be criticised for failing to pay very much tax in jurisdictions where they did not have a lot of activities but had a lot of sales. This comes back to the point about educating the public about how corporation tax works. I think it would be an awful lot easier if there were just a few examples of other countries doing this. I do not think it needs to involve every other country, but if, for example, Germany, France and Italy had the same type of system, every time a UK company was criticised we could say, “What about that French company? What about that Italian company? The same principles apply to them.”
We do not have to move at the pace of the slowest, but if we adopt an isolated position on this, there would be a reputational risk for UK businesses. We do not need to run that risk, particularly as good progress is being made, and I urge the House not to accept this amendment. Instead, I hope that we will be able to implement a measure over the next few months.
David Mowat
I suppose it depends which multinationals are in which segment of competition, but is the Minister saying that as long as, say, two or three other countries were to do this, the UK would join in?
Mr Gauke
I do not want to put a precise number on this. There is a threshold, and it depends on which countries those might be, but if I thought that three or four significant economies were going in the same direction, the case for doing this would be much stronger. Or, to put the reverse argument, if I were standing here next year and two or three other countries had gone down this route, the concerns that I am expressing from the Dispatch Box today would clearly carry less weight than I think they do today.
Meg Hillier
Perhaps I can help the Minister. On behalf of the Public Accounts Committee, I sent an open letter to the chairs of European finance and public accounts committees or their equivalents. The Minister might have picked up the fact that, to date, the letter has been signed by the chairs of parliamentary finance committees in Germany, Hungary, Finland, Norway and Slovakia, as well as by senior MPs in the Netherlands, the Czech Republic and Bulgaria. We also know that the French Finance Minister, Michel Sapin, is doing some interesting work in this area, as are many others. Does that help to push the Minister in the right direction and enable him to make us more of an offer today?
Mr Gauke
Well, it supports my optimism that we are on the cusp of a multilateral deal, and that will enable us to work out the legislation in the most comprehensive and effective way. As I have said, our preference would be to do this through company law rather than through a Finance Bill, but the hon. Lady’s intervention supports what I was saying earlier about the comments of the relevant EU Commissioner at the last ECOFIN meeting in Luxembourg, which I attended 11 days ago. He was optimistic that we would reach agreement by the end of this calendar year. If that is the case, it is hugely encouraging, and the point that the hon. Lady has just made supports that proposition.
Nigel Mills (Amber Valley) (Con)
I hope that the Minister will be willing to channel the leadership and enthusiasm that the UK showed in relation to the diverted profits tax, when we chose to go out alone and not wait for international agreements on base erosion and profit shifting. We introduced a whole new tax, with compliance burdens and penalties, and I suspect that that was a far bigger deal than requiring companies simply to disclose what they are already disclosing but in a slightly different format. I think that that was the right way to go.
Mr Gauke
My hon. Friend is right to mention the fact that we went ahead with the diverted profits tax, although doing so was clearly consistent with the direction of the base erosion and profit shifting process. That tax also brought in significant revenue to the UK, which has been very helpful.
If we want to achieve greater transparency, as I believe we all do, it is right that we focus on driving forward international efforts on public country-by-country reporting. In order to get full information on foreign multinational entities’ global activities, multilateral agreement will be required to enable countries to introduce comprehensive rules with the widest possible scope. This will allow for a comprehensive multilateral approach that applies consistently across UK and foreign multinational entities. We must get this right so that, when it is introduced into UK law, it is effective and enforceable. We will continue to support and drive this multilateral change forward following the result of the referendum, and I share the determination of the Members supporting this amendment not to move at the pace of the slowest.
Mr Mitchell
The Minister is being extremely generous in giving way. I am sure we all agree with him that this should be done multilaterally—there is nothing between us on that—and I am sure that it will be helpful to his aim of being able to demonstrate strong support for this across the House of Commons when he is dealing with his international partners. I should like to make a suggestion, and I hope that it will be helpful. Would he consider asking his officials to draft a clause for public discussion that is not defective and that he could put to his colleagues multilaterally as a measure that they might wish to include in their parliamentary legislation?
Mr Gauke
I am grateful to my right hon. Friend for that suggestion. Let me take it away, because there are a number of ways in which this could be done, and we would want to consider it. I believe that this debate will be helpful to our parliamentary and governmental colleagues in other jurisdictions in that it demonstrates our cross-party determination to make progress on this matter. We are committed to acting swiftly to implement international agreements, as we have done with the OECD BEPS recommendations on country-by-country reporting. We are committed to improving the transparency of multinational tax affairs, but we support an effective multilateral approach. At this time of increased uncertainty, a domestic measure of the sort being discussed today would, I fear, disadvantage UK business for the reason that I outlined. I look forward to hearing the contribution of the right hon. Member for Don Valley, but I hope she is satisfied with the assurances that I have provided today.
Clause 150 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. The bill introduces a financial penalty of up to 100% of the tax evaded and public naming in the most serious cases.
I want briefly to respond to Opposition amendments 19 and 20. The intentions of amendment 19 seem twofold. The first would ensure that it is considered enabling to act as an introducer. Schedule 20 already covers acting as an introducer, so that part of the amendment is unnecessary. The second aim is to set a test to check whether it objectively appears that the adviser should have known that the advice was likely to enable offshore tax evasion and is therefore an enabler. The test would introduce a great deal of uncertainty, meaning that it would be unclear how much due diligence should be completed.
Similarly, amendment 20 proposes a test that would ask whether the adviser wilfully or recklessly failed to make inquiries that a reasonable and honest person would have made. The courts generally recognise that knowledge includes so-called “blind-eye” knowledge—where a person has a firm suspicion about specific facts and deliberately decides not to find out more about them—meaning that an enabler cannot bury their head in the sand. If they have good reason to think that they are assisting evasion, failing to make proper inquiries will not help them and they will be penalised under the schedule as it currently stands. Given the restrictions and uncertainty that amendments 19 and 20 would introduce, I urge hon. Members to reject them.
Clauses 151 to 153 and schedules 21 and 22 strengthen the civil sanctions levied on offshore tax evaders. Clause 151 will increase the minimum penalties for deliberate offshore tax evasion to 30% of the tax due. The current minimum penalty is 20% and the maximum penalty will remain up to 300% of the tax due. The clause will require offshore evaders who are seeking to minimise or reduce their penalty to provide more information about their evasion and enabling activities in co-operation with HMRC.
Clause 152 removes the protection from being publicly named for deliberate offshore tax evasion unless an offshore evader comes forward to HMRC voluntarily and makes a full disclosure. In addition, clause 152 allows HMRC to name the individual who controls a company or entity that has participated in offshore tax evasion.
Clause 153 introduces a new asset-based penalty that will apply to the most serious cases of deliberate offshore tax evasion, where the tax loss exceeds £25,000, and will levy a penalty of up to 10% of the value of the asset connected to the evasion. Such assets could include physical property, intellectual property, shares and bank accounts. The asset-based penalty will be levied in addition to any other tax-geared penalties and interest due. Taken together, the measures will provide HMRC with a greater understanding of tax evasion while significantly increasing the penalties on tax evaders and those who help them.
New clauses 5 and 6 concern the reporting of a number of offshore tax evaders who have been named by HMRC and the number of asset-based penalties levied within a year of the passing of this Bill. The asset-based penalties are expected to apply from the 2016-17 tax year and the strengthened naming provisions are expected to apply from the 2017-18 tax year, with the first details published under this clause expected to be in 2019-20. As such, there would be no time for the activities covered by the amendments to have happened by the deadlines set for the Government to report on them.
Dame Margaret Hodge
I want to make two points about the response to whistleblowing. First, as I read the clause, it would lead to a review of whistleblowing in the banking and financial services sector. During my period as the Chair of the Public Accounts Committee, we did a lot of work on the whistleblowing from Falciani on the Swiss bank accounts and on the PwC leaks in Luxembourg. What was so interesting was that the only action that the two financial institutions took was to try to pursue the whistleblowers through the courts—trying to get them indicted and jailed. That is unacceptable.
Secondly, the internal HMRC lawyer who gave us the evidence that demonstrated that a sweetheart deal had been entered into with Goldman Sachs could not, in the end, return to his job. Everything of his was rifled through from his wife’s computer to his telephone and everything else. That is not good enough. I urge the Minister to think again and to instigate a review.
Mr Gauke
I note what the right hon. Lady says, but I will not let her comments about sweetheart deals pass. We have discussed the matter before, and I point her in the direction of Sir Andrew Park’s review of those settlements and his conclusion that there were no sweetheart deals. This is an issue that she and I have discussed before and no doubt will discuss again, and I fear that we will not reach agreement. I note her points, but I am not persuaded by the case for new clause 8.
Dr Whitford
My point is about the NHS, where whistleblowers have suffered exactly the same kind of detriment, but the Government are now trying to change their attitude. I do not understand why we would not want to support whistleblowers within the industry when we have had one scandal after another for the past decade.
Mr Gauke
My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.
The right hon. Member for Barking (Dame Margaret Hodge) has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.
Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.
I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed, today we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.
Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.
Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.
Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.
Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.
Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable, as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.
With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend the Member for Don Valley (Caroline Flint) will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.
Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.
Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.
Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC
“the power to publish the details of an individual who controls a body corporate or a partnership”—
when it has been—
“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”—
when that individual—
“would have obtained a tax advantage”—
from it—
“had it not been corrected.”
This must involve an offshore matter or transfer.
Mr Gauke
I thank all right hon. and hon. Members for their contributions in this very good debate. Most of them focused on amendment 1 and new clause 9, as I will, but the hon. Member for Wolverhampton South West (Rob Marris) raised a number of points that I will quickly run through before turning to the main issues.
On new clause 4, which relates to the review of the GAAR, this is not a deadline issue. I was not making that point, as the hon. Gentleman rightly observed. I would argue that a review of the GAAR is unnecessary. The principal purpose of the GAAR is to deter taxpayers from entering into abusive tax avoidance in the first place. As I have made clear throughout this process, measuring the number of times that the GAAR has been invoked is not a reliable indicator of its success. I made that point when I brought in the legislation relating to the GAAR, and that remains the case.
On clause 153 and schedule 22 and asset-based penalties, the hon. Gentleman asked how we value the asset. The Valuation Office Agency, which is obviously experienced in that area, will value the asset for HMRC. The date of valuation will be the date of sale. For assets not disposed of, the value will be the market value on the last day of the tax year. That is the standard approach.
On the number of people affected by clause 147, the measures are aimed at a small but persistent minority of taxpayers who remain undeterred by the Government’s continued strategy to bear down on tax evasion and tax avoidance. We expect that the total number of taxpayers affected by the measures will be a small proportion of the total avoidance population; I do not wish to indicate anything other than that. This is a principled approach and it is right that that shrinking minority is properly dealt with.
The hon. Gentleman also raised a concern about a double penalty. I hope I can reassure him that the offset provision will apply to ensure that there will be no double penalty apart from the new GAAR penalty, whereby the combined total is capped, in most cases, at 100%.
We could have a longer debate, as we have done in the past, on the wider, familiar issue of HMRC resources. At the summer Budget, the Government provided HMRC with an extra £800 million to fund additional work to tackle evasion and non-compliance by 2020-21. That will enable HMRC to recover a cumulative £7.2 billion in tax over the next five years by tackling evasion and non-compliance. I also point out, as I tend to do in these circumstances, that HMRC’s yield is at record levels and that the tax gap is at record low levels. Although I do not think that the best measure is the number of staff working in a particular area, it is the case that the number in enforcement and compliance has consistently gone up. I accept that that is not the case across HMRC as a whole, although, as the hon. Gentleman has pointed out, the number is increasing at the moment, including in enforcement and compliance.
To return to the issue of penalties and whether they are sufficient, the GAAR penalty has been set at a rate high enough to act as a clear deterrent while being proportionate to the behaviour concerned. As I have said, under the existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, and it is appropriate for the GAAR penalty to be below that range.
Let me respond to the intervention by the right hon. Member for Barking (Dame Margaret Hodge) about whistleblowing. In October 2015 the Financial Conduct Authority published a package of rules designed to encourage a culture in banks whereby individuals feel able to raise concerns. Those rules require a senior manager to be appointed a whistleblowing champion, internal arrangements to handle all types of disclosure, and a requirement to inform the FCA if an employment tribunal with a whistleblower is lost.
Given that I have responded to one point raised by the right hon. Lady, I will now address some of her other points about new clause 9, which seeks to provide more information about the tax gap numbers. My argument is the practical point of whether it is likely that HMRC could estimate or measure the impact of such a specific measure on the tax gap, particularly given that the basis is hypothetical, since the register of persons with significant control is not yet operational. That is, therefore, a challenge, but I accept that the new clause also enables us to have a wider debate about the Crown dependencies and overseas territories. That is an important issue and I want to focus more on it.
We have made extraordinary progress in the past six years with regard to Crown dependencies and overseas territories and, indeed, more widely. When I first took over this role some six years ago, the big campaigning issue for many outside organisations was automatic exchange of information. My predecessor, the right hon. Member for East Ham (Stephen Timms), is held in very high regard by Members on both sides of the House. He was a dedicated Financial Secretary and tax Minister who energetically pursued that agenda, but I can remember him saying in 2010, “That’s very much what we want to do, but we think it’s a long way away.”
The progress that has been made over the past six years, for various reasons, is considerable. The automatic exchange of information, which was once seen as a laudable objective but not something we were going to reach any time soon, has now been reached. It applies to Crown dependencies and overseas territories, which were all early signatories to the common reporting standard, and that is now coming into force. It is fair to say that the UK Government encouraged them to do that, and that is an example of how working in partnership with the Crown dependencies and overseas territories can result in quicker and more effective implementation, whereas imposing legislation reduces that co-operation and can ultimately harm our ability to tackle and deter corruption, tax avoidance and tax evasion. The approach we have taken over the past six years has been successful in making substantial progress, which people of good will on all sides did not think would be possible. The common reporting standard is a good example of that.
Although I accept that Crown dependencies and overseas territories have not signed up to public registers of beneficial ownership, we have to put the issue in context. The UK is pretty much the only jurisdiction that has done that. Of course we should expect Crown dependencies and overseas territories to meet international standards. As a Government, we continue to press the case for ever higher international standards, but failing to have a public register of beneficial ownership is not a breach of international standards. We would like the international standards to be such, but they are not at present. We have to consider the issue in that context.
I do not want to rerun everything I said earlier about amendment 1. I believe that we all share the same objectives and that the question is about how we get to where we want to be. I want to make it absolutely clear that, although there are some technical concerns and flaws in the legislation, the fundamental point is that there is a limit to the extent that we can require a foreign multinational entity to disclose information on its global activities under UK law. That is why we believe that the best way forward is through international efforts on public country-by-country reporting. Even if those flaws can be addressed, we still face that problem.
Caroline Flint
In his earlier contribution, the Financial Secretary suggested that UK-headquartered companies would be disadvantaged, but my amendment is completely based on the information already required by HMRC, as laid down by this House with cross-party support. That includes multinational enterprises that are not necessarily UK headquartered but have a turnover of more than £600 million a year. Of course, the amendment does not catch everybody, but it is within the existing remit and range in the statute book. That is why I find it difficult to understand why there is a technical problem with my amendment. All we are saying is, “Make it public.”
Mr Gauke
The issue is that foreign multinational entities would not be caught by the amendment. That is the advice I have received. It means that the public will get information only on the taxes paid and profits made by a multinational entity headquartered in the United Kingdom and not on those paid and made by foreign multinational entities such as Google. That is the clear advice I have received on the right hon. Lady’s amendment.
Caroline Flint
I feel I have to pursue this point. Amendment 1 would insert two new subparagraphs in schedule 19. The first would mean that a
“group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.”
The qualifying group referred to is based on what the Government have already legislated for. The second subparagraph is very clear:
“In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”
That qualifying group, then, includes UK-headquartered companies but also companies from elsewhere whose turnover is more than £600 million a year, as I have said. It would affect not just UK companies but those companies with activity here that are headquartered elsewhere. I urge the Minister to ask civil servants whether they have got that advice right.
Mr Gauke
I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.
I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.
Another important point was touched on by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.
I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.
Rob Marris
May I make this offer on amendment 1? My right hon. Friend the Member for Don Valley (Caroline Flint) and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.
Mr Gauke
I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.
As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.
Mr Gauke
I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.
In the light of all that, I will say that, yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.
Amendment 114 agreed to.
Clause 144, as amended, ordered to stand part of the Bill.
Clause 145
General anti-abuse rule: binding of tax arrangements to lead arrangements
Amendments made: 115, page 198, line 8, leave out “Condition 1 or 2” and insert—
“the condition in sub-paragraph (2)”.
Amendment 116, page 198, line 9, leave out “Condition 1” and insert “The condition”.
Amendment 117, page 198, line 10, at end insert—
“but no notice under paragraph 12 of Schedule 43 or paragraph 9 of Schedule 43B has yet been given in respect of the matter.”
Amendment 118, page 198, leave out lines 11 and 12.
Amendment 119, page 198, line 20, leave out from first “notice” to end of line 21 and insert—
“(a “pooling notice”) which places R’s arrangements in a pool with the lead arrangements.”
Amendment 120, page 198, line 21, at end insert—
“( ) There is one pool for any lead arrangements, so all tax arrangements placed in a pool with the lead arrangements (as well as the lead arrangements themselves) are in one and the same pool.
( )Tax arrangements which have been placed in a pool do not cease to be in the pool except where that is expressly provided for by this Schedule (regardless of whether or not the lead arrangements or any other tax arrangements remain in the pool).”
Amendment 121, page 198, line 22, leave out “notice of binding” and insert “pooling notice”.
Amendment 122, page 198, line 23, leave out
“(which has not been withdrawn)”.
Amendment 123, page 198, line 25, leave out from “43” to end of line 26.
Amendment 124, page 198, line 26, at end insert—
“Notice of proposal to bind arrangements to counteracted arrangements
1A (1) This paragraph applies where a counteraction notice has been given to a person in relation to any tax arrangements (the “counteracted arrangements”) which are in a pool created under paragraph 1.
(2) If a designated HMRC officer considers—
(a) that a tax advantage has arisen to another person (“R”) from tax arrangements that are abusive,
(b) that those tax arrangements (“R’s arrangements”) are equivalent to the counteracted arrangements, and
(c) that the advantage ought to be counteracted under section 209,
the officer may give R a notice (a “notice of binding”) in relation to R’s arrangements.
(3) The officer may not give R a notice of binding if R has been given in respect of R’s arrangements a notice under—
(a) paragraph 1, or
(b) paragraph 3 of Schedule 43.
(4) In this paragraph “counteraction notice” means a notice such as is mentioned in sub-paragraph (2) of paragraph 12 of Schedule 43 or sub-paragraph (3) of paragraph 9 of Schedule 43B (notice of final decision to counteract).
1B”.
Amendment 125, page 198, line 27, after “a” insert “pooling notice or”.
Amendment 126, page 198, line 30, after “A” insert “pooling notice or”.
Amendment 127, page 198, line 34, after “arrangements” insert
“or the counteracted arrangements (as the case may be)”.
Amendment 128, page 199, line 1, after “A” insert “pooling notice or”.
Amendment 129, page 199, leave out lines 4 to 10.
Amendment 130, page 199, line 12, after “a” insert “pooling notice or”.
Amendment 131, page 199, line 16, after “6” insert
“and Schedule 43B (generic referral of tax arrangements)”.
Amendment 132, page 199, line 17, leave out “of binding” and insert
“in question (and accordingly the tax arrangements in question are no longer in the pool)”.
Amendment 133, page 199, line 23, leave out “notice under paragraph 1” and insert “pooling notice or notice of binding”.
Amendment 134, page 199, line 26, leave out
“notice under paragraph 1”
and insert—
“pooling notice or notice of binding”.
Amendment 135, page 199, line 34, at end insert—
“( ) Where a person takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the person had not taken the relevant corrective action if the person fails to enter into the written agreement.”
Amendment 136, page 200, line 6, at end insert—
“Corrective action by lead taxpayer
2A If the person mentioned in paragraph 1(1) takes the relevant corrective action (as defined in paragraph 4A of Schedule 43) before the end of the period of 75 days beginning with the day on which the notice mentioned in paragraph 1(1) was given to that person, the lead arrangements are treated as ceasing to be in the pool.”
Amendment 137, page 200, line 9, leave out “notice of binding” and insert “pooling notice”.
Amendment 138, page 200, line 10, leave out from first “arrangements” to “and” in line 11.
Amendment 139, page 200, line 13, leave out from “about” to “is” in line 14 and insert
“another set of tax arrangements in the pool (“the referred arrangements”)”.
Amendment 140, page 200, line 16, leave out “bound” and insert “pooled”.
Amendment 141, page 200, line 17, at end insert—
“( ) No more than one pooled arrangements opinion notice may be given to a person in respect of the same tax arrangements.”
Amendment 142, page 200, line 19, leave out
“by virtue of Condition 2 in paragraph 1”.
Amendment 143, page 200, line 21, leave out “notice of binding” and insert “pooling notice”.
Amendment 144, page 200, line 22, leave out “bound” and insert “pooled”.
Amendment 145, page 200, line 25, leave out “lead” and insert “referred”.
Amendment 146, page 200, line 29, at end insert—
“( ) In relation to a person who is given a notice of binding “bound arrangements opinion notice” means a written notice which—
(a) sets out a report prepared by HMRC of any opinion of the GAAR Advisory Panel about the counteracted arrangements (see paragraph 1A(1)),
(b) explains the person’s right to make representations falling within sub-paragraph (2), and
(c) sets out the period in which those representations may be made.”
Amendment 147, page 200, line 30, after “given” and insert
“a pooled arrangements opinion notice or”.
Amendment 148, page 200, leave out lines 35 to 38.
Amendment 149, page 200, line 40, leave out “the lead arrangements” and insert
“(i) the referred arrangements (in the case of a pooled arrangements opinion notice), or
(ii) the counteracted arrangements (in the case of a bound arrangements opinion notice).”
Amendment 150, page 201, line 3, leave out from beginning to “paragraph” in line 4 and insert
“any tax arrangements have been placed in a pool by a notice given to a person under”.
Amendment 151, page 201, line 7, leave out “the lead arrangements” and insert
“any other arrangements in the pool (the “referred arrangements”)”.
Amendment 152, page 201, line 10, leave out “lead” and insert “referred”.
Amendment 153, page 201, line 17, leave out
“by virtue of Condition 2 in paragraph 1”
and insert “under paragraph 1A”.
Amendment 154, page 201, line 22, leave out “lead” and insert “counteracted”.
Amendment 155, page 202, line 25, leave out from “applies” to end of line 38 and insert
“if—
(a) pooling notices given under paragraph 1 of Schedule 43A have placed one or more sets of tax arrangements in a pool with the lead arrangements,
(b) the lead arrangements (see paragraph 1(1) of Schedule 43A) have ceased to be in the pool, and
(c) no referral under paragraph 5 or 6 of Schedule 43 has been made in respect of any arrangements in the pool.
(2) A designated HMRC officer may determine that, in respect of each of the tax arrangements that are in the pool, there is to be given (to the person to whom the pooling notice in question was given) a written notice of a proposal to make a generic referral to the GAAR Advisory Panel in respect of the arrangements in the pool.
(3) Only one determination under sub-paragraph (2) may be made in relation to any one pool.
(3A) The persons to whom those notices are given are “the notified taxpayers”.”
Amendment 156, page 203, leave out lines 1 to 4.
Amendment 157, page 203, line 6, leave out “representations, and” and insert “a proposal.”.
Amendment 158, page 203, leave out lines 7 to 16.
Amendment 159, page 203, line 18, leave out from “given” to end of line 20 and insert
“to propose to HMRC that it—
(a) should give T a notice under paragraph 3 of Schedule 43 in respect of the arrangements to which the notice under paragraph 1 relates, and
(b) should not proceed with the proposal to make a generic referral to the GAAR Advisory Panel in respect of those arrangements.”
Amendment 160, page 203, leave out lines 21 to 25.
Amendment 161, page 203, line 26, leave out
“representations are made in accordance with sub-paragraph (2)”
and insert
“a proposal is made in accordance with sub-paragraph (1)”.
Amendment 162, page 203, line 27, leave out “them” and insert “it”.
Amendment 163, page 203, line 28, leave out from beginning to end of line 22 on page 204.
Amendment 164, page 204, line 26, leave out “given a notice” and insert “made a proposal”,
Amendment 165, page 204, line 31, leave out “gives a notice” and insert “makes a proposal”.
Amendment 166, page 204, line 32, after “must” insert
“, after the end of that 30 day period,”.
Amendment 167, page 204, leave out lines 34 and 35 and insert
“( ) give a notice under paragraph 3 of Schedule 43 in respect of one set of tax arrangements in the relevant pool, or”.
Amendment 168, page 204, leave out lines 37 and 38 and insert
“tax arrangements in the relevant pool”.
Amendment 169, page 205, line 18, after “which” insert “the designated officer considers”.
Amendment 170, page 207, line 35, at end insert—
“( ) In section 210 (consequential relieving adjustments), in subsection (1)(b), after “Schedule 43,” insert “paragraph 5 or 6 of Schedule 43A or paragraph 9 of Schedule 43B,”.”
Amendment 171, page 207, line 40, after “1” insert “or 1A”.
Amendment 172, page 207, line 41, leave out “lead” and insert
“referred or (as the case may be) counteracted”.
Amendment 173, page 208, line 7, leave out “1(4)” and insert “1A(2)”.
Amendment 174, page 208, line 8, at end insert—
““pooling notice” has the meaning given by paragraph 1(4) of Schedule 43A;”.
Amendment 178, page 208, line 24, at end insert—
“(10A) Section 10 of the National Insurance Contributions Act 2014 (GAAR to apply to national insurance contributions) is amended in accordance with subsections (10B) to (10E).
(10B) In subsection (4), at the end insert “, paragraph 5 or 6 of Schedule 43A to that Act (pooling of tax arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referral of arrangements: notice of final decision)”.
(10C) After subsection (6) insert—
“(6A) Where, by virtue of this section, a case falls within paragraph 4A of Schedule 43 to the Finance Act 2013 (referrals of single schemes: relevant corrective action) or paragraph 2 of Schedule 43A to that Act (pooled schemes: relevant corrective action)—
(a) the person (“P”) mentioned in sub-paragraph (1) of that paragraph takes the “relevant corrective action” for the purposes of that paragraph if (and only if)—
(i) in a case in which the tax advantage in question can be counteracted by making a payment to HMRC, P makes that payment and notifies HMRC that P has done so, or
(ii) in any case, P takes all necessary action to enter into an agreement in writing with HMRC for the purpose of relinquishing the tax advantage, and
(b) accordingly, sub-paragraphs (2) to (8) of that paragraph do not apply.”
(10D) In subsection (11)—
(a) for “and HMRC” substitute “, “HMRC” and “tax advantage””;
(b) after “2013” insert “(as modified by this section)”.
(10E) After subsection (11) insert—
“(12) See section 10A for further modifications of Part 5 of the Finance Act 2013.”
(10F) After section 10 of the National Insurance Contributions Act 2014 insert—
“10A Application of GAAR in relation to penalties
(1) For the purposes of this section a penalty under section 212A of the Finance Act 2013 is a “relevant NICs-related penalty” so far as the penalty relates to a tax advantage in respect of relevant contributions.
(2) A relevant NICs-related penalty may be recovered as if it were an amount of relevant contributions which is due and payable.
(3) Section 117A of the Social Security Administration Act 1992 or (as the case may be) section 111A of the Social Security Administration (Northern Ireland) Act 1992 (issues arising in proceedings: contributions etc) has effect in relation to proceedings before a court for recovery of a relevant NICs-related penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty.
(4) Accordingly, paragraph 5(4)(b) of Schedule 43C to the Finance Act 2013 (assessment of penalty to be enforced as if it were an assessment to tax) does not apply in relation to a relevant NICs-related penalty.
(5) In the application of Schedule 43C to the Finance Act 2013 in relation to a relevant NICs-related penalty, paragraph 9(5) has effect as if the reference to an appeal against an assessment to the tax concerned were to an appeal against a NICs decision.
(6) In paragraph 8 of that Schedule (aggregate penalties), references to a “relevant penalty provision” include—
(a) any provision mentioned in sub-paragraph (5) of that paragraph, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(b) section 98A of the Taxes Management Act 1970, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(c) any provision in regulations made by the Treasury under which a penalty can be imposed in respect of any class of national insurance contributions.
(7) The Treasury may by regulations—
(a) disapply, or modify the effect of, subsection (6)(a) or (b);
(b) modify paragraph 8 of Schedule 43C to the Finance Act 2013 as it has effect in relation to a relevant penalty provision by virtue of subsection (6)(b) or (c).
(8) Section 175(3) to (5) of SSCBA 1992 (various supplementary powers) applies to a power to make regulations conferred by subsection (7).
(9) Regulations under subsection (7) must be made by statutory instrument.
(10) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.
(11) In this section “NICs decision” means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671).
(12) In this section “relevant contributions” means the following contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992—
(a) Class 1 contributions;
(b) Class 1A contributions;
(c) Class 1B contributions;
(d) Class 2 contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts in relation to Class 2 contributions under section 11(2) of that Act) does not apply.””
Amendment 175, page 208, line 28, leave out from “notice” to “in” in line 30 and insert
“has been given under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements)”.
Amendment 176, page 208, line 34, leave out from “Panel” to end of line 36 and insert
“about the other arrangements (see subsection (8)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013.”
Amendment 177, page 209, line 2, leave out from “(4)(d)” to end of line 6 and insert
“other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
Amendment 179, page 209, line 6, at end insert—
“(13A) In section 220 of FA 2014 (content of notice given while a tax enquiry is in progress)—
(a) in subsection (4)(c), after “219(4)(c)” insert “, (d) or (e)”;
(b) in subsection (5)(c), after “219(4)(c)” insert “, (d) or (e)”;
(c) in subsection (7), for the words from “under” to the end substitute “under—
(a) paragraph 12 of Schedule 43 to FA 2013,
(b) paragraph 5 or 6 of Schedule 43A to that Act, or
(c) paragraph 9 of Schedule 43B to that Act,
as the case may be.”
(13B) Section 287 of FA 2014 (Code of Practice on Taxation for Banks) is amended in accordance with subsections (13C) to (13E).
(13C) In subsection (4), after “(5)” insert “or (5A)”.
(13D) In subsection (5)(b), after “Schedule” insert “or paragraph 5 or 6 of Schedule 43A to that Act”.
(13E) After subsection (5) insert—
“(5A) This subsection applies to any conduct—
(a) in relation to which there has been given—
(i) an opinion notice under paragraph 7(4)(b) of Schedule 43B to FA 2013 (GAAR advisory panel: opinion that such conduct unreasonable) stating the joint opinion of all the members of a sub-panel arranged under that paragraph, or
(ii) one or more such notices stating the opinions of at least two members of such a sub-panel, and
(b) in relation to which there has been given a notice under paragraph 9 of that Schedule (HMRC final decision on tax advantage) stating that a tax advantage is to be counteracted.
(5B) For the purposes of subsection (5), any opinions of members of the GAAR advisory panel which must be considered before a notice is given under paragraph 5 or 6 of Schedule 43A to FA 2013 (opinions about the lead arrangements) are taken to relate to the conduct to which the notice relates.”
(13F) In Schedule 32 to FA 2014 (accelerated payments and partnerships), paragraph 3 is amended in accordance with subsections (13G) and (13H).
(13G) In sub-paragraph (5), after paragraph (c) insert—
(d) the relevant partner in question has been given a notice under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel about the other arrangements (see sub-paragraph (7)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013;
(e) the relevant partner in question has been given a notice under paragraph 9(2) of Schedule 43B to FA 2013 (GAAR: generic referral of arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel which considered the generic referral in respect of those arrangements was as set out in paragraph 7(4)(b) of that Schedule.”
(13H) After sub-paragraph (6) insert—
“(7) “Other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
(13I) In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), in paragraph 7—
(a) in paragraph (a), at the end insert “(referrals of single schemes) or are in a pool in respect of which a referral has been made to that Panel under Schedule 43B to that Act (generic referrals),”;
(b) in paragraph (b)—
(i) for “in relation to the arrangements” substitute “in respect of the referral”;
(ii) after “11(3)(b)” insert “or (as the case may be) 7(4)(b)”;
(c) in paragraph (c)(i) omit “paragraph 10 of”.”—(Mr Gauke.)
Clause 145, as amended, ordered to stand part of the Bill.
Clause 146
General Anti-Abuse Rule: Penalty
Amendments made: 82, page 209, line 14, after “person” insert “(P)”.
Amendment 83, page 209, leave out lines 15 and 16.
Amendment 84, page 209, line 17, leave out “the person” and insert “(P)”.
Amendment 85, page 209, line 21, leave out “the” and insert “particular”.
Amendment 86, page 209, line 22, at end insert—
“(ba) a tax document has been given to HMRC on the basis that the tax advantage arises to P from those arrangements,
(bb) that document was given to HMRC—
(i) by P, or
(ii) by another person in circumstances where P knew, or ought to have known, that the other person gave the document on the basis mentioned in paragraph (ba), and”
Amendment 87, page 209, line 33, at end insert—
‘( ) In this section the reference to giving a tax document to HMRC is to be interpreted in accordance with paragraph 11(g) and (h) of Schedule 43C.”
Amendment 88, page 210, line 16, at end insert—
‘( ) For the purposes of this paragraph consequential adjustments under section 210 are regarded as part of the counteraction in question.
( ) If the counteraction affects the person’s liability to two or more taxes, the taxes concerned are to be considered together for the purpose of determining the value of the counteracted advantage.”
Amendment 89, page 214, line 33, after “tax” insert
“(including any amount chargeable as if it were corporation tax or treated as corporation tax)”
Amendment 90, page 214, line 34, at end insert
“and (v) diverted profits tax;”.
Amendment 91, page 215, line 34, after “given” insert “a pooling notice or”.
Amendment 92, page 215, line 34, leave out “paragraph 1 of”.
Amendment 93, page 215, line 41, at beginning insert
“in the case of a pooling notice,”.
Amendment 94, page 215, line 47, leave out from beginning to “with” in line 48 and insert
“in the case of a notice of binding,”.
Amendment 95, page 215, line 49, leave out “of binding”.
Amendment 96, page 216, line 6, leave out “binding” and insert
“pooling or binding (as the case may be)”.
Amendment 97, page 216, line 43, at end insert—
(ja) an appeal under section 103 of FA 2016 (apprenticeship levy: appeal against an assessment), or”.
Amendment 98, page 216, line 45, leave out “(j)” and insert “(ja)”.
Amendment 99, page 217, line 23, at end insert—
‘( ) Where the taxpayer takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the taxpayer had not taken the relevant corrective action if the taxpayer fails to enter into the written agreement.”—(Mr Gauke.)
Clause 146, as amended, ordered to stand part of the Bill.
Clause 147 ordered to stand part of the Bill.
Schedule 18
Serial Tax Avoidance
Amendments made: 100, page 480, line 19, at end insert “, associated persons and partnerships”
Amendment 101, page 480, line 32, at end insert—
‘( ) A warning notice given by virtue of paragraph 46C must also explain the effect of paragraph 46E (information in certain cases involving partnerships).”
Amendment 102, page 484, line 10, after “decision)” insert—
“, paragraph 5 or 6 of Schedule 43A to that Act (pooled arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referrals: notice of final decision)”.
Amendment 103, page 484, leave out lines 23 and 24 and insert—
“the necessary corrective action for the purposes of section 208 of FA 2014 has been taken”.
Amendment 104, page 484, line 28, at end insert—
“(1A) In sub-paragraph (1) the reference to giving a follower notice to P includes a reference to giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner (as defined in paragraph 2(5) of Schedule 31 to FA 2014).”
Amendment 105, page 484, line 35, leave out from “advantage”” to end of line 36 and insert—
“has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).”
Amendment 106, page 484, line 42, at end insert—
“(6) For the purposes of this paragraph a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph (a) or (b) of paragraph 2(2) of Schedule 31 to FA 2014.”
Amendment 107, page 485, line 8, after “election” insert—
“, or a partnership return is made,”
Amendment 108, page 490, line 22, at end insert—
“( ) If the person mentioned in sub-paragraph (1) is a person carrying on a trade or business in partnership, the information which may be published also includes—
(a) any trading name of the partnership, and
(b) information about other members of the partnership of the kind described in sub-paragraph (4)(a) or (b).”
Amendment 109, page 494, line 31, at end insert—
“( ) In this paragraph “relevant failure”, in relation to a relevant defeat, is to be interpreted in accordance with sub-paragraphs (2) to (7) of paragraph 43.”
Amendment 110, page 504, line 43, at end insert—
“Associated persons treated as incurring relevant defeats
46A (1) Sub-paragraph (2) applies if a person (“P”) incurs a relevant defeat in relation to any arrangements (otherwise than by virtue of this paragraph).
(2) Any person (“S”) who is associated with P at the relevant time is also treated for the purposes of paragraphs 2 (duty to give warning notice) and 3(2) (warning period) as having incurred that relevant defeat in relation to those arrangements (but see sub-paragraph (3)).
For the meaning of “associated” see paragraph 46B.
(3) Sub-paragraph (2) does not apply if P and S are members of the same group of companies (as defined in paragraph 46(9)).
(4) In relation to a warning notice given to S by virtue of sub-paragraph (2), paragraph 2(4)(c) (certain information to be included in warning notice) is to be read as referring only to paragraphs 3, 17 and 18.
(5) A warning notice which is given to a person by virtue of sub-paragraph (2) is treated for the purposes of paragraphs 19(1) (duty to give relief restriction notice) and 30 (penalty) as not having been given to that person.
(6) In sub-paragraph (2) “the relevant time” means the time when P is given a warning notice in respect of the relevant defeat.
Meaning of “associated”
46B (1) For the purposes of paragraph 46A two persons are associated with one another if—
(a) one of them is a body corporate which is controlled by the other, or
(b) they are bodies corporate under common control.
(2) Two bodies corporate are under common control if both are controlled—
(a) by one person,
(b) by two or more, but fewer than six, individuals, or
(c) by any number of individuals carrying on business in partnership.
(3) For the purposes of this section a body corporate (“H”) is taken to control another body corporate (“B”) if—
(a) H is empowered by statute to control B’s activities, or
(b) H is B’s holding company within the meaning of section 1159 of and Schedule 6 to the Companies Act 2006.
(4) For the purposes of this section an individual or individuals are taken to control a body corporate (“B”) if the individual or individuals, were they a body corporate, would be B’s holding company within the meaning of those provisions.
Partners treated as incurring relevant defeats
46C (1) Where paragraph 46D applies in relation to a partnership return, each relevant partner is treated for the purposes of this Part of this Act as having incurred the relevant defeat mentioned in paragraph 46D(1)(b), (2) or (3)(b) (as the case may be).
(2) In this paragraph “relevant partner” means any person who was a partner in the partnership at any time during the relevant reporting period (but see sub-paragraph (3)).
(3) The “relevant partners” do not include—
(a) the person mentioned in sub-paragraph (1)(b), (2) or (3)(b) (as the case may be) of paragraph 46D, or
(b) any other person who would, apart from this paragraph, incur a relevant defeat in connection with the subject matter of the partnership return mentioned in sub-paragraph (1).
(4) In this paragraph the “relevant reporting period” means the period in respect of which the partnership return mentioned in sub-paragraph (1), (2) or (3) of paragraph 46D was required.
Partnership returns to which this paragraph applies
46D (1) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition A (final counteraction of tax advantage under general anti-abuse rule).
(2) Where a person has incurred a relevant defeat by virtue of sub-paragraph (1A) of paragraph 13 (Condition B: case involving partnership follower notice) this paragraph applies in relation to the partnership return mentioned in that sub-paragraph.
(3) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition C (return, claim or election made in reliance on DOTAS arrangements).
(4) The references in this paragraph to a relevant defeat do not include a relevant defeat incurred by virtue of paragraph 46A(2).
Partnerships: information
46E (1) If paragraph 46D applies in relation to a partnership return, the appropriate partner must give HMRC a written notice (a “partnership information notice”) in respect of each sub-period in the information period.
(2) The “information period” is the period of 5 years beginning with the day after the day of the relevant defeat mentioned in paragraph 46D.
(3) If, in the case of a partnership, a new information period (relating to another partnership return) begins during an existing information period, those periods are treated for the purposes of this paragraph as a single period (which includes all times that would otherwise fall within either period).
(4) An information period under this paragraph ends if the partnership ceases.
(5) A partnership information notice must be given not later than the 30th day after the end of the sub-period to which it relates.
(6) A partnership information notice must state—
(a) whether or not any relevant partnership return which was, or was required to be, delivered in the sub-period has been made on the basis that a relevant tax advantage arises, and
(b) whether or not there has been a failure to deliver a relevant partnership return in the sub-period.
(7) In this paragraph—
(a) “relevant partnership return” means a partnership return in respect of the partnership’s trade, profession or business;
(b) “relevant tax advantage” means a tax advantage which particular DOTAS arrangements enable, or might be expected to enable, a person who is or has been a partner in the partnership to obtain.
(8) If a partnership information notice states that a relevant partnership return has been made on the basis mentioned in sub-paragraph (6)(a) the notice must—
(a) explain (on the assumptions made for the purposes of the return) how the DOTAS arrangements enable the tax advantage concerned to be obtained, and
(b) describe any variation in the amounts required to be stated in the return under section 12AB(1) of TMA 1970 which results from those arrangements.
(9) HMRC may require the appropriate partner to give HMRC a notice (a “supplementary information notice”) setting out further information in relation to a partnership information notice.
In relation to a partnership information notice “further information” means information which would have been required to be set out in the notice by virtue of sub-paragraph (6)(a) or (8) had there not been a failure to deliver a relevant partnership return.
(10) A requirement under sub-paragraph (9) must be made by a written notice and the notice must state the period within which the notice must be complied with.
(11) If a person fails to comply with a requirement of (or imposed under) this paragraph, HMRC may by written notice extend the information period concerned to the end of the period of 5 years beginning with—
(a) the day by which the partnership information notice or supplementary information notice was required to be given to HMRC or, as the case requires,
(b) the day on which the person gave the defective notice to HMRC,
or, if earlier, the time when the information period would have expired but for the extension.
(12) For the purposes of this paragraph—
(a) the first sub-period in an information period begins with the first day of the information period and ends with a day specified by HMRC,
(b) the remainder of the information period is divided into further sub-periods each of which begins immediately after the end of the preceding sub-period and is twelve months long or (if that would be shorter) ends at the end of the information period.
(13) In this paragraph “the appropriate partner” means the partner in the partnership who is for the time being nominated by HMRC for the purposes of this paragraph.
Partnerships: special provision about taxpayer emendations
46F (1) Sub-paragraph (2) applies if a partnership return is amended at any time under section 12ABA of TMA 1970 (amendment of partnership return by representative partner etc) on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB of that Act (partnership statement) as a partner’s share of any income, loss, consideration, tax or credit for any period.
(2) For the purposes of paragraph 14 (Condition C: counteraction of DOTAS arrangements), the partner is treated as having at that time amended—
(a) the partner’s return under section 8 or 8A of TMA 1970, or
(b) the partner’s company tax return,
so as to give effect to the amendments of the partnership return.
(3) Sub-paragraph (4) applies if a partnership return is amended at any time by HMRC as a result of a disclosure made by the representative partner or that person’s successor on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB (partnership statement) as the share of a particular partner (P) of any income, loss, consideration, tax or credit for any period.
(4) If the conditions in sub-paragraph (5) are met, P is treated for the purposes of paragraph 14 as having at that time amended—
(a) P’s return under section 8 or 8A of TMA 1970, or
(b) P’s company tax return,
so as to give effect to the amendments of the partnership return.
(5) The conditions are that the disclosure—
(a) is a full and explicit disclosure of an inaccuracy in the partnership return, and
(b) was made at a time when neither the person making the disclosure nor P had reason to believe that HMRC was about to begin enquiries into the partnership return.
Supplementary provision relating to partnerships
46G (1) In paragraphs 46C to 46F and this paragraph—
“partnership” is to be interpreted in accordance with section 12AA of TMA 1970 (and includes a limited liability partnership);
“the representative partner”, in relation to a partnership return, means the person who was required by a notice served under or for the purposes of section 12AA(2) or (3) of TMA 1970 to deliver the return;
“successor”, in relation to a person who is the representative partner in the case of a partnership return, has the same meaning as in TMA 1970 (see section 118(1) of that Act).
(2) For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.”
Amendment 112, page 507, leave out lines 15 to 20.
Amendment 111, page 507, line 38, at end insert—
““partnership follower notice” has the meaning given by paragraph 2(2) of Schedule 31 to FA 2014;
“partnership return” means a return under section 12AA of TMA 1970;”
Amendment 113, page 508, line 13, at end insert—
‘( ) For the purposes of this Schedule a partnership return is regarded as made on the basis that a particular tax advantage arises to a person from particular arrangements if—
(a) it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those arrangements, and
(b) that increase or reduction results in that tax advantage for the person.”—(Mr Gauke.)
Schedule 18, as amended, agreed to.
Clause 148
Promoters of tax avoidance schemes
Amendments made: 69, page 219, line 15, at end insert—
‘(1A) An authorised officer must make the determination set out in subsection (1B) if the officer becomes aware at any time (“the relevant Part 2B time”) that—
(a) a person meets a condition in subsection (6), (7) or (8), and
(b) at the relevant Part 2B time another person (“P”), who is carrying on a business as a promoter, meets that condition by virtue of Part 2B of Schedule 34A (meeting the section 237A conditions: bodies corporate and partnerships).
(1B) The authorised officer must determine whether or not—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part.”
Amendment 70, page 219, line 16, leave out “Subsection (1) does” and insert “Subsections (1) and (1A) do”.
Amendment 71, page 219, leave out lines 21 to 25.
Amendment 72, page 219, line 25, at end insert—
‘(3A) Subsection (1A) does not apply if, at the relevant Part 2B time, an authorised officer is under a duty to make a determination under section 237(5) in relation to P.
(3B) But in a case where subsection (1) does not apply because of subsection (3), or subsection (1A) does not apply because of subsection (3A), subsection (5) of section 237 has effect as if—
(a) the references in paragraph (a) of that subsection to “subsection (1)”, and “subsection (1)(a)” included subsection (1) of this section, and
(b) in paragraph (b) of that subsection the reference to “subsection (1A)(a)” included a reference to subsection (1A)(a) of this section and the reference to subsection (1A)(b) included a reference to subsection (1A)(b) of this section.”
Amendment 73, page 219, line 28, at end insert—
‘( ) If the authorised officer determines under subsection (1B) that—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part, the officer must give P a conduct notice, unless subsection (5) applies.”
Amendment 74, page 225, line 7, at end insert—
( ) Part 2A contains provision about when a relevant defeat is treated as occurring in relation to a person;
( ) Part 2B contains provision about when a person is treated as meeting a condition in subsection (6), (7) or (8) of section 237A;”
Amendment 75, page 226, line 9, leave out from “person” to end of line 11 and insert
“is carrying on a business as a promoter and—the person is or has been a promoter in relation to the arrangements, or that would be the case if the condition in sub-paragraph (2) were met.”
(i) the person is or has been a promoter in relation to the arrangements, or
(ii) that would be the case if the condition in sub-paragraph (2) were met.”
Amendment 76, page 228, line 26, after first “to” insert
“, paragraph 5(2) or 6(2) of Schedule 43A to or paragraph 9(2) of Schedule 43B to”.
Amendment 77, page 230, line 9, at end insert—
Part 2A
Relevant defeats: associated persons
Attribution of relevant defeats
16A (1) Sub-paragraph (2) applies if—
(a) there is (or has been) a person (“Q”),
(b) arrangements (“the defeated arrangements”) have been entered into,
(c) an event occurs such that either—
(i) there is a relevant defeat in relation to Q and the defeated arrangements, or
(ii) the condition in sub-paragraph (i) would be met if Q had not ceased to exist,
(d) at the time of that event a person (“P”) is carrying on a business as a promoter (or is carrying on what would be such a business under the condition in paragraph 3(2)), and
(e) Condition 1 or 2 is met in relation to Q and P.
(2) The event is treated for all purposes of this Part of this Act as a relevant defeat in relation to P and the defeated arrangements (whether or not it is also a relevant defeat in relation to Q, and regardless of whether or not P existed at any time when those arrangements were promoted arrangements in relation to Q).
(3) Condition 1 is that—
(a) P is not an individual,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q—
(i) P was a relevant body controlled by Q, or
(ii) Q was a relevant body controlled by P, and
(c) at the time of the event mentioned in sub-paragraph (1)(c)—
(i) Q is a relevant body controlled by P,
(ii) P is a relevant body controlled by Q, or
(iii) P and Q are relevant bodies controlled by a third person.
(4) Condition 2 is that—
(a) P and Q are relevant bodies,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q, a third person (“C”) controlled Q, and
(c) C controls P at the time of the event mentioned in sub-paragraph (1)(c).
(5) For the purposes of sub-paragraphs (3)(b) and (4)(b), the question whether arrangements are promoted arrangements in relation to Q at any time is to be determined on the assumption that the reference to “design” in paragraph (b) of section 235(3) (definition of “promoter” in relation to relevant arrangements) is omitted.
Deemed defeat notices
16B (1) This paragraph applies if—
(a) an authorised officer becomes aware at any time (“the relevant time”) that a relevant defeat has occurred in relation to a person (“P”) who is carrying on a business as a promoter,
(b) there have occurred, more than 3 years before the relevant time—
(i) one third party defeat, or
(ii) two third party defeats, and
(c) conditions A1 and B1 (in a case within paragraph (b)(i)), or conditions A2 and B2 (in a case within paragraph (b)(ii)), are met.
(2) Where this paragraph applies by virtue of sub-paragraph (1)(b)(i), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the time of the third party defeat, given P a single defeat notice under section 241A(2) in respect of it.
(3) Where this paragraph applies by virtue of sub-paragraph (1)(b)(ii), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the second of the two third party defeats, given P a double defeat notice under section 241A(3) in respect of the two third party defeats.
(4) Section 241A(8) has no effect in relation to a notice treated as given as mentioned in subsection (2) or (3).
(5) Condition A1 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of the third party defeat,
(b) at the time of the third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a defeat notice in respect of the third party defeat, had the officer been aware that it was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of the third party defeat have never been met (ignoring this paragraph).
(6) Condition A2 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of each, or both, of the third party defeats,
(b) at the time of the second third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a double defeat notice in respect of the third party defeats, had the officer been aware that either of the third party defeats was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of those third party defeats (or either of them) have never been met (ignoring this paragraph).
(7) Condition B1 is that, had an authorised officer given P a defeat notice in respect of the third party defeat at the time of that relevant defeat, that defeat notice would still have effect at the relevant time (see sub-paragraph (1)).
(8) Condition B2 is that, had an authorised officer given P a defeat notice in respect of the two third party defeats at the time of the second of those relevant defeats, that defeat notice would still have effect at the relevant time.
(9) In this paragraph “third party defeat” means a relevant defeat which has occurred in relation to a person other than P.
Meaning of “relevant body” and “control”
16C (1) In this Part of this Schedule “relevant body” means—
(a) a body corporate, or
(b) a partnership.
(2) For the purposes of this Part of this Schedule a person controls a body corporate if the person has power to secure that the affairs of the body corporate are conducted in accordance with the person’s wishes—
(a) by means of the holding of shares or the possession of voting power in relation to the body corporate or any other relevant body,
(b) as a result of any powers conferred by the articles of association or other document regulating the body corporate or any other relevant body, or
(c) by means of controlling a partnership.
(3) For the purposes of this Part of this Schedule a person controls a partnership if the person is a controlling member or the managing partner of the partnership.
(4) In this paragraph “controlling member” has the same meaning as in Schedule 36 (partnerships).
(5) In this section “managing partner”, in relation to a partnership, means the member of the partnership who directs, or is on a day-to-day level in control of, the management of the business of the partnership.
Part 2B
Meeting section 237A conditions: bodies corporate and partnerships
Treating persons under another’s control as meeting section 237A condition
16D (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) that condition was met by a person (“C”) at a time when—
(i) C was carrying on a business as a promoter, or
(ii) RB was carrying on a business as a promoter and C controlled RB, and
(b) RB is controlled by C at the relevant Part 2B time.
(2) Sub-paragraph (1) does not apply if C is an individual.
(3) For the purposes of determining whether the requirements of sub-paragraph (1) are met by reason of meeting the requirement in sub-paragraph (1)(a)(i), it does not matter whether RB existed at the time when C met the section 237A condition.
Treating persons in control of others as meeting section 237A condition
16E (1) A person other than an individual is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) a relevant body (“A”) met the condition at a time when A was controlled by the person, and
(b) at the time mentioned in paragraph (a) A, or another relevant body (“B”) which was also at that time controlled by the person, carried on a business as a promoter.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether A or B (or neither) exists at the relevant Part 2B time.
Treating persons controlled by the same person as meeting section 237A condition
16F (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) another relevant body met that condition at a time (“time T”) when it was controlled by a person (“C”),
(b) at time T, there was a relevant body controlled by C which carried on a business as a promoter, and
(c) RB is controlled by C at the relevant Part 2B time.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether—
(a) RB existed at time T, or
(b) any relevant body (other than RB) by reason of which the requirements of sub-paragraph (1) are met exists at the relevant Part 2B time.
Interpretation
16G (1) In this Part of this Schedule—
“control” has the same meaning as in Part 2A of this Schedule;
“relevant body” has the same meaning as in Part 2A of this Schedule;
“relevant Part 2B time” means the time referred to in section 237A(1A);
“section 237A condition” means any of the conditions in section 237A(6), (7) and (8).
(2) For the purposes of paragraphs 16D(1)(a), 16E(1)(a) and 16F(1)(a), the condition in section 237A(6) (occurrence of 3 relevant defeats in the 3 years ending with the relevant time) is taken to have been met by a person at any time if at least 3 relevant defeats have occurred in relation to the person in the period of 3 years ending with that time.”
Amendment 78, page 234, line 27, at end insert—
‘(9A) Schedule 36 (promoters of tax avoidance schemes: partnerships) is amended in accordance with subsections (9B) to (9G).
(9B) In Part 2, before paragraph 5 insert—
“Defeat notices
4A A defeat notice that is given to a partnership must state that it is a partnership defeat notice.”.
(9C) In paragraph 7(1)(b) after “a” insert “defeat notice,”.
(9D) In paragraph 7(2) after “the” insert “defeat notice,”.
(9E) After paragraph 7 insert—
“Persons leaving partnership: defeat notices
7A (1) Sub-paragraphs (2) and (3) apply where—
(a) a person (“P”) who was a controlling member of a partnership at the time when a defeat notice (“the original notice”) was given to the partnership has ceased to be a member of the partnership,
(b) the defeat notice had effect in relation to the partnership at the time of that cessation, and
(c) P is carrying on a business as a promoter.
(2) An authorised officer may give P a defeat notice.
(3) If P is carrying on a business as a promoter in partnership with one or more other persons and is a controlling member of that partnership (“the new partnership”), an authorised officer may give a defeat notice to the new partnership.
(4) A defeat notice given under sub-paragraph (3) ceases to have effect if P ceases to be a member of the new partnership.
(5) A notice under sub-paragraph (2) or (3) may not be given after the original notice has ceased to have effect.
(6) A defeat notice given under sub-paragraph (2) or (3) is given in respect of the relevant defeat or relevant defeats to which the original notice relates.”
(9F) In paragraph 10—
(a) in sub-paragraph (1)(b) for “conduct notice or a” substitute “, defeat notice, conduct notice or”;
(b) in sub-paragraph (3), after “partner—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”.
(c) in sub-paragraph (4), after “(“the new partnership”)—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”
(d) after sub-paragraph (5) insert—
“(5A) A notice under sub-paragraph (3)(za) or (4)(za) may not be given after the end of the look-forward period of the original notice.”
(9G) After paragraph 11 insert—
11A The look-forward period for a notice under paragraph 7A(2) or (3) or 10(3)(za) or (4)(za)—
(a) begins on the day after the day on which the notice is given, and
(b) continues to the end of the look-forward period for the original notice (as defined in paragraph 7A(1)(a) or 10(2), as the case may be).”
Amendment 79, page 234, line 27, at end insert—
‘(9A) Part 2 of Schedule 2 to the National Insurance Contributions Act 2015 (application of Part 5 of FA 2014 to national insurance contributions) is amended in accordance with subsections (9B) and (9C).
(9B) After paragraph 30 insert—
“Threshold conditions
30A (1) In paragraph 5 of Schedule 34 (non-compliance with Part 7 of FA 2004), in sub-paragraph (4)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that P is to be deemed not to have failed to comply with the provision concerned as P had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
(2) In this paragraph “corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.
Relevant defeats
30B (1) Schedule 34A (promoters of tax avoidance schemes: defeated arrangements) has effect with the following modifications.
(2) References to an assessment (or an assessment to tax) include a NICs decision relating to a person’s liability for relevant contributions.
(3) References to adjustments include a payment in respect of a liability to pay relevant contributions (and the definition of “adjustments” in paragraph 17 accordingly has effect as if such payments were included in it).
(4) In paragraph 9(3) the reference to an enquiry into a return includes a relevant contributions dispute (as defined in paragraph 6 of this Schedule).
(5) In paragraph 21(3)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that the person is to be deemed not to have failed to comply with the provision concerned as the person had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
“Corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.”
(9C) In paragraph 31 (interpretation)—
(a) before paragraph (a) insert—
(za) “NICs decision” means a decision under section 8 of SSC(TF)A 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671);”
(b) in paragraph (b), for “are to sections of” substitute “or Schedules are to sections of, or Schedules to”.”
Amendment 80, page 234, line 39, after “person” insert “or an associated person”.
Amendment 81, page 235, line 2, at end insert—
‘(12A) For the purposes of subsection (11) a person (“Q”) is an “associated person” in relation to another person (“P”) at any time when any of the following conditions is met—
(a) P is a relevant body which is controlled by Q;
(b) Q is a relevant body, P is not an individual and Q is controlled by P;
(c) P and Q are relevant bodies and a third person controls P and Q.
(12B) In subsection (12A) “relevant body” and “control” are to be interpreted in accordance with paragraph 16C of Schedule 34A to FA 2014.”—(Mr Gauke.)
Clause 148, as amended, ordered to stand part of the Bill.
Clause 149 ordered to stand part of the Bill.
Schedule 19
Large businesses: tax strategies and sanctions
Amendment proposed: 1, page 516, line 21, at end insert—
‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.
(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”—(Caroline Flint.)
Question put, That the amendment be made.
The Temporary Chair (Sir Roger Gale)
With this it will be convenient to take the following:
Clauses 42 to 44 stand part.
Clauses 65 to 71 stand part.
Mr Gauke
The Bill introduces measures on small business investment that will simplify the tax system and ensure that allowances are fair and not open to abuse.
Clause 41 charges corporation tax for the financial year beginning 1 April 2017. Corporation tax is an annual tax approved by Parliament each year. This is an essential provision that enables us to collect tax. The key reform announced in the Budget to support business investment and back Britain’s economy is set out in clause 42, which cuts the rate of corporation tax to 17% with effect from 1 April 2020. I expect that our debate will focus on this provision, so I will start here, before commenting more briefly on the other clauses.
I will begin by setting out our broader strategy on corporation tax. The Government have been clear that taxes should be low but must be paid, and since 2010 we have made progress towards those goals. The main rate of corporation tax was 28% in 2010. By 2020, we will have cut the UK main rate by more than a third to make the UK more competitive and to support growth and investment. It will be one of the biggest boosts British business has ever seen. Further corporation tax cuts will increase the returns companies receive on their investments, and by 2020 corporation tax cuts delivered since 2010 will be saving businesses almost £15 billion a year. This will ensure that the UK has by far the lowest rate of corporation tax in the G20 and make Britain even more attractive to inward investors.
At the same time, we have taken significant measures to clamp down on tax avoidance and aggressive tax planning. The Government successfully helped initiate the G20-OECD base erosion and profits shifting project and worked internationally, including with G20 and OECD partners, to bring this to a successful conclusion in October 2015. We spent the earlier part of today’s debate considering some of the measures introduced in the Bill to address avoidance and evasion, but the Bill also takes further steps elsewhere. Key measures include tackling hybrid mismatch arrangements, introducing a restriction on the tax deductibility of corporate interest and expense, extending the UK’s withholding tax rights over royalties and ensuring non-resident property developers pay tax in the UK on profits they make in this country.
Low corporation rates enable businesses to increase investment, take on new staff, increase wages or reduce prices. This is borne out in receipts data: onshore corporation tax receipts have risen by almost 20% since 2010, despite lowering corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. This modelling suggests that the cuts could increase long-run GDP by more than 1%—almost £24 billion in today’s prices. The corporation tax cuts and other reforms we introduced have completely changed perceptions of the UK tax regime. The UK is now regularly cited in surveys as one of the most competitive regimes in the world.
As the Chancellor has said, in the last six years, the Government and the British people have worked hard to rebuild the British economy. We have worked systematically through a plan that means that today Britain has the strongest major advanced economy in the world. Cutting corporation tax rates has been a central part of the Government’s economic strategy, and that strategy is working.
The UK has been one of the fastest-growing economies in the G7, and the OECD forecasts the UK to be the fastest-growing G7 economy in 2016. There are 2.3 million more people in employment since 2010, and business investment is now 30% higher than it was in 2010. Tax competition is dynamic. In the last few decades, we have seen countries across the world cut their corporation tax rates. We cannot afford to stand still while others rush ahead. The UK needs to be as competitive as possible. A new 17% rate of corporation tax sends out the message loud and clear around the world that the British economy is fundamentally strong and highly competitive and that Britain is open for business. For those reasons, I urge the Committee to support the clauses, and to speak in anticipation of what we are about to hear, I hope the Committee will reject amendment 21, tabled by the hon. Member for Wolverhampton South West (Rob Marris), which would cancel the corporation tax cuts.
Let me move on to the other measures in this group. Clause 43 abolishes vaccine research relief from 1 April 2017. This relief is available only to large companies and is claimed fewer than 10 times a year, with a value below £5 million. The Government believe that direct spending programmes such as the recently announced £1 billion Ross fund offer a more effective and flexible approach to supporting the development of medicines and vaccines, and will have a far greater impact.
Clause 44 makes a small change to ensure that the introduction of the research and development expenditure credit does not have the unwanted effect of reducing the amount of relief available to certain small businesses. The expenditure credit replaced the old large company R and D tax credit scheme in 2016, following a period of three years in which both were available simultaneously. We recognise that R and D tax relief plays a vital role in supporting productive investment in the UK. These two changes will ensure that R and D tax support remains effective in meeting this objective.
Clause 65 extends the current time limit for claiming enhanced capital allowances in enterprise zones to eight years from the date on which the enterprise zones are announced. Businesses operating in the 46 enterprise zones across the UK can opt either for a rebate on business rates or enhanced capital allowance covering 100% of investment. Extending the time limit for claiming enhanced capital allowances to eight years will allow all zones to enjoy it for the same duration. I am sure that hon. Members of all parties will welcome this.
Clause 66 will strengthen the existing capital allowance anti-avoidance revisions to ensure that artificial and contrived arrangements cannot be used to gain excessive capital allowances. Capital allowances allow businesses to write off amounts that they spend on plant and machinery against their taxable profits. This reflects the depreciation in the value of the assets over time. When the business disposes of the asset, the legislation is designed to subtract this disposal value so that the allowances are reduced to reflect the net cost of the asset to the business. HMRC has received several disclosures of tax-avoidance schemes where the disposal value has been manipulated to an artificially low level. This leads to excessive capital allowances being received; the tax result does not reflect commercial reality and so constitutes an avoidance of tax. Clause 66 prevents this and ensures that business pays the correct amount of tax.
Mr Gauke
I thank hon. Members for their contributions to the debate. I will perhaps turn to corporation tax rates and clause 42 at the end of my speech—I think we will save the most exciting element to the end. Let me first pick up some of the other points that have been raised.
Vaccine research relief is currently available only to large firms; it was removed for small and medium-sized enterprises in 2011, at the same time as the general SME R and D relief was increased. It is also worth pointing out that all vaccine producers can claim normal R and D relief on qualifying expenditure. Incentivising vaccine production remains a priority for the Government, but we believe that spending programmes such as the Ross fund are more effective at doing that. The amount claimed through VRR is less than £5 million a year, despite a generous raise.
The Ross fund was announced by my right hon. Friend the Chancellor in November 2015. It will target infectious diseases, including malaria, diseases with epidemic potential, neglected tropical diseases, which affect more than 1 billion people globally, and antimicrobial resistance, which poses a substantial and growing threat to global health. In January 2016 the Chancellor built on the announcement of the Ross fund by confirming that the Government will invest £500 million a year over the next five years in the fight to end deaths from malaria. That formed part of the £3 billion commitment between the Government and Bill Gates. The UK continues to contribute to the Global Fund to Fight AIDS, Tuberculosis and Malaria, an internationally supported organisation designed to accelerate the end of AIDS, tuberculosis and malaria as epidemics. I wanted specifically to come back on the very good point raised by the hon. Member for Aberdeen North (Kirsty Blackman).
The Ross fund does constitute official development assistance. It is worth pointing out that all UK ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is in line with internationally agreed rules on ODA, so it is perfectly reasonable that we include the fund in the 0.7%, and it can clearly make a huge difference to large numbers of people.
The hon. Member for Wolverhampton South West (Rob Marris) asked how much is lost to the Exchequer through some of the schemes we seek to address in clause 66. Over the scorecard period, which takes us to 2020-21, it is expected that the changes will yield about £20 million of tax that would otherwise have been avoided and that they will potentially protect much more. This is not the largest measure by any means, but it is, none the less, a contribution. By way of background, the relevant case law is the 1948 House of Lords decision, Gold Coast Selection Trust Ltd v. Humphrey—no doubt familiar to the hon. Member for Wolverhampton South West. It has been suggested that this is no longer good law as it predates generally accepted accounting practice and the enactment of current legislation setting out the rules for the calculation of trading income. Let me be very clear that HMRC does not accept this proposition. [Interruption.] As the hon. Member for Wolverhampton South West mutters, it is a case of belt and braces. HMRC’s view, and the Government’s view, is that we should change the law now as a response to the potential risk, which is in the region of £125 million in one case alone. The challenge we have seen seeks to suggest that the current case law that dictates the tax treatment is outdated. I hope that clause 67 helps to address this risk.
Rob Marris
I asked the Minister for reassurance that this would not affect the barter economy. He might wish to write to me later.
Mr Gauke
I think I can provide that reassurance, but perhaps it would be best if I wrote to the hon. Gentleman—again, on a belt and braces basis.
The hon. Gentleman raised the concern that had been put to him that clause 68 might force businesses to claim capital allowances and that that might complicate the system. He gave the example of a saw, with a carpenter potentially encountering complications in his or her tax affairs . The answer is that that is very unlikely. Most small businesses will find that their capital spending on equipment is fully relieved by the £200,000 annual investment allowance, which is now at a record permanent level. Accordingly, they would receive a full deduction for their expenditure in the year and would not usually have to calculate annual writing-down allowances. The changes will ensure that tax relief for expenditure incurred by business on replacement and alteration of tools means that all capital expenditure on equipment is dealt with in a fair and proportionate way.
I was asked whether clauses 69 and 70 will cause some complication in the old 10% wear-and-tear deduction, which was simple. Of course, Labour Members highlighted the wear-and-tear allowance as a potential saving within the tax system. It is interesting that, despite its simplicity, a significant number of interested parties agreed with the Government that the wear-and-tear allowance was not fair. It applies only to landlords of fully furnished properties, and provides relief even where landlords have not had to meet any actual expense. We have carefully considered the different ways in which a relief based on actual expenditure could be designed and implemented, and we have legislated for the simplest possible basis.
Turning to clause 42 and the wider issues, I am grateful for the supportive contributions by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Macclesfield (David Rutley), and by the hon. Member for East Antrim (Sammy Wilson). If the hon. Gentleman had argued a different case, I might have pointed to the many conversations that we have had over very many years in the context of devolution of corporation tax to Northern Ireland. I was struck by his point about how, when talking to international businesses, people often note the headline rate of corporation tax; international investors are aware of that. It is certainly my experience, having met many international businesses over a number of years when promoting the UK as a place in which to do business, that our low corporation tax rate, and our destination towards an even lower rate, attracts attention and a fair degree of admiration, and ultimately attracts jobs and investment to the UK. That is why we have taken steps to reduce the corporation tax rate, and I think that that has played a significant role in the fact that business investment is up significantly; that employment numbers are as high as they are; and that foreign direct investment in this country has been so strong. Of course, that is not the only factor; there are others. This country also faces particular challenges in the light of recent events, but, as my hon. Friends the Members for Amber Valley and for Macclesfield have said, it is absolutely right that we have a competitive corporation tax rate.
The Temporary Chair (Mr George Howarth)
With this it will be convenient to discuss the following:
That schedules 11 and 12 be the Eleventh and Twelfth schedules to the Bill.
Government amendments 30 to 35.
Clauses 73 to 75 stand part.
Government amendments 36 to 38.
That schedule 13 be the Thirteenth schedule to the Bill.
Clause 76 stand part.
Government amendments 39 to 64.
Amendment 181, in schedule 14, page 432, line 45, at end insert—
“169VS Expiration of Chapter V provisions
(1) The provisions of Chapter V of part 5 of this Act shall remain in force until five years after their commencement and shall then expire, unless continued in force by an order under subsection (2).
(2) The Secretary of State may by order made by statutory instrument provide—
(a) that all or any of those provisions which are in force shall continue in force for a period not exceeding 12 months from the coming into operation of the order; or
(b) that all or any of those provisions which are for the time being in force shall cease to be in force.
(3) No order shall be made under subsection (2) unless—
(a) a draft of the order has been laid before and approved by a resolution of both Houses of Parliament,
(b) the Secretary of State has laid the report of a review of the operation of Investor’s Relief before both Houses of Parliament.”
Government amendments 65 to 68.
That schedule 14 be the Fourteenth schedule to the Bill.
Amendment 182, in clause 77, page 135, line 17, leave out “£100,000” and insert “£50,000”.
Government amendment 184.
Clauses 77 to 81 stand part.
New clause 2—Review of remuneration of investment fund managers—
“The Chancellor of the Exchequer must commission a review of ways in which the law could be amended to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income, and must publish the report of the review within six months of the passing of this Act.”
New clause 11—Entrepreneur’s relief: value for money—
“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by Entrepreneur’s Relief.”
Mr Gauke
The final session of today’s debate considers a number of changes to capital gains tax, along with Government amendments and one Opposition amendment.
Clause 72 will provide an incentive for people to invest in companies by reducing the main rate of capital gains tax from 18% to 10% and 28% to 20% on most gains made by individuals, trustees and personal representatives. The Government want to ensure that companies can access the capital they need to grow and create jobs, and want the next generation to be backed by a strong investment culture. We believe the best way to encourage this is to let investors keep more of the rewards when their investment is successful. At 28%, our higher rate of capital gains tax is among the highest in the developed world. We do not want high tax rates to deter investment. The lower capital gains tax rates introduced by this clause will make it more attractive for people to invest in companies, helping those companies to access the capital to expand and create jobs. Gains made on residential properties that do not qualify for private residence relief, and those from carried interest, will remain subject to the 18% and 28% rates. Retaining these rates will create an incentive for individuals to invest in companies rather than in property.
Clauses 73 to 75 make changes to ensure that entrepreneurs relief on capital gains tax rewards business owners and entrepreneurial investors while safeguarding the effect of measures introduced last year to prevent abuse of the relief. The Government are committed to supporting enterprise and entrepreneurship, but they are equally committed to fairness in the tax system. Entrepreneurs relief allows certain capital gains to be taxed at 10%, rather than the normal rates, and plays an important role in supporting the enterprise culture of this country, but, as with all tax reliefs, we need to make sure that it is not being claimed in circumstances where it does not achieve its intended purpose.
These changes will improve the targeting of the anti-abuse rules introduced in 2015. The changes in clause 73 will allow relief for gains on disposal of a private asset used in a business in cases of genuine retirement or where members of the claimant’s family succeed to the claimant’s business. These changes will level the playing field for family-run businesses and allow them to be passed to the next generation without an unfair tax charge.
The changes in clause 74 will allow someone selling their business to a limited company to claim relief on the goodwill of that business, providing they have only a small stake in the company. The relief will still be denied where the former proprietor or partner could continue running the business through the company and benefit directly from future profits and business growth. Entrepreneurs relief on gains on shares is due only where those shares are in trading companies or the holding companies of trading groups. Clause 75 amends the definition of a trading company to ensure that relief is available for shares in a company that has no trade of its own but which holds shares in a trading joint venture company where the investor effectively holds 5% or more of the joint venture company. The further changes made by these clauses will be backdated to the date on which the 2015 changes came into effect, meaning that no one who has made a genuine disposal for commercial reasons should be disadvantaged by the new rules.
The Government have tabled several minor amendments to the clauses. Amendments 30 to 33 simply move one of the new conditions introduced by clause 73 to a different place in the relevant statute. Amendments 34 and 35 correct two unintended retrospective effects of clause 73. Without the amendments, someone who made a disposal after Budget day 2015 and was eligible for entrepreneurs relief could find themselves deprived of that relief by changes announced at Budget 2016. Amendments 36 to 38 clarify the commencement provisions for the new rules introduced by clause 75 and ensure that the new definition of a trading company supersedes the definition used by the Finance Act 2015. These amendments do not reflect any change in policy and will have no impact on the costings of the measures.
Now is an appropriate time to address new clause 11, tabled by Opposition Members, which proposes that my right hon. Friend the Chancellor of the Exchequer publish within six months of the passing of the Act a report of the Treasury’s assessment of the value for money provided by entrepreneurs relief. Opposition Members will be aware that the Government keep all tax policy under review. This includes entrepreneurs relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse, and we will continue to act where appropriate. I can inform the Committee that officials have for some time been developing a detailed research programme designed to identify taxpayers’ motivations for using entrepreneurs relief, and I expect the results to be published at some point in 2017. I do not believe it is necessary to legislate for a review, so I hope that the Opposition will not press the new clause.
Clause 76 and schedule 14 introduce investors relief and apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an external investor in an unlimited trading company for at least three years. Many companies struggle to attract the long-term external investment they need to grow and expand, and this can be particularly difficult for unlisted companies, which is why, on top of cutting the capital gains tax rates, the Government are introducing this additional financial incentive to invest in these companies over the longer term. Investors relief has been designed to help unlisted companies attract inward equity investment from external investors. This clause and schedule apply a 10% rate of capital gains tax to gains accruing on the disposal of qualifying shares held by an investor in an unlisted trading company or trading group. The investor must not be an employee or officer of the company at the time of subscription. In addition, the shares must have been newly issued after 17 March 2016 and held for a period of at least three years starting from 6 April 2016. The amount of relief is capped, with individuals subject to a lifetime cap of £10 million on qualifying gains.
We are today making a number of amendments to this clause to ensure that the rules surrounding the relief are fair and clear, and to extend the scope of the relief to prevent market distortions and unlock further sources of capital. Amendments 39 to 41, 43, 44, 50 and 61 will ensure that trustees of a settlement as well individuals who choose jointly to subscribe with other individuals are able to subscribe for investor relief qualifying shares. In the case of trusts, amendment 51 includes rules that prevent individuals from creating multiple trusts, each with a £10 million lifetime limit.
Amendments 45 to 49 clarify how to determine the number of shares that qualify for investors relief when a disposal is made that consists of a mixture of qualifying and non-qualifying shares. Amendments 52 to 60 and amendments 65 to 68 clarify the provisions that deal with share disposals, share exchanges, elections, subscriptions and the distribution of value to existing shareholders.
Finally, some investors may wish to monitor and protect their investment through a seat on a company’s board. Amendments 42 and 62 to 64 allow such an investor to become a director after their investment has been made as long as they are not remunerated in that capacity. They also allow an individual who becomes an employee of the company to access relief in most situations after 180 days of the share issue. Investors relief is designed to attract new capital into unlisted companies, enabling them to grow their business. It will help to advance this Government’s aims for a growing economy driven by investment and supporting businesses to grow.
Let me turn to the Opposition amendment that was tabled by the hon. Member for Feltham and Heston (Seema Malhotra), but is now being taken up by her successor—and may I congratulate the hon. Member for Salford and Eccles (Rebecca Long Bailey) on her promotion? Amendment 181 seeks to end the relief after a period of five years, with the option of an additional 12-month extension if agreed by both Houses, subject to the Chancellor laying a review of the operation of the relief before both Houses. The amendment is unnecessary when the Government rightly keep all tax policy under review in line with normal tax policy-making practice. There would be limited merit in conducting the review within five years; the first data on the uptake of the relief in its first year of operation would not be available to HMRC until 2020-21. The Government believe that legislating for a review within five years is unnecessary and inappropriate. I therefore hope that amendment 181 will be withdrawn.
Clause 77 relates to shares given to employees who accept employee shareholder status. It places a lifetime limit of £100,000 on the capital gains tax exempt gains that a person can make on disposal of those shares. The limit will apply to shares received under arrangements entered into after 16 March 2016. The change will enable employee shareholders to realise the significant growth in the value of their shares without paying any capital gains tax, while helping to ensure that the status is not misused. The clause provides for fair and consistent treatment of transfers of shares to a spouse or partner. The change will benefit the Exchequer by £10 million in 2019-20 and £35 million in 2020-21.
It is also an appropriate point to address amendment 182, which was tabled by Opposition Members. It proposes that the lifetime limit be £50,000 rather than the Government’s proposed £100,000. This is not a change that the Government would welcome. The introduction of a cap of £100,000 where there was none before is, we believe, a significant change. The level of the cap is a matter of weighing up two policy objectives—ensuring that employee shareholder status is not misused, and encouraging and rewarding entrepreneurship. The Government believe that setting the cap at £100,000 strikes the right balance. It encourages entrepreneurship by allowing an exemption from capital gains tax which is still generous while reducing the likelihood of abuse by ensuring that the benefits for individuals are proportionate and fair. I therefore invite hon. Members to reject amendment 182.
Roger Mullin
It is not quite as short as that.
I want to speak to new clause 2, which is in my name, and I will begin with a quote that I have used before in this House:
“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”
I entirely agreed with the Chancellor of the Exchequer when he said that in April 2012. That is precisely why we are bringing this new clause to the Floor of the House today. Many people in remunerated employment, working hard every day of the week, will be surprised to learn that the managing director of an average European firm can expect to receive around £8 million in remuneration. Private equity fund managers are able to shrink their bills by paying, as we have heard, only 28% in capital gains, rather than 45% in income tax simply because it is classified as carried interest. In effect, they are getting a remuneration for managing other people’s money, and therefore they should be taxed in the same way that other people are taxed—through income tax.
A fund manager’s ability to pay capital gains instead of income tax allows them to avoid paying national insurance on part of their income. I am well aware of the Minister’s technical explanations about why we are dealing with a different form of gain. However, that does not wash with people in society who are undertaking their work in most other occupations in life. The Government yesterday indicated that they were content to squeeze yet more money out of the contractor sector, affecting teachers, nurses, people in rural communities and the like. These are not the people who are aggressively avoiding tax. The people who are aggressively avoiding tax are people working in the City of London. They are avoiding paying the income tax that the rest of the people in society are quite happy to comply with.
The loopholes that continue are simply an example of the over-complication of our tax system, a matter that has been referred to by hon. Members on both sides of the House. As we look at the thousands upon thousands of pieces of paper in the tax code, it is clear that the bigger we make it the more we create the possibility of loopholes. Surely the time has come for a more fundamental review of all forms of business taxation, a matter that I know the hon. Member for East Antrim (Sammy Wilson) has raised in the past.
Indeed, some of the people gaining considerable sums of money have great sympathy with this. I would like to quote not some of the campaigners but one of the highest-paid people in the country, the head of the private equity firm Cerberus, Stephen Feinberg. He said in 2011, tellingly:
“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”
I do not think that we should allow this gentleman, the head of an investment fund, and others to be embarrassed any more. I think we should end their embarrassment by making sure that in the future they pay appropriate levels of income tax.
We also find ourselves in agreement with the OECD, which in May 2014 recommended in its position on tax
“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”,
and that this should be paid as income tax.
We have evidence not just from campaigners but from people in the City who admit that this is an anomaly that needs closing, so I ask the Minister to give further consideration to this important move. I would also say in general that we welcome quite a lot of the technical changes that have been made on investment, entrepreneurs relief and the like. We want to encourage an entrepreneurial economy, but not at the cost of heightening income inequality and of further division in society.
Mr Gauke
I shall be relatively brief in responding to the debate. I addressed one of the issues that we have debated in my fairly lengthy remarks earlier and there is also a certain sense that these are issues we have debated in the past. I certainly remember debating the issue of carried interest with the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) in last year’s Finance Bill. He made very similar points and I am inclined to make very similar points in response, so I will not necessarily run through all that once again. I remind the hon. Gentleman that where we are talking about remuneration that is income, we are determined to ensure that it is taxed as income. As a Government we have shown a willingness to make changes in this area.
Let me turn to the wider issues of capital gains tax and yet again welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her position. I wish her a long and distinguished period as shadow Chief Secretary, given that I understand that there might be uncertainty more generally on the Labour Front Bench. It is extremely important that our tax system is competitive and encourages investment, which will drive our economy forward in the future. A number of external bodies have welcomed the steps that we have taken in reducing CGT rates. The CBI and the Institute of Economic Affairs have welcomed these cuts as means to encouraging entrepreneurship and growth. A number of internal studies indicate that lower rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth.
David Rutley
I am sorry that my hon. Friend is in so much pain when he stands up.
I am surprised by some of the things said in this debate. We all recognise the importance of enterprise and of encouraging further enterprise, particularly in the northern powerhouse, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) recognised. We can achieve the aim of encouraging enterprise by using exactly the mechanism that my hon. Friend talks about. Does he agree that that is why the bodies he mentions have made this proposal? It will make a material difference to our enterprising spirit and economic growth.
Mr Gauke
My hon. Friend makes an excellent point. We must create wealth in this country to be a successful economy. We need to have an entrepreneurial and dynamic economy. He made this point earlier in the context of corporation tax, but similar arguments can be made in the context of CGT as well.
On the criticism that entrepreneurs relief is badly targeted, I argue that, of course, as with all tax reliefs, it is entirely appropriate that the Government keep it under review to ensure that it is well targeted and not open to abuse, but we believe that it is right to incentivise individuals to set up and expand their businesses. Entrepreneurs relief plays an important part in our pro-growth agenda. It is a highly popular and widely used relief, which supports about 40,000 entrepreneurs a year, according to our latest data. We do not believe that this support should be withdrawn. The latest published cost of entrepreneurs relief is £3 billion, but that is a static figure; the true cost will be different, due to potential changes in the disposals and behavioural change. That behavioural change is very important. On when the data for 2014-15 will be released, these statistics are published annually, and the new release is due in October 2016.
On rates going up and down, let me point out that the 28% higher rate of CGT was introduced in 2010, by the coalition Government, and this is the first change since then. The Government have published the “Business tax road map”, setting out plans for business taxes over the entire Parliament and providing some certainty and stability to businesses.
On the argument that employee shareholder status should be withdrawn, we believe that ESS provides vital flexibility for early-stage firms and that it is right that employee shareholders receive tax benefits on shares awarded in exchange for relinquishing certain employment rights. The purpose of the lifetime limit is to ensure that small firms can offer attractive tax benefits to employees, while ensuring that the benefits are proportionate and fair.
I hope that, with those remarks, I can seek to dissuade the Labour party from voting against the reductions in CGT and the SNP from pressing its amendment to a vote, but if I have been unsuccessful in persuading them not to do so, I urge my right hon. and hon. Friends not to support such measures.
Question put, That the clause stand part of the Bill.
Finance Bill
David Gauke Excerpts(7 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move amendment 22, page 14, leave out lines 7 to 10 and insert—
““(1A) Where this Chapter applies to any living accommodation—
(a) the living accommodation is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms on which it is provided to any of those persons constitute a fair bargain), and
(b) sections 102 to 108 provide for the cash equivalent of the benefit of the living accommodation to be treated as earnings.””
The First Deputy Chairman of Ways and Means (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Government amendments 23 to 26.
Clause stand part.
Clauses 8 and 9 stand part.
Amendment 2, in clause 10, page 15, line 29, after “omit”, insert
“, except in the case of a low emissions vehicle,”.
Amendment 3, page 15, line 38, at end add—
“(3) For the purposes of this section, a “low emissions vehicle” means any car first registered on or after 1 April 2017 which emits 0.06g or less of nitrous oxides per kilometre.”
Clauses 10 to 12 stand part.
That schedule 2 be the Second schedule to the Bill.
Clause 13 stand part.
Government amendment 27.
Clauses 14 and 15 stand part.
Amendment 180, in clause 16, page 24, line 35, at end add—
“(2) The Chancellor of the Exchequer shall undertake a review of the impact of the abandonment by HMRC of its valuation check service for Small and Medium-sized Enterprises, including its associated impact on employee share ownership schemes, and report to Parliament within six months of the passing of this Act.”
Clause 16 stand part.
Government amendment 28.
That schedule 3 be the Third schedule to the Bill.
Clauses 17 and 18 stand part.
New clause 1—Review of income tax treatment of workers providing services through intermediaries—
“The Chancellor of the Exchequer must conduct a strategic review of the impact on workers defined as providing services through intermediaries of their treatment for income tax purposes, including the differential impact on different types of worker, and must publish the report of the review within six months of the passing of this Act.”
New clause 3—Tax treatment of workers employed through intermediaries—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, publish a report on the impact of the current system of employment through intermediaries on the treatment for tax purposes of the employment income of workers employed through an intermediary or umbrella company, including the role of intermediaries and umbrella companies.”
New clause 10—Employee share schemes: value for money—
“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by each type of employee share scheme.”
Mr Gauke
It is a great pleasure to speak on the Government measures in this group. I will say at the beginning of my remarks that, as I mentioned to Mr Speaker earlier, and as you will have no doubt noted, Mrs Laing, I am somewhat incapacitated by a back strain. I will of course take interventions, but with your permission, I will remain standing during those interventions—bobbing up and down will be a little discomforting. May I have your permission?
The First Deputy Chairman
Please—[Interruption.] No, do not sit down. I was about to say that if the Minister had not made that point I was going to offer my permission. Having once been in the dreadful position of standing at that Dispatch Box on crutches with a broken leg, I know that although it is possible to stand still, going up and down is exceedingly difficult. I am sure the whole House has every sympathy for the Minister and will concur in giving him permission to remain on his feet.
Mr Gauke
Thank you, Mrs Laing. I am grateful for those remarks.
The measures I will outline ensure the simple, clear and fair tax treatment of employment income and benefits, strengthen incentives to choose the cleanest cars and vans, and ensure that those who have used artificial arrangements to avoid paying tax pay their fair share. Given the number of measures selected for debate, I will briefly set out how I will speak on them today. I will first discuss clauses 8 to 11, concerning company car taxation and the van benefit charge. I will then outline clause 7 and clauses 12 to 17, which address tax treatment of income and certain benefits. Finally, I will outline clause 18, which addresses disguised remuneration schemes.
I turn first to clauses 8 to 11. Clause 8 will increase the appropriate percentage for conventionally fuelled cars by three percentage points in 2019-20; it will also widen the tax advantage of ultra-low emission cars over conventionally fuelled cars in 2019-20 compared with previously announced plans. As a result of the changes, in 2019-20 a basic rate taxpayer driving a popular ultra-low emission company car will be £113 better off. Clause 9 makes a minor technical update to ensure the legislation works as is intended in 2017-18 and 2018-19. The update applies to a small number of rare company cars. It is estimated that exposure to nitrogen dioxide is linked with 23,500 deaths annually in the UK, costing approximately £13.3 billion.
As was announced in the autumn statement in 2015, clause 10 retains the three percentage point supplement for diesel company cars until 2021. That will support the UK’s transition from diesel cars to cleaner, zero and ultra-low emission cars. As a result, a basic rate taxpayer with an average ultra-low emission company car will save an additional £150 in 2016-17, compared with an employee who has an average diesel company car.
Clause 11 retains the van benefit charge for zero-emission vans at 20% of the rate paid by conventionally fuelled vans for 2016-17 and 2017-18, rather than increasing it to 40% and 60% as currently planned. That means that a basic rate taxpayer who drives a zero-emission van will save £126 in 2016-17 and £258 in 2017-18. Together, clauses 8 to 11 will incentivise business and employees to take up the cleanest cars and vans. That will help to ensure that the market for those new technologies becomes established in the UK, and to support the UK’s carbon emission and air-quality targets.
In anticipation of what we will hear from the Opposition, let me turn to amendments 2 and 3 to clause 10. The amendments would require the exemption of diesel cars from paying the supplement if they achieve the same level of nitrogen dioxide emissions as petrol cars. I appreciate that hon. Members want to incentivise people to purchase the cleanest cars, but the amendments would only introduce confusion and uncertainty. They are not linked to the wider regulatory programme to achieve the latest air quality standards, even when cars are driven on our roads. Clause 10 retains the supplement until 2021 when those new standards will be mandatory for all new cars. That approach is transparent and easy to understand, and it will give consumers confidence that all new diesel cars are comparable to petrol cars. Our approach incentivises people to purchase the cleanest cars, and in anticipation of what will be said later, I hope that Labour Members will not press the amendments to a vote.
Let me consider those clauses that clarify and simplify the tax treatment of income and certain benefits, and ensure fairness in the tax system. Clause 7 will clarify how the cash equivalents of certain taxable benefits are calculated, and ensure that fair bargain does not apply to those taxable benefits in kind where the level of computing the value of the benefit is set out in statute. The Government have made minor technical changes in amendments 22 to 26, which ensure that the legislation works as intended.
Clause 12 and schedule 2 will provide clarity that all income from sporting testimonials for an employed or previously employed sportsperson will be taxable. However, we are aware that careers in sport can be short, so we have also introduced an exemption for the first £100,000 of income received from a sporting testimonial that is not contractual or customary. The Government believe that that is a fair compromise, and the vast majority of employed sportspersons who have testimonials will not be impacted. Clause 13 introduces a statutory exemption for certain benefits costing up to £50 that employers provide to their employees. That will simplify the tax treatment of those benefits and reduce the administrative burden for employers. To ensure that the exemption is not misused, a £300 annual cap will apply in certain circumstances. That sensible and simplifying measure will reduce burdens on employers and HMRC alike.
Clause 14 will ensure that no individual or business can obtain an unfair tax advantage through claiming tax relief on home-to-work travel and subsistence expenses. It is an established principle in the UK that people are not able to claim tax relief on the cost of ordinary commuting, and the vast majority of workers are not able to do so. Individuals who are engaged through intermediaries—such as umbrella companies and their employers—currently benefit from that relief and the cost of commuting from home to work, simply because of the way they are engaged to work.
Kirsty Blackman (Aberdeen North) (SNP)
Has the Minister considered whether this measure will have a disproportionate impact on rural communities where travel is much more expensive and sometimes an overnight stay is necessary when undertaking those roles?
Mr Gauke
I will say a little more about clause 14, but I believe that this is a matter of fairness. For the vast majority of people, home-to-work costs do not have tax relief, and it is right to apply the same rules across the board. If there is a difference in treatment just because an arrangement is made through an umbrella company or other form of intermediary, clause 14 will put those workers on the same terms as everybody else. That underpins the Government’s commitment to ensure that the tax system is fair and treats all individuals who are doing the same thing in the same way.
Stewart Hosie (Dundee East) (SNP)
I understand the Minister’s argument, but this measure will offer a disincentive to many people who have chosen to go down the contracting or self-employed route. Does he share our concern that that may act as a disincentive to entrepreneurship, given that being a contractor or self-employed could be the first step to forming another business and employing other people?
Mr Gauke
I understand where the hon. Gentleman is coming from but I do not share his concerns. It does not seem justifiable that simply by arranging affairs in a particular way through an intermediary, somebody should benefit from tax relief for travel-to-work costs in a way that someone else does not. All Members recognise how important it is that we have an entrepreneurial economy, and that the importance of the self-employed in our economy is considerable. It does not seem, however, that there is a strong case for saying that a difference in tax relief should apply, which is why we have come forward with these measures. In recent years there has been a substantial increase in the number of workers engaged through an employment intermediary, and while many play a legitimate role in the labour market, increasingly some market themselves—at least in part—on the basis that they allow individuals and businesses to maximise their income through claiming tax relief on home-to-work travel expenses. The increase in the use of intermediaries means that large numbers of individuals are claiming tax relief that the majority of workers cannot claim, even when they hold very similar jobs.
We estimate that this change will save the general taxpayer more than £150 million this year, and more than £600 million by 2019-20. That will ensure fairness for all individuals and businesses, regardless of the structure through which workers are employed. In that context, amendment 27 is a technical amendment to correct a point in the original draft and ensure that the legislation fully reflects the Government’s original announcement.
New clauses 1 and 3—perhaps I may anticipate the arguments that we will hear from the Scottish National party in a moment—would require the Chancellor to publish a report on the impact on workers who provide services through intermediaries, and their treatment for tax purposes, within six months of the Bill being enacted. Those reviews would be completely unnecessary because those who provide services through intermediaries are taxed as either employed or self-employed. Some others operate as owner-directors of their own limited companies, and the tax treatment of the income and expenses of those individuals will depend on their employment status for tax purposes.
The Office of Tax Simplification carried out a review that considered the employment status and taxation of individuals working through intermediaries, and it published its report in March 2015. The Government accepted 17 of the 27 recommendations, and committed to consider a further six more. More recently, the Government have received the OTS’s review of small companies and accepted, or will consider further, nearly all its recommendations, including the recommendation that the OTS continues to develop the design of a look-through system of taxation for small businesses to simplify their tax affairs, and a new simple business model that would protect the assets of the self-employed. Following these recommendations, the Government have now formed a cross-government working group on employment status. The group will examine the advantages and challenges of an agreed set of employment status principles and a statutory employment status test. Given the volume and range of work done in this area recently, I would argue that an additional review is unnecessary. I therefore urge Members to reject new clauses 1 and 3.
Stewart Hosie
We understand the argument the Government are making against a review, but given that the Minister suggests that this will save the taxpayer—or, to put it another way, cost individuals £600 million over the lifetime of this Government—will he be prepared at least to concede that should the tax yield go up dramatically, taking yet more from the self-employed and contracting community, he might want to revisit the decision he is taking today?
Mr Gauke
No, I do not think the Government will be persuaded by that. Were that to be the case, it would suggest that the use of tax relief in these circumstances was even more widespread than we had anticipated. The problem we face is one of fundamental unfairness. I make no criticism of those making use of intermediaries in these circumstances—they are making use of the law as it stands—but it is an unfair outcome. Essentially, where two people are performing identical roles, one is able to gain the benefit of tax relief and the other is not simply because of the way in which they have structured their arrangements. I believe the approach we have taken in this clause is the right one.
Clause 15 makes changes to allow for the extension of voluntary payrolling to include non-cash vouchers and credit tokens. The change will enable businesses to benefit from reduced reporting obligations to HMRC and provide a simplified system for employers. Clauses 16 and 17 and schedule 3 make a number of changes to simplify and clarify the rules for employment-related securities and options. Employment-related securities and securities options are commonly used by companies to reward, retain or provide incentives to their employees. Remuneration in the form of shares would generally be liable to income tax and national insurance contributions. However, if they are rewarded under one of the four types of tax advantage share schemes, the shares acquired are exempt from income tax and national insurance contributions.
Share-based reward programmes are greatly valued by both companies and employees. The Government want to make sure the relevant legislation is as simple and clear as possible. To that end, clause 16 introduces schedule 3, which builds on the Government’s response to the OTS report on employee share schemes by simplifying and clarifying this area of tax legislation. In addition, clause 17 puts beyond doubt the tax treatment of non-tax advantaged securities options, given some uncertainty in the current legislation.
The Government are introducing amendment 28 to schedule 3 to ensure that the trading activities requirements to receive the tax advantages of an enterprise management incentive scheme will continue to apply where a company is controlled by an employee-ownership trust.
If I may anticipate what we are likely to hear, and before I move on to clause 18, I will briefly address amendment 180 and new clause 10, which relate to clause 16. Amendment 180 proposes a review of the impact of the withdrawal by HMRC of its valuation check service for small and medium-sized enterprises, including associated impacts on employee share ownership schemes. This is unnecessary. HMRC continues to operate a service for employee shareholder status and the tax advantage schemes most relevant to SMEs. HMRC has only withdrawn valuation checks for income tax and PAYE that are not part of these recognised employee ownership schemes. HMRC was considering valuations for less than 0.05% of the relevant SME population. As these taxpayers were using professional firms, the vast majority of cases submitted were acceptable. As such, the service added little value and was seen as providing poor value for money for the taxpayer. I therefore hope the House will reject amendment 180.
New clause 10 proposes that within six months of the passing of the Act the Chancellor should publish a report giving an assessment of the value for money provided by each type of employee share scheme. An HMRC-commissioned report conducted by Oxera considered the effect of tax advantage employee share schemes on productivity. This is publicly available. Owing to the difficulty of drawing conclusive outcomes from such studies, in 2012 the Office of Tax Simplification recommended that it would not be a good use of taxpayer money to produce further reports on the links between share ownership and productivity. As with all reliefs, however, the Government will continue to keep these schemes under review and will continue to publish regular statistics on the estimated take-up and costs of each scheme. For these reasons, I urge Members to reject new clause 10.
Let me conclude my opening remarks by addressing clause 18. The Government want to ensure that companies and individuals who have used, or continue to use, artificial arrangements to disguise their income, pay their fair share. These avoidance schemes involve income being funnelled through a third party, with the money often then given to the individual in the form of a loan that is never repaid. In 2011, the coalition Government successfully introduced new legislation to tackle the schemes in use at that time. Many of those who used the schemes before 2011 have still not settled. In addition, the tax avoidance industry has been selling new schemes that are even more artificial and contrived. At Budget 2016, the Government announced changes to address these issues. Clause 18 is the first part of that package.
Clause 18 addresses one type of these schemes by disallowing a relief in the current rules that the schemes exploit where there is a tax avoidance motive. It also withdraws a transitional relief and makes three minor technical clarifications to the current rules to ensure they work as Parliament intended. The reforms make it clear that everyone must pay their fair share. I will not take up any more time for the moment.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger.
I will follow what the Minister helpfully did by giving a preview of where I am going, as I think that might help the Government, but I will do it seriatim numerically. I want to probe clause 7 a little. We broadly support clauses 8 to 11, which relate to vehicles, although we have tabled two amendments to them. The Minister helpfully—in terms of procedure, if not policy—indicated that the Government were not minded to accept amendments 2 and 3. If the Government, in spite of my silver tongue, maintain that position, I will in due course seek to press amendment 2 to a Division. We broadly support clauses 12 and 13. We also broadly support clause 14, on travel expenses for workers, but I wish to probe the Government on it and ventilate some issues. We broadly support clause 15. I want to run clause 16, on employee share schemes, around the block. There are a number of share option schemes under various guises and the situation is arguably getting a little out of control. The Opposition broadly support clauses 17 and 18.
Clause 7 relates to taxable benefits. It seeks to amend 2003 legislation to clarify the concept of a fair bargain. This is, as I understand it—I am not an accountant—where an employer provides some kind of benefit in kind, which is in some circumstances provided at a cost to the employee and in some circumstances is not. Where benefits of goods or services are provided at a cost, HMRC wishes to know whether the cost of the benefits provided is below market rate. Clause 7 goes to that issue, but it appears to cover vans and cars as well as other things and of course we will be dealing with vans and cars in other clauses. As the Minister has a bad back, I will try to avoid putting him in a situation where he feels that he has to intervene. I have every sympathy with him as I have suffered from a bad back for decades. If he catches your eye, Sir Roger, when we come to closing this part of the Committee proceedings, I hope that he will be able to explain and differentiate for those of us who are not accountants how vans and cars come into the benefit-in-kind provisions under clause 7. Having had a company car for many years with two different employers, I understand how they come in under subsequent clauses—that is not to say that I know the whole regime, but I am broadly familiar with that territory—but not under clause 7. Will the Minister tell us, therefore, to what extent the Treasury has found that there has been a misuse of the original rules, thereby necessitating the clarifications under clause 7—Government amendments 22 to 26? The explanatory notes, which the Minister will know are my lodestar in these matters, refer to “uncertainty”. I hope the Minister can explain from whence that uncertainty comes, so that we can be a little clearer on that.
I will now come on to meatier matters on cars and vehicles. We are all aware that the use of the tax regime to encourage certain behaviours and discourage others is well known to have an effect when it comes to the purchase and use of vehicles, unlike in some other areas where the efficacy or otherwise of tax reliefs is not so clear. As I look around the Chamber, I can see that there are not many Members present who will remember the campaign for lead-free petrol, but I remember it and supported it. In the bad old days, lead was added to petrol as a mechanism for increasing its octane rating and therefore its power output. Initially, when the excise regime was the same for leaded and unleaded petrol, unleaded cost more. The then Conservative Government, under some pressure from the campaign for lead-free petrol and others, wisely changed the excise regime so that unleaded petrol at the pump, with a lower excise duty than leaded petrol, cost less, which meant that many motorists made the switch within a period of about two years. That was achieved by using excise levers to change behaviour in the use of vehicles.
In recent years, we have also seen the explosion in the United Kingdom of the purchase and use of diesel vehicles. That was started under a Labour Government who were trying to cut CO2 emissions, because, mile for mile, diesel engines generally emit lower CO2 per mile driven. That policy succeeded, but it was always contradictory, because there was also a 3% loading—in other words more tax payable—for those who had a diesel-powered company car in contradistinction to a petrol-powered company car.
Clause 8 increases quite markedly the percentage of the purchase price, which is then counted as taxable income for somebody who is provided with a company car. For low-emission vehicles, or those with 76 to 94 grams of CO2 per kilometre—I hope that, when we leave the European Union, we will not revert to imperial—the appropriate percentage goes from 19% to 22%. Under clause 8, the range goes up 3% each time, with a delay, as the Government have announced, for two years. Broadly, that looks to us like a tax-raising measure—there is nothing wrong with that as Her Majesty’s Revenue and Customs is about levying taxes so that the Government have sufficient income to provide the service that our constituents want.
Kirsty Blackman
Absolutely we do. When we talk about “intermediaries” and “different types of worker”, we mean all those who will be impacted by this change in the taxation measures.
Mr Gauke
I am grateful for the various points made in this debate. I will not repeat everything I said in my opening remarks, but I will try to address the questions raised, and we have had plenty of those. Perhaps I should begin by saying how pleased I was to see the hon. Member for Wolverhampton South West (Rob Marris) join us, as one never knows these days who will be on the Labour Front Bench. Given the considerable work that he clearly put into his speech—not forgetting the considerable work put in by Imogen Watson—it would have been a great pity were he not to have been on the Front Bench to ask those questions, so I am delighted to see him.
Mr Gauke
The lengths people will go to in order to avoid attending a parliamentary Labour party meeting are clearly considerable.
Let me address the lengths the hon. Gentleman went to. I will also try to address the other points raised in the debate, and I will run through this in clause order—at least I will attempt to do so. Let me start by discussing clause 7, as he asked about the extent to which there have been problems and uncertainty with the tax law it addresses. There has been some uncertainty about the application of the current tax law in respect of fair bargain from a number of employers and advisers. This clause has been introduced to put the matter beyond doubt. It will give employers certainty about when fair bargain should not be applied to benefits in kind, and these issues have been recently rehearsed by the Court of Appeal. He raised a particular issue as to why there was special provision for cars and vans. Company cars and vans are a particularly valuable benefit, so the codes specify how to calculate the value to apply so that a fair and equitable tax treatment results. We have these provisions because this benefit is particularly valuable.
Rob Marris
There may be a bit of to-ing and fro-ing on this for clarification, and this may well be due to my ignorance, but is this to do with the sale, possibly at an undervalue, of a van or a car, in contradistinction to one that is supplied as a benefit in kind—the classic sales rep’s company car? Is clause 7 talking about a different scenario, such as a potential sale with it undervalued—or how does it overlap?
Mr Gauke
No, it is not talking about that. I hope that provides some clarity.
On clause 8, we were asked why the Government were imposing tax increases on drivers of low-emission cars. The company car tax system encourages people to choose the most fuel-efficient cars while ensuring that the benefit is fairly taxed. It is fair that all company car users, including those in zero-carbon and low-carbon cars, make a fair contribution to the public finances. The tax differential between ultra-low emission and conventionally fuelled cars will be widened in 2019-20 compared with previous plans announced at Budget 2013. If Members so wish, I could provide examples of that.
The question put is, “Why are the Government increasing rates on conventionally fuelled cars by three percentage points after years of two-percentage-point increases?” People also ask about the impact on the type of cars purchased. These increases ensure that the taxation of company cars continues to reflect changes in emissions technology. The rate increase, together with the extra incentive of ultra-low-emission vehicles, promotes the continued move to the cleanest cars. In 2013, there were 1,900 company ultra-low-emission vehicles, which was about 0.1% of the company car fleet, whereas in 2015 there were more than 8,000. That supports the Government’s approach. Over the course of this Parliament, increases in company car tax rates have broadly maintained revenues in real terms, in the face of continued improvements in new car fuel efficiencies, and this will support the move to cleaner, zero-emission and ultra-low-emission cars.
Rob Marris
I think I have asked this before, and the Minister may not have the figure to hand, but can he give us an estimate of how much he thinks the changes introduced by clause 8 will raise, given that for each of the four bands the percentages are going up by 3%?
Mr Gauke
If I may, I will write to the hon. Gentleman and provide him with those details.
On clause 11, the Government will review the van benefit charge support for zero-emission vans, again in the light of market developments, at Budget 2018. This clause is keeping the level at 20%—it is not increasing it as planned—and the review occurs before any further increase beyond 20%. I hope that reply is helpful to the hon. Gentleman. As for what the impact will be on the sales of zero-emission vans, extending the van benefit charge support for zero-emission vans will continue to reduce barriers to the uptake of new vehicle technologies. The Government’s enhanced capital allowances scheme for zero-emission vans and the plug-in van grant that helps with the up-front cost of buying a new ultra-low-emission van will also help to reduce barriers to the uptake of these new technologies. Together these incentives will help sales of zero-emission vans. This in turn will help the development and manufacture of clean vehicle technologies in the UK, consistent with the Government’s wider plans to promote economic growth. However, it is not possible to estimate precisely the impact on sales at this stage.
The hon. Gentleman made a point about EU air quality requirements and whether we should be doing more. The Government are committed to improving air quality, reducing health impacts and complying with legal obligations. Last December, DEFRA published the Government’s plan to achieve these aims. Under this plan, by 2020 the most polluting diesel vehicles will be discouraged from entering the centres of Birmingham, Leeds, Southampton, Nottingham and Derby. The Mayor of London has responsibility for London and his own plans for reductions. I accept that the hon. Gentleman’s amendment is well intentioned, but no vehicles would currently be caught by it and we are instead pursuing these aims more effectively elsewhere.
Rob Marris
Maybe I missed it, and I apologise in advance if I did, but when the Minister referred to stuff going through DEFRA and so on, I understood the milepost to be 2020, but 2020 seems an awfully long way away given that we should have been complying with this air quality stuff in about 2011 or 2012. It seems to be a case of kicking the can down the road while literally tens of thousands of people are dying prematurely. That is worrying.
Mr Gauke
I understand why the hon. Gentleman raises that point, but no vehicles would currently be caught by the amendment. It is a question of finding the most effective means by which to do this. As I have said, last December DEFRA published the Government’s plans to achieve these aims and I accept that further work needs to be done, but we have set out a realistic and achievable target, and by 2020 the most polluting diesel vehicles will be discouraged from entering a number of cities.
Rob Marris
The Minister says that no vehicles would be caught. My understanding of what he means by that is that no vehicles that are currently manufactured would be able to take advantage of the measure set out in amendments 2 and 3. The Minister is, I think, nodding, which is helpful. That is precisely the point of the amendments; it is to drive the market.
Mr Gauke
I appreciate that that is the intention of the amendments, and of course the hon. Gentleman would be the first to accept that it would require some time for that to take effect, but there are other measures elsewhere that the Government are taking that I believe achieve those objectives more effectively.
Kelvin Hopkins
There is a proposal to build a railway line that would take 5 million lorry journeys off our roads every year, transforming current levels of emissions, particularly in towns. This has widespread support apart from in the Department for Transport and the Government. Will the Government look seriously at the scheme and see it as a positive way forward?
Mr Gauke
This Government are committed to a very substantial investment in our railways—the biggest rail building programme since Victorian times. As a Government, we have great ambitions; we intend to spend £60 billion on transport infrastructure over the course of this Parliament.
Turning to supporting testimonials, a point was raised about the definition of “customary”. To reassure the hon. Member for Wolverhampton South West, I point out that HMRC is committed to working with external bodies in the production of guidance on this, which will cover issues such as the definition of “customary”. He also asked about the numbers of testimonials that fall within the contractual or customary categories, or fall outside that. No figures are available, as employers have not had to report this to HMRC. It is worth pointing out that contractual and customary payments are treated as earnings and it is therefore not possible to disaggregate them from the PAYE system.
A number of points were raised on clause 14. It was asked whether this change would disadvantage rural communities. Workers in rural communities who are contracted directly cannot claim travel and subsistence on their ordinary home to work commute. This change equalises the tax treatment of workers employed through employment intermediaries with that of other workers. It addresses an imbalance in our tax system, ensuring that it is fair. It is a long-standing principle of the tax system that tax relief is not allowable for the expense of ordinary commuting—travelling from home to a permanent workplace. I made that point earlier.
In terms of whether it would reduce contractors’ ability to travel, creating a skills shortage or reducing flexibility and preventing growth, where businesses wish or need to recruit workers living some distance away, the Government expect businesses to pay a wage sufficient to attract workers without any special tax subsidy being necessary. This forms part of the Government’s plan to move to a high-wage economy with businesses meeting the costs of paying their workers a wage which does not require a top-up from the state. I should also make the point in this context that this change puts supply teachers —an example that I think was used in the course of the debate—who are engaged through an intermediary on the same terms as other supply teachers who are contracted directly or through an agency. Like other workers, supply teachers not engaged in this way would not receive tax relief on their travel and subsistence expenses on regular home to work travel.
Prior to the last general election, the Labour party said that it would stop umbrella companies exploiting tax relief. It stated this both in its published plan to tackle tax avoidance and subsequently in Parliament, and that is exactly what this change does, so I hope our measures in this area will have cross-party support.
The hon. Member for Aberdeen North (Kirsty Blackman) made a point about the impact on the Scottish oil industry. Employees with a permanent workplace at an offshore oil or gas installation are already exempt from income tax where they are provided with transfer transport, related accommodation, subsistence or local transport. These changes will not affect that exemption.
Roger Mullin
The only time in my life I had to operate through an umbrella company and would have been caught by these changes was when it was at the requirement of the Government because of the way in which they had constructed a contract. Do they intend going through every Department of the UK Government to ensure they no longer contract in this way?
Mr Gauke
The Government have done considerable work in recent years to ensure that Departments do not engage in arrangements that drive down the tax bill in a way that is not the intention of Parliament.
On clauses 16 and 17 and the issue of the withdrawal of the valuation check service, the Government believe that the impact will be negligible on employee share ownership. The Government do not expect the withdrawal of these services to have an impact on the take-up of employee ownership schemes. The valuation service has not been withdrawn for the most relevant two employee ownership schemes, including enterprise management incentives, company share option plans, savers who earn share option schemes, share incentive plans and the employee shareholder status.
This rather raises the question raised by the hon. Member for Wolverhampton South West as to why we have so many different schemes. Well, each of the tax advantage share schemes has a specific policy objective, reflected in the specific qualifying conditions. Share reward schemes are greatly valued by both companies and employees, and the Government believe that these schemes can have a positive impact on productivity.
Finally, on clause 18 and the concerns that this is retrospective legislation and that it is too complex, let me be clear that the changes introduced here are relatively straightforward. More complex proposals that were announced at the Budget will instead be legislated for in Finance Bill 2017, after the Government have consulted on the technical detail over the summer. One of the main purposes of the consultation will be to ensure that genuinely innocent arrangements are not affected. On the suggestion that the legislation is retrospective, the Government expect those who have avoided tax to pay their fair share. The Government intend to legislate for the new charge in Finance Bill 2017, following the consultation that I have just mentioned. The public and tax practitioners will be able to comment on that consultation.
Normal hard-working people do pay their taxes. They are paid a salary; they are not paid in loans. It is not right that those who use these schemes receive remuneration without paying tax on it. All affected scheme users will have the opportunity to repay their loans or to pay tax on them before the changes come into effect. This is in addition to the previous settled opportunities which closed in 2015.
I hope those points of clarification are helpful to the House. I hope, therefore, that the Government clauses and amendments can be supported, and I urge hon. Members proposing their own new clauses or amendments not to press them. If not, I urge my hon. Friends to oppose them.
Amendment 22 agreed to.
Amendments made: 23, page 14, line 10, at end insert—
“( ) In section 109 (priority of Chapter 5 over Chapter 1), after subsection (3) insert—
“(4) In a case where the cash equivalent of the benefit of the living accommodation is nil—
(a) subsections (2) and (3) do not apply, and
(b) the full amount mentioned in subsection (1)(b) constitutes earnings from the employment for the year under Chapter 1.””
Amendment 24, page 14, leave out lines 13 to 16 and insert —
““(1A) Where this Chapter applies to a car or van, the car or van is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms on which it is made available to the employee or member constitute a fair bargain).””
Amendment 25, page 14, line 35, at end insert—
“( ) In section 120 (benefit of car treated as earnings)—
(a) in subsection (2) after “case” insert “(including a case where the cash equivalent of the benefit of the car is nil)”, and
(b) after subsection (2) insert—
“(3) Any reference in this Act to a case where the cash equivalent of the benefit of a car is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.”
( ) In section 154 (benefit of van treated as earnings)—
(a) the existing text becomes subsection (1) of that section, and
(b) after that subsection insert—
“(2) In such a case (including a case where the cash equivalent of the benefit of the van is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the van for that year.
(3) Any reference in this Act to a case where the cash equivalent of the benefit of a van is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.””
Amendment 26, page 14, leave out lines 37 to 39 and insert—
““(1A) Where this Chapter applies to a loan—
(a) the loan is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms of the loan constitute a fair bargain), and
(b) sections 175 to 183 provide for the cash equivalent of the benefit of the loan (where it is a taxable cheap loan) to be treated as earnings in certain circumstances.”” —(Mr Gauke.)
Clause 7, as amended, ordered to stand part of the Bill.
Clauses 8 and 9 ordered to stand part of the Bill.
Clause 10
Diesel cars: appropriate percentage
Amendment proposed: 2, page 15, line 29, after “omit”, insert
“, except in the case of a low emissions vehicle,”.—(Rob Marris.)
Question put, That the amendment be made.
ECOFIN: 25 May 2016
David Gauke Excerpts(7 years, 11 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
A meeting of the Economic and Financial Affairs Council was held in Brussels on 25 May 2016. EU Finance Ministers discussed the following items:
Anti-tax avoidance package
Ministers held an exchange of views on a compromise text relating to the anti-tax avoidance directive. Ministers agreed that this file would return to ECOFIN in June for further discussion and possible agreement.
Current legislative proposals
The presidency updated the Council on the state of play of financial services dossiers.
State of play of the banking union
The Commission gave an update on several dossiers linked to the banking union: the single resolution fund, the bank recovery and resolution directive and the deposit guarantee scheme directive.
VAT action plan
The Council held an exchange of views and agreed Council conclusions relating to the Commission’s VAT action plan, published 7 April, and a European Court of Auditors special report.
European semester
Following preparation by the Economic and Financial Committee, the Council adopted conclusions on the 2016 in-depth reviews of macroeconomic imbalances and the implementation of the 2015 country specific recommendations.
[HCWS44]
Draft Double Taxation Relief and International Tax Enforcement (United Arab Emirates) Order 2016
Draft Double Taxation Relief (Isle of Man) Order 2016
Draft Double Taxation Relief (Jersey) Order 2016
Draft Double Taxation Relief and International Tax Enforcement (Uruguay) Order 2016
Draft Double Taxation Relief (Guernsey) Order 2016
David Gauke Excerpts(7 years, 11 months ago)
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The Chair
If the Committee agrees to debate the orders together, the debate will be an hour and a half long, and if the Minister agrees, they can be debated in two sections within the hour and a half.
The Chair
With this it will be convenient to consider the draft Double Taxation Relief (Isle of Man) Order 2016, the draft Double Taxation Relief (Jersey) Order 2016, the draft Double Taxation Relief and International Tax Enforcement (Uruguay) Order 2016 and the draft Double Taxation Relief (Guernsey) Order 2016.
Mr Gauke
It is a great pleasure to serve under your chairmanship again, Mr Hanson. When you moved on from the shadow Treasury team, I feared that we would never spend time together debating double taxation treaties as we had once done, so I am thrilled that we are reunited on this topic, as I can see you are.
Given the comments of the hon. Member for Wolverhampton South West, let me make some remarks about the identical protocols with Guernsey, the Isle of Man and Jersey, which I believe he wishes to discuss first, and then deal with the remaining orders in a second contribution. We have agreed three identical protocols with Guernsey, the Isle of Man and Jersey, amending the existing double taxation agreements to include modern OECD provisions allocating the primary taxing right over income, profits and gains from land to the jurisdiction in which that land is situated. These changes are connected with the offshore property developers measures announced in Budget 2016, to be legislated for in the Finance Bill—we look forward to that. They remove a potential loophole that may have allowed property development companies located in the Crown dependencies to argue that the DTAs prevent the UK from taxing them on the full amount of their profits from developing UK land. The Crown dependencies have agreed to the changes being effective from Budget day, 16 March 2016, which aids the effectiveness of targeted anti-avoidance rules that protect the new tax charge in the period between its announcement on 16 March 2016 and the introduction of the legislation. That demonstrates the continued co-operation between the UK and the Crown dependencies to tackle tax avoidance and evasion.
I hope that that explanation is helpful to the Committee. I look forward to returning to the double taxation agreements with the United Arab Emirates and Uruguay. I will cease my comments now and allow hon. Members to ask any questions that they have in respect of the protocols that I have described.
The Chair
Order. Although I appreciate why the Minister has spoken to the Jersey order, the motion before the Committee is that it has considered the draft Double Taxation Relief and International Tax Enforcement (United Arab Emirates) Order 2016. I will call Mr Marris to speak, and he can obviously at that stage refer to the Jersey order as part of the discussion.
Mr Gauke
I thank the hon. Member for Wolverhampton South West for his questions. To answer his first question about why these treaties have not been amended before, we have taken action in this Budget to prevent a form of avoidance that HMRC became aware of relatively recently. This ensures that a loophole that would have prevented the implementation of measures to protect the UK tax base can be addressed. The challenge was first, a recognition that profits relating to land in the UK were being booked in these Crown dependencies—the view being that these profits properly belong in the United Kingdom—and therefore, we announced the Budget measure. The concern was that the measures that we took in the Budget could not be implemented without these changes.
Perhaps if I can address the second point—
Mr Gauke
If I can just address the second point, I think it may be helpful to the hon. Gentleman. The new legislation announced in the Budget will include targeted anti-avoidance rules that will stop property developers structuring around the new charging provisions during the period from the announcement on Budget day, which is the date that the new legislation comes into force. Making the protocol changes effective from Budget day aids the effectiveness of these targeted anti-avoidance rules. This is not backdating all retrospection, as such. The double taxation agreements are changed only from the date that the protocols were signed. The targeted anti-avoidance rules will apply prospectively only from Budget day. I hope that provides a bit of clarification to the hon. Gentleman.
Rob Marris
I am grateful to the Minister for that explanation. Is it then the case that the, and I mean this positively, wonderfully innovative accountancy industry in the United Kingdom did not realise that they could advise their clients, quite legitimately, to offshore land profits—this is my shortening of the situation—to the Crown dependencies? They did not realise for 50 years, and then they suddenly realised and it started to happen. The Government then said, “That was never anybody’s intention, so the measures announced in the Budget”—in the statutory instruments today—“will stop that.” Or is it something else?
Mr Gauke
I understand the hon. Gentleman’s point. I want to be perhaps a little a cautious, if not tentative, about the wording. That is not to say that nobody was making use of these provisions—I think that people were making use of them. However, it was relatively recently that Her Majesty’s Revenue and Customs became aware that this loophole—I think it would be fair to describe it as that—was being used. That was not really the intention of Parliament. One could make an argument—if Parliament addressed its mind to this matter—that it would certainly not be the way that we want the system to work. In recent months, in the run-up to the March Budget, it was concluded that action needed to be taken. These changes to the protocols are all part of ensuring that this is effective.
If I can deal with the third question, I will then make my comments about the double taxation agreements. I was asked why there is no TIIN—tax information and impact note. We have not produced impact assessments because double taxation agreements are not of a regulatory nature. They impose no obligations on taxpayers. Rather, they give UK residents relief from foreign tax in prescribed circumstances. They also provide relief from UK tax for non-residents in a comparable situation. Given that the hon. Gentleman has raised that specific point, perhaps we will look again at the wording of the explanatory memorandum to see whether we can provide a clearer explanation next time. He has made a constructive point.
If I may, Mr Hanson, I will turn to the two other orders, on the United Arab Emirates and Uruguay. This first-time double taxation agreement with the UAE completes our DTAs with the Gulf states and follows the same principles that we have adopted with the other countries in the region. Although the UAE does not currently impose tax on individuals or companies, it has the potential to do so. Legislation was in place, but the UAE chooses for the moment not to apply it. Concluding the DTA now ensures that should the UAE start to apply its tax laws, UK companies will have greater certainty over the liabilities, as the taxing rights are constrained by the treaty.
The DTA generally follows the OECD model. Dividends are exempt from withholding tax, other than where the payer is a real estate investment trust, in which case 15% tax may be charged. Interest and royalties are also exempt, but with a provision to ensure that the benefits of the interest article can flow only to UAE residents and companies owned by UAE residents. The exchange of information article is the latest OECD version, which permits information to be used for non-tax purposes with the permission of the other state.
The Government signed a first-time DTA with Uruguay earlier this year. This is an important treaty for the UK as it expands our treaty network in an increasingly important region. The treaty gives valuable benefits to UK businesses and individuals with interests in Uruguay and will strengthen the economic ties between the two countries.
Withholding taxes can hamper cross-border investment, as they represent an extra and often excessive layer of taxation. I am therefore pleased that withholding tax on dividends is restricted to 5% on direct investment and interest is taxable at source at a maximum of 10%, with some important exemptions—for example, for certain bank loans. As we sometimes do with a country whose economy is in transition, we have agreed a provision that allows the taxation of services in the country where they are performed where they last for more than 183 days. The treaty also contains anti-treaty shopping provisions based on the BEPS—base erosion and profit shifting, as you know, Mr Hanson—recommendations on treaty abuse, the latest OECD exchange of information article and an arbitration provision to assist the mutual agreement procedure, which will be welcome to UK companies investing in Uruguay.
I hope those explanations are helpful. I commend the orders to the Committee and I am happy to answer any remaining questions that hon. Members may have.
Mr Gauke
I thank the hon. Members for Wolverhampton South West and for Glenrothes for their questions and, indeed, their support. Let me try to address as concisely, but as thoroughly as I can the points made.
First, on the differences between the two double taxation agreements, I am certainly happy to write to the hon. Member for Wolverhampton South West and to set out some details. The two main points that I would bring out, without going into a clause-by-clause analysis—tempting though that is—is that the hon. Gentleman is absolutely right to say that there is a difference of timing in when the draft orders were agreed, so the principal purpose test contained in the Uruguay agreement reflects the fact that that is a new direction for the UK. It comes out of the “Action 15” work of BEPS, and will appear in the next edition of the OECD model. That is the explanation for that, and we expect to see it more often in future. Another distinction worth pointing out is that we have no capital tax, but Uruguay has a wealth tax, so an article in the double taxation agreement properly reflects that.
The hon. Gentleman drew a distinction between artistes and entertainers. That perhaps should be best left to the letter. I will not dwell on that here or draw any general conclusions about the UAE or Uruguay and which is most appropriate, but he raises a fair point on “sportsman”. I am pleased to say that it has been changed to “sportsperson” in the latest OECD model. I fear that we are not going to be able to give him credit for that change in double taxation agreements, but he has certainly spotted something that needs rectifying, and I am pleased to say that it is being rectified.
Turning to the questions raised by the hon. Member for Glenrothes, let me reassure him that we have a tax information exchange agreement with all the Crown dependencies. It is not included here because these are specific protocols dealing with a specific issue, but we have well established treaties with those Crown dependencies. It is worth stressing that they meet the international standards in this area. We were early signatories to what became the common reporting standard.
I am entirely in agreement with the hon. Gentleman on the importance of tax authorities having an ability to share information much more widely than they have in the past and on its not being possible for the information to be held secret, as was once the case. Much progress has been made on the move to automatic exchange of information, which has long been an aspiration of all parties, and that is coming into effect. We have moved a long way in recent years on exchanging information with law enforcement authorities and so on, and on co-operation between tax authorities across the board.
I am not aware of any particular issues or controversy with differing definitions between one jurisdiction and another of the operation of immovable property, but if I may, I will write to the hon. Gentleman to confirm the position and to what extent it has proved difficult, whether in the jurisdictions we are talking about today or more widely. I add my support to his comment that we should have a tax system in which tax is properly aligned to economic activity. That is very much the direction of the OECD’s work on BEPS, and it is very much the direction that the UK has argued for. We believe that the international tax system has to properly reflect that alignment. It is the only sustainable way in which an international tax system can properly work, and we continue to make that argument.
I hope that those points of clarification are helpful to the Committee. With that, I hope that the orders before us will have the support of the whole Committee.
Question put and agreed to.
The Chair
With the leave of the Committee, I will put the remaining motions in a single question.
Draft Double Taxation Relief (Isle of Man) Order 2016
Resolved,
That the Committee has considered the draft Double Taxation Relief (Isle of Man) Order 2016.—(Mr Gauke.)
Draft Double Taxation Relief (Jersey) Order 2016
Resolved,
That the Committee has considered the draft Double Taxation Relief (Jersey) Order 2016.—(Mr Gauke.)
Draft Double Taxation Relief and International Tax Enforcement (Uruguay) Order 2016
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Uruguay) Order 2016.—(Mr Gauke.)
Draft Double Taxation Relief (Guernsey) Order 2016
Resolved,
That the Committee has considered the draft Double Taxation Relief (Guernsey) Order 2016.—(Mr Gauke.)
ECOFIN: 17 June 2016
David Gauke Excerpts(7 years, 11 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
A meeting of the Economic and Financial Affairs Council will be held in Luxembourg on 17 June 2016. EU Finance Ministers are due to discuss the following items:
Anti-tax avoidance package
The presidency will seek a political agreement on a compromise text relating to the anti-tax avoidance directive.
Financial transaction tax
An update will be provided on the progress regarding implementing a financial transaction tax in participating member states. The UK is not taking part in the financial transaction tax.
Strengthening the banking union
A presentation will be given on a road map regarding strengthening of the banking union, alongside an oral update from the presidency on progress made in Council working groups.
Current legislative proposals
The presidency will update the Council on the state of play of financial services dossiers.
State of play of the banking union
The Commission will give an update on several dossiers linked to the banking union: the single resolution fund, the bank recovery road map and resolution directive and the deposit guarantee scheme directive.
Analysis by the Commission on temporary VAT derogations—reverse charge mechanism
Following a request by the Czech Finance Minister, the Commission will present analysis relating to widening the use of the reverse charge mechanism to combat VAT fraud. This will be followed by an exchange of views.
Implementation of the stability and growth pact
The Council will be asked to endorse the draft decisions to close the excessive deficit procedures for Cyprus, Ireland and Slovenia based on recommendations by the Commission. As these decisions cover euro area member states, the UK does not have a vote.
Report of the European Court of Auditors on the excessive deficit procedure
Following preparation by the Economic and Financial Committee, the Council will adopt conclusions relating to a European Court of Auditors report on effective implementation of the excessive deficit procedure.
Contribution to the European Council meeting on 28-29 June 2016
The Council will prepare a number of items ahead of June European Council. Specifically, Ministers will endorse the 2016 country specific recommendations, part of the European semester process.
Following this, views will be exchanged on: national productivity boards within the euro area; economic and fiscal governance; unified euro area representation at the IMF; and the Commission’s recent communications on external aspects of migration and the investment plan for Europe.
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Oral Answers to Questions
David Gauke Excerpts(7 years, 11 months ago)
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Clive Lewis (Norwich South) (Lab)
8. What assessment he has made of which groups within the UK population will benefit from planned changes to (a) capital gains and (b) corporation tax.
The Financial Secretary to the Treasury (Mr David Gauke)
Changes to capital gains tax will provide greater incentives to invest in companies. Up to 130,000 individuals a year, including up to 50,000 basic rate taxpayers, are estimated to pay lower tax as a result of the changes to CGT. The further cut to the corporation tax rate to 17% announced at the Budget will benefit over 1 million companies, large and small, supporting UK companies to invest, grow and create jobs.
Clive Lewis
Treasury figures show that just 200,000 individuals will benefit from capital gains tax to the tune of £600 million in the first year—a giveaway of £600 million. On corporation tax, we have the lowest in G7—lower even than Saudi Arabia, Russia and China. At the same time, the Resolution Foundation found that the poorest 20% of families in this country will lose £565 over the course of this Parliament because of the Government’s policies. Where is the social justice in that?
Mr Gauke
One of the hon. Gentleman’s hon. Friends asked earlier about encouraging business investment, which we want to encourage because it is through having an environment in which businesses invest that we see improved productivity, the conditions for growth and people benefiting from higher wages. I say to the hon. Gentleman, and to the House as a whole, that pursuing policies that favour business investment and encourage businesses to invest, such as cutting CGT and corporation tax, is important for all our constituents.
Richard Burgon (Leeds East) (Lab)
In 2010, the Chancellor told this House that raising capital gains tax was necessary to
“create a fairer tax system.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]
Given that the Chancellor is now cutting capital gains tax—overwhelmingly to the benefit of the richest 0.3% of people—what does he think has changed?
Mr Gauke
As I outlined a moment ago, the purpose of the tax measures is to encourage people to invest in businesses. The changes are specifically targeted at companies—the cut in CGT does not apply to residential property—and put in place an environment in which businesses can grow and prosper. That is absolutely the right approach to follow. I remind the hon. Gentleman that there are other countries that have taken different approaches, of which he has been full of praise. It is not quite working out in Venezuela, is it?
Barbara Keeley (Worsley and Eccles South) (Lab)
11. What steps he is taking to ensure that disabled people are not disproportionately affected by reductions in government expenditure.
Owen Thompson (Midlothian) (SNP)
14. What steps he is taking to improve tax transparency.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government have played a leading role in driving forward international action on tax transparency. The introduction of country-by-country reporting has increased the transparency between multinationals and tax authorities, and we are pushing for this to be made public on a multilateral basis. We led the way throughout the development of the common reporting standard, which will see more than 100 countries automatically exchange information on financial accounts, and on a similar initiative for the automatic exchange of beneficial ownership information. We have consistently advocated for public registers of beneficial ownership, with the UK’s going live as of this month.
Owen Thompson
The planned closure of 137 HMRC offices has clearly been affecting employees, their families and communities. What steps has the Minister taken to look into introducing a moratorium on these closures, to support the wider work of improving tax transparency?
Mr Gauke
I commend the hon. Gentleman’s ingenious ability to raise this issue. It is important that HMRC’s funds are spent efficiently, to ensure that they are spent on delivering the tax being collected that we want, rather than on buildings. The savings from buildings are being spent on collecting more tax.
Nigel Mills (Amber Valley) (Con)
The Minister will have seen the different approaches that the French and UK authorities have taken towards cases such as Google’s. What more can he do to ensure that Parliament and the public have faith that HMRC is getting good deals in such situations? For example, will the National Audit Office be allowed to review those most high-profile cases and give some assurance that a good deal was achieved?
Mr Speaker
Order. Let me gently mention that we have already heard from the hon. Member for Newark (Robert Jenrick)—I remember very well his question, and I rather hope he does. It is one per session—[Interruption.] He can try again at topicals, but not in substantives.
Mr Gauke
Thank you, Mr Speaker. What I say to my hon. Friend the Member for Amber Valley (Nigel Mills) is that, some years ago, HMRC brought in an assurance procedure to ensure that all such settlements are properly scrutinised. HMRC is very confident that it has reached a fair and proper settlement with Google. It is worth pointing out that, in recent years, we have seen increases in revenue collected by HMRC and increases in yield from its compliance activities including from large businesses.
John McDonnell (Hayes and Harlington) (Lab)
If we are to tackle tax evasion and avoidance effectively we need to remain within the EU. Will the Chancellor and the Minister join me in calling on all MEPs to support the new anti-tax avoidance directive being voted on in the European Parliament tomorrow? Conservative MEPs abstained at the Committee stage, and this morning there are worrying noises that they may be thinking of abstaining once again. Will the Minister make it clear now that Conservative MEPs will be voting for the directive?
Mr Gauke
The anti-tax avoidance directive was discussed a couple of weeks ago at the ECOFIN meeting, which I attended. The UK made the case for us taking strong action and working through an anti-avoidance tax directive. What we suggested and proposed was taken on board. The matter will also be addressed at the ECOFIN meeting next week. The UK is pushing for progress and it is working co-operatively with other member states to ensure that we do make progress.
John McDonnell
I am mystified as to whether Conservative MEPs will be voting for the directive tomorrow. I just live in hope that they will. The European directive did show the value of European Union co-operation in tackling tax avoidance and evasion. As part of that co-operation, following the raids on Google’s Paris offices, will the Chancellor inform the House what arrangements are in place with the French authorities for sharing information from the raid? If new evidence comes to light, will the Chancellor stand ready to reopen his deal with Google?
Mr Gauke
The first point of which I must remind the shadow Chancellor is that all settlements are reached by HMRC. Operational matters are rightly for HMRC, and not for Treasury Ministers. Of course if there is new evidence, HMRC will take it into account. The position is that HMRC has made it very clear that, under the law that existed between 2005 and 2015, it believes that it has reached a settlement that ensures that the right amount of tax has been collected—and that is what its job is. Our job is to ensure that it has the tools and the rules, and that is what we are delivering.
Mrs Flick Drummond (Portsmouth South) (Con)
T1. If he will make a statement on his departmental responsibilities.
Martyn Day (Linlithgow and East Falkirk) (SNP)
T4. In Scotland, we have introduced robust anti-avoidance rules—they are among the toughest in the world—on devolved taxes. The Scottish National party has repeatedly called on the Chancellor to embolden compliance by guaranteeing that the beneficial ownership of companies and trusts is made public. Has he taken steps to assure the people of the UK that this progressive step will happen?
The Financial Secretary to the Treasury (Mr David Gauke)
The UK is bringing in a register of beneficial ownership for companies. On trusts, where there are tax consequences that will also be included. So, yes, the UK is leading on that, and we are pretty much the first country to do so.
Maggie Throup (Erewash) (Con)
T2. I have been contacted by a number of constituents who are having difficulty with this year’s online HMRC self-assessment system, particularly with the level of customer service they are getting from the helpdesk. Will the Minister look into this issue as a matter of urgency so that we can get a speedy resolution to the problems and ensure that my constituents are not penalised?
Mr Gauke
I would be very happy to meet my hon. Friend to discuss the specific points, but I would also say that the customer performance of HMRC last year was clearly not at an acceptable level. In the run-up to the self-assessment deadline at the end of January 89% of calls were getting through first time and the average waiting time was less than five minutes. That can be improved on, but we should note that it is a much higher performance than has been achieved in HMRC’s previous history.
Cat Smith (Lancaster and Fleetwood) (Lab)
T5. I note that the Minister has yet to respond properly to the shadow Chancellor’s question about the new anti-tax avoidance directive in the European Parliament, which is being voted on tomorrow. In light of Conservative MEPs’ abstention at the committee stage, will someone now confirm whether they will support it tomorrow?
Mr Gauke
Just to be clear, the text of the anti-tax avoidance directive has not been finalised. It was discussed at the ECOFIN meeting a couple of weeks ago and will be discussed again in a week’s time, on 17 June. It has not been finalised. What I can say is that the UK Government’s position is very clear: we want something strong and effective, and that is the case that we have been advocating in the Council of Ministers.
James Berry (Kingston and Surbiton) (Con)
T3. The devolution of business rates, allowing local areas to shape their own future, will be of a real benefit to my constituents in Kingston, who pay some of the highest council taxes in the country and receive one of the lowest Government grants in return. Will my right hon. Friend confirm when the first business rate devolution deals will be rolled out and whether Kingston can be at the front of the queue?
Double Taxation Conventions
David Gauke Excerpts(7 years, 11 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
A double taxation convention with Uruguay was signed on 24 February 2016 and with the United Arab Emirates on 12 April 2016. The text of each convention has been deposited in the Libraries of both Houses and will be made available at: www.gov.uk website. Each text has been scheduled to a draft Order in Council and laid before the House of Commons.
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