Finance (No. 2) Bill (Fifth sitting)
Debate between Lucy Frazer and Abena Oppong-AsareTuesday 11th January 2022
(2 years, 9 months ago)
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Lucy Frazer
Clauses 95 and 96 concern tax administration provisions. They provide certainty that HMRC may use discovery assessments to take action in certain cases in which taxpayers have not declared or returned tax that is due. For consistency, fairness and certainty, they also make minor changes to the rules requiring notification of liability.
I will briefly explain the context for introducing the clauses. The upper tribunal recently found that HMRC did not have powers to recover an individual’s high-income child benefit charge, which I will refer to as “the child benefit charge”, by issuing a discovery assessment where the taxpayer had neither notified HMRC of their liability nor submitted a tax return. The purpose of notifying tax liability is for HMRC to know to ask a taxpayer to complete a tax return. A discovery assessment is the mechanism HMRC uses to collect tax that it finds out should have been assessed but has not been—essentially, HMRC sends the taxpayer a bill for the tax that they ought to have self-assessed. HMRC uses discovery assessments frequently and routinely for taxpayers who ought to but have not notified tax liability and completed a tax return, whether because they are evading tax or they have made a genuine mistake.
HMRC can use discovery assessments in two scenarios: where it discovers that income tax in a tax return has been understated, and where a tax return has not been submitted at all. We are concerned here only with the latter scenario. The tribunal did not dispute the validity of the child benefit charge; in fact, it confirmed that the charge was still due. However, the tribunal found that HMRC could not use discovery assessments in that case. HMRC firmly disputes that ruling and has appealed to the Court of Appeal. The ruling prevents HMRC from using the usual discovery assessment mechanism to collect the correct tax payable where taxpayers liable to the child benefit charge and similar charges have not notified their liability, and so have not been sent a tax return.
There are three related clauses: 95, 96 and 97. The first and most significant is clause 95, which ensures that discovery assessments can be used to recover the child benefit charge, as well as similar charges relating to pensions and gift aid, where taxpayers have failed to notify HMRC and self-assess those charges. I stress that the legislation does not create any new liabilities or obligations for taxpayers; it simply puts taxpayers who do not declare and pay the child benefit charge on an equal footing with the majority who do.
Without clause 95, a taxpayer who did not declare and return their liability might not have to pay the child benefit charge at all, while others in otherwise identical circumstances who had rightly notified HMRC of their position would have to pay. Clearly, even if that is an honest mistake, which it is in many cases, it is not right.
The legislation introduced under clause 95 will apply retrospectively to child benefit, gift aid and pension charges. For those three types of charge, the legislation will be treated as having always been in force and will ensure that previously issued discovery assessments remain valid. The Government do not introduce retrospective legislation lightly; we do so only in exceptional circumstances, and we will do so, on occasion, when a court ruling upsets the widely accepted way in which the law is understood to work.
In this instance, retrospection is necessary for two reasons: first, to protect public services by ensuring that tax that is properly due and that has been charged and paid through discovery assessments over a number of years remains undisturbed; and secondly to provide fairness to the general body of taxpayers who have declared their liability, submitted their returns and paid their tax. The retrospective element applies only to the use of discovery assessments where taxpayers subject to such charges have neither notified HMRC of their liability nor submitted a tax return; it does not affect anyone’s tax liability. It is important to emphasise that although this is retrospective legislation, it is not retrospective taxation.
Some taxpayers will not be subject to the retrospective effects of clause 95. It would be unfair for it to apply to those taxpayers who were part of the original litigation and those who submitted appeals to HMRC on the same basis before the tribunal judgment was handed down. To include them would overturn the upper tribunal’s judgment and curtail the appeal rights of taxpayers who will already have spent time and money bringing an appeal on the same grounds, so the Government are excluding those taxpayers from the retrospective element of the legislation, ensuring that they can continue to pursue their appeals.
The prospective effect of clause 95 is somewhat wider. It is sensible to future-proof the legislation so that it applies to any income tax or capital gains tax that ought to have been, but has not been, assessed.
Clause 96 is introduced with prospective effect only. It will provide certainty that taxpayers who become liable to certain tax charges, including the pension and gift aid charges that I mentioned in reference to clause 95, must notify HMRC of their tax liability. Taxpayers are required to notify HMRC that they are chargeable to income tax or capital gains tax for any given year when that tax has not otherwise been accounted for.
Recent litigation has called into question whether certain tax charges are adequately covered by the obligation to notify chargeability; clause 96 provides certainty that they are so covered. That will achieve consistency of treatment across the types of tax charge, ensuring that taxpayers are always obliged to notify HMRC in circumstances where HMRC might not otherwise become aware of their tax liability.
It is right that taxpayers are required to report and self-assess their tax liabilities and that HMRC can take the necessary action to recover tax when they do not. Clauses 95 and 96 will enable HMRC to carry on doing so, shoring up the tax administration provisions in response to litigation that could otherwise create confusion, unfairness and inconsistency, as well as putting public revenues at risk. I commend the clauses to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship again, Sir Christopher. I thank the Minister for her explanation of clauses 95 and 96, particularly in respect of discovery assessments. As she says, clause 95 will amend the Taxes Management Act 1970 to provide certainty that HMRC can use discovery assessments to make good a loss of tax where it discovers that certain charges have not been accounted for; when the Bill gains Royal Assent, the clause will apply both retrospectively and prospectively.
The amendment to the 1970 Act has to be understood in the context of the legal challenge in HMRC v. Wilkes, in which the upper tribunal ruled that HMRC could not use discovery assessments to assess tax charges arising from sources that do not meet the definition of income within the relevant provision. Clause 95 will amend the law to enable HMRC to use discovery assessments in such circumstances. The background note in the explanatory notes states that the aim is to
“put the matter beyond doubt and confirm HMRC’s long-standing policy”.
Although there has clearly been historic doubt and an unsuccessful legal defence mounted by HMRC, and while this is being applied retrospectively, there is an exception for those who have appealed on the grounds that HMRC was inadequate at the time prior to the Wilkes case. However, as the Minister probably knows, the Low Incomes Tax Reform Group has raised the point that the retrospective application in the clause could be uneven and unfair.
While those who have appealed have been exempted, those who did not make the necessary appeal will face retrospective charges. Those who accepted the charge at face value and paid it will clearly not get their money back, despite the upper tribunal’s finding that HMRC’s use of discovery assessments in this way was outside the scope of its powers and, therefore, not legal. The Wilkes judgment will soon no longer be a legitimate basis for legal contest; I would be grateful if the Minister could make an assessment of the fairness of this uneven, retrospective application.
Under clause 96, there will be further amendments to the Taxes Management Act 1970. It will amend section 7 and extend the circumstances in which a person must make a notification under section 7 to the charges listed in section 30 of the Income Tax Act 2007. As the Minister mentioned, that requires the taxpayer to notify HMRC of any liability to income tax or capital gains tax charges per accounting year. The amendments to the fundamental piece of primary legislation have been extended to include liability, as set out in clause 95. For this reason, we will not be opposing the clause.
Lucy Frazer
Clause 97 is the third of three clauses relating to HMRC’s tax administration provisions. The clause makes minor technical revisions to the provisions for the calculation of income tax in respect of certain pension charges.
Section 23 of the Income Tax Act 2007 sets out the steps to be followed when calculating income tax liability. At step 7, additional amounts of tax that have not been taken into account in the earlier steps are added to the calculation, and those are listed in section 30. The list in section 30 includes a number of freestanding tax charges relating to registered pension schemes.
The Committee will remember that clause 96 operated on those freestanding charges to provide certainty that taxpayers liable for them must notify their liability to HMRC. The Government have identified the fact that some of those freestanding charges—some of the unauthorised payment charges and surcharges, and the overseas transfer charge—have been omitted from the list in section 30, so we are taking this opportunity to correct that by adding them.
Clause 97 adds to the list in section 30 the overseas transfer charge and the missing unauthorised payments charge and surcharges. The charges ensure that the correct amount of tax due in respect of those charges is produced at the correct step of the tax calculation. The effect is to ensure that HMRC will be able consistently to calculate and assess tax liabilities in respect of those pension charges. In combination with clause 96, clause 97 requires taxpayers to notify HMRC of their liability for the charges, and HMRC will be able to charge penalties for failure to notify and will use discovery assessments to recover tax that has not been notified. Clause 97 is introduced with prospective effect only from the 2021-22 tax year.
Clause 97 makes minor technical revisions and, together with the changes in clauses 95 and 96, gives consistency and certainty of tax treatment in HMRC’s tax administration provisions relating to those freestanding tax charges. I commend the clause to the Committee.
Abena Oppong-Asare
I thank the Minister for her explanation. As she mentioned, clause 97 follows on from clauses 95 and 96, and is a chiefly technical clause to amend the list of other income tax charges in subsection 30(1) of the Income Tax Act 2007. The Labour party will not oppose the clause.
Lucy Frazer
I thank the hon. Lady.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill.
Clause 98
Power to make temporary modifications of taxation of employment income
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill (Third sitting)
Debate between Lucy Frazer and Abena Oppong-AsareWednesday 5th January 2022
(2 years, 10 months ago)
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Lucy Frazer
Clause 67 introduces a power enabling changes to be made by secondary legislation to stamp duty and stamp duty reserve tax in relation to securitisation and insurance-linked security arrangements. The Government are keen to ensure that the UK’s stamp duty and SDRT rules contribute to maintaining the UK’s position as a leading financial services sector.
On 30 November, the Government published a response document and a draft statutory instrument following consultation on reform of the tax rules for securitisation companies. The consultation explored issues including the application of the stamp duty loan capital exemption to securitisation and ILS arrangements. The consultation sought views on whether uncertainty as to how the existing stamp duty loan capital exemption applies increases the costs and complexity of UK securitisation and ILS arrangements, and whether that is a factor in arrangements being set up outside the UK.
Clause 67 will allow Her Majesty’s Treasury to make regulations to provide that no stamp duty or stamp duty reserve tax charge will arise in relation to the transfer of securities issued by a securitisation company or a qualifying transformer vehicle. A qualifying transformer vehicle is the note-issuing entity in an ILS arrangement. The power will also allow HMT to make regulations to provide that stamp duty or SDRT is not chargeable on transfers of securities to or by a securitisation company. The power allows the Government to make changes to allow UK securitisation and ILS arrangements to operate more effectively, and reduce cost and complexity. There is currently no power to make changes through secondary legislation to the stamp duty and SDRT rules in relation to securitisation and ILS arrangements.
In summary, clause 67 will support the Government to respond flexibly to the evolving commercial practices of the securitisation and ILS markets, and ensure that the UK’s securitisation and ILS regimes remain competitive. I therefore commend the clause to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
I am delighted to serve under your chairship, Dame Angela. Happy new year, everyone.
As we heard from the Minister, clause 67 relates to stamp duty on securities and related instruments. We do not oppose efforts to increase the efficiency and flexibility of this sector, but we wish to see appropriate safeguards to ensure that these changes do not increase the risk of stamp duty evasion and, as the Minister mentioned, to make sure that they meet the UK’s position as a leading financial sector.
Securitisation can be a useful source of finance for UK businesses and can aid capital liquidity and risk management. I note that the Treasury has consulted on the impact of stamp duty on securitisation and insurance-linked securities. Clause 67 gives the Treasury powers to make changes through secondary legislation to stamp duty as it relates to securitisation. Can the Minister explain why the Government feel that it is necessary to make those changes through secondary legislation, rather than using the Finance Bill or other primary legislation?
Can the Minister also give us some detail on the exact changes that the Government intend to make through this secondary legislation? For example, in what circumstances will the trading of securities be exempt from stamp duty? How will she ensure that this does not increase the scope for tax avoidance? Can she also provide reassurance that Parliament will still be able to scrutinise these changes? The clause really needs to be scrutinised.
Lucy Frazer
I thank the hon. Lady very much for those points. I welcome the fact that she, too, thinks it important that this country remains competitive and flexible, and supports growth in this very important sector.
The hon. Lady asked why we need these changes to be made by secondary legislation. The answer is that technical changes of the type consulted on are more often and more appropriately made through secondary legislation than by primary legislation. Making the changes through secondary legislation gives Government flexibility to ensure that technical changes respond to the evolving nature of the securitisation and ILS markets.
However, it is of course important that we have scrutiny and review. We had a consultation on this issue, from which these provisions follow; of course, anything that comes through secondary legislation will be scrutinised. We will keep this under review, as we do all taxes.
Abena Oppong-Asare
I thank the Minister for taking the time to explain that. It would be helpful if she could also explain what measures were put in place to allow Parliament to scrutinise these changes. I am sure that she would agree that it is important that Parliament should be able to scrutinise these changes properly; if she could list what steps have been put in place, that would be extremely helpful.
On my other question, it is really important that there is no increase in tax avoidance. Can the Minister set out what the Government have put in place to ensure that it does not increase?
Lucy Frazer
Like me, the hon. Lady will be aware that when things go through the secondary legislation procedure they are subject to scrutiny by this House, through those Committees. She will also know that this Government are absolutely committed to ensuring that we tackle tax avoidance; there are a large number of measures in this Bill that tackle tax avoidance and evasion, through cracking down on promoters and other mechanisms. It is something that we are alive to and acting upon, and for those reasons I ask that clause 67 stand part of the Bill.
Question put and agreed to.
Clause 67 accordingly ordered to stand part of the Bill.
Clause 72
Identifying where the risk is situated
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 72 relocates into IPT legislation the criteria to determine the location of an insured risk for the purpose of insurance premium tax. IPT is charged on most general insurance, where it provides cover for risks located within the UK.
Insurance for risks located outside the UK is exempt from UK IPT. That exemption prevents double taxation across different tax jurisdictions and puts UK-based insurers on a level playing field with overseas insurers. Legislation sets out how to determine the location of a risk in order to establish whether the IPT exemption applies. Regulations previously used to determine the location of an insured risk were replaced in 2009, and the new regulations did not include an equivalent provision. Instead, reliance was placed on directly effective European Union legislation. To ensure clarity for the insurance industry, this measure relocates the criteria into primary legislation. This is a technical change and does not reflect a change in IPT policy.
The changes made by clause 72 will remove references to inoperative regulations in the Finance Act 1994, introducing criteria to the same effect directly into the IPT legislation. The measure ensures that insurance for risks located outside the UK remains exempt from IPT, providing clarity and continuity for the insurance industry and supporting the maintenance of an effective and fair tax system.
Abena Oppong-Asare
I thank the Minister for her explanation of clause 72; it does seem like a straightforward clause that simply moves the criteria for determining where the risk is located into primary legislation. The Chartered Institute of Taxation has stated that the legislation does meet its stated objectives. For that reason, we do not oppose the clause.
I note that there has been wider consultation on the insurance premium tax, including on how to address the avoidance of the tax and how to reduce the administrative burden on HMRC and the industry. That is particularly important as HMRC has been under a lot of pressure—particularly during the pandemic. In the Government’s response to the consultation on the issue of IPT avoidance, they said that, on reviewing the responses,
“neither of the proposed options provide a proportionate solution to the issue this chapter sought to address. As such, neither option will be taken forward at this time.”
That seems like the Government have given up at the first hurdle. Why, if the proposed measures are not appropriate, are the Government not considering other measures to prevent avoidance in this sector?
Alison Thewliss
I do not have any major objections to what is being proposed, but I would be doing the Association of British Insurers a disservice if I let the clause go through without mentioning its concern, which I share, that insurance premium tax is quite a regressive tax. We are about to discuss tobacco duty; the ABI points out, through some research by the Social Market Foundation, that insurance premium tax now raises more revenue than beer and cider duty, wine duty, spirits duty, or betting and gaming duties.
Since 1994, the standard rate of IPT has increased more rapidly than tobacco duty. Those are all things that we want people not to do; we would prefer it if people did not drink as much, smoke as much or gamble as much, so we tax those things. It seems ludicrous to tax people on insurance, which we would like people to have and which benefits them and society, so I ask the Minister to consider further whether insurance premium tax is something sensible that we want to keep doing.
Lucy Frazer
The clause gives the Secretary of State for International Trade the power to call in and take control of reviews of trade remedies measures transitioned from the EU. This ensures that the Government can effectively take steps to prevent harm to UK industry where there is evidence of unfair competition.
Trade remedies are additional tariffs or tariff-rate quotas temporarily imposed to protect domestic industries from dumped or subsidised imports or unforeseen surges in imports. At the end of the transition period, the Government transitioned 43 of the EU’s trade remedy measures. The Trade Remedies Authority is now reviewing the transitioned measures to assess whether their continuation is suitable for the UK economy. The TRA is responsible for collecting and analysing evidence relating to trade remedies cases, and it currently makes recommendations to the Secretary of State for International Trade on whether particular measures should be revoked or varied or, in certain cases, retained or replaced. The Secretary of State can only accept or reject a TRA recommendation in its entirety.
The current framework was introduced in 2018. Since then, it has become clear that in some circumstances, greater ministerial involvement in decision making is required. The call-in power is designed to address that. It will allow the Secretary of State to call in a case if she considers it necessary. For example, she will be able to take a closer look at an individual case if needed in the wider public interest. The intention is that the Secretary of State will continue to rely on the expertise of the TRA to collect and analyse evidence, but that it will do so under her direction.
Whether a case is called in or not, the process will continue to be robust, transparent and evidence based, but the power will allow the Secretary of State greater flexibility in decision making than our legislation currently allows. The call-in power will apply only to transition reviews, and where the TRA is reconsidering its previous conclusions from a transition review. In parallel, the Government are considering wider changes to the trade remedies framework to ensure that it can consistently defend UK industry. That is separate from the limited scope of this clause, and the International Trade Secretary will report on the findings of that review in due course.
The changes made by clause 73 will amend the trade remedies regime to allow the Secretary of State for International Trade to call in transition reviews and reconsiderations of transition reviews conducted by the TRA. After calling in a case, the Secretary of State will be responsible for determining the outcome of that review or reconsideration. That will ensure that the Secretary of State can have greater oversight and involvement in a particular transition review or reconsideration of a transition review as appropriate, and therefore the ability to decide on appropriate measures, such as varying the tariffs that apply to particular products under the UK’s trade remedies framework.
Where this power is exercised, the Secretary of State need not necessarily base their decision on a prior recommendation or decision of the TRA. The Secretary of State will be required to publish the notice of a decision made under this clause. The Government will make secondary legislation to set out in more detail how the call-in power is to be exercised.
In summary, clause 73 will help to prevent injury to UK industry by empowering the Secretary of State to call in transitional reviews where appropriate, and give her control to determine the outcome of a particular transition review or reconsideration of a transition review. Such a determination may include retaining, varying, revoking or replacing the trade remedies already in place on the goods subject to the review.
Abena Oppong-Asare
This important clause relates to trade remedies. As we have heard, it allows Ministers to override the powers of the Trade Remedies Authority in order to maintain safeguard tariffs on cheap imports that unfairly undermine UK industry.
The clause’s introduction was prompted by the row over the TRA’s proposals to get rid of tariffs on cheap steel imports. In June last year, the TRA recommended the removal of limits inherited from the EU on about half of the UK’s steel imports. Slashing those safeguards and opening the floodgates to cheap steel imports would have been devastating for steel plants across our country and damaging for our wider economy. At the time, the director general of UK Steel said:
“On their first major test in a post-Brexit trading environment, the UK’s new system has failed our domestic steel sector.”
The Government U-turned on that decision after pressure from Labour and the industry, and belatedly maintained protections for the steel industry. Obviously, however, there are concerns about future TRA decisions, so we support the clause. Indeed, Labour campaigned for the Government to take more action to support our vital steel industry.
I ask the Minister to expand on subsection (5), which allows the Secretary of State to make regulations regarding how to make decisions on transitioned trade remedies. Will she set out what sort of regulations she envisages that the Secretary of State will make and how those decisions will be made? It is important that there is a transparent process for making these important decisions on trade remedies.
Finally, although we welcome this measure and hope that it ensures that vital British industries are better protected in the future, we remain concerned about the Government’s wider failure to support British industry. Industries such as steel are of vital strategic importance for our economic prosperity and national security, but the Government’s lack of an industrial strategy means that the steel industry is lurching from crisis to crisis. We need a proper plan to decarbonise the sector, to boost business competitiveness and to use British steel in UK infrastructure projects, in order to safeguard the future of the steel industry, as Labour’s plans to buy, make and sell in Britain would do.
Labour would also invest up to £3 billion over the coming decade in greening the steel industry. We would work with steelmakers to secure a proud future for the industry to match the proud past and present of British steel communities. I urge the Government to do the same.
Lucy Frazer
I did not want to interrupt the hon. Lady, but I think she has gone outside the remit of the measures in the Bill. However, I would like to correct her on a point—[Interruption.] She was talking about the steel industry as a whole, when we are dealing with a provision that relates in particular to the power of the Secretary of State to call in trade remedies.
Lucy Frazer
The clause simplifies the way that technical updates are made to the UK’s tariff schedule. This measure inserts a new provision into the Taxation (Cross-border Trade) Act 2018 so that changes to the UK’s tariff schedule that do not alter the tariff duty rates applied to imported goods can be made by public notice rather than by secondary legislation, as is currently the case.
The clause will ensure that routine technical changes to tariff legislation, such as changing the codes used to classify goods or removing redundant codes, can be implemented more easily and quickly for those who refer to the legislation. Importantly, this measure also reduces the burden on parliamentary time in considering routine technical changes, while maintaining Parliament’s current levels of scrutiny of tariff duty rate changes.
In summary, the clause amends the Taxation (Cross-border Trade) Act 2018 so that technical changes can be made by public notice, thus ensuring simpler and quicker implementation of those changes to the UK’s tariff schedule.
Abena Oppong-Asare
This relatively minor change allows technical updates to the tariff schedule to be made by public notice rather than secondary legislation. Given that there are safeguards to ensure that substantive changes, such as varying the rate of import duty, continue to be made by regulation and are therefore subject to parliamentary oversight, we do not oppose the clause.
Question put and agreed to.
Clause 74 accordingly ordered to stand part of the Bill.
Clause 75
Restriction of use of rebated diesel and biofuels
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill (Second sitting)
Debate between Lucy Frazer and Abena Oppong-AsareTuesday 14th December 2021
(2 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 View all Finance Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)
The Financial Secretary to the Treasury (Lucy Frazer)
Clause 23 extends the time for payment of capital gains tax on property disposals from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. It will affect disposals that have a completion date on or after 27 October 2021. Since April 2020, UK resident persons disposing of UK residential property where capital gains tax is due have been required to notify and pay the tax within 30 days of their sale completing.
Most people are not affected by the requirement because the sale of main homes is exempt from capital gains tax through private residence relief. Non-UK resident persons have paid within 30 days since April 2015 for residential property and from April 2019 for disposals of both UK residential and non-residential property, even if they have no tax to pay. However, the Government recognise that having 30 days has not always allowed taxpayers enough time to settle their affairs. In recognition of that, the Government are extending the 30-day time limit to 60 days. The change was informed by taxpayer representations and comes in response to the Office of Tax Simplification report in May 2021, where increasing the time limit to 60 days was a key recommendation.
The measure allows taxpayers more time to produce and provide accurate figures, particularly in more complex cases, as well as sufficient time to engage with advisers. It also clarifies the rules for a UK resident person calculating the capital gains tax notionally chargeable for mixed-use properties. The changes made by clause 23 will, first, extend the time limit for capital gains tax payment on property disposals to 60 days following completion of the relevant disposal. Secondly, for UK residents, the changes clarify that when a gain arises in relation to a mixed-use property, only the portion of the gain that is the residential property gain is to be reported and paid within 60 days.
Increasing the time limit to 60 days will delay some revenue until later in the scorecard. That is because some capital gains tax payments will now be paid in a different tax year. The Office for Budget Responsibility expects the measure to move £80 million out of the scorecard to later years, with the majority incurred in 2021-22. The measure is expected to impact an estimated 75,000 individuals, trustees and personal representatives of deceased persons who sell or otherwise dispose of UK land and property each year.
In summary, those liable to pay capital gains tax will now have 60 days instead of 30 days to report and pay the tax due on UK land and property disposals. I commend the clause to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I want to say for the record that I believe Erith and Thamesmead is the best constituency. As the Minister has described, clause 23 relates to returns for the disposal of UK land. It extends the time limit for payment on property disposal from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. As the Minister has rightly pointed out, that will affect disposals with completion dates on or after 27 October 2021.
A reporting and payment period for selling or otherwise disposing of an interest in UK land was initially introduced to help reduce errors and increase compliance. The measure increased the time available for taxpayers to report their disposals. The increase intends to allow more time for taxpayers to produce and provide accurate figures, which will be particularly helpful in more complex cases, as well as assuring sufficient time to engage with advisers. The change also clarifies the calculation for the capital gains tax notionally chargeable for mixed-use properties.
We do not oppose the doubling of the time period for reporting and paying capital gains tax on UK property. However, we remain concerned about the lack of awareness surrounding the reporting and paying process. I would be grateful if the Minister could outline the measures the Government will take to help individuals selling properties to be aware of their obligations and what support the Government will offer individuals struggling to access the stand-alone digital system for reporting those transactions.
Lucy Frazer
I am grateful to the Labour Front-Bench team for not opposing the measure, which is indeed very sensible. Her Majesty’s Revenue and Customs regularly engages with all stakeholders and agents, who will therefore know about the change, but the hon. Lady makes an important point about communication, which we touched on this morning. I commend the clause to the Committee.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Cross-border group relief
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 24 makes changes to abolish cross-border group relief to ensure that loss relief is limited to UK losses, thereby providing relief only for companies that the UK can tax. It also amends the rules restricting the amount of losses foreign companies with a UK branch can surrender to UK companies, bringing companies resident in the European economic area in line with companies resident in the rest of the world.
Cross-border group relief provides UK companies with the ability to claim relief for the losses of their EEA resident group companies, even though the UK is unable to tax any profit made by those companies. The UK cross-border relief rules were introduced in 2006, owing to a 2005 decision by the Court of Justice of the European Union that found the previous rules to be incompatible with the EU freedom of establishment principle.
Under the current system, the UK Exchequer bears the cost of giving relief to UK companies for losses of EEA companies, as the latter pay no tax to the UK Government. The rules for restricting surrender of losses of a UK branch of a foreign company were also amended to be more favourable to EEA companies as a result of CJEU judgments. Favourable treatment for losses of EEA companies or UK branches of EEA companies is not right, and is inconsistent with our approach to the rest of the world, especially now that the UK has left the EU and is no longer bound by EU law.
Clause 24 will principally affect large, widely-held corporate groups, and will ensure both equal treatment of losses of companies in EEA and non-EEA countries and protection for the UK Exchequer against unfair outcomes. Historically, group relief was available only for losses of UK companies or UK branches, so the abolition of cross-border group relief and the alignment of branch rules is a reversion to a previously accepted position. Other countries generally do not give cross-border loss relief, so abolishing it would be very much in line with the international mainstream.
In summary, the change will allow the UK to depart from this historic position and more effectively pursue its fiscal policy objectives. I therefore commend the clause to the Committee.
Abena Oppong-Asare
As we have heard, clause 24 concerns cross-border group relief and is accompanied by schedule 4. The clause and schedule repeal legislation that provides for group relief for losses incurred outside the UK and amend legislation that provides for group relief for losses incurred in the UK permanent establishment of an EEA resident company.
Following the UK’s exit from the EU, the Government are bringing group relief relating to EEA resident companies into line with relief for non-UK companies resident elsewhere in the world. Claims involving companies established in the EEA are currently subject to more favourable rules in the UK relating to relief for non-UK losses and losses incurred by the UK permanent establishment of a foreign company.
These rules were introduced to give effect to the UK’s obligations as a member state of the EU. Having left the EU, the UK is no longer required to maintain those rules, and it is inconsistent to treat groups with EEA resident companies more favourably than those with companies resident elsewhere in the world. The clause therefore removes that inequality by aligning group relief rules for all non-UK companies.
The changes to legislation made by the clause broadly restore the group relief rules to what they were before separate rules were introduced for EEA resident companies in line with EU law. We do not oppose this measure, as it rightly removes an inequality between companies and contributes towards a level playing field.
Lucy Frazer
I thank the hon. Lady for indicating her support for clause 24, and I commend it to the Committee.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 25
Tonnage tax
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 26 makes a change to ensure that corporation tax rules for hybrids and other mismatches operate proportionately in relation to certain types of transparent entity. Following recommendations by the OECD, the UK was the first country to implement anti-hybrid rules in 2017. These rules tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how jurisdictions view financial instruments and entities.
With the benefit of three years’ experience of operating the rules, and with other countries following suit and introducing their own version of the rules, the Government launched a wide-ranging consultation on this area of legislation at Budget 2020. Following that consultation, several amendments were made to the rules in the Finance Act 2021, but the change that we are now considering, relating to transparent entities, was withdrawn from that Act to allow the Government additional time to consult stakeholders, so that they could ensure that the amendment had no unintended conse-quences.
We have had further engagement with stakeholders, and the amendment now provides for the specific change for transparent entities that the Government committed to making following last year’s consultation. The change made by the clause is technical and will impact multinational groups with a UK presence that are involved in transactions with certain types of entity that are seen as transparent, for tax purposes, in their home jurisdictions. Following the changes, this type of entity will be treated in the same way as partnerships in the relevant parts of the rules for hybrids and other mismatches. It is important that these rules are robust in tackling international tax planning, but also that they are not disproportionately harsh in their application.
Abena Oppong-Asare
The Minister clarified what the clause does. We do not oppose the clause.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 29
Insurance contracts: change in accounting standards
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.
Lucy Frazer
Clause 29 introduces a power to lay regulations before Parliament in connection with the new international accountancy standard for insurance contracts, known as IFRS 17, introduced by the International Financing Reporting Standard Foundation. These regulations will allow the Government to spread the transitional impact of IFRS 17 for tax purposes, and to revoke the requirement for life insurers writing basic life assurance and general annuity business to spread their acquisition expenses over seven years for tax purposes. The corporation tax liabilities of insurers are based on their accounting profit. IFRS 17 will apply to companies that prepare their accounts under international accounting standards and is expected to become mandatory for accounting periods beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board.
Depending on the types of insurance business written, adoption of IFRS 17 will create a large, one-off transitional accounting profit or loss for many insurers. The Government expect that spreading these one-off transitional profits and losses for tax purposes will greatly reduce volatility in Exchequer receipts and should also help to mitigate the cash flow and regulatory impacts of the accounting change. This will support the long-term stability of the insurance sector in the UK and contribute to the UK maintaining its position as a leading financial services centre.
The adoption of IFRS 17 will also make it more complex for life insurers writing basic life assurance and general annuity business to undertake the necessary calculations to spread their acquisition expenses over seven years for tax purposes, as currently required. Additionally, commercial changes in the life insurance market mean that the need for this requirement has reduced in recent years. Removing it for all life insurers writing basic life assurance and general annuity business, and instead following accounting treatment for tax purposes, will be a welcome simplification. The details of the final legislation will be informed by a consultation that was published alongside the “Tax Administration and Maintenance” Command Paper on 30 November.
The clause will allow the Government to respond to the potentially large and one-off tax implications caused by the adoption of the new international standard for insurance contracts, IFRS 17. I therefore recommend that the clause and schedule 5 stand part of the Bill.
Abena Oppong-Asare
As we have heard, clause 29 sits alongside schedule 5 and refers to insurance contracts and changes in accounting standards. As the Minister has mentioned, the clause has an enabling power that will allow the Government to make provisions in secondary legislation in connection with international financial reporting standard 17, and to revoke the requirement for all life insurance companies to spread acquisition costs over seven years for tax purposes.
The corporation tax liabilities of insurers are based on their accounting profit, and many insurers prepare their accounts under international accounting standards. The new international accounting standard for insurance contracts, IFRS 17, is expected to become mandatory for periods of account beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board. IFRS 17 will affect the timing of recognition of insurers’ profits and losses, and its adoption will create transitional accounting profits or losses, which we understand may have significant regulatory consequences. We recognise that the Government will need powers to be able to deal with the tax implications of IFRS 17.
The removal of the requirement for all life insurance companies to spread their acquisition costs over seven years for tax purposes is a simplification that has been allowed by IFRS 17. We welcome the simplification of tax arrangements and do not oppose the clause, but can the Minister tell us what provision will be put in place for insurers, for whom the change in accounting standards could cause a transitional administrative burden?
Lucy Frazer
I thank the hon. Member for her question, but the whole purpose of the clause, which will allow costs to be spread over a number of years, is to make things easier for insurers. I am glad that she is satisfied that the clause is sensible, and I am very grateful for her support for this provision. I ask that the clause stand part of the Bill.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 30
Deductions allowance in connection with onerous or impaired leases
Question proposed, That the clause stand part of the Bill.
The changes made by clause 30 will ensure that companies in financial distress continue to benefit from full relief for carried-forward losses that offset accounting profits arising from lease negotiations, regardless of the accounting standard they adopt. The clause introduces a technical amendment to ensure that corporation tax loss relief rules work as intended, ensuring that companies in financial distress can access relief for their carried-forward losses.
Abena Oppong-Asare
Clause 30 concerns deductions allowance in connection with onerous or impaired leases. The clause amends sections of the Corporation Tax Act 2010 to ensure that the legislation continues to work as intended. It does so by continuing to provide an exemption from the loss reform rules for companies in connection with onerous or impaired leases in specific circumstances. As the Minister said, the measure enables such companies to obtain full relief for carried-forward losses that offset profits arising from lease renegotiations where they adopt international financial reporting standard 16.
Loss reform was introduced in section 18 of schedule 4 to the Finance Act 2017, and had effect from 1 April 2017. The reform made two main changes. It increased a company’s flexibility to offset carried-forward losses either against the company’s own total profits in latter periods or in form of a group relief in a later period. Additionally, it limited the amount of profit against which carried-forward losses can be set. Each group or a company that is not part of a group has an annual deductions allowance of £5 million in profit. Carried-forward losses can be set against that amount, which is restricted to a maximum of 50% of a company’s total profits for the period. The restriction to carried-forward losses was extended to include corporate capital losses with effect from 1 April 2020. Having reviewed the clause, the Opposition do not oppose it.
Lucy Frazer
I am grateful for the fact that the Opposition do not intend to oppose the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Provision in connection with the Dormant Assets Act 2022
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
The Committee will be disappointed to learn that this is probably the last clause that we will deal with today. It introduces schedule 6, which supports the expansion of the dormant assets scheme to a wider range of assets. The clause ensures that where an asset is transferred into the dormant asset scheme and an individual later makes a successful claim to the ownership of that asset, they are in the same position for capital gains tax purposes that they would have been in without the scheme.
The dormant asset scheme enables funds from dormant bank and building society accounts to be channelled towards social and environmental initiatives. The scheme allows dormant funds to be unlocked for good causes, while protecting the original asset owner’s legal right to reclaim the amount that would have been paid to them had a transfer into the scheme not occurred.
In 2021, following a consultation, the Government announced their intention to expand the scheme to include assets from the pensions, insurance, investments and securities sectors. The process of transferring the assets into the scheme could, in certain cases, qualify as a disposal for CGT purposes, resulting in neither a gain nor a loss. As the asset owner cannot be located and does not know that the transfer has occurred, it is not appropriate or feasible for the tax to be paid by the individual at the point of transfer to the scheme, or for a notice of a loss to be made. The change made by the scheme addresses that by ensuring that a CGT charge arises only where a person comes forward to claim the asset. That ensures that the individual remains in the same position for tax purposes that they would have been in had the asset not been transferred into the dormant asset scheme.
Where the asset had previously been held in an individual savings account, changes made by the schedule ensure that no income or CGT arises when the asset is reclaimed. That ensures that savers in ISAs are not disadvantaged by their accounts being transferred into the scheme. The scheme also updates references in the existing legislation to ensure that it reflects the widest scheme created by the Dormant Assets Bill.
The schedule will commence only on the making of a Treasury order, because the Dormant Assets Bill is not yet law. The intention is to lay the necessary commencement order before Parliament when that Bill becomes law. For that reason, the schedule contains time-limited powers that allow the Treasury to make changes by secondary legislation if changes to the Dormant Assets Bill result in additional tax issues. The Government believe that the provisions strike the right balance between supporting good causes and taxpayer fairness.
Abena Oppong-Asare
As we have heard, clause 31 and schedule 6 concern the Dormant Assets Bill. The changes broadly ensure that individuals remain in the same position for tax purposes as they would have done had the assets not been transferred into the dormant assets scheme. Overall, we do not oppose the measure, but we are aware that the Chartered Institute of Taxation has concerns about the availability of accessible guidance to those making a claim under the dormant assets scheme who may be unaware of the tax consequences of their actions. Will the Minister clarify when guidance will be issued?
Lucy Frazer
I am grateful for the hon. Member’s indication that the Opposition will not oppose this measure. HMRC does generally provide guidance, and I am very happy to update the hon. Member on any guidance on this issue.
Question put and agreed to.
Clause 31 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Finance (No. 2) Bill (Second sitting)
Debate between Lucy Frazer and Abena Oppong-AsareTuesday 14th December 2021
(2 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 View all Finance Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)
The Financial Secretary to the Treasury (Lucy Frazer)
Clause 23 extends the time for payment of capital gains tax on property disposals from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. It will affect disposals that have a completion date on or after 27 October 2021. Since April 2020, UK resident persons disposing of UK residential property where capital gains tax is due have been required to notify and pay the tax within 30 days of their sale completing.
Most people are not affected by the requirement because the sale of main homes is exempt from capital gains tax through private residence relief. Non-UK resident persons have paid within 30 days since April 2015 for residential property and from April 2019 for disposals of both UK residential and non-residential property, even if they have no tax to pay. However, the Government recognise that having 30 days has not always allowed taxpayers enough time to settle their affairs. In recognition of that, the Government are extending the 30-day time limit to 60 days. The change was informed by taxpayer representations and comes in response to the Office of Tax Simplification report in May 2021, where increasing the time limit to 60 days was a key recommendation.
The measure allows taxpayers more time to produce and provide accurate figures, particularly in more complex cases, as well as sufficient time to engage with advisers. It also clarifies the rules for a UK resident person calculating the capital gains tax notionally chargeable for mixed-use properties. The changes made by clause 23 will, first, extend the time limit for capital gains tax payment on property disposals to 60 days following completion of the relevant disposal. Secondly, for UK residents, the changes clarify that when a gain arises in relation to a mixed-use property, only the portion of the gain that is the residential property gain is to be reported and paid within 60 days.
Increasing the time limit to 60 days will delay some revenue until later in the scorecard. That is because some capital gains tax payments will now be paid in a different tax year. The Office for Budget Responsibility expects the measure to move £80 million out of the scorecard to later years, with the majority incurred in 2021-22. The measure is expected to impact an estimated 75,000 individuals, trustees and personal representatives of deceased persons who sell or otherwise dispose of UK land and property each year.
In summary, those liable to pay capital gains tax will now have 60 days instead of 30 days to report and pay the tax due on UK land and property disposals. I commend the clause to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I want to say for the record that I believe Erith and Thamesmead is the best constituency. As the Minister has described, clause 23 relates to returns for the disposal of UK land. It extends the time limit for payment on property disposal from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. As the Minister has rightly pointed out, that will affect disposals with completion dates on or after 27 October 2021.
A reporting and payment period for selling or otherwise disposing of an interest in UK land was initially introduced to help reduce errors and increase compliance. The measure increased the time available for taxpayers to report their disposals. The increase intends to allow more time for taxpayers to produce and provide accurate figures, which will be particularly helpful in more complex cases, as well as assuring sufficient time to engage with advisers. The change also clarifies the calculation for the capital gains tax notionally chargeable for mixed-use properties.
We do not oppose the doubling of the time period for reporting and paying capital gains tax on UK property. However, we remain concerned about the lack of awareness surrounding the reporting and paying process. I would be grateful if the Minister could outline the measures the Government will take to help individuals selling properties to be aware of their obligations and what support the Government will offer individuals struggling to access the stand-alone digital system for reporting those transactions.
Lucy Frazer
I am grateful to the Labour Front-Bench team for not opposing the measure, which is indeed very sensible. Her Majesty’s Revenue and Customs regularly engages with all stakeholders and agents, who will therefore know about the change, but the hon. Lady makes an important point about communication, which we touched on this morning. I commend the clause to the Committee.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Cross-border group relief
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 24 makes changes to abolish cross-border group relief to ensure that loss relief is limited to UK losses, thereby providing relief only for companies that the UK can tax. It also amends the rules restricting the amount of losses foreign companies with a UK branch can surrender to UK companies, bringing companies resident in the European economic area in line with companies resident in the rest of the world.
Cross-border group relief provides UK companies with the ability to claim relief for the losses of their EEA resident group companies, even though the UK is unable to tax any profit made by those companies. The UK cross-border relief rules were introduced in 2006, owing to a 2005 decision by the Court of Justice of the European Union that found the previous rules to be incompatible with the EU freedom of establishment principle.
Under the current system, the UK Exchequer bears the cost of giving relief to UK companies for losses of EEA companies, as the latter pay no tax to the UK Government. The rules for restricting surrender of losses of a UK branch of a foreign company were also amended to be more favourable to EEA companies as a result of CJEU judgments. Favourable treatment for losses of EEA companies or UK branches of EEA companies is not right, and is inconsistent with our approach to the rest of the world, especially now that the UK has left the EU and is no longer bound by EU law.
Clause 24 will principally affect large, widely-held corporate groups, and will ensure both equal treatment of losses of companies in EEA and non-EEA countries and protection for the UK Exchequer against unfair outcomes. Historically, group relief was available only for losses of UK companies or UK branches, so the abolition of cross-border group relief and the alignment of branch rules is a reversion to a previously accepted position. Other countries generally do not give cross-border loss relief, so abolishing it would be very much in line with the international mainstream.
In summary, the change will allow the UK to depart from this historic position and more effectively pursue its fiscal policy objectives. I therefore commend the clause to the Committee.
Abena Oppong-Asare
As we have heard, clause 24 concerns cross-border group relief and is accompanied by schedule 4. The clause and schedule repeal legislation that provides for group relief for losses incurred outside the UK and amend legislation that provides for group relief for losses incurred in the UK permanent establishment of an EEA resident company.
Following the UK’s exit from the EU, the Government are bringing group relief relating to EEA resident companies into line with relief for non-UK companies resident elsewhere in the world. Claims involving companies established in the EEA are currently subject to more favourable rules in the UK relating to relief for non-UK losses and losses incurred by the UK permanent establishment of a foreign company.
These rules were introduced to give effect to the UK’s obligations as a member state of the EU. Having left the EU, the UK is no longer required to maintain those rules, and it is inconsistent to treat groups with EEA resident companies more favourably than those with companies resident elsewhere in the world. The clause therefore removes that inequality by aligning group relief rules for all non-UK companies.
The changes to legislation made by the clause broadly restore the group relief rules to what they were before separate rules were introduced for EEA resident companies in line with EU law. We do not oppose this measure, as it rightly removes an inequality between companies and contributes towards a level playing field.
Lucy Frazer
Clause 26 makes a change to ensure that corporation tax rules for hybrids and other mismatches operate proportionately in relation to certain types of transparent entity. Following recommendations by the OECD, the UK was the first country to implement anti-hybrid rules in 2017. These rules tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how jurisdictions view financial instruments and entities.
With the benefit of three years’ experience of operating the rules, and with other countries following suit and introducing their own version of the rules, the Government launched a wide-ranging consultation on this area of legislation at Budget 2020. Following that consultation, several amendments were made to the rules in the Finance Act 2021, but the change that we are now considering, relating to transparent entities, was withdrawn from that Bill to allow the Government additional time to consult stakeholders, so that they could ensure that the amendment had no unintended conse-quences.
We have had further engagement with stakeholders, and the amendment now provides for the specific change for transparent entities that the Government committed to making following last year’s consultation. The change made by the clause is technical and will impact multinational groups with a UK presence that are involved in transactions with certain types of entity that are seen as transparent, for tax purposes, in their home jurisdictions. Following the changes, this type of entity will be treated in the same way as partnerships in the relevant parts of the rules for hybrids and other mismatches. It is important that these rules are robust in tackling international tax planning, but also that they are not disproportionately harsh in their application.
Abena Oppong-Asare
The Minister clarified what the clause does. We do not oppose the clause.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 29
Insurance contracts: change in accounting standards
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.
Lucy Frazer
Clause 29 introduces a power to lay regulations before Parliament in connection with the new international accountancy standard for insurance contracts, known as IFRS 17, introduced by the International Financing Reporting Standard Foundation. These regulations will allow the Government to spread the transitional impact of IFRS 17 for tax purposes, and to revoke the requirement for life insurers writing basic life assurance and general annuity business to spread their acquisition expenses over seven years for tax purposes. The corporation tax liabilities of insurers are based on their accounting profit. IFRS 17 will apply to companies that prepare their accounts under international accounting standards and is expected to become mandatory for accounting periods beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board.
Depending on the types of insurance business written, adoption of IFRS 17 will create a large, one-off transitional accounting profit or loss for many insurers. The Government expect that spreading these one-off transitional profits and losses for tax purposes will greatly reduce volatility in Exchequer receipts and should also help to mitigate the cash flow and regulatory impacts of the accounting change. This will support the long-term stability of the insurance sector in the UK and contribute to the UK maintaining its position as a leading financial services centre.
The adoption of IFRS 17 will also make it more complex for life insurers writing basic life assurance and general annuity business to undertake the necessary calculations to spread their acquisition expenses over seven years for tax purposes, as currently required. Additionally, commercial changes in the life insurance market mean that the need for this requirement has reduced in recent years. Removing it for all life insurers writing basic life assurance and general annuity business, and instead following accounting treatment for tax purposes, will be a welcome simplification. The details of the final legislation will be informed by a consultation that was published alongside the “Tax Administration and Maintenance” Command Paper on 30 November.
The clause will allow the Government to respond to the potentially large and one-off tax implications caused by the adoption of the new international standard for insurance contracts, IFRS 17. I therefore recommend that the clause and schedule 5 stand part of the Bill.
Abena Oppong-Asare
As we have heard, clause 29 sits alongside schedule 5 and refers to insurance contracts and changes in accounting standards. As the Minister has mentioned, the clause has an enabling power that will allow the Government to make provisions in secondary legislation in connection with international financial reporting standard 17, and to revoke the requirement for all life insurance companies to spread acquisition costs over seven years for tax purposes.
The corporation tax liabilities of insurers are based on their accounting profit, and many insurers prepare their accounts under international accounting standards. The new international accounting standard for insurance contracts, IFRS 17, is expected to become mandatory for periods of account beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board. IFRS 17 will affect the timing of recognition of insurers’ profits and losses, and its adoption will create transitional accounting profits or losses, which we understand may have significant regulatory consequences. We recognise that the Government will need powers to be able to deal with the tax implications of IFRS 17.
The removal of the requirement for all life insurance companies to spread their acquisition costs over seven years for tax purposes is a simplification that has been allowed by IFRS 17. We welcome the simplification of tax arrangements and do not oppose the clause, but can the Minister tell us what provision will be put in place for insurers, for whom the change in accounting standards could cause a transitional administrative burden?
Lucy Frazer
I thank the hon. Member for her question, but the whole purpose of the clause, which will allow costs to be spread over a number of years, is to make things easier for insurers. I am glad that she is satisfied that the clause is sensible, and I am very grateful for her support for this provision. I ask that the clause stand part of the Bill.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 30
Deductions allowance in connection with onerous or impaired leases
Question proposed, That the clause stand part of the Bill.
Abena Oppong-Asare
Clause 30 concerns deductions allowance in connection with onerous or impaired leases. The clause amends sections of the Corporation Tax Act 2010 to ensure that the legislation continues to work as intended. It does so by continuing to provide an exemption from the loss reform rules for companies in connection with onerous or impaired leases in specific circumstances. As the Minister said, the measure enables such companies to obtain full relief for carried-forward losses that offset profits arising from lease renegotiations where they adopt international financial reporting standard 16.
Loss reform was introduced in section 18 of schedule 4 to the Finance Act 2017, and had effect from 1 April 2017. The reform made two main changes. It increased a company’s flexibility to offset carried-forward losses either against the company’s own total profits in latter periods or in form of a group relief in a later period. Additionally, it limited the amount of profit against which carried-forward losses can be set. Each group or a company that is not part of a group has an annual deductions allowance of £5 million in profit. Carried-forward losses can be set against that amount, which is restricted to a maximum of 50% of a company’s total profits for the period. The restriction to carried-forward losses was extended to include corporate capital losses with effect from 1 April 2020. Having reviewed the clause, the Opposition do not oppose it.
Lucy Frazer
I am grateful for the fact that the Opposition do not intend to oppose the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Provision in connection with the Dormant Assets Act 2022
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
The Committee will be disappointed to learn that this is probably the last clause that we will deal with today. It introduces schedule 6, which supports the expansion of the dormant assets scheme to a wider range of assets. The clause ensures that where an asset is transferred into the dormant asset scheme and an individual later makes a successful claim to the ownership of that asset, they are in the same position for capital gains tax purposes that they would have been in without the scheme.
The dormant asset scheme enables funds from dormant bank and building society accounts to be channelled towards social and environmental initiatives. The scheme allows dormant funds to be unlocked for good causes, while protecting the original asset owner’s legal right to reclaim the amount that would have been paid to them had a transfer into the scheme not occurred.
In 2021, following a consultation, the Government announced their intention to expand the scheme to include assets from the pensions, insurance, investments and securities sectors. The process of transferring the assets into the scheme could, in certain cases, qualify as a disposal for CGT purposes, resulting in neither a gain nor a loss. As the asset owner cannot be located and does not know that the transfer has occurred, it is not appropriate or feasible for the tax to be paid by the individual at the point of transfer to the scheme, or for a notice of a loss to be made. The change made by the scheme addresses that by ensuring that a CGT charge arises only where a person comes forward to claim the asset. That ensures that the individual remains in the same position for tax purposes that they would have been in had the asset not been transferred into the dormant asset scheme.
Where the asset had previously been held in an individual savings account, changes made by the schedule ensure that no income or CGT arises when the asset is reclaimed. That ensures that savers in ISAs are not disadvantaged by their accounts being transferred into the scheme. The scheme also updates references in the existing legislation to ensure that it reflects the widest scheme created by the Dormant Assets Bill.
The schedule will commence only on the making of a Treasury order, because the Dormant Assets Bill is not yet law. The intention is to lay the necessary commencement order before Parliament when that Bill becomes law. For that reason, the schedule contains time-limited powers that allow the Treasury to make changes by secondary legislation if changes to the Dormant Assets Bill result in additional tax issues. The Government believe that the provisions strike the right balance between supporting good causes and taxpayer fairness.
Abena Oppong-Asare
As we have heard, clause 31 and schedule 6 concern the Dormant Assets Bill. The changes broadly ensure that individuals remain in the same position for tax purposes as they would have done had the assets not been transferred into the dormant assets scheme. Overall, we do not oppose the measure, but we are aware that the Chartered Institute of Taxation has concerns about the availability of accessible guidance to those making a claim under the dormant assets scheme who may be unaware of the tax consequences of their actions. Will the Minister clarify when guidance will be issued?
Lucy Frazer
I am grateful for the hon. Member’s indication that the Opposition will not oppose this measure. HMRC does generally provide guidance, and I am very happy to update the hon. Member on any guidance on this issue.
Question put and agreed to.
Clause 31 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Oral Answers to Questions
Debate between Lucy Frazer and Abena Oppong-Asare(3 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lucy Frazer
I am very pleased that my hon. Friend’s constituency has benefited and is taking part in the progress towards net zero. I should be happy to visit her there.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
In his Budget statement last week, the Chancellor did not use the word “climate'” once. On the biggest issue of our time, he had nothing to say.
As well as deciding to cut domestic air passenger duty, which will lead to 400,000 more domestic flights a year, the Chancellor failed to invest in public transport. He is subsidising those who can already afford to take domestic flights, while putting up taxes on ordinary people. How on earth does he think that this sends the right message as the COP26 summit begins? Is not the reality that he is flying in completely the wrong direction when it comes to tackling climate change?
Lucy Frazer
I am sure the hon. Lady will have seen the net zero strategy, which was published the week before the Budget. I am sure she will also know about the significant progress that the Chancellor has made on bringing other countries together to increase the international effort on climate finance. Yesterday, we set out our commitment to increase our international climate finance by £1 billion by 2025, on top of the £11 billion that we have already announced. The Chancellor, together with other Finance Ministers, is making sure that we help to reduce to net zero emissions through a number of measures. I am very happy to—