Finance (No. 2) Bill
(Except clauses 1 to 4, 12 and 13, and 19)
Debate between Nigel Huddleston and Tulip Siddiq(2 years, 3 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Tulip Siddiq
We believe that individuals or companies generating wealth in the UK should pay their fair share, so we are in complete support of the aims of this clause. However, we have heard concerns raised by the Chartered Institute of Taxation about the effectiveness of the Government’s proposals and I would be interested to hear the Minister’s views on those concerns.
First, the Chartered Institute of Taxation has argued that the clause adds complexity to the tax system, because it uses income tax legislation to tackle perceived corporate tax avoidance. Clause 22 extends provision within the Income Tax Act 2007 to cover avoidance of any tax through transfer made by a closely held company. Could the Minister explain the thinking behind the Government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?
Secondly, the Chartered Institute of Taxation made the case that the Government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?
Thirdly, the Chartered Institute of Taxation has warned that these changes could damage the UK’s international competitiveness, because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.
What does the Minister make of those concerns? What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?
My final point is that the changes introduced by clause 22 appear to be retrospective, as no date is specified whereafter transactions are affected; the clause says only that income arising after April 2024 is caught by the regime. Can the Minister confirm whether that is the case? Will commercial transactions that were carried out many years ago, but from which income arises after April 2024, still be caught?
Nigel Huddleston
I thank the hon. Member for Hampstead and Kilburn for her comments. We very much appreciate the input that we have received from stakeholders and interested parties, including the Chartered Institute of Taxation. Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.
I will respond to the hon. Lady’s points about the changes that apply to companies when the TOAA regime is primarily about individuals. The transfer of assets abroad legislation is an anti-avoidance provision aimed at preventing individuals from avoiding a tax charge by transferring an asset to a person overseas while still being able to enjoy the income of that asset in some way. It would be easy for an individual to sidestep the legislation by transferring such an asset to a company that they controlled before the company then made the transfer abroad. The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended.
On the point about the legislation being broad, let us not forget that it is being brought in in response to the Supreme Court judgment; we are trying to make sure that it acts as intended throughout. The intention of the legislation is to put the situation involving transfers by companies back to how HMRC considered it operated before the Supreme Court decision. The transfer of assets abroad legislation aims to stop that tax avoidance.
It is also important to remember that the legislation does not bring a tax charge when the transfer is for genuine commercial reasons or when tax avoidance was not the purpose of the transfer. The new legislation gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course.
On the retroactive criticism, the clause has retroactive effect because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.
I will not go into the weeds on HMRC’s determination process—further guidance will be given—but HMRC will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met. As I said, HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.
I hope that I have given the hon. Member for Hampstead and Kilburn some assurance. We appreciate the concerns that have raised by key stakeholders, and further information and guidance will be forthcoming.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Minor VAT amendments
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.
The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.
Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.
Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.
Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.
Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.
The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.
Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.
Tulip Siddiq
The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?
We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.
We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?
Drew Hendry
On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.
However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.
My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?
Nigel Huddleston
Clause 24 makes further provision for collective money purchase arrangements. CMP arrangements are a new type of pension that have the benefit of pooling individuals’ pension pots to provide better incomes in retirement while limiting the liability of employers.
These changes will enable the Government to authorise the transfer of benefits to a member’s beneficiaries, such as their dependants, in the unlikely event that a member dies while a CMP arrangement is being wound up. That will ensure that such transfers do not incur an unauthorised payment charge of 55%, and it will deliver the Government’s commitment to provide the correct tax outcome for CMP arrangements.
The Pension Schemes Act 2021 introduced legislation to allow collective money purchase schemes to operate in the United Kingdom. This measure authorises the transfer of survivor benefits in collective money purchase pension schemes. This will ensure that Royal Mail Group, the first provider of a collective money purchase pension scheme, can launch its scheme as planned.
It is a complicated title, but with a simple purpose. As a result of these changes, an employee of Royal Mail will be able to sign on to a CMP, with all the benefits, without the risk of transferring survivor benefits being put through as unauthorised transactions. I therefore commend the clause to the Committee.
Tulip Siddiq
This clause is so uncontroversial that we give it our full support. For the first time, I agree with everything the Minister has said, and the Committee will be happy to know that I have no further questions for him.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Interpretation
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I will be very brief, because the clause is fairly straightforward. It provides for the use of abbreviations for a variety of Acts. For example, it provides for the use of “CTA 2009” as an abbreviation for the Corporation Tax Act 2009. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Short title
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill
Debate between Nigel Huddleston and Tulip SiddiqTuesday 21st May 2024
(2 years, 3 months ago)
Public Bill CommitteesRead Full debate Finance Act (No. 2) 2024 2023-24 View all Finance Act (No. 2) 2024 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 21 May 2024 - (21 May 2024)
Tulip Siddiq
We believe that individuals or companies generating wealth in the UK should pay their fair share, so we are in complete support of the aims of this clause. However, we have heard concerns raised by the Chartered Institute of Taxation about the effectiveness of the Government’s proposals and I would be interested to hear the Minister’s views on those concerns.
First, the Chartered Institute of Taxation has argued that the clause adds complexity to the tax system, because it uses income tax legislation to tackle perceived corporate tax avoidance. Clause 22 extends provision within the Income Tax Act 2007 to cover avoidance of any tax through transfer made by a closely held company. Could the Minister explain the thinking behind the Government’s decision to tackle corporate tax avoidance in this way, rather than through the corporate tax regime? Does he agree with the Chartered Institute of Taxation that it could add unnecessary complication to the tax system?
Secondly, the Chartered Institute of Taxation made the case that the Government’s position that any participator in a company is deemed to be involved in a company’s decision to move assets abroad is unfair. For example, a company may have several minority shareholders who have no participation in the running of the company. What is the Minister’s assessment of the case made by the Chartered Institute of Taxation that only major shareholders, directors and shadow directors should be assumed to be involved for the purposes of this legislation?
Thirdly, the Chartered Institute of Taxation has warned that these changes could damage the UK’s international competitiveness, because the test as set out in the legislation leaves too much discretion to HMRC, which compounds uncertainty for businesses. For example, a UK holding company that provides a loan to an offshore subsidiary that in turn generates profits could be caught by the changes, despite that being a routine transaction. The Chartered Institute of Taxation argues that that could lead to an increased number of inquiries and appeals to the tax tribunals and could seriously undermine the UK’s attractiveness for international headquarters.
What does the Minister make of those concerns? What steps will HMRC take to ensure that involvement and objection defences under the clause are not ambiguous or uncertain, and to ensure that those charges do not prove to be increased excessively for taxpayers?
My final point is that the changes introduced by clause 22 appear to be retrospective, as no date is specified whereafter transactions are affected; the clause says only that income arising after April 2024 is caught by the regime. Can the Minister confirm whether that is the case? Will commercial transactions that were carried out many years ago, but from which income arises after April 2024, still be caught?
Nigel Huddleston
I thank the hon. Member for Hampstead and Kilburn for her comments. We very much appreciate the input that we have received from stakeholders and interested parties, including the Chartered Institute of Taxation. Some of those points are about broader issues around the TOAA regime, rather than specific to this legislation, but we do hear what they have to say.
I will respond to the hon. Lady’s points about the changes that apply to companies when the TOAA regime is primarily about individuals. The transfer of assets abroad legislation is an anti-avoidance provision aimed at preventing individuals from avoiding a tax charge by transferring an asset to a person overseas while still being able to enjoy the income of that asset in some way. It would be easy for an individual to sidestep the legislation by transferring such an asset to a company that they controlled before the company then made the transfer abroad. The legislative changes are aimed at preventing that situation and ensuring that the TOAA rules are applied as intended.
On the point about the legislation being broad, let us not forget that it is being brought in in response to the Supreme Court judgment; we are trying to make sure that it acts as intended throughout. The intention of the legislation is to put the situation involving transfers by companies back to how HMRC considered it operated before the Supreme Court decision. The transfer of assets abroad legislation aims to stop that tax avoidance.
It is also important to remember that the legislation does not bring a tax charge when the transfer is for genuine commercial reasons or when tax avoidance was not the purpose of the transfer. The new legislation gives individuals the opportunity to exclude themselves from the tax charge if certain conditions are met. We respectfully disagree with the CIOT on some of those conditions. We have outlined some of those, and HMRC will produce further guidance in due course.
On the retroactive criticism, the clause has retroactive effect because if it did not, it would have allowed individuals to abuse the loophole between the date of the Fisher judgment and the enactment of the legislation. Again, we do not believe that there will be a significant increase in complexity. The purpose behind the legislation is primarily to ensure that the regime acts as intended.
I will not go into the weeds on HMRC’s determination process—further guidance will be given—but HMRC will review the facts of a case to judge whether someone is directly or indirectly involved in the decision making of a company. It will accept evidence that shows whether someone is involved or not. However, any arrangements that are put in place purely to be used as evidence that an individual is not involved in the decision making of a company will be disregarded and a charge will be levied if the other conditions are met. As I said, HMRC will issue guidance on how it will approach the matter in due course. Decisions will be made based on the facts of each individual case.
I hope that I have given the hon. Member for Hampstead and Kilburn some assurance. We appreciate the concerns that have raised by key stakeholders, and further information and guidance will be forthcoming.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Minor VAT amendments
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.
The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.
Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.
Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.
Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.
Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.
The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.
Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.
Tulip Siddiq
The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?
We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.
We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?
Drew Hendry
On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.
However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.
My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?
Nigel Huddleston
Clause 24 makes further provision for collective money purchase arrangements. CMP arrangements are a new type of pension that have the benefit of pooling individuals’ pension pots to provide better incomes in retirement while limiting the liability of employers.
These changes will enable the Government to authorise the transfer of benefits to a member’s beneficiaries, such as their dependants, in the unlikely event that a member dies while a CMP arrangement is being wound up. That will ensure that such transfers do not incur an unauthorised payment charge of 55%, and it will deliver the Government’s commitment to provide the correct tax outcome for CMP arrangements.
The Pension Schemes Act 2021 introduced legislation to allow collective money purchase schemes to operate in the United Kingdom. This measure authorises the transfer of survivor benefits in collective money purchase pension schemes. This will ensure that Royal Mail Group, the first provider of a collective money purchase pension scheme, can launch its scheme as planned.
It is a complicated title, but with a simple purpose. As a result of these changes, an employee of Royal Mail will be able to sign on to a CMP, with all the benefits, without the risk of transferring survivor benefits being put through as unauthorised transactions. I therefore commend the clause to the Committee.
Tulip Siddiq
This clause is so uncontroversial that we give it our full support. For the first time, I agree with everything the Minister has said, and the Committee will be happy to know that I have no further questions for him.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Interpretation
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I will be very brief, because the clause is fairly straightforward. It provides for the use of abbreviations for a variety of Acts. For example, it provides for the use of “CTA 2009” as an abbreviation for the Corporation Tax Act 2009. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Short title
Question proposed, That the clause stand part of the Bill.
Finance Bill (First sitting)
Debate between Nigel Huddleston and Tulip SiddiqTuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
Nigel Huddleston
Clause 11 extends the sunset clause for the enterprise investment scheme and the venture capital trust scheme to April 2035. The schemes will continue to support thousands of early-stage, innovative companies each year and ensure that they have access to the investment they need to develop and grow.
The enterprise investment scheme and venture capital trust scheme provide a range of generous tax reliefs to investors to encourage investment into higher risk, early-stage companies, which face the biggest challenges in accessing finance. This will encourage entrepreneurship in the future. The schemes are world-leading in terms of their generosity, with more than £3.4 billion of funds raised across the two schemes in the tax year 2021-22 alone. This extension will ensure that the schemes continue to support the growth of early-stage companies.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under you, Mr. Paisley. As the Minister has set out, clause 11 extends the availability of the enterprise investment and venture capital trust tax reliefs to shares issued by eligible companies and VCTs by 10 years to 2035. The Opposition welcome the Government’s long overdue decision to take action and extend the schemes, given that the original sunset clause of April 2025 was fast approaching.
Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms. We also know from the latest HMRC data that between 2021 and 2022, nearly 4,500 businesses accessed more than £2.3 billion of funds through the EIS scheme—the highest number since it was introduced. As the Minister will probably know, the ScaleUp Institute has described the relief as pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies.
It is worth noting that the 2025 sunset clause, at which point the schemes were due to be revived, was due to a request from the European Commission to ensure compliance with European Union state aid rules. Given the importance of ensuring that investors are able to plan years in advance when developing a forward pipeline of investments, the Government should have listened to business and tackled the investment uncertainty caused by this potential expiry date far sooner following our departure from the EU. Although people were concerned about the prospect of the schemes expiring, there are those in the VC community who saw the review triggered by the sunset clause as an opportunity to improve the operation of the EIS and VCT schemes, which remain extremely complex. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them.
I can confirm that the Labour party supports clause 11, which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups, but does the Minister acknowledge that we have an urgent need for a Government who listen to business early on, and who create the stable investment climate that we need to deliver growth in our economy, and who do not leave that until the last minute?
Nigel Huddleston
I am afraid that I respectfully disagree with the hon. Lady. We see clearly from feedback from the industry that it very much welcomes the changes. Actually, it is quite transparent throughout the Bill that we are backing business right across the UK. Richard Stone, chief executive of the Association of Investment Companies, has said:
“It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause…The extension…will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.”
The British Private Equity & Venture Capital Association has said:
“It is hugely positive that the Chancellor has EXTENDED THE EIS AND VCT SCHEMES until 2035.”
The changes were not subject to a formal consultation, but were part of engagement with industry that Treasury officials and Ministers conduct on an ongoing basis. We are listening to business all the time; we make appropriate changes all the time, and the measures in clause 11 prove exactly that point. The hon. Lady is trying to score political points, but in highlighting some of the scare tactics, she is proving exactly why business can be confident in this Government, and should be somewhat fearful of the Opposition.
The clause will ensure that the EIS and VCT schemes continue to support thousands of early-stage companies each year in raising the funding that they need to succeed. I therefore urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Relief for payments of compensation by government etc to companies
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I should probably explain to anybody wondering about the musical chairs that we have two Ministers here, because the clauses are split across ministerial responsibilities. I explain that for Members and anybody watching—the millions who, I am sure, are watching on television across the world.
Clause 12 is on a very important and newsworthy point, but it also shows that the matter that it deals with has received considerable attention for some time: it makes changes to ensure that all claimants of compensation from a range of Post Office schemes related to the Horizon IT scandal are treated similarly. It will align the tax treatment to ensure that claimants who chose to set themselves up as companies obtain tax relief comparable to that available for claimants set up as individuals.
Following the Horizon IT scandal, a number of schemes were set up to provide compensation to the individuals affected, and although most sub-postmasters are individuals, some set themselves up as corporate entities. Individuals have been exempted from paying income tax, national insurance contributions and capital gains tax on compensation that they received under the schemes that have been announced, which are being legislated for separately, but the Government are determined that postmasters affected by the Horizon IT scandal will receive the compensation that they deserve, regardless of how they arrange their business structure. The clause therefore exempts from corporation tax compensation payments made under the Post Office historical shortfall scheme, the group litigation order schemes, the suspension remuneration review and the Post Office process review scheme. The legislation will align the taxation of onward payments of compensation with that of compensation to individual recipients.
The clause will impact the relatively small proportion of compensation recipients who are structured as corporate entities, but to those impacted it is extremely meaningful. The approach taken in the legislation is consistent with tax principles and precedents, as well as the tax treatment of separate Post Office compensation schemes set up in response to the Horizon IT scandal.
Tulip Siddiq
I would like to spend a long time debating the claim that business is fearful of the Opposition, but I do not feel that this is the right time.
Tulip Siddiq
As we have heard, clause 13 extends the time limit within which employer companies have to notify HMRC that they have been granted EMI options from 92 days after the grant was made to 6 July following the end of the tax year in which they were granted. This change is designed to simplify the process, and so increase small businesses’ ability to benefit from recruiting and retaining staff. It is one of a number of measures that were called for in submissions to a 2021 consultation on the EMI scheme, which cited the overly complex process for notifying HMRC and the need to extend the notification period. We will not oppose the clause.
Nigel Huddleston
I thank the hon. Lady again for her contribution and support. There are many relatively small and highly technical changes that we are making through the Bill, and this is one of them. On paper, it can look somewhat technical and confusing, but it is really meaningful, and I appreciate the fact that the hon. Lady and Opposition Members acknowledge that. The clause supports small and medium-sized businesses in recruiting and retaining key talent by simplifying the process to grant EMI options. For the reasons we have outlined, I urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Provision in connection with abolition of the lifetime allowance charge
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 19 widens access to the growth market exemption—a relief from stamp duty and stamp duty reserve tax—so that it better supports SMEs and growth businesses to raise capital. It does that by lowering transaction costs, which will support our economy by boosting growth in innovative sectors. The relief will now be available to smaller, innovative growth markets, instead of being restricted to markets operated by large stock exchanges.
The growth market exemption was introduced in 2014 with the aim of boosting investor participation in equity growth markets and improving the conditions for growing companies to raise equity financing. Initially, three UK markets and one Irish market were able to access the exemption. Since then, another 10 markets across the EU and European economic area have applied for and gained access to the exemption, meaning that UK SMEs have greater access to capital.
Previously, in order to be recognised by HMRC as a qualifying growth market, markets that are referred to as “multilateral trading facilities” had to be operated by a “recognised stock exchange” such as the London or Aquis stock exchanges. Once that condition was met, markets also had to meet one of two additional conditions: either the majority of companies on the market had to have a market capitalisation of less than £170 million, or the market’s rules of admission had to require companies to demonstrate at least 20% compounded annual revenue or employment growth over the three years preceding their admission.
However, the requirements have not been updated since the exemption’s introduction in 2014, despite considerable developments in how markets are regulated. Investment firms that are not of the same size and scale as the large stock exchanges can run multilateral trading facilities that are recognised as small and medium-sized enterprise growth markets by the Financial Conduct Authority but, as a result of the current stamp taxes on shares legislation, are barred from accessing the growth market exemption.
The changes made by clause 19 allow multilateral trading facilities that are regulated by the Financial Conduct Authority and run by these smaller investment firms to access the growth market exemption, provided that they meet one of the two additional requirements. That will ensure fairness in the current application of the exemption and increased competition in the market, leading to greater choice for SMEs that are seeking to access finance. That will, in turn, boost growth in UK SMEs.
Clause 19 also updates the market capitalisation condition by increasing the level up to which a majority of companies listed on the exchange can be capitalised from £170 million to £450 million. That change reflects the modern market and demonstrates the Government’s commitment to helping innovative SMEs to grow.
Tulip Siddiq
As the Minister said, clause 19 amends the qualifying criteria to increase access to the growth market exemption relief on any stamp duty or stamp duty reserve tax that is otherwise owed on trades made in UK incorporated companies. The Government have stated that these proposals will update the growth market exemption eligibility to reflect the modern market, ensuring that there is greater fairness in the application of the tax relief and giving greater choice for businesses considering where to list their shares for trading.
We in the Opposition are hugely supportive of efforts to boost our ailing capital markets and are committed to delivering a world-leading listings regime in the UK, building on recent regulatory reforms and ensuring that our scale-ups can access the equity finance they need. We are supportive of the objectives of the clause, but questions remain about what impact the changes will have in practice.
For example, it would be helpful to understand from the Minister how many additional growth markets will potentially be eligible for a stamp duty exemption due to the increase in the capitalisation threshold from £170 million to £450 million. By far and away the largest growth market the exemption applies to is the London stock exchange’s alternative investment market, which, according to the latest data, had an average market capitalisation of £126 million in the summer of 2022. Given that the largest and most established market to benefit from the exemption appears to be well under the original threshold, it remains unclear what difference the change will make. What are the Minister’s views on that?
We do not oppose clause 19, but it is a minor tweak that will not deliver the sea change in the availability of growth capital that British businesses urgently need. Does the Minister plan to do more to increase the availability of growth capital for our businesses?
Nigel Huddleston
I thank the hon. Lady for her comments and questions. Any market that meets the requirements will be able to apply to HMRC to take advantage of the exemptions. The UK’s financial service industry is dynamic and innovative, so it is important that future markets are not restricted by legislation that has not been updated in almost a decade. It is also a question of fairness: it is right that smaller, innovative markets are not barred from the exemptions, for the reasons that she and I outlined. At the moment, there is one market that is likely to benefit—Archax, a digital asset market—but the point of the changes is that other markets could benefit in future and, because of the dynamism in such markets, we need to plan ahead. We cannot anticipate what may come up, so we do not want to restrict options for future growth.
Clause 19 updates the scope of the growth market exemption, reflecting changes that have taken place since its introduction back in 2014. The clause allows the exemption to meet its initial aims more effectively by ensuring fairness in its application, increasing competition, boosting liquidity and facilitating growth. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Capital-raising arrangements etc
Question proposed, That the clause stand part of the Bill.
Tulip Siddiq
The Labour party supports the clause, which is a necessary intervention to ensure that UK companies previously able to rely on the direct effect of EU law are not left at a disadvantage to international counterparts when issuing UK shares and securities on overseas exchanges. The legal certainty and the removal of the potential 1.5% charge will be welcomed by UK firms considering listing on overseas exchanges. It is vital that our tax system remains internationally competitive.
However, our priority in government will be to overhaul our domestic capital markets to ensure that high-growth British companies critical to the future growth of the economy choose to list here in the UK instead of opting for exchanges in the US and Asia. The UK currently lags far behind competitor jurisdictions, and the Government must work in partnership with industry and regulators if we want to regain our status as a top global listings destination.
Although I do not have any issue with the exemption confirmed by clause 20 and schedule 11, I urge the Minister to ensure that, beyond recent changes to the listings rules, he prioritises listening to industry voices such as the Capital Markets Industry Taskforce about the solutions that are desperately needed to resuscitate our own domestic markets.
Nigel Huddleston
I will not stray into a broader debate; we will have that, I am sure, on Third Reading or at another point. I made my points on the broader economy earlier, but I gently request that the Opposition stop talking the UK economy and UK businesses down. By doing so, they are talking down the workers and companies in their own constituencies.
This measure is designed to ensure the competitiveness of the UK’s code in relation to financial services, by providing certainty that unwelcome frictions will not be reintroduced for UK companies that wish to operate globally. I commend the clause and the schedule to the Committee.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clause 22
Rates of tobacco products duty
Question proposed, That the clause stand part of the Bill.