Charter for Budget Responsibility
Debate between Rob Marris and David Gauke(8 years, 4 months ago)
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Mr Gauke
I understand the point that the hon. Gentleman is making about gilt yields, but none the less the Government’s credibility because of our determination to address the public finances—with a degree of pragmatism on timing that I fully acknowledge—has helped to ensure that the UK has not been drawn into a sovereign debt crisis or indeed anything like one. That is a significant achievement for this country.
Rob Marris (Wolverhampton South West) (Lab)
I congratulate the right hon. Gentleman on his well-deserved promotion. The employment figures are fantastic and what the Government have done on tax avoidance is very laudable, but before he gets too self-congratulatory I caution him to bear in mind that we have had six years of falling living standards, with a bubble of household debt and a house price bubble; and in those six years the national debt has gone up by 60%. As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, we need capital stimulation through the state spending money, on house building in particular. That is politically acceptable to the vast majority of the population of the United Kingdom, because we would have council houses owned by the state—the state would be borrowing money to invest in bricks and mortar, just as everyone else in this country does if they can buy their own house. The national debt is up 60% and we do not have a lot to show for that; let us put it up a bit higher while interest rates are low and have some houses to show for it.
Mr Gauke
There are those who will argue, in the light of Brexit, that we should not worry about borrowing and debt. They are usually—not always, and I certainly exclude the hon. Gentleman from this—the same people who have argued consistently for the past 10 years that we should not worry about borrowing and debt; it is the reasons that have tended to change. First, they argued that we need not worry about borrowing because the business cycle had been abolished and there would be no downturn, so that was all right. Then their argument was that we should borrow because we needed a fiscal stimulus, and then because gilt rates were so low. But with debt last year at almost 84% of our GDP, maintaining fiscal credibility must absolutely remain our priority. If we had not taken the measures we have on public finance over the past few years, we would be in a far worse position still. Analysis shows that from 2010 to 2020, if the structural deficit had remained the same we would have borrowed an additional £930 billion. That is a huge sum to add to our current debt total.
We have already set out our plans for finding departmental savings and in my new role I will be working closely with my fellow Ministers to make sure we stick to those plans. We have a strong record on delivering such commitments—we have done so every single year we have been in government, and we are not going to let up in our efforts now.
I am also determined to look at what further scope there is for delivering the value for money that the taxpayer deserves. I have spent the past six years working hard to make sure we get the tax revenues in, so am not about to see those revenues spent without delivering as much for our money as possible. I will therefore also take forward our work on finding further efficiencies across the public sector. That work was announced at the last Budget and I will be taking it forward straightaway, to explore all avenues for making innovations, finding reforms and saving time and money across the public sector.
This is without doubt a time of considerable uncertainty. That has its own implications for the current stability of our economy. We anticipated short-term turbulence in the event of a decision to leave the European Union, and that has been reflected in the economic developments that have unfolded. It is clear that we must pursue policies that help us grow in the future. That means pursuing pro-business tax policies, improving our skills and our infrastructure, and looking out to the world, enabling us to trade and benefit from globalisation, as there are real signs of opportunities ahead from such an outward-facing approach.
Finance Bill (Second sitting)
Debate between Rob Marris and David Gauke(8 years, 4 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
The clause makes changes to ensure that the historic pension flexibility measures that we introduced last April are working as intended for everyone. As the Committee will be aware, from April 2015 individuals with defined contribution pension savings have been able to access their entire pension flexibly, subject to their marginal rate of tax. The Government introduced that historic reform because they believe that individuals who have worked hard and saved responsibly throughout their lives should be trusted to make their own decisions with their pension savings. In general, the flexibilities have been working well, and so far more than 230,000 people have benefited from pension flexibility in the first year of operation. However, there are a few minor points in the legislation that have not been working as intended. The Government therefore propose a series of small changes to ensure the new pension flexibility works for everyone.
The first change being introduced by the clause relates to serious ill health lump sums. Serious ill health lump sums are paid when an individual can produce medical evidence that they are expected to have fewer than 12 months to live. Before the introduction of pension flexibility, those lump sums were paid tax-free if the individual was under 75 and taxed at 45% if they were aged 75 or over. That was in line with the taxation of certain lump sum death benefits and was intended to ensure that tax considerations did not drive whether pension lump sums were taken before or after an individual dies.
From 6 April this year, the rules around death benefits have changed. Now, when someone dies having reached age 75, the lump sum death benefit is taxable at the marginal rate of the individual who receives it, not 45%. Under the clause, where someone takes a serious ill health lump sum having reached age 75, it will be taxed at the recipient’s marginal rate instead of 45%. The clause will therefore realign the tax treatment of serious ill health lump sums with that of the lump sum death benefits.
In addition, the clause makes changes to help people with a pension who have become seriously ill. Under the current rules, serious ill health lump sums can only be paid from the pension savings that have not been accessed at all. The current legislation was appropriate for a world in which people could either access the whole of their pension or not access it at all, but it now means that people could be disqualified from taking a serious ill health lump sum if they take a small lump sum from their pension and then become seriously ill later in life. The clause will remove the rule that prevents serious ill health lump sums being paid from the unaccessed portion of partially accessed funds. The changes bring the taxation of such lump sums into line with the treatment of comparable lump sum death benefits, while ensuring that there is flexibility in the system.
The second change relates to charity lump sum death benefits. Under current rules, when a pension scheme member dies leaving certain unused pension savings and uncrystallised funds, a lump sum death benefit can be paid to any beneficiaries, including a charity. That is tax-free if the member is under 75 at death, but the payment needs to be made within a two-year period, or it is taxed at a separate rate of 45% if paid to a charity. The changes being made by the clause will ensure that unused funds at the member’s death can be used to pay a charity lump sum death benefit completely tax-free, whatever the age of the member or length of time taken to pay.
The third change relates to dependants’ flexi-access drawdown funds. Before pension flexibility was introduced, children of a deceased member who wanted to claim funds from a drawdown account had to use all of this fund by the age of 23. Any remaining funds paid to them after reaching that age would be taxed at rates of up to 70%. The reforms last year enabled any nominated beneficiary, including a member’s child aged 23 or over at their parent’s death, or a member’s step-child of any age, to inherit their parent’s pension and receive drawdown pension payments at any age. However, the current legislation still means that children aged under 23 at their parent’s death have to draw all of their funds before they turn 23 in order to avoid paying 70% tax on those funds. Schedule 5 will amend legislation to allow dependants with drawdown accounts to access their funds as they wish without incurring a 70% tax charge from their 23rd birthday.
The fourth change relates to trivial commutation lump sums. Before pension flexibility, the option of trivial commutation existed for both defined-contribution and defined-benefit pensions. That allows individuals aged 60 or over with total pension savings of £30,000 or less to withdraw all of their savings as a lump sum, with the first 25% of any previously untouched savings paid tax-free. Since April 2015, pension flexibility changes allow anyone aged 55 or over to withdraw some or all of their funds that they have yet to access as a lump sum, 25% of which is tax-free. Trivial commutation was therefore removed for defined-contribution pensions and limited to defined-benefit arrangements, which were not affected by the introduction of pension flexibility.
Under the defined-benefit arrangement, the only kind of pension possible is a scheme pension, although some people have scheme pensions that come from a defined-contribution fund. As such, under current rules, if a defined-contribution scheme pension is already in payment, it cannot be taken as a trivially commuted lump sum. Schedule 5 will allow defined-contribution scheme pensions that are already in payment to be paid as a lump sum, if they satisfy all the other requirements of trivial commutation.
The fifth change brought about by this legislation relates to the top-up of dependants’ death benefits. Some pension schemes specify a minimum amount that dependants are entitled to receive when the member dies. If there is not enough money in the member’s pension pot when they die, their employer will top it up to ensure that it reaches the minimum amount. Under current rules, certain lump sum death benefits funded by an employer top-up will count as an unauthorised payment and be taxed at rates of up to 70%. Schedule 5 will address that issue by allowing employer top-ups to fund certain dependants’ death benefits to be paid out as authorised payments and therefore not be taxed at those rates.
The sixth and final change introduced by the clause relates to inheritance tax in respect of alternatives to annuities for dependants. At present, some schemes can pay an annuity to a deceased member’s surviving spouse, civil partner or dependant if the deceased had the option for a lump sum to be paid to personal representatives instead. The lump sum is not included in the estate of the deceased member for inheritance tax purposes. Pension flexibility changes mean that, after an individual’s death, an annuity may be paid to someone other than a spouse or partner or dependant, such as a nominee. However, nominees are currently not included in the inheritance tax exclusion, so if an annuity is payable to a nominee, any alternative lump sum payment could be subject to inheritance tax. The changes made by the clause will provide for the same treatment as in April 2015 and keep annuities for nominees out of inheritance tax.
Government amendment 134 to schedule 5 clarifies that the sums or assets available to fund a lump sum death benefit are valued immediately after the member’s death. The change is a minor, technical one to provide clarity and to ensure that the legislation works.
To conclude, the Government introduced pension flexibility because we believe that individuals who have worked and saved responsibly throughout their life should be trusted to make their own decisions about their pension savings. The changes made in the clause will help to ensure that the flexibilities work for everyone. I hope that it may stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to appear before you again, Mr Howarth.
The Labour party supports clause 22, schedule 5 and the amendment, which will come as no surprise. Pension flexibility was in the manifesto on which you and I got elected, Mr Howarth, and we support it. I have a few technical questions that the Minister may wish to write to me about, or not. As ever, I was helped by the Chartered Institute of Taxation briefing, which, in reference to paragraph 6(3) of schedule 5, on page 297 of the latest print edition of the Bill, states: “This is complicated, although we agree that it achieves the stated aim. However, it is not clear to us what exactly paragraph 6(3) is trying to do, and it is unclear whether the ‘person’ is the dependant or the original member.” Perhaps the Minister will clarify that.
More importantly, the CIOT goes on to state: “It will be very complicated in future to determine who might be a dependant for various legislative purposes.” Thirdly, it said that it contacted Her Majesty’s Revenue and Customs about various typographical errors. Perhaps the Minister will reassure the Committee about that, or look into it to ensure that any of the errors CIOT discovered have been tidied up, or will be on Report, if necessary. Notwithstanding all that, we welcome the five small changes to which the Minister referred.
Mr Gauke
I thank the hon. Gentleman for his support for pension flexibility, which I debated with some of his colleagues and predecessors over many months in the previous Parliament. Inevitably, when a fundamental change is undertaken in how we address these matters, there will be areas that require refinement and correction, and that is what we are doing.
Rob Marris
Sometimes it is helpful to sort this out in Committee, because it goes on the record in Hansard. However, if the Minister is unable immediately to bring the answer to mind, I appreciate that he might clarify later the contents of paragraph 6(3).
Mr Gauke
For paragraph 6(3), guidance will be produced dealing specifically with that point. I hope that is helpful and that the clause will be accepted by the Committee.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Schedule 5
Pension flexibility
Amendment made: 134, in schedule 5, page 299, line 9, after “immediately”, insert “after”.—(Mr Gauke.)
Schedule 5, as amended, agreed to.
Clause 23 ordered to stand part of the Bill.
Clause 24
Fixed-rate deductions for use of home for business purposes
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 24 makes changes to ensure that businesses that operate through a partnership have clarity on how they should apply the simplified expenses regime. The Finance Act 2013 introduced a new simplified expenses regime for small unincorporated businesses. Two of the simplifications relate to the expenses of premises used for both personal and business use. As originally enacted, it could be difficult to interpret how a partnership business should apply the provisions. The changes made by clause 24 will enable unincorporated partnerships to apply these rules with clarity and in line with the original policy objective.
The changes will achieve two things. First, where partners occasionally work from home, they can also apply the fixed-rate deductions, subject to the partnership applying the provision consistently and ensuring that any hour worked at the home is counted only once, no matter how many people work at the home at the same time. Secondly, if only some members of the partnership live on the business premises—for example, a pub, restaurant or B and B—the partnership can apply the fixed-rate adjustments for the non-business costs based on the number of occupants in the same way as for individual traders.
The clause will clarify the rules and ensure that partnerships can apply the simplification as intended. Overall, the clause will put partnerships on the same footing as businesses operated by individuals and I hope it stands part of the Bill.
Rob Marris
I have one or two minor technical issues to raise, the first of which has been brought to my attention by the ever helpful Association of Taxation Technicians. It tells me, and I quote, “The current wording of section 94H(4)”—this is set out on page 32 of the Bill —“is silent on how any overlap of hours worked should be treated,” so there may be a technical issue when more than one person is working in the premises under consideration.
The Chartered Institute of Taxation says: “It would appear that clause 24 is actually restricting the claim that can be made for use of a home by an individual, compared to what is in existing 94H.” Proposed new section 94H(4B) of the Income Tax (Trading and Other Income) Act 2005 states:
“Where more than one person does qualifying work in the same home at the same time, any hour spent wholly and exclusively on that work is to be taken into account only once”.
The CIOT continues: “There was no similar restriction in existing section 94H, which defined number of hours worked.” Will the Minister look at those two technical points, if he does not have the answer immediately to hand? Will he also give us an indication of what take-up there has been of these deductions and so on, since they were introduced in 2013?
Mr Gauke
Let me turn first to section 94H(4). The simplified expenses option is designed to cover all the expenses of the home. Many of those are not affected by the number of people working in the home at any one time. Some other expenses, such as telephone and broadband costs, can be claimed separately. In line with the desire to provide simplicity, any hour is counted only once, no matter how many people are working in the home at the time. It is also worth bearing in mind, in the context of these provisions, that this regime is optional. Nobody needs to make use of it if they do not want to or if they find themselves disadvantaged by it.
It was also asked whether the need to record the actual hours worked in the home would make things more complicated, especially where individuals work in the home at different times. Ensuring that any overlap hours are counted only once does require some element of calculation, but we still believe that simplified expenses is an easier calculation for businesses to make than measuring the actual expenses incurred and then correctly apportioning these between business and private use. In any case, where a home is used extensively for business, it is likely that simplified expenses will not be appropriate. It is also worth drawing the Committee’s attention to the fact that the gov.uk website has a straightforward, simplified expense checker, which allows a business to quickly see whether using the fixed-rate amounts would be to their benefit.
As for whether we should backdate this change to the start date of the simplified expenses regime in 2013-14, it is three years since the option to use simplified expenses became available. This measure is a clarification, and Her Majesty’s Revenue and Customs will accept partnerships applying the pre-existing legislation in the same way when making tax returns covering a period before the legislation has effect. I hope that is helpful.
On wider issue of take-up, I am not sure how much information I can provide at this point—[Interruption]—although if I think long and hard about it, my recollection is that we have no analytical data available to answer that question. The self-assessment returns used by unincorporated businesses do not require businesses to separately identify if they have used the simplified expenses or not. Information from HMRC’s customer call handlers is that some callers found the simplified expense approach useful, in particular the fixed-rate deductions for working from home. I am not sure I can provide any more information than that. I hope that provides useful clarification for the Committee and that the clause will stand part of the Bill.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Averaging profits of farmers etc
Question proposed, That the clause stand part of the Bill.
Rob Marris
I have a couple of technical points and an opening comment. Clause 25 is about averaging profits of farmers. I am a great believer in averaging income. I first filled in an income tax form many years ago—I think it was called a T4 then; it might still be called that in Canada—in the days of automatic income tax averaging. As a fairly impecunious student, I benefited from that as my income rose over the years. I do not know whether it was done by computers in those days, but income tax averaging makes a lot of sense and the clause will extend it from two to five years. I gather there was a consultation on it, which closed on 27 September last year, but that there were only 26 respondents, 17 of whom thought the two-year option should be retained.
The Chartered Institute of Taxation has raised a technical issue. It likes the idea of retaining both the two-year system and the five-year system. That was its suggestion, and fair enough: the CIOT is not always right, but it is very helpful to all parts of the House. The CIOT cross-references clause 25 with HMRC’s “Making tax digital” approach, with its quarterly reporting or quarterly records being lodged, or whatever term we used to use—I realise they are technically not quarterly returns. The CIOT says: “We wonder how something like farmers’ averaging is going to work, given that taxable profits will depend on averaging calculations over a number of years, so rendering quarterly figures pretty much meaningless.” Perhaps they are meaningless; perhaps they are not. Will the Minister say a little about that?
Mr Gauke
Clause 25 will give self-employed farmers the option to average their profits over five years as well as the existing option to average over two years. Farmers typically have volatile profits, often due to uncontrollable factors such as the weather, disease or fluctuating product prices. Farming is a highly capital-intensive sector, the volatility of which makes it difficult for farmers to plan and invest for the future. It is a long-standing feature of our income tax system to allow farmers to average their profits over two consecutive years for income tax purposes, smoothing their tax bills over consecutive good and bad years, which prevents them from having to pay significantly higher amounts of tax in the good years. The clause will give farmers additional flexibility and protection from volatile profits by allowing them to choose to average their profits over a two-year or five-year period. More than 29,000 self-employed farmers could benefit from the additional option, with an average saving of around £950 on their income tax bill each year.
As for online digital accounts, it is expected that annual claims such as the averaging of profits will be incorporated into the design of the “Making tax digital” programme as it develops. However, I stress that quarterly reporting is not a quarterly calculation or a quarterly return. It is not about being taxed on the basis of what is earned in the quarter; it is about the provision of information. HMRC is well aware that issues such as seasonal work mean that one quarter may be very different from the next—it is certainly alive to that. As more information on HMRC’s thinking is put into the public domain, people will be reassured that the “Making tax digital” programme should not in any way undermine the policy objectives set out in clause 25.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26 ordered to stand part of the Bill.
Clause 27
Individual investment plans of deceased investors
Question proposed, That the clause stand part of the Bill.
Rob Marris
I would like to make a general comment, which is partly related to clause 26, which we have just covered. With all the changes to inheritance tax—this is tangentially related to that, of course, and I referred to it this morning when I spoke about inheritable individual savings accounts—it is time to look at the whole issue of taxes related to death, if I can put it that way. Because of the huge changes to inheritance tax there is now effectively a £1 million threshold for those who own an expensive house. It is time to look again at the whole panoply of death-related taxes, to which the clause relates.
Mr Gauke
I shall not run through all the aspects of the clause. The change it contains builds on earlier individual savings account changes we have made. It will allow us to remove unfair tax charges and simplify the tax-advantaged transfer of ISA savings after death. I note the hon. Gentleman’s remarks about the tax treatment of death and look forward to Opposition Front Benchers putting forward their policy proposals, which we will no doubt scrutinise closely.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
EIS, SEIS and VCTs: exclusion of energy generation
Rob Marris
I beg to move amendment 135, in clause 28, page 2, line 42, at end add—
‘(7) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report giving the Treasury’s assessment of the effect of excluding energy generation from EIS/SEIS/VCT schemes on—
(a) the renewable energy sector,
(b) community energy projects, and
(c) the energy sector”.
Rob Marris
I hope the amendment is fairly clear. It is a standard amendment of the sort we are all used to, requiring the Chancellor of the Exchequer to publish a report. There is concern that the leverage afforded by the three types of tax advantage scheme referred to in the clause will be completely removed if all energy-generation schemes are removed from those fiscal schemes. I appreciate that the risk factor of several types of energy-generation schemes has dropped so much that the use of such tax measures is no longer efficacious, because they are giving people a tax break for doing something that used to be very risky but no longer is—namely, the development of technology—but it seems a little strange to remove tax breaks for energy generation completely. Will the Minister say something about that?
Mr Gauke
The clause makes changes to exclude all remaining energy-generation activities from the tax advantage venture capital schemes, thereby ensuring that the schemes continue to be well targeted towards high-risk companies and that the tax reliefs are in keeping with the original policy intent.
The venture capital schemes offer generous tax reliefs to encourage investment in small and growing higher- risk companies that cannot otherwise access finance. In recent years, there has been a significant increase in tax-advantaged investment in energy-generation companies. Such activities are generally lower risk, with predictable, reliable and regular income streams. The Government have previously made changes to exclude from the schemes those companies that have benefited from guaranteed income streams for the generation of energy. However, those exclusions have resulted in investment shifting to other forms of energy generation, rather than to the higher-risk investment that the schemes are intended to support. The changes made by this clause will ensure that the Government remain consistent in their approach by keeping the venture capital schemes targeted at higher-risk companies.
The clause will exclude all forms of energy generation from qualifying for the venture capital schemes, including the seed enterprise scheme, the enterprise investment scheme and venture capital trusts. The Government also intend to apply the exclusions to the social investment tax relief once it is enlarged. The measure is expected to yield £95 million annually from 2016-17 onwards, helping the Government to deliver on their commitment to tackle the budget deficit.
Amendment 135 would require a report to be published on the impact of the exclusion of energy generation from the venture capital schemes on the renewable energy sector, community energy projects and the energy sector. Such a report would need to be published within one year of the Bill becoming an Act. The Government provide a range of support for renewable energy, and that support will double over this Parliament, reaching more than £10 billion in 2020-21. That represents a sixfold increase in spend since 2011-12. The relief schemes I have mentioned serve a different purpose: to help smaller, higher-risk companies across a range of sectors to access the investment they need to grow and create jobs.
Energy generation is typically a lower-risk activity for which investment can be secured without tax relief. Allowing it to qualify for tax relief diverts investment away from the companies that need it most. In addition, from a practical perspective, companies that raised investment for the purpose of energy generation before its exclusion have up to two years to spend the money. A report in just one year’s time would therefore serve little purpose.
A report as suggested by the amendment would have little value from a practical point of view. The exclusion of energy from the venture capital schemes is a principled decision based on the lower risk profile of the activity. The Government therefore believe the amendment is unnecessary, and I hope it will be withdrawn.
Mr Gauke
Where I agree with the hon. Lady is that these things should be looked at in the round. The Government are committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy while ensuring security of energy supply and avoiding unnecessary burdens on businesses and households. We are making great strides towards our commitments, with emissions down 30% since 1990. Support for renewables from taxpayers and bill payers will double over this Parliament, reaching more than £10 billion in 2020-21, as I mentioned. That is a sixfold increase in spend since 2011-12. We have more than trebled our renewable electricity capacity since 2010. In the round, the Government’s record is strong.
We are committed to supporting small and growing businesses. The presence of low-risk, asset-backed investments such as those described today crowds out investment in higher-risk propositions. It is right that the Government act to exclude such investors.
Rob Marris
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 28 ordered to stand part of the Bill.
Clauses 29 to 32 ordered to stand part of the Bill.
Clause 33
Transactions in securities: company distributions
Question proposed, That the clause stand part of the Bill.
Rob Marris
I beg your pardon, Sir—I am shuffling a lot of papers—and I am grateful to you for your guidance.
Amendment 7 is the usual amendment—no doubt the Minister will say the timeframe is too premature—to have a report from the Chancellor of the Exchequer within one year, on how efficient or otherwise the provisions in clause 35 are at deterring tax avoidance during wind-ups.
Clause 33 relates to transactions and securities. We welcome the tax avoidance measures introduced by the Government. I understand from a response from HMRC that guidance is due to be published on these sorts of issues. Can the Minister say when that is likely to be?
Mr Gauke
Clauses 33 and 34 will amend the transactions in securities legislation, which focuses on transactions where one of the main purposes is to obtain a tax advantage. Clause 35 will introduce a new targeted anti-avoidance rule aimed at preventing an unjustified tax advantage being obtained from distributions in the winding up of a company. Together, these changes will raise £80 million by the end of this Parliament. As well as helping to reduce the deficit, they will protect revenue raised from the reform of dividend taxation by ensuring that those who should pay income tax on dividends cannot convert their income into capital, which is chargeable at lower capital gains tax rates.
Companies usually distribute profits to shareholders by way of dividends, which are subject to income tax when received by individuals. There is an incentive for some people, particularly those running owner-managed companies, to convert this income into a capital receipt, which would attract lower capital gains tax rates. This incentive will be increased by the proposed reform to dividend taxation.
Clauses 33 and 34 deal with the changes to the transactions in securities legislation, strengthening and modernising those rules. They will apply where there is a transaction in securities, such as a disposal of shares, and where one of the main purposes of the transaction is to obtain a tax advantage by manipulating the border between income and capital. They will ensure that people who should pay income tax on distributions do so.
Clause 35 addresses the phenomenon of “phoenixism”, whereby a person carries on the same trade or activity through a succession of companies, extracting the profits as capital by winding the companies up rather than paying dividends. The new rule is carefully targeted and will not affect the vast majority of companies that are being wound up—for example, where a shareholder sells the trade or is retiring—but it will spell the end of companies being wound up by people seeking to obtain an unfair tax advantage.
The changes will introduce additional safeguards, including a connected parties rule, and modernise the way in which the rules are applied. They remove some of the archaic mechanisms that applied to the compliance process. Like the new “phoenixism” rule, the changes will not affect transactions that are undertaken for normal commercial reasons and they will only apply to transactions that have as one of their main purposes the aim of obtaining a tax advantage. Without these changes, the owners of some companies would be able unfairly to reduce their income tax liability simply by changing the form in which they take money out of a company, which would put at risk revenue from the dividend tax reform.
The Opposition’s amendment to clause 35 seeks to explore how the Government will determine the effectiveness of the measures to deter tax avoidance that it contains. I quite understand the hon. Gentleman’s interest in this issue; it is an interest that I share. The Government expect that the clause will be effective in closing off the great majority of tax avoidance in this area, as it involves very specific arrangements that the legislation has been carefully designed to address.
In practice, determining the clause’s deterrent effect will require information from the self-assessment process that would not be available until 2018 at the earliest. [Laughter.] Again, the hon. Gentleman anticipates the point that I was going to make. For that reason, we will be unable to report within a year on its effectiveness as the amendment proposes we should, so I hope that he will understand if we are not minded to accept the amendment. HMRC will publish guidance on the new rules as soon as possible and before the end of the year, when any tax that is due under the new rules will first become due.
In summary, this reform strengthens and modernises the rules that prevent tax advantages from being unfairly obtained by a minority of shareholders who artificially convert income into capital. It also protects revenue accruing from the dividends tax reform and makes the UK a fairer place to do business. Therefore, I hope the clause will stand part of the Bill.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clauses 34 and 35 ordered to stand part of the Bill.
Clause 36
Disguised investment management fees
Mr Gauke
With your permission, Mr Howarth, my remarks will cover clauses 36, 37 and 38, and amendments 43 to 49. I will also touch on amendment 8.
These clauses introduce a test to limit the circumstances in which performance-based rewards paid to asset managers will be taxed as chargeable gains. The main test will be introduced by clause 37. Clause 36 will change some related definitions in the disguised investment management fees rules. Clause 38 sets out how the rules will work with regard to individuals coming to the UK. Taken together, these clauses will ensure that only fund managers engaging in long-term investment activity pay capital gains tax on their performance-related reward or carried interest; otherwise, that form of remuneration will be fully charged to income tax.
In 2015, we legislated to ensure management fees are always subject to income tax. Where carried interest is taxable as a chargeable gain, the full amount will be taxable without reduction through arrangements such as base cost shift. These clauses build on the previous legislation. They will ensure that capital gains treatment for carried interest is reserved only for those managing funds that are genuinely long-term investments. Treating carried interest as a capital gain rather than an income is the right approach and keeps the UK in step with other countries. It is also the approach that has been adopted consistently by previous Governments in this country over a long period. However, to ensure the regime is fair and not open to abuse, these changes limit capital gains tax treatment to those managers who can demonstrate long-term investment activity by the fund they manage.
Clauses 37 and 38 will insert a test that applies to all payments of carried interest. On receipt of carried interest, asset managers will be required to calculate the average holding period of the investments in the fund. If the average holding period is less than 36 months, the payment will be subject to income tax. If the period is more than 40 months, the payment will be subject to capital gains tax. There is a taper in between those two time limits, and targeted anti-avoidance rules to ensure that the rules cannot be exploited. The rule is slightly different for managers of debt funds, turnaround funds or venture capital funds, reflecting the specific investment strategies of those kinds of funds.
Clause 38 specifically sets out how individuals who move to the UK will be taxed in certain situations. It will apply in the first five years after an individual moves to the UK when he or she receives a reward that is taxable to income under the time held test, which I referred to earlier. Where the reward relates to services performed outside the UK, before they were resident in the UK, it will be charged to UK tax only when it is remitted to the UK. That reflects the fact that the reward relates to work done before the individual lived in this country, and it will help to ensure these rules do not make it harder for UK asset managers to attract the best talent in the global labour market.
Clause 36 will amend definitions in the disguised investment management fees rules to ensure the rules introduced by clauses 37 and 38 work as intended, especially in relation to more complicated investment fund structures.
The Government tabled seven amendments to clause 37. They are technical changes to ensure the provisions operate as intended. Amendments 43, 46 and 48 make the same technical change in three of the specialised rules we have included in clause 37. Each rule will apply a targeted calculation rule to a particular type of fund investment strategy—for example, a fund that invests in real estate or provides venture capital—thus ensuring that the average investment holding test accurately captures a fund’s underlying activity.
A fundamental concept in all these rules is that of a relevant disposal. A relevant disposal is, in effect, a disposal that is taken into account when calculating a fund’s average holding period. These changes will ensure that the legislation uses a consistent definition throughout the various specialised regimes that is clear and understood by industry and its advisers.
Amendments 44, 45 and 47 will correct a technical error that would have prevented the relevant provisions from working in practice.
Amendment 49 will expand the definition of a secondary fund to include the acquisition of investment portfolios from unconnected investment schemes. Stakeholders have informed us that many secondary funds undertake that type of activity, and that amendment is necessary to ensure that the relevant rules still apply to those funds.
The Opposition’s amendment 8 would remove the taper rule that I have described. The decision to introduce a taper rule followed extensive engagement with interested parties to examine the impact of such a measure on the market. Removing that rule would create a cliff edge—a concern that the Opposition raised in another context—so that marginal differences in the average time for which a fund held its assets could lead to radically different tax treatment for its managers. That cliff edge would lead to a market-distorting incentive for fund managers to dispose of assets earlier than was optimal, to the detriment of investors and with no policy benefits. For those reasons, I urge that that amendment is not pursued.
Clauses 36 to 38 will ensure that only those managers engaged in genuinely long-term investment activity pay capital gains tax on their performance-related rewards, and I therefore hope that those clauses stand part of the Bill and amendments 43 to 49 are made.
Rob Marris
This series of clauses is an interesting mixture of the technical, the conceptual and the political. Technically, the clauses are complex and lengthy, and the Government have been forced to table several amendments because of the complexity of these issues and the way that they have gone about dealing with them.
The conceptual point is about whether we go for a simpler and more rough and ready approach or a lengthy one. Professor Sol Picciotto at Lancaster University said about these clauses that instead of going for a broad provision to allow carried interest to be treated as income, the Treasury and HMRC had, typically for them, preferred long and complex statutory provisions that would keep tax lawyers happy and spawn more avoidance. These provisions are very lengthy.
The political point is highlighted by amendment 8. Our wording of that amendment may well be deficient, but it is not designed to create a cliff edge; it is designed to remove the table on page 58 completely, so that there is no taper and all carried interest is treated at 100%—that is, taxed as if it were income. As I understand it, that is in line with the OECD recommendations. Ministers properly say that when we engage in double taxation agreements, which the Minister and I have discussed on several occasions in different Committees, Her Majesty’s Government’s starting point is the OECD model, and I quite understand that, but suddenly we are not going along with an OECD suggestion when it comes to carried interest. That is obviously guidance and has no direct statutory relevance, but it is issued by the OECD, which is made up of our sister advanced countries. Instead of going for a simpler approach in which carried interest is straight income—that is what amendment 8 is designed to introduce—we have ended up with 21 pages of complex provisions in the Bill, which necessitate 10 pages of explanatory notes.
I hope that the Minister will say a little more about that conceptual point and why we do not just follow the OECD guideline. To those of us who are politicians and not tax experts, it appears quite just for carried interest, which has on occasions been used for legitimate tax avoidance, to be knocked on the head simply by being treated and taxed as income, as the OECD suggests.
As far as my excellent researcher Imogen Watson could find, there is no tax information and impact note. If that is the case, I hope that the Minister will outline—or perhaps write to members of the Committee to outline—what the Government think the impact on the Exchequer will be, and the number of taxpayers the Government expect to be affected by the provisions.
Mr Gauke
Clause 45 introduces schedule 7, which deals with three different issues that can arise from interactions between accounting rules and tax rules. These changes will prevent some unintended and unfair outcomes. I welcome the opportunity to debate amendments 9 and 10, tabled by the hon. Member for Wolverhampton South West, which are linked to the clause and which I will turn to later.
All three of the issues being addressed arise when loans made by companies are interest-free or otherwise involve financial instruments on non-market terms. Typically, those will happen in the context of commercially driven funding arrangements where loans are between companies that have some connection. Some of the issues have come about because of recent changes to accounting standards. The changes will support the Government’s policy of simplifying taxation, ensuring businesses pay the right tax at the right time.
Accounting standards can now require an interest-free loan, or other loan taken out on non-market terms, to be recognised in accounts at a lower value than the actual amount of the loan. That can lead to an interest cost being shown in the accounts of the borrower, even when no interest has actually been paid. This cost can lead to a tax deduction for the borrower, but no matching tax liability for the lender. That is an unfair outcome. The changes made by schedule 7 address this unfair situation by putting the borrower back in the position that applied before the changes to accountancy rules, to make sure that they do not benefit unfairly from the new rules.
The second issue also involves adjustments that apply when a loan or financial derivative is not made at arm’s length. Tax law means that an adjustment is made to the amount brought into account for tax on the loan. The adjustments can have the effect of restricting the deductions that can be claimed by the company for tax purposes. However, under the current rules a corresponding amount can be taxed in full later. The changes made by schedule 7 ensure that in these circumstances the company will not be taxed on amounts if it has not been given a tax deduction for corresponding amounts previously. Again, this restores the position before the accounting changes were made.
The final issue addressed by schedule 7 concerns the application of the transfer pricing divisions to exchange gains and losses. In some circumstances these provisions can give companies a tax charge or benefit from foreign exchange movements, even when there is no commercial exposure to foreign exchange. Schedule 7 will make minor technical changes so that the transfer pricing will not create an overall foreign exchange exposure for tax purposes in cases where the company is commercially hedged.
The changes made by schedule 7 ensure that the rules operate as intended. The impact on the Exchequer will be negligible. Only companies or other corporate bodies will be affected by the changes, and the impacts will be negligible as companies learn the new rules. Moving forward, we expect companies’ costs to be reduced as the legislation will be simpler to use in practice.
Let me take the opportunity to discuss amendments 9 and 10, which concern paragraphs 3 and 4 of schedule 7 respectively. They propose that the new legislation dictating the tax treatment of loan relationships and derivative contracts be linked directly to the transfer pricing rules. The Government have looked closely at that suggestion but concluded that the amendments are unnecessary.
Transfer pricing adjustments in respect of loans and derivatives are already given effect by sections 446 and 693 of the Corporation Tax Act 2009 respectively. That includes a situation in which deductions are decreased. This point was considered and confirmed by the tax tribunal last year, in the case of Abbey National Treasury Services plc v. Her Majesty’s Revenue and Customs. It is therefore right that the changes introduced by clause 45 do not refer directly to the transfer pricing rules but instead refer to sections 446 and 693, which apply them to loans and derivatives. To be clear, the exclusion of credits as a result of paragraphs 3 and 4 of schedule 7 applies to cases where deductions have been reduced as a result of the transfer pricing rules operating through sections 446 and 693 respectively. The rules therefore work as currently drafted.
The amendments could give rise to problems. In particular, they could have the effect of the exclusions applying more widely than intended. In addition, the amendments would go against the decision in the Abbey National case. For those reasons, it is important that the limitations link through sections 446 and 693.
Schedule 7 addresses three situations in which the interaction of accounting and tax rules may lead to unintended and unfair outcomes. It supports the Government’s policy of simplifying taxation by giving certainty to the rules and making them easier to comply with, and I therefore invite the hon. Gentleman to withdraw the amendment. I am grateful for the opportunity to provide some clarity to the Committee on the technical concerns that have been expressed. I hope that clause 45 and schedule 7 will stand part of the Bill.
Rob Marris
I had forgotten about the legal case to which the Minister referred. I will not press either of my amendments.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clauses 46 to 49 ordered to stand part of the Bill.
Finance Bill (First sitting)
Debate between Rob Marris and David Gauke(8 years, 4 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Clause 3 sets the income tax personal allowances for 2017-18. The change will help working people to keep more of what they earn, and it is a big step towards keeping our manifesto commitment to a £12,500 tax-free personal allowance by the end of the Parliament. The Government’s record on personal allowances is already strong. Over the previous Parliament, the personal allowance increased by more than 60%, from £6,475 in 2010-11 to £10,600 in 2015-16. Our reforms have already taken 4 million people out of paying income tax altogether.
The Government want to go further by increasing the personal allowance to £12,500 by the end of the Parliament and by ensuring that no one working 30 hours a week on the national minimum wage pays any income tax at all. Clause 3 marks another significant step towards our meeting those commitments by raising the personal allowance from £11,000 in 2016-17 to £11,500 in 2017-18 —an increase of £500. The change made by the clause will ensure that 30 million people pay less tax in 2017-18 than at the start of this Parliament, with 1.3 million taken out of paying income tax altogether. Therefore, by April 2017, a typical basic rate taxpayer will pay over £1,000 less income tax than when we took office six years ago.
Clause 3 builds on the Government’s determination to support those in work by ensuring that people can keep even more of the money they earn. It takes a significant step towards meeting our commitment to raise the personal allowance to £12,500 and means that more of the lowest-paid are taken out of paying income tax altogether. I commend the clause to the Committee.
Rob Marris
We support the clause, but I caution the Government that, in terms of the benefits it will produce for lower-income families, there is a law of diminishing returns, particularly for those who are in part-time paid employment. They will already be below the income tax threshold of £11,200, which the clause will raise to £11,500. That rise will not benefit such families at all.
I urge the Minister to look at reviewing national insurance contribution thresholds, so that there is greater alignment. I am not suggesting complete alignment, because it is a national insurance scheme and people receive certain benefits or prospective benefits in the comfort of knowing that, having paid national insurance contributions, they have a health service, unemployment benefits and disability benefits, were they to be injured at work and so on. They benefit from that insurance, even if they do not need to draw upon it, as they would hope not to—who wants to be unemployed or in hospital, or whatever?
The Government need to review the thresholds, because there is a growing discrepancy for low-income families between the relatively benign nature of the income tax regime and how national insurance contributions bite at much lower levels of income.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Mr Gauke
Clause 4 will introduce a personal savings allowance that means basic rate taxpayers can receive up to £1,000 of interest or other savings income without any tax being due. Higher rate taxpayers can receive up to £500. Because the vast majority of taxpayers will have no tax to pay on any of their savings income, clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay.
As the Committee will be aware, over recent years low interest rates have helped households and businesses through difficult economic times by keeping mortgage payments down, but at the same time, low rates have made it difficult for people’s savings to grow. Economists, including Nobel prize-winning economist James Meade and Sir James Mirrlees, have long pointed out that ordinary savings are over-taxed compared with other types of investment. The Government believe that in such circumstances it is right to reward and support savers by cutting the tax they pay on their savings. In addition, customer research has shown that individuals do not understand how their savings are taxed. As a result, many low-income savers were paying too much tax by not registering bank accounts for gross interest, even though they were eligible to do so. Simplification of the system is therefore long overdue.
The changes will benefit 18 million savers. From this year, 95% of taxpayers will no longer need to pay tax on their savings. With the personal allowance, dividends tax allowance and 0% starting rate for savings, it is now possible for a taxpayer to receive up to £22,000 of income without paying any tax at all, and that is on top of any income from ISAs. As well as providing a tax cut for millions of savers, the change also simplifies the rules. The vast majority of savers will have no tax deducted from their savings income and will have no tax to pay or reclaim. Most will therefore have no need to contact HMRC about their savings. Crucially, the change removes the possibility that lower-income savers will pay too much on their account interest.
For the minority who do still have tax to pay, most will declare their savings income by completing a tax return, as they currently do. In other cases, where a taxpayer does not complete a return, HMRC will collect tax through pay-as-you-earn, where possible. That will involve changing tax codes based on the information that customers or banks and building societies provide about account interest received or paid.
Clause 4 will introduce a new nil rate of tax for savings income within an individual’s savings allowance. Each individual will have an annual savings allowance of £1,000, unless they have any higher rate income for the year, in which case their allowance will be £500, or any additional rate income, in which case their allowance will be nil. The allowance can be used for any of the individual’s savings income. It also includes income from alternative finance arrangements, income equivalent to interest, purchased life annuity payments and gains from certain contracts for life insurance.
Clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay. The clause will add bonds offered by National Savings and Investments, including its highly successful 65-plus guaranteed growth bonds, to the list of products that pay interest without tax being deducted.
The changes made by those clauses will provide the most significant reform to the taxation of savings for a generation. That will reward and support millions of savers by reducing the tax they pay and provide a long-overdue simplification of tax rules that have been poorly understood in the past. I therefore hope that the clauses will have the support of both sides of the Committee.
Rob Marris
I thank the Minister for that lucid explanation. I fear that this measure may not be the simplification that he prays in aid. Taken in reverse order, clause 39 is, in a welcome sense, rough and ready, with a £1,000 allowance or nil rate for basic rate taxpayers—call it what one will, but that is important for the accountants and I concede that I do not entirely understand the difference. For a higher rate taxpayer, that figure drops from £1,000 to £500. My understanding from a press release issued in February by the Low Incomes Tax Reform Group, to which I am indebted, is that the drop is a cliff edge, so someone who moves into the higher rate tax band finds their allowance suddenly drops from £1,000 to £500 on the tax at source proposals under clause 39.
If there is a cliff edge, I urge the Government to look at that again, though I appreciate that that is difficult when going for the rough and ready simplification that we broadly support. However, taking these sorts of measures together, it is not clear that there will be the simplification that the Opposition and the Government would wish for. There is often a balancing act when various measures interact, and we will come on to that.
On simplification, the Low Incomes Tax Reform Group fears—I understand this fear—that a number of taxpayers will find it difficult to disaggregate, work out and understand the interconnection between the tax-free savings allowance, the starting rate for savings and the tax-free £5,000 dividend allowance, which is all to do with what we used to call unearned income. That is a problem.
The cliff edge is a problem, though it may be one we have to accept for simplification. However, in terms of the interaction, I start to get quite questioning when the Minister helpfully gives us an example—he will correct me if I have got it wrong—where, in a certain confluence of circumstances, someone could have an income of £22,000 plus ISA income on top and be paying no income tax at all. In particular, later in the Bill—I cannot remember the clause but the Minister will—we will get on to heritable ISAs, which allow surviving spouses to take over ISAs and therefore have the benefit of the tax advantage of the deceased’s ISAs.
We would all like those at the lower end of the income scale to get a better deal on income tax. That is what progressive tax is about. We might interpret how progressive it should be, as we did in clause 1, and so on, but as an overall concept, I think there is broad support for the progressive nature of income tax in our society as a measure of those with the broadest shoulders and so on. However, we have that example of someone who could have an income well above £22,000: because ISAs have been around for so long, there are people with £1 million in ISAs and all the income on that is tax free. That is quite legitimate and not immoral at all as any of us would see it; they just built it up year on year, using the ISA allowance for however many years ISAs have existed, which is perhaps 25 years. Because of the interaction of various measures, people can now have quite a substantial income and pay no income tax at all on it. I get a little bit uneasy about that, but overall we support clause 4 and clause 39.
Mr Gauke
Clause 6 separates the rates of income tax that apply to savings income from the main rates of income tax. These changes ensure that the Government meet their commitment to guaranteeing that MPs representing constituencies in England, Wales and Northern Ireland are given the decisive say on any income tax rates that affect only their constituents. As hon. and right hon. Members are aware, earlier this year the Scotland Act 2016 received Royal Assent. It provides the Scottish Parliament with unprecedented powers over income tax, including the ability to determine the rates of income tax on earned income at the points at which those apply to Scottish taxpayers.
The fiscal framework agreed by the UK and Scottish Governments confirms that the powers will take effect in 2017-18. This means that from April 2017 Members of the Scottish Parliament will have the final say on Scottish income tax. As a matter of fairness, it is only right that, once these powers come into force, MPs in England, Wales and Northern Ireland are given the decisive say over rates of income tax that affect only their constituents.
The clause separates out the main rates of income tax into three distinct groups in order to meet this objective. The main rates will continue to apply to non-savings, non-dividends income, such as employment, pensions and property income, for taxpayers in England, Wales and Northern Ireland. The savings rates will apply to savings income of all UK taxpayers. The default rates will apply to a limited category of income tax payers who will not fall into either of these two categories; the category is made up primarily of non-residents and some trustee income. This will mean that, from April 2017, changes to the main rates of income tax will no longer affect Scottish taxpayers. Changes to the savings rates or default rates will continue to remain a reserved matter for the UK Government, in line with the recommendations of the Smith commission.
The clause will meet the Government’s commitment to ensuring that English votes for English laws applies to income tax. As a result, following the Finance Bill 2017, MPs representing constituencies in England, Wales and Northern Ireland will have a decisive say on the main rates of income tax that affect only their constituents.
Rob Marris
I appreciate the recommendation of the Smith commission, but the clause simply introduces a further layer of complication to the overall tax regime in the United Kingdom—we are still the United Kingdom, of course. As I understand it, we are now almost back to how it was in my youth—and, I suspect, yours as well, Sir Roger—with the differential rates on earned and unearned income and all that sort of stuff, because EVEL is now bleeding into the income tax regime, depending on whether a certain source of income is a reserved or a devolved matter.
I tend to agree with my hon. Friend the Member for Rhondda (Chris Bryant), the former shadow Leader of the House, who called the current EVEL procedure an “incomprehensible mess”. I also tend to agree with the Chair of the Procedure Committee, the hon. Member for Broxbourne (Mr Walker), who described the proposals as “over-engineered”. It will get incredibly messy unless there is full fiscal devolution—another debate we may or may not get on to today.
On a technical matter, I am indebted to the Chartered Institute of Taxation, as I suspect many hon. Members are, for its helpful suggestions, and this is an arena in which we get to put forward some of its suggestions. One of its technical suggestions is about the table in clause 6. It wonders whether including a table of rates in the statute, which is introduced as having a general effect, might as a matter of statutory interpretation cause issues if the general effect conflicts with a specific effect of other provisions. I hope the Minister can come up with a short piece on that, as regards statutory interpretation.
Rob Marris
Oh, I do wish I could declare an interest in this clause.
We welcome the transitional protections—the fixed protection and the individual protection—and, indeed, the clause’s overall architecture. Schedule 4, though—not many of us are that technical about this stuff, but schedule 4 runs to 17 pages. Talk about complexity in the tax regime!
On the overall approach, I am delighted that the Government are moving in a direction that I urged on the Labour Government back in 2002, when the forgone revenue was £18 billion a year, from memory—it was £17.6 billion in 2001, as the Minister said—first because the pension tax regime is very regressive, and secondly because there was no evidence then that that tax relief encouraged people to save for pensions. Earlier this year I checked with the Library for an update on the situation, and it could find hardly any evidence that the forgone tax revenue, which is now £34 billion per year, encourages the very behaviour it is intended to encourage. It is probably the biggest single tax relief in the whole tax regime; it is regressive; and it does not do what it is intended to do. This pottiness continues, though clause 19 and schedule 4 make some welcome steps in the right direction.
I have a more minor point, connected to HMRC’s cuts in staff numbers—although those have increased a bit—and its unfortunate proposal to close a whole load of offices. The tax information and impact note published on 9 December 2015 estimated that the additional cost to HMRC of administering and monitoring the protection regimes would be £2.4 million for IT and—get this—£500,000 for staff resources over a five-year period. On average, that is £100,000 a year in extra staffing costs due to the protection regime.
Perhaps the Minister can assure me that I am misinterpreting the situation. If not, HMRC is living in a different world. As he pointed out, 4% of individuals might be caught by having a pension pot approaching or exceeding £1 million, and therefore might face the protection regime, whether fixed or individual. That 4% of pensioners is not just a whole lot of people, but people with around £1 million in their pension pot. They are likely to be some of the most educated and articulate pensioners, or prospective pensioners, and are certainly some of the most prosperous. I may be misinterpreting this, but does HMRC really think that an average of £100,000 a year in additional staffing costs will deal with the protection regime, the queries arising from it and so on? How will that 4% of pensioners or prospective pensioners who are likely to raise queries, quite properly, with HMRC be dealt with on £100,000 a year?
Mr Gauke
This is an area where HMRC has some experience, from making changes to the lifetime allowance. It is therefore in a position to assess how many customer contacts it will receive and is well placed to assess the various demands likely to result from the transitional arrangements. It is also worth pointing out that HMRC is moving to digital processes, allowing the organisation to reduce numbers and making processes simpler and easier to use, so that individuals can self-serve. I argue that the assessment was made in good faith, based on previous experience.
Rob Marris
I will enable the Minister to gather his thoughts. The figure that I have devolved upon—I appreciate that it is an average; £500,000 over five years is £100,000 a year—is, very roughly, three members of staff, depending on their seniority and so on. That is three members of staff dealing with, potentially, thousands of prospective pensioners of the sort who will, quite properly, get in contact. It does not seem enough. Am I missing something in the equation? Technology alone will not solve it.
Finance Bill
Debate between Rob Marris and David Gauke(8 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.
The right hon. Member for Barking (Dame Margaret Hodge) has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.
Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.
I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed, today we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.
Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.
Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.
Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.
Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.
Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable, as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.
With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend the Member for Don Valley (Caroline Flint) will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.
Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.
Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.
Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC
“the power to publish the details of an individual who controls a body corporate or a partnership”—
when it has been—
“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”—
when that individual—
“would have obtained a tax advantage”—
from it—
“had it not been corrected.”
This must involve an offshore matter or transfer.
Mr Gauke
I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.
I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.
Another important point was touched on by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.
I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.
Rob Marris
May I make this offer on amendment 1? My right hon. Friend the Member for Don Valley (Caroline Flint) and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.
Mr Gauke
I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.
As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.
Mr Gauke
I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.
In the light of all that, I will say that, yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.
Amendment 114 agreed to.
Clause 144, as amended, ordered to stand part of the Bill.
Clause 145
General anti-abuse rule: binding of tax arrangements to lead arrangements
Amendments made: 115, page 198, line 8, leave out “Condition 1 or 2” and insert—
“the condition in sub-paragraph (2)”.
Amendment 116, page 198, line 9, leave out “Condition 1” and insert “The condition”.
Amendment 117, page 198, line 10, at end insert—
“but no notice under paragraph 12 of Schedule 43 or paragraph 9 of Schedule 43B has yet been given in respect of the matter.”
Amendment 118, page 198, leave out lines 11 and 12.
Amendment 119, page 198, line 20, leave out from first “notice” to end of line 21 and insert—
“(a “pooling notice”) which places R’s arrangements in a pool with the lead arrangements.”
Amendment 120, page 198, line 21, at end insert—
“( ) There is one pool for any lead arrangements, so all tax arrangements placed in a pool with the lead arrangements (as well as the lead arrangements themselves) are in one and the same pool.
( )Tax arrangements which have been placed in a pool do not cease to be in the pool except where that is expressly provided for by this Schedule (regardless of whether or not the lead arrangements or any other tax arrangements remain in the pool).”
Amendment 121, page 198, line 22, leave out “notice of binding” and insert “pooling notice”.
Amendment 122, page 198, line 23, leave out
“(which has not been withdrawn)”.
Amendment 123, page 198, line 25, leave out from “43” to end of line 26.
Amendment 124, page 198, line 26, at end insert—
“Notice of proposal to bind arrangements to counteracted arrangements
1A (1) This paragraph applies where a counteraction notice has been given to a person in relation to any tax arrangements (the “counteracted arrangements”) which are in a pool created under paragraph 1.
(2) If a designated HMRC officer considers—
(a) that a tax advantage has arisen to another person (“R”) from tax arrangements that are abusive,
(b) that those tax arrangements (“R’s arrangements”) are equivalent to the counteracted arrangements, and
(c) that the advantage ought to be counteracted under section 209,
the officer may give R a notice (a “notice of binding”) in relation to R’s arrangements.
(3) The officer may not give R a notice of binding if R has been given in respect of R’s arrangements a notice under—
(a) paragraph 1, or
(b) paragraph 3 of Schedule 43.
(4) In this paragraph “counteraction notice” means a notice such as is mentioned in sub-paragraph (2) of paragraph 12 of Schedule 43 or sub-paragraph (3) of paragraph 9 of Schedule 43B (notice of final decision to counteract).
1B”.
Amendment 125, page 198, line 27, after “a” insert “pooling notice or”.
Amendment 126, page 198, line 30, after “A” insert “pooling notice or”.
Amendment 127, page 198, line 34, after “arrangements” insert
“or the counteracted arrangements (as the case may be)”.
Amendment 128, page 199, line 1, after “A” insert “pooling notice or”.
Amendment 129, page 199, leave out lines 4 to 10.
Amendment 130, page 199, line 12, after “a” insert “pooling notice or”.
Amendment 131, page 199, line 16, after “6” insert
“and Schedule 43B (generic referral of tax arrangements)”.
Amendment 132, page 199, line 17, leave out “of binding” and insert
“in question (and accordingly the tax arrangements in question are no longer in the pool)”.
Amendment 133, page 199, line 23, leave out “notice under paragraph 1” and insert “pooling notice or notice of binding”.
Amendment 134, page 199, line 26, leave out
“notice under paragraph 1”
and insert—
“pooling notice or notice of binding”.
Amendment 135, page 199, line 34, at end insert—
“( ) Where a person takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the person had not taken the relevant corrective action if the person fails to enter into the written agreement.”
Amendment 136, page 200, line 6, at end insert—
“Corrective action by lead taxpayer
2A If the person mentioned in paragraph 1(1) takes the relevant corrective action (as defined in paragraph 4A of Schedule 43) before the end of the period of 75 days beginning with the day on which the notice mentioned in paragraph 1(1) was given to that person, the lead arrangements are treated as ceasing to be in the pool.”
Amendment 137, page 200, line 9, leave out “notice of binding” and insert “pooling notice”.
Amendment 138, page 200, line 10, leave out from first “arrangements” to “and” in line 11.
Amendment 139, page 200, line 13, leave out from “about” to “is” in line 14 and insert
“another set of tax arrangements in the pool (“the referred arrangements”)”.
Amendment 140, page 200, line 16, leave out “bound” and insert “pooled”.
Amendment 141, page 200, line 17, at end insert—
“( ) No more than one pooled arrangements opinion notice may be given to a person in respect of the same tax arrangements.”
Amendment 142, page 200, line 19, leave out
“by virtue of Condition 2 in paragraph 1”.
Amendment 143, page 200, line 21, leave out “notice of binding” and insert “pooling notice”.
Amendment 144, page 200, line 22, leave out “bound” and insert “pooled”.
Amendment 145, page 200, line 25, leave out “lead” and insert “referred”.
Amendment 146, page 200, line 29, at end insert—
“( ) In relation to a person who is given a notice of binding “bound arrangements opinion notice” means a written notice which—
(a) sets out a report prepared by HMRC of any opinion of the GAAR Advisory Panel about the counteracted arrangements (see paragraph 1A(1)),
(b) explains the person’s right to make representations falling within sub-paragraph (2), and
(c) sets out the period in which those representations may be made.”
Amendment 147, page 200, line 30, after “given” and insert
“a pooled arrangements opinion notice or”.
Amendment 148, page 200, leave out lines 35 to 38.
Amendment 149, page 200, line 40, leave out “the lead arrangements” and insert
“(i) the referred arrangements (in the case of a pooled arrangements opinion notice), or
(ii) the counteracted arrangements (in the case of a bound arrangements opinion notice).”
Amendment 150, page 201, line 3, leave out from beginning to “paragraph” in line 4 and insert
“any tax arrangements have been placed in a pool by a notice given to a person under”.
Amendment 151, page 201, line 7, leave out “the lead arrangements” and insert
“any other arrangements in the pool (the “referred arrangements”)”.
Amendment 152, page 201, line 10, leave out “lead” and insert “referred”.
Amendment 153, page 201, line 17, leave out
“by virtue of Condition 2 in paragraph 1”
and insert “under paragraph 1A”.
Amendment 154, page 201, line 22, leave out “lead” and insert “counteracted”.
Amendment 155, page 202, line 25, leave out from “applies” to end of line 38 and insert
“if—
(a) pooling notices given under paragraph 1 of Schedule 43A have placed one or more sets of tax arrangements in a pool with the lead arrangements,
(b) the lead arrangements (see paragraph 1(1) of Schedule 43A) have ceased to be in the pool, and
(c) no referral under paragraph 5 or 6 of Schedule 43 has been made in respect of any arrangements in the pool.
(2) A designated HMRC officer may determine that, in respect of each of the tax arrangements that are in the pool, there is to be given (to the person to whom the pooling notice in question was given) a written notice of a proposal to make a generic referral to the GAAR Advisory Panel in respect of the arrangements in the pool.
(3) Only one determination under sub-paragraph (2) may be made in relation to any one pool.
(3A) The persons to whom those notices are given are “the notified taxpayers”.”
Amendment 156, page 203, leave out lines 1 to 4.
Amendment 157, page 203, line 6, leave out “representations, and” and insert “a proposal.”.
Amendment 158, page 203, leave out lines 7 to 16.
Amendment 159, page 203, line 18, leave out from “given” to end of line 20 and insert
“to propose to HMRC that it—
(a) should give T a notice under paragraph 3 of Schedule 43 in respect of the arrangements to which the notice under paragraph 1 relates, and
(b) should not proceed with the proposal to make a generic referral to the GAAR Advisory Panel in respect of those arrangements.”
Amendment 160, page 203, leave out lines 21 to 25.
Amendment 161, page 203, line 26, leave out
“representations are made in accordance with sub-paragraph (2)”
and insert
“a proposal is made in accordance with sub-paragraph (1)”.
Amendment 162, page 203, line 27, leave out “them” and insert “it”.
Amendment 163, page 203, line 28, leave out from beginning to end of line 22 on page 204.
Amendment 164, page 204, line 26, leave out “given a notice” and insert “made a proposal”,
Amendment 165, page 204, line 31, leave out “gives a notice” and insert “makes a proposal”.
Amendment 166, page 204, line 32, after “must” insert
“, after the end of that 30 day period,”.
Amendment 167, page 204, leave out lines 34 and 35 and insert
“( ) give a notice under paragraph 3 of Schedule 43 in respect of one set of tax arrangements in the relevant pool, or”.
Amendment 168, page 204, leave out lines 37 and 38 and insert
“tax arrangements in the relevant pool”.
Amendment 169, page 205, line 18, after “which” insert “the designated officer considers”.
Amendment 170, page 207, line 35, at end insert—
“( ) In section 210 (consequential relieving adjustments), in subsection (1)(b), after “Schedule 43,” insert “paragraph 5 or 6 of Schedule 43A or paragraph 9 of Schedule 43B,”.”
Amendment 171, page 207, line 40, after “1” insert “or 1A”.
Amendment 172, page 207, line 41, leave out “lead” and insert
“referred or (as the case may be) counteracted”.
Amendment 173, page 208, line 7, leave out “1(4)” and insert “1A(2)”.
Amendment 174, page 208, line 8, at end insert—
““pooling notice” has the meaning given by paragraph 1(4) of Schedule 43A;”.
Amendment 178, page 208, line 24, at end insert—
“(10A) Section 10 of the National Insurance Contributions Act 2014 (GAAR to apply to national insurance contributions) is amended in accordance with subsections (10B) to (10E).
(10B) In subsection (4), at the end insert “, paragraph 5 or 6 of Schedule 43A to that Act (pooling of tax arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referral of arrangements: notice of final decision)”.
(10C) After subsection (6) insert—
“(6A) Where, by virtue of this section, a case falls within paragraph 4A of Schedule 43 to the Finance Act 2013 (referrals of single schemes: relevant corrective action) or paragraph 2 of Schedule 43A to that Act (pooled schemes: relevant corrective action)—
(a) the person (“P”) mentioned in sub-paragraph (1) of that paragraph takes the “relevant corrective action” for the purposes of that paragraph if (and only if)—
(i) in a case in which the tax advantage in question can be counteracted by making a payment to HMRC, P makes that payment and notifies HMRC that P has done so, or
(ii) in any case, P takes all necessary action to enter into an agreement in writing with HMRC for the purpose of relinquishing the tax advantage, and
(b) accordingly, sub-paragraphs (2) to (8) of that paragraph do not apply.”
(10D) In subsection (11)—
(a) for “and HMRC” substitute “, “HMRC” and “tax advantage””;
(b) after “2013” insert “(as modified by this section)”.
(10E) After subsection (11) insert—
“(12) See section 10A for further modifications of Part 5 of the Finance Act 2013.”
(10F) After section 10 of the National Insurance Contributions Act 2014 insert—
“10A Application of GAAR in relation to penalties
(1) For the purposes of this section a penalty under section 212A of the Finance Act 2013 is a “relevant NICs-related penalty” so far as the penalty relates to a tax advantage in respect of relevant contributions.
(2) A relevant NICs-related penalty may be recovered as if it were an amount of relevant contributions which is due and payable.
(3) Section 117A of the Social Security Administration Act 1992 or (as the case may be) section 111A of the Social Security Administration (Northern Ireland) Act 1992 (issues arising in proceedings: contributions etc) has effect in relation to proceedings before a court for recovery of a relevant NICs-related penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty.
(4) Accordingly, paragraph 5(4)(b) of Schedule 43C to the Finance Act 2013 (assessment of penalty to be enforced as if it were an assessment to tax) does not apply in relation to a relevant NICs-related penalty.
(5) In the application of Schedule 43C to the Finance Act 2013 in relation to a relevant NICs-related penalty, paragraph 9(5) has effect as if the reference to an appeal against an assessment to the tax concerned were to an appeal against a NICs decision.
(6) In paragraph 8 of that Schedule (aggregate penalties), references to a “relevant penalty provision” include—
(a) any provision mentioned in sub-paragraph (5) of that paragraph, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(b) section 98A of the Taxes Management Act 1970, as applied in relation to any class of national insurance contributions by regulations (whenever made);
(c) any provision in regulations made by the Treasury under which a penalty can be imposed in respect of any class of national insurance contributions.
(7) The Treasury may by regulations—
(a) disapply, or modify the effect of, subsection (6)(a) or (b);
(b) modify paragraph 8 of Schedule 43C to the Finance Act 2013 as it has effect in relation to a relevant penalty provision by virtue of subsection (6)(b) or (c).
(8) Section 175(3) to (5) of SSCBA 1992 (various supplementary powers) applies to a power to make regulations conferred by subsection (7).
(9) Regulations under subsection (7) must be made by statutory instrument.
(10) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.
(11) In this section “NICs decision” means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671).
(12) In this section “relevant contributions” means the following contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992—
(a) Class 1 contributions;
(b) Class 1A contributions;
(c) Class 1B contributions;
(d) Class 2 contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts in relation to Class 2 contributions under section 11(2) of that Act) does not apply.””
Amendment 175, page 208, line 28, leave out from “notice” to “in” in line 30 and insert
“has been given under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements)”.
Amendment 176, page 208, line 34, leave out from “Panel” to end of line 36 and insert
“about the other arrangements (see subsection (8)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013.”
Amendment 177, page 209, line 2, leave out from “(4)(d)” to end of line 6 and insert
“other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
Amendment 179, page 209, line 6, at end insert—
“(13A) In section 220 of FA 2014 (content of notice given while a tax enquiry is in progress)—
(a) in subsection (4)(c), after “219(4)(c)” insert “, (d) or (e)”;
(b) in subsection (5)(c), after “219(4)(c)” insert “, (d) or (e)”;
(c) in subsection (7), for the words from “under” to the end substitute “under—
(a) paragraph 12 of Schedule 43 to FA 2013,
(b) paragraph 5 or 6 of Schedule 43A to that Act, or
(c) paragraph 9 of Schedule 43B to that Act,
as the case may be.”
(13B) Section 287 of FA 2014 (Code of Practice on Taxation for Banks) is amended in accordance with subsections (13C) to (13E).
(13C) In subsection (4), after “(5)” insert “or (5A)”.
(13D) In subsection (5)(b), after “Schedule” insert “or paragraph 5 or 6 of Schedule 43A to that Act”.
(13E) After subsection (5) insert—
“(5A) This subsection applies to any conduct—
(a) in relation to which there has been given—
(i) an opinion notice under paragraph 7(4)(b) of Schedule 43B to FA 2013 (GAAR advisory panel: opinion that such conduct unreasonable) stating the joint opinion of all the members of a sub-panel arranged under that paragraph, or
(ii) one or more such notices stating the opinions of at least two members of such a sub-panel, and
(b) in relation to which there has been given a notice under paragraph 9 of that Schedule (HMRC final decision on tax advantage) stating that a tax advantage is to be counteracted.
(5B) For the purposes of subsection (5), any opinions of members of the GAAR advisory panel which must be considered before a notice is given under paragraph 5 or 6 of Schedule 43A to FA 2013 (opinions about the lead arrangements) are taken to relate to the conduct to which the notice relates.”
(13F) In Schedule 32 to FA 2014 (accelerated payments and partnerships), paragraph 3 is amended in accordance with subsections (13G) and (13H).
(13G) In sub-paragraph (5), after paragraph (c) insert—
(d) the relevant partner in question has been given a notice under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel about the other arrangements (see sub-paragraph (7)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013;
(e) the relevant partner in question has been given a notice under paragraph 9(2) of Schedule 43B to FA 2013 (GAAR: generic referral of arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel which considered the generic referral in respect of those arrangements was as set out in paragraph 7(4)(b) of that Schedule.”
(13H) After sub-paragraph (6) insert—
“(7) “Other arrangements” means—
(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);
(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”
(13I) In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), in paragraph 7—
(a) in paragraph (a), at the end insert “(referrals of single schemes) or are in a pool in respect of which a referral has been made to that Panel under Schedule 43B to that Act (generic referrals),”;
(b) in paragraph (b)—
(i) for “in relation to the arrangements” substitute “in respect of the referral”;
(ii) after “11(3)(b)” insert “or (as the case may be) 7(4)(b)”;
(c) in paragraph (c)(i) omit “paragraph 10 of”.”—(Mr Gauke.)
Clause 145, as amended, ordered to stand part of the Bill.
Clause 146
General Anti-Abuse Rule: Penalty
Amendments made: 82, page 209, line 14, after “person” insert “(P)”.
Amendment 83, page 209, leave out lines 15 and 16.
Amendment 84, page 209, line 17, leave out “the person” and insert “(P)”.
Amendment 85, page 209, line 21, leave out “the” and insert “particular”.
Amendment 86, page 209, line 22, at end insert—
“(ba) a tax document has been given to HMRC on the basis that the tax advantage arises to P from those arrangements,
(bb) that document was given to HMRC—
(i) by P, or
(ii) by another person in circumstances where P knew, or ought to have known, that the other person gave the document on the basis mentioned in paragraph (ba), and”
Amendment 87, page 209, line 33, at end insert—
‘( ) In this section the reference to giving a tax document to HMRC is to be interpreted in accordance with paragraph 11(g) and (h) of Schedule 43C.”
Amendment 88, page 210, line 16, at end insert—
‘( ) For the purposes of this paragraph consequential adjustments under section 210 are regarded as part of the counteraction in question.
( ) If the counteraction affects the person’s liability to two or more taxes, the taxes concerned are to be considered together for the purpose of determining the value of the counteracted advantage.”
Amendment 89, page 214, line 33, after “tax” insert
“(including any amount chargeable as if it were corporation tax or treated as corporation tax)”
Amendment 90, page 214, line 34, at end insert
“and (v) diverted profits tax;”.
Amendment 91, page 215, line 34, after “given” insert “a pooling notice or”.
Amendment 92, page 215, line 34, leave out “paragraph 1 of”.
Amendment 93, page 215, line 41, at beginning insert
“in the case of a pooling notice,”.
Amendment 94, page 215, line 47, leave out from beginning to “with” in line 48 and insert
“in the case of a notice of binding,”.
Amendment 95, page 215, line 49, leave out “of binding”.
Amendment 96, page 216, line 6, leave out “binding” and insert
“pooling or binding (as the case may be)”.
Amendment 97, page 216, line 43, at end insert—
(ja) an appeal under section 103 of FA 2016 (apprenticeship levy: appeal against an assessment), or”.
Amendment 98, page 216, line 45, leave out “(j)” and insert “(ja)”.
Amendment 99, page 217, line 23, at end insert—
‘( ) Where the taxpayer takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the taxpayer had not taken the relevant corrective action if the taxpayer fails to enter into the written agreement.”—(Mr Gauke.)
Clause 146, as amended, ordered to stand part of the Bill.
Clause 147 ordered to stand part of the Bill.
Schedule 18
Serial Tax Avoidance
Amendments made: 100, page 480, line 19, at end insert “, associated persons and partnerships”
Amendment 101, page 480, line 32, at end insert—
‘( ) A warning notice given by virtue of paragraph 46C must also explain the effect of paragraph 46E (information in certain cases involving partnerships).”
Amendment 102, page 484, line 10, after “decision)” insert—
“, paragraph 5 or 6 of Schedule 43A to that Act (pooled arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referrals: notice of final decision)”.
Amendment 103, page 484, leave out lines 23 and 24 and insert—
“the necessary corrective action for the purposes of section 208 of FA 2014 has been taken”.
Amendment 104, page 484, line 28, at end insert—
“(1A) In sub-paragraph (1) the reference to giving a follower notice to P includes a reference to giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner (as defined in paragraph 2(5) of Schedule 31 to FA 2014).”
Amendment 105, page 484, line 35, leave out from “advantage”” to end of line 36 and insert—
“has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).”
Amendment 106, page 484, line 42, at end insert—
“(6) For the purposes of this paragraph a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph (a) or (b) of paragraph 2(2) of Schedule 31 to FA 2014.”
Amendment 107, page 485, line 8, after “election” insert—
“, or a partnership return is made,”
Amendment 108, page 490, line 22, at end insert—
“( ) If the person mentioned in sub-paragraph (1) is a person carrying on a trade or business in partnership, the information which may be published also includes—
(a) any trading name of the partnership, and
(b) information about other members of the partnership of the kind described in sub-paragraph (4)(a) or (b).”
Amendment 109, page 494, line 31, at end insert—
“( ) In this paragraph “relevant failure”, in relation to a relevant defeat, is to be interpreted in accordance with sub-paragraphs (2) to (7) of paragraph 43.”
Amendment 110, page 504, line 43, at end insert—
“Associated persons treated as incurring relevant defeats
46A (1) Sub-paragraph (2) applies if a person (“P”) incurs a relevant defeat in relation to any arrangements (otherwise than by virtue of this paragraph).
(2) Any person (“S”) who is associated with P at the relevant time is also treated for the purposes of paragraphs 2 (duty to give warning notice) and 3(2) (warning period) as having incurred that relevant defeat in relation to those arrangements (but see sub-paragraph (3)).
For the meaning of “associated” see paragraph 46B.
(3) Sub-paragraph (2) does not apply if P and S are members of the same group of companies (as defined in paragraph 46(9)).
(4) In relation to a warning notice given to S by virtue of sub-paragraph (2), paragraph 2(4)(c) (certain information to be included in warning notice) is to be read as referring only to paragraphs 3, 17 and 18.
(5) A warning notice which is given to a person by virtue of sub-paragraph (2) is treated for the purposes of paragraphs 19(1) (duty to give relief restriction notice) and 30 (penalty) as not having been given to that person.
(6) In sub-paragraph (2) “the relevant time” means the time when P is given a warning notice in respect of the relevant defeat.
Meaning of “associated”
46B (1) For the purposes of paragraph 46A two persons are associated with one another if—
(a) one of them is a body corporate which is controlled by the other, or
(b) they are bodies corporate under common control.
(2) Two bodies corporate are under common control if both are controlled—
(a) by one person,
(b) by two or more, but fewer than six, individuals, or
(c) by any number of individuals carrying on business in partnership.
(3) For the purposes of this section a body corporate (“H”) is taken to control another body corporate (“B”) if—
(a) H is empowered by statute to control B’s activities, or
(b) H is B’s holding company within the meaning of section 1159 of and Schedule 6 to the Companies Act 2006.
(4) For the purposes of this section an individual or individuals are taken to control a body corporate (“B”) if the individual or individuals, were they a body corporate, would be B’s holding company within the meaning of those provisions.
Partners treated as incurring relevant defeats
46C (1) Where paragraph 46D applies in relation to a partnership return, each relevant partner is treated for the purposes of this Part of this Act as having incurred the relevant defeat mentioned in paragraph 46D(1)(b), (2) or (3)(b) (as the case may be).
(2) In this paragraph “relevant partner” means any person who was a partner in the partnership at any time during the relevant reporting period (but see sub-paragraph (3)).
(3) The “relevant partners” do not include—
(a) the person mentioned in sub-paragraph (1)(b), (2) or (3)(b) (as the case may be) of paragraph 46D, or
(b) any other person who would, apart from this paragraph, incur a relevant defeat in connection with the subject matter of the partnership return mentioned in sub-paragraph (1).
(4) In this paragraph the “relevant reporting period” means the period in respect of which the partnership return mentioned in sub-paragraph (1), (2) or (3) of paragraph 46D was required.
Partnership returns to which this paragraph applies
46D (1) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition A (final counteraction of tax advantage under general anti-abuse rule).
(2) Where a person has incurred a relevant defeat by virtue of sub-paragraph (1A) of paragraph 13 (Condition B: case involving partnership follower notice) this paragraph applies in relation to the partnership return mentioned in that sub-paragraph.
(3) This paragraph applies in relation to a partnership return if—
(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and
(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition C (return, claim or election made in reliance on DOTAS arrangements).
(4) The references in this paragraph to a relevant defeat do not include a relevant defeat incurred by virtue of paragraph 46A(2).
Partnerships: information
46E (1) If paragraph 46D applies in relation to a partnership return, the appropriate partner must give HMRC a written notice (a “partnership information notice”) in respect of each sub-period in the information period.
(2) The “information period” is the period of 5 years beginning with the day after the day of the relevant defeat mentioned in paragraph 46D.
(3) If, in the case of a partnership, a new information period (relating to another partnership return) begins during an existing information period, those periods are treated for the purposes of this paragraph as a single period (which includes all times that would otherwise fall within either period).
(4) An information period under this paragraph ends if the partnership ceases.
(5) A partnership information notice must be given not later than the 30th day after the end of the sub-period to which it relates.
(6) A partnership information notice must state—
(a) whether or not any relevant partnership return which was, or was required to be, delivered in the sub-period has been made on the basis that a relevant tax advantage arises, and
(b) whether or not there has been a failure to deliver a relevant partnership return in the sub-period.
(7) In this paragraph—
(a) “relevant partnership return” means a partnership return in respect of the partnership’s trade, profession or business;
(b) “relevant tax advantage” means a tax advantage which particular DOTAS arrangements enable, or might be expected to enable, a person who is or has been a partner in the partnership to obtain.
(8) If a partnership information notice states that a relevant partnership return has been made on the basis mentioned in sub-paragraph (6)(a) the notice must—
(a) explain (on the assumptions made for the purposes of the return) how the DOTAS arrangements enable the tax advantage concerned to be obtained, and
(b) describe any variation in the amounts required to be stated in the return under section 12AB(1) of TMA 1970 which results from those arrangements.
(9) HMRC may require the appropriate partner to give HMRC a notice (a “supplementary information notice”) setting out further information in relation to a partnership information notice.
In relation to a partnership information notice “further information” means information which would have been required to be set out in the notice by virtue of sub-paragraph (6)(a) or (8) had there not been a failure to deliver a relevant partnership return.
(10) A requirement under sub-paragraph (9) must be made by a written notice and the notice must state the period within which the notice must be complied with.
(11) If a person fails to comply with a requirement of (or imposed under) this paragraph, HMRC may by written notice extend the information period concerned to the end of the period of 5 years beginning with—
(a) the day by which the partnership information notice or supplementary information notice was required to be given to HMRC or, as the case requires,
(b) the day on which the person gave the defective notice to HMRC,
or, if earlier, the time when the information period would have expired but for the extension.
(12) For the purposes of this paragraph—
(a) the first sub-period in an information period begins with the first day of the information period and ends with a day specified by HMRC,
(b) the remainder of the information period is divided into further sub-periods each of which begins immediately after the end of the preceding sub-period and is twelve months long or (if that would be shorter) ends at the end of the information period.
(13) In this paragraph “the appropriate partner” means the partner in the partnership who is for the time being nominated by HMRC for the purposes of this paragraph.
Partnerships: special provision about taxpayer emendations
46F (1) Sub-paragraph (2) applies if a partnership return is amended at any time under section 12ABA of TMA 1970 (amendment of partnership return by representative partner etc) on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB of that Act (partnership statement) as a partner’s share of any income, loss, consideration, tax or credit for any period.
(2) For the purposes of paragraph 14 (Condition C: counteraction of DOTAS arrangements), the partner is treated as having at that time amended—
(a) the partner’s return under section 8 or 8A of TMA 1970, or
(b) the partner’s company tax return,
so as to give effect to the amendments of the partnership return.
(3) Sub-paragraph (4) applies if a partnership return is amended at any time by HMRC as a result of a disclosure made by the representative partner or that person’s successor on a basis that—
(a) results in an increase or decrease in, or
(b) otherwise affects the calculation of,
any amount stated under subsection (1)(b) of section 12AB (partnership statement) as the share of a particular partner (P) of any income, loss, consideration, tax or credit for any period.
(4) If the conditions in sub-paragraph (5) are met, P is treated for the purposes of paragraph 14 as having at that time amended—
(a) P’s return under section 8 or 8A of TMA 1970, or
(b) P’s company tax return,
so as to give effect to the amendments of the partnership return.
(5) The conditions are that the disclosure—
(a) is a full and explicit disclosure of an inaccuracy in the partnership return, and
(b) was made at a time when neither the person making the disclosure nor P had reason to believe that HMRC was about to begin enquiries into the partnership return.
Supplementary provision relating to partnerships
46G (1) In paragraphs 46C to 46F and this paragraph—
“partnership” is to be interpreted in accordance with section 12AA of TMA 1970 (and includes a limited liability partnership);
“the representative partner”, in relation to a partnership return, means the person who was required by a notice served under or for the purposes of section 12AA(2) or (3) of TMA 1970 to deliver the return;
“successor”, in relation to a person who is the representative partner in the case of a partnership return, has the same meaning as in TMA 1970 (see section 118(1) of that Act).
(2) For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.”
Amendment 112, page 507, leave out lines 15 to 20.
Amendment 111, page 507, line 38, at end insert—
““partnership follower notice” has the meaning given by paragraph 2(2) of Schedule 31 to FA 2014;
“partnership return” means a return under section 12AA of TMA 1970;”
Amendment 113, page 508, line 13, at end insert—
‘( ) For the purposes of this Schedule a partnership return is regarded as made on the basis that a particular tax advantage arises to a person from particular arrangements if—
(a) it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those arrangements, and
(b) that increase or reduction results in that tax advantage for the person.”—(Mr Gauke.)
Schedule 18, as amended, agreed to.
Clause 148
Promoters of tax avoidance schemes
Amendments made: 69, page 219, line 15, at end insert—
‘(1A) An authorised officer must make the determination set out in subsection (1B) if the officer becomes aware at any time (“the relevant Part 2B time”) that—
(a) a person meets a condition in subsection (6), (7) or (8), and
(b) at the relevant Part 2B time another person (“P”), who is carrying on a business as a promoter, meets that condition by virtue of Part 2B of Schedule 34A (meeting the section 237A conditions: bodies corporate and partnerships).
(1B) The authorised officer must determine whether or not—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part.”
Amendment 70, page 219, line 16, leave out “Subsection (1) does” and insert “Subsections (1) and (1A) do”.
Amendment 71, page 219, leave out lines 21 to 25.
Amendment 72, page 219, line 25, at end insert—
‘(3A) Subsection (1A) does not apply if, at the relevant Part 2B time, an authorised officer is under a duty to make a determination under section 237(5) in relation to P.
(3B) But in a case where subsection (1) does not apply because of subsection (3), or subsection (1A) does not apply because of subsection (3A), subsection (5) of section 237 has effect as if—
(a) the references in paragraph (a) of that subsection to “subsection (1)”, and “subsection (1)(a)” included subsection (1) of this section, and
(b) in paragraph (b) of that subsection the reference to “subsection (1A)(a)” included a reference to subsection (1A)(a) of this section and the reference to subsection (1A)(b) included a reference to subsection (1A)(b) of this section.”
Amendment 73, page 219, line 28, at end insert—
‘( ) If the authorised officer determines under subsection (1B) that—
(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and
(b) P’s meeting of the condition as mentioned in subsection (1A)(b),
should be regarded as significant in view of the purposes of this Part, the officer must give P a conduct notice, unless subsection (5) applies.”
Amendment 74, page 225, line 7, at end insert—
( ) Part 2A contains provision about when a relevant defeat is treated as occurring in relation to a person;
( ) Part 2B contains provision about when a person is treated as meeting a condition in subsection (6), (7) or (8) of section 237A;”
Amendment 75, page 226, line 9, leave out from “person” to end of line 11 and insert
“is carrying on a business as a promoter and—the person is or has been a promoter in relation to the arrangements, or that would be the case if the condition in sub-paragraph (2) were met.”
(i) the person is or has been a promoter in relation to the arrangements, or
(ii) that would be the case if the condition in sub-paragraph (2) were met.”
Amendment 76, page 228, line 26, after first “to” insert
“, paragraph 5(2) or 6(2) of Schedule 43A to or paragraph 9(2) of Schedule 43B to”.
Amendment 77, page 230, line 9, at end insert—
Part 2A
Relevant defeats: associated persons
Attribution of relevant defeats
16A (1) Sub-paragraph (2) applies if—
(a) there is (or has been) a person (“Q”),
(b) arrangements (“the defeated arrangements”) have been entered into,
(c) an event occurs such that either—
(i) there is a relevant defeat in relation to Q and the defeated arrangements, or
(ii) the condition in sub-paragraph (i) would be met if Q had not ceased to exist,
(d) at the time of that event a person (“P”) is carrying on a business as a promoter (or is carrying on what would be such a business under the condition in paragraph 3(2)), and
(e) Condition 1 or 2 is met in relation to Q and P.
(2) The event is treated for all purposes of this Part of this Act as a relevant defeat in relation to P and the defeated arrangements (whether or not it is also a relevant defeat in relation to Q, and regardless of whether or not P existed at any time when those arrangements were promoted arrangements in relation to Q).
(3) Condition 1 is that—
(a) P is not an individual,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q—
(i) P was a relevant body controlled by Q, or
(ii) Q was a relevant body controlled by P, and
(c) at the time of the event mentioned in sub-paragraph (1)(c)—
(i) Q is a relevant body controlled by P,
(ii) P is a relevant body controlled by Q, or
(iii) P and Q are relevant bodies controlled by a third person.
(4) Condition 2 is that—
(a) P and Q are relevant bodies,
(b) at a time when the defeated arrangements were promoted arrangements in relation to Q, a third person (“C”) controlled Q, and
(c) C controls P at the time of the event mentioned in sub-paragraph (1)(c).
(5) For the purposes of sub-paragraphs (3)(b) and (4)(b), the question whether arrangements are promoted arrangements in relation to Q at any time is to be determined on the assumption that the reference to “design” in paragraph (b) of section 235(3) (definition of “promoter” in relation to relevant arrangements) is omitted.
Deemed defeat notices
16B (1) This paragraph applies if—
(a) an authorised officer becomes aware at any time (“the relevant time”) that a relevant defeat has occurred in relation to a person (“P”) who is carrying on a business as a promoter,
(b) there have occurred, more than 3 years before the relevant time—
(i) one third party defeat, or
(ii) two third party defeats, and
(c) conditions A1 and B1 (in a case within paragraph (b)(i)), or conditions A2 and B2 (in a case within paragraph (b)(ii)), are met.
(2) Where this paragraph applies by virtue of sub-paragraph (1)(b)(i), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the time of the third party defeat, given P a single defeat notice under section 241A(2) in respect of it.
(3) Where this paragraph applies by virtue of sub-paragraph (1)(b)(ii), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the second of the two third party defeats, given P a double defeat notice under section 241A(3) in respect of the two third party defeats.
(4) Section 241A(8) has no effect in relation to a notice treated as given as mentioned in subsection (2) or (3).
(5) Condition A1 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of the third party defeat,
(b) at the time of the third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a defeat notice in respect of the third party defeat, had the officer been aware that it was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of the third party defeat have never been met (ignoring this paragraph).
(6) Condition A2 is that—
(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of each, or both, of the third party defeats,
(b) at the time of the second third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a double defeat notice in respect of the third party defeats, had the officer been aware that either of the third party defeats was a relevant defeat in relation to P, and
(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of those third party defeats (or either of them) have never been met (ignoring this paragraph).
(7) Condition B1 is that, had an authorised officer given P a defeat notice in respect of the third party defeat at the time of that relevant defeat, that defeat notice would still have effect at the relevant time (see sub-paragraph (1)).
(8) Condition B2 is that, had an authorised officer given P a defeat notice in respect of the two third party defeats at the time of the second of those relevant defeats, that defeat notice would still have effect at the relevant time.
(9) In this paragraph “third party defeat” means a relevant defeat which has occurred in relation to a person other than P.
Meaning of “relevant body” and “control”
16C (1) In this Part of this Schedule “relevant body” means—
(a) a body corporate, or
(b) a partnership.
(2) For the purposes of this Part of this Schedule a person controls a body corporate if the person has power to secure that the affairs of the body corporate are conducted in accordance with the person’s wishes—
(a) by means of the holding of shares or the possession of voting power in relation to the body corporate or any other relevant body,
(b) as a result of any powers conferred by the articles of association or other document regulating the body corporate or any other relevant body, or
(c) by means of controlling a partnership.
(3) For the purposes of this Part of this Schedule a person controls a partnership if the person is a controlling member or the managing partner of the partnership.
(4) In this paragraph “controlling member” has the same meaning as in Schedule 36 (partnerships).
(5) In this section “managing partner”, in relation to a partnership, means the member of the partnership who directs, or is on a day-to-day level in control of, the management of the business of the partnership.
Part 2B
Meeting section 237A conditions: bodies corporate and partnerships
Treating persons under another’s control as meeting section 237A condition
16D (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) that condition was met by a person (“C”) at a time when—
(i) C was carrying on a business as a promoter, or
(ii) RB was carrying on a business as a promoter and C controlled RB, and
(b) RB is controlled by C at the relevant Part 2B time.
(2) Sub-paragraph (1) does not apply if C is an individual.
(3) For the purposes of determining whether the requirements of sub-paragraph (1) are met by reason of meeting the requirement in sub-paragraph (1)(a)(i), it does not matter whether RB existed at the time when C met the section 237A condition.
Treating persons in control of others as meeting section 237A condition
16E (1) A person other than an individual is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) a relevant body (“A”) met the condition at a time when A was controlled by the person, and
(b) at the time mentioned in paragraph (a) A, or another relevant body (“B”) which was also at that time controlled by the person, carried on a business as a promoter.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether A or B (or neither) exists at the relevant Part 2B time.
Treating persons controlled by the same person as meeting section 237A condition
16F (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—
(a) another relevant body met that condition at a time (“time T”) when it was controlled by a person (“C”),
(b) at time T, there was a relevant body controlled by C which carried on a business as a promoter, and
(c) RB is controlled by C at the relevant Part 2B time.
(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether—
(a) RB existed at time T, or
(b) any relevant body (other than RB) by reason of which the requirements of sub-paragraph (1) are met exists at the relevant Part 2B time.
Interpretation
16G (1) In this Part of this Schedule—
“control” has the same meaning as in Part 2A of this Schedule;
“relevant body” has the same meaning as in Part 2A of this Schedule;
“relevant Part 2B time” means the time referred to in section 237A(1A);
“section 237A condition” means any of the conditions in section 237A(6), (7) and (8).
(2) For the purposes of paragraphs 16D(1)(a), 16E(1)(a) and 16F(1)(a), the condition in section 237A(6) (occurrence of 3 relevant defeats in the 3 years ending with the relevant time) is taken to have been met by a person at any time if at least 3 relevant defeats have occurred in relation to the person in the period of 3 years ending with that time.”
Amendment 78, page 234, line 27, at end insert—
‘(9A) Schedule 36 (promoters of tax avoidance schemes: partnerships) is amended in accordance with subsections (9B) to (9G).
(9B) In Part 2, before paragraph 5 insert—
“Defeat notices
4A A defeat notice that is given to a partnership must state that it is a partnership defeat notice.”.
(9C) In paragraph 7(1)(b) after “a” insert “defeat notice,”.
(9D) In paragraph 7(2) after “the” insert “defeat notice,”.
(9E) After paragraph 7 insert—
“Persons leaving partnership: defeat notices
7A (1) Sub-paragraphs (2) and (3) apply where—
(a) a person (“P”) who was a controlling member of a partnership at the time when a defeat notice (“the original notice”) was given to the partnership has ceased to be a member of the partnership,
(b) the defeat notice had effect in relation to the partnership at the time of that cessation, and
(c) P is carrying on a business as a promoter.
(2) An authorised officer may give P a defeat notice.
(3) If P is carrying on a business as a promoter in partnership with one or more other persons and is a controlling member of that partnership (“the new partnership”), an authorised officer may give a defeat notice to the new partnership.
(4) A defeat notice given under sub-paragraph (3) ceases to have effect if P ceases to be a member of the new partnership.
(5) A notice under sub-paragraph (2) or (3) may not be given after the original notice has ceased to have effect.
(6) A defeat notice given under sub-paragraph (2) or (3) is given in respect of the relevant defeat or relevant defeats to which the original notice relates.”
(9F) In paragraph 10—
(a) in sub-paragraph (1)(b) for “conduct notice or a” substitute “, defeat notice, conduct notice or”;
(b) in sub-paragraph (3), after “partner—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”.
(c) in sub-paragraph (4), after “(“the new partnership”)—” insert—
“(za) a defeat notice (if the original notice is a defeat notice);”
(d) after sub-paragraph (5) insert—
“(5A) A notice under sub-paragraph (3)(za) or (4)(za) may not be given after the end of the look-forward period of the original notice.”
(9G) After paragraph 11 insert—
11A The look-forward period for a notice under paragraph 7A(2) or (3) or 10(3)(za) or (4)(za)—
(a) begins on the day after the day on which the notice is given, and
(b) continues to the end of the look-forward period for the original notice (as defined in paragraph 7A(1)(a) or 10(2), as the case may be).”
Amendment 79, page 234, line 27, at end insert—
‘(9A) Part 2 of Schedule 2 to the National Insurance Contributions Act 2015 (application of Part 5 of FA 2014 to national insurance contributions) is amended in accordance with subsections (9B) and (9C).
(9B) After paragraph 30 insert—
“Threshold conditions
30A (1) In paragraph 5 of Schedule 34 (non-compliance with Part 7 of FA 2004), in sub-paragraph (4)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that P is to be deemed not to have failed to comply with the provision concerned as P had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
(2) In this paragraph “corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.
Relevant defeats
30B (1) Schedule 34A (promoters of tax avoidance schemes: defeated arrangements) has effect with the following modifications.
(2) References to an assessment (or an assessment to tax) include a NICs decision relating to a person’s liability for relevant contributions.
(3) References to adjustments include a payment in respect of a liability to pay relevant contributions (and the definition of “adjustments” in paragraph 17 accordingly has effect as if such payments were included in it).
(4) In paragraph 9(3) the reference to an enquiry into a return includes a relevant contributions dispute (as defined in paragraph 6 of this Schedule).
(5) In paragraph 21(3)—
(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that the person is to be deemed not to have failed to comply with the provision concerned as the person had a reasonable excuse for not doing the thing required to be done, and
(b) the reference in paragraph (c) to a determination is to be read accordingly.
“Corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.”
(9C) In paragraph 31 (interpretation)—
(a) before paragraph (a) insert—
(za) “NICs decision” means a decision under section 8 of SSC(TF)A 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671);”
(b) in paragraph (b), for “are to sections of” substitute “or Schedules are to sections of, or Schedules to”.”
Amendment 80, page 234, line 39, after “person” insert “or an associated person”.
Amendment 81, page 235, line 2, at end insert—
‘(12A) For the purposes of subsection (11) a person (“Q”) is an “associated person” in relation to another person (“P”) at any time when any of the following conditions is met—
(a) P is a relevant body which is controlled by Q;
(b) Q is a relevant body, P is not an individual and Q is controlled by P;
(c) P and Q are relevant bodies and a third person controls P and Q.
(12B) In subsection (12A) “relevant body” and “control” are to be interpreted in accordance with paragraph 16C of Schedule 34A to FA 2014.”—(Mr Gauke.)
Clause 148, as amended, ordered to stand part of the Bill.
Clause 149 ordered to stand part of the Bill.
Schedule 19
Large businesses: tax strategies and sanctions
Amendment proposed: 1, page 516, line 21, at end insert—
‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.
(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”—(Caroline Flint.)
Question put, That the amendment be made.
Mr Gauke
I thank hon. Members for their contributions to the debate. I will perhaps turn to corporation tax rates and clause 42 at the end of my speech—I think we will save the most exciting element to the end. Let me first pick up some of the other points that have been raised.
Vaccine research relief is currently available only to large firms; it was removed for small and medium-sized enterprises in 2011, at the same time as the general SME R and D relief was increased. It is also worth pointing out that all vaccine producers can claim normal R and D relief on qualifying expenditure. Incentivising vaccine production remains a priority for the Government, but we believe that spending programmes such as the Ross fund are more effective at doing that. The amount claimed through VRR is less than £5 million a year, despite a generous raise.
The Ross fund was announced by my right hon. Friend the Chancellor in November 2015. It will target infectious diseases, including malaria, diseases with epidemic potential, neglected tropical diseases, which affect more than 1 billion people globally, and antimicrobial resistance, which poses a substantial and growing threat to global health. In January 2016 the Chancellor built on the announcement of the Ross fund by confirming that the Government will invest £500 million a year over the next five years in the fight to end deaths from malaria. That formed part of the £3 billion commitment between the Government and Bill Gates. The UK continues to contribute to the Global Fund to Fight AIDS, Tuberculosis and Malaria, an internationally supported organisation designed to accelerate the end of AIDS, tuberculosis and malaria as epidemics. I wanted specifically to come back on the very good point raised by the hon. Member for Aberdeen North (Kirsty Blackman).
The Ross fund does constitute official development assistance. It is worth pointing out that all UK ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is in line with internationally agreed rules on ODA, so it is perfectly reasonable that we include the fund in the 0.7%, and it can clearly make a huge difference to large numbers of people.
The hon. Member for Wolverhampton South West (Rob Marris) asked how much is lost to the Exchequer through some of the schemes we seek to address in clause 66. Over the scorecard period, which takes us to 2020-21, it is expected that the changes will yield about £20 million of tax that would otherwise have been avoided and that they will potentially protect much more. This is not the largest measure by any means, but it is, none the less, a contribution. By way of background, the relevant case law is the 1948 House of Lords decision, Gold Coast Selection Trust Ltd v. Humphrey—no doubt familiar to the hon. Member for Wolverhampton South West. It has been suggested that this is no longer good law as it predates generally accepted accounting practice and the enactment of current legislation setting out the rules for the calculation of trading income. Let me be very clear that HMRC does not accept this proposition. [Interruption.] As the hon. Member for Wolverhampton South West mutters, it is a case of belt and braces. HMRC’s view, and the Government’s view, is that we should change the law now as a response to the potential risk, which is in the region of £125 million in one case alone. The challenge we have seen seeks to suggest that the current case law that dictates the tax treatment is outdated. I hope that clause 67 helps to address this risk.
Rob Marris
I asked the Minister for reassurance that this would not affect the barter economy. He might wish to write to me later.
Mr Gauke
I think I can provide that reassurance, but perhaps it would be best if I wrote to the hon. Gentleman—again, on a belt and braces basis.
The hon. Gentleman raised the concern that had been put to him that clause 68 might force businesses to claim capital allowances and that that might complicate the system. He gave the example of a saw, with a carpenter potentially encountering complications in his or her tax affairs . The answer is that that is very unlikely. Most small businesses will find that their capital spending on equipment is fully relieved by the £200,000 annual investment allowance, which is now at a record permanent level. Accordingly, they would receive a full deduction for their expenditure in the year and would not usually have to calculate annual writing-down allowances. The changes will ensure that tax relief for expenditure incurred by business on replacement and alteration of tools means that all capital expenditure on equipment is dealt with in a fair and proportionate way.
I was asked whether clauses 69 and 70 will cause some complication in the old 10% wear-and-tear deduction, which was simple. Of course, Labour Members highlighted the wear-and-tear allowance as a potential saving within the tax system. It is interesting that, despite its simplicity, a significant number of interested parties agreed with the Government that the wear-and-tear allowance was not fair. It applies only to landlords of fully furnished properties, and provides relief even where landlords have not had to meet any actual expense. We have carefully considered the different ways in which a relief based on actual expenditure could be designed and implemented, and we have legislated for the simplest possible basis.
Turning to clause 42 and the wider issues, I am grateful for the supportive contributions by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Macclesfield (David Rutley), and by the hon. Member for East Antrim (Sammy Wilson). If the hon. Gentleman had argued a different case, I might have pointed to the many conversations that we have had over very many years in the context of devolution of corporation tax to Northern Ireland. I was struck by his point about how, when talking to international businesses, people often note the headline rate of corporation tax; international investors are aware of that. It is certainly my experience, having met many international businesses over a number of years when promoting the UK as a place in which to do business, that our low corporation tax rate, and our destination towards an even lower rate, attracts attention and a fair degree of admiration, and ultimately attracts jobs and investment to the UK. That is why we have taken steps to reduce the corporation tax rate, and I think that that has played a significant role in the fact that business investment is up significantly; that employment numbers are as high as they are; and that foreign direct investment in this country has been so strong. Of course, that is not the only factor; there are others. This country also faces particular challenges in the light of recent events, but, as my hon. Friends the Members for Amber Valley and for Macclesfield have said, it is absolutely right that we have a competitive corporation tax rate.
Finance Bill
Debate between Rob Marris and David Gauke(8 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
No, I do not think the Government will be persuaded by that. Were that to be the case, it would suggest that the use of tax relief in these circumstances was even more widespread than we had anticipated. The problem we face is one of fundamental unfairness. I make no criticism of those making use of intermediaries in these circumstances—they are making use of the law as it stands—but it is an unfair outcome. Essentially, where two people are performing identical roles, one is able to gain the benefit of tax relief and the other is not simply because of the way in which they have structured their arrangements. I believe the approach we have taken in this clause is the right one.
Clause 15 makes changes to allow for the extension of voluntary payrolling to include non-cash vouchers and credit tokens. The change will enable businesses to benefit from reduced reporting obligations to HMRC and provide a simplified system for employers. Clauses 16 and 17 and schedule 3 make a number of changes to simplify and clarify the rules for employment-related securities and options. Employment-related securities and securities options are commonly used by companies to reward, retain or provide incentives to their employees. Remuneration in the form of shares would generally be liable to income tax and national insurance contributions. However, if they are rewarded under one of the four types of tax advantage share schemes, the shares acquired are exempt from income tax and national insurance contributions.
Share-based reward programmes are greatly valued by both companies and employees. The Government want to make sure the relevant legislation is as simple and clear as possible. To that end, clause 16 introduces schedule 3, which builds on the Government’s response to the OTS report on employee share schemes by simplifying and clarifying this area of tax legislation. In addition, clause 17 puts beyond doubt the tax treatment of non-tax advantaged securities options, given some uncertainty in the current legislation.
The Government are introducing amendment 28 to schedule 3 to ensure that the trading activities requirements to receive the tax advantages of an enterprise management incentive scheme will continue to apply where a company is controlled by an employee-ownership trust.
If I may anticipate what we are likely to hear, and before I move on to clause 18, I will briefly address amendment 180 and new clause 10, which relate to clause 16. Amendment 180 proposes a review of the impact of the withdrawal by HMRC of its valuation check service for small and medium-sized enterprises, including associated impacts on employee share ownership schemes. This is unnecessary. HMRC continues to operate a service for employee shareholder status and the tax advantage schemes most relevant to SMEs. HMRC has only withdrawn valuation checks for income tax and PAYE that are not part of these recognised employee ownership schemes. HMRC was considering valuations for less than 0.05% of the relevant SME population. As these taxpayers were using professional firms, the vast majority of cases submitted were acceptable. As such, the service added little value and was seen as providing poor value for money for the taxpayer. I therefore hope the House will reject amendment 180.
New clause 10 proposes that within six months of the passing of the Act the Chancellor should publish a report giving an assessment of the value for money provided by each type of employee share scheme. An HMRC-commissioned report conducted by Oxera considered the effect of tax advantage employee share schemes on productivity. This is publicly available. Owing to the difficulty of drawing conclusive outcomes from such studies, in 2012 the Office of Tax Simplification recommended that it would not be a good use of taxpayer money to produce further reports on the links between share ownership and productivity. As with all reliefs, however, the Government will continue to keep these schemes under review and will continue to publish regular statistics on the estimated take-up and costs of each scheme. For these reasons, I urge Members to reject new clause 10.
Let me conclude my opening remarks by addressing clause 18. The Government want to ensure that companies and individuals who have used, or continue to use, artificial arrangements to disguise their income, pay their fair share. These avoidance schemes involve income being funnelled through a third party, with the money often then given to the individual in the form of a loan that is never repaid. In 2011, the coalition Government successfully introduced new legislation to tackle the schemes in use at that time. Many of those who used the schemes before 2011 have still not settled. In addition, the tax avoidance industry has been selling new schemes that are even more artificial and contrived. At Budget 2016, the Government announced changes to address these issues. Clause 18 is the first part of that package.
Clause 18 addresses one type of these schemes by disallowing a relief in the current rules that the schemes exploit where there is a tax avoidance motive. It also withdraws a transitional relief and makes three minor technical clarifications to the current rules to ensure they work as Parliament intended. The reforms make it clear that everyone must pay their fair share. I will not take up any more time for the moment.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger.
I will follow what the Minister helpfully did by giving a preview of where I am going, as I think that might help the Government, but I will do it seriatim numerically. I want to probe clause 7 a little. We broadly support clauses 8 to 11, which relate to vehicles, although we have tabled two amendments to them. The Minister helpfully—in terms of procedure, if not policy—indicated that the Government were not minded to accept amendments 2 and 3. If the Government, in spite of my silver tongue, maintain that position, I will in due course seek to press amendment 2 to a Division. We broadly support clauses 12 and 13. We also broadly support clause 14, on travel expenses for workers, but I wish to probe the Government on it and ventilate some issues. We broadly support clause 15. I want to run clause 16, on employee share schemes, around the block. There are a number of share option schemes under various guises and the situation is arguably getting a little out of control. The Opposition broadly support clauses 17 and 18.
Clause 7 relates to taxable benefits. It seeks to amend 2003 legislation to clarify the concept of a fair bargain. This is, as I understand it—I am not an accountant—where an employer provides some kind of benefit in kind, which is in some circumstances provided at a cost to the employee and in some circumstances is not. Where benefits of goods or services are provided at a cost, HMRC wishes to know whether the cost of the benefits provided is below market rate. Clause 7 goes to that issue, but it appears to cover vans and cars as well as other things and of course we will be dealing with vans and cars in other clauses. As the Minister has a bad back, I will try to avoid putting him in a situation where he feels that he has to intervene. I have every sympathy with him as I have suffered from a bad back for decades. If he catches your eye, Sir Roger, when we come to closing this part of the Committee proceedings, I hope that he will be able to explain and differentiate for those of us who are not accountants how vans and cars come into the benefit-in-kind provisions under clause 7. Having had a company car for many years with two different employers, I understand how they come in under subsequent clauses—that is not to say that I know the whole regime, but I am broadly familiar with that territory—but not under clause 7. Will the Minister tell us, therefore, to what extent the Treasury has found that there has been a misuse of the original rules, thereby necessitating the clarifications under clause 7—Government amendments 22 to 26? The explanatory notes, which the Minister will know are my lodestar in these matters, refer to “uncertainty”. I hope the Minister can explain from whence that uncertainty comes, so that we can be a little clearer on that.
I will now come on to meatier matters on cars and vehicles. We are all aware that the use of the tax regime to encourage certain behaviours and discourage others is well known to have an effect when it comes to the purchase and use of vehicles, unlike in some other areas where the efficacy or otherwise of tax reliefs is not so clear. As I look around the Chamber, I can see that there are not many Members present who will remember the campaign for lead-free petrol, but I remember it and supported it. In the bad old days, lead was added to petrol as a mechanism for increasing its octane rating and therefore its power output. Initially, when the excise regime was the same for leaded and unleaded petrol, unleaded cost more. The then Conservative Government, under some pressure from the campaign for lead-free petrol and others, wisely changed the excise regime so that unleaded petrol at the pump, with a lower excise duty than leaded petrol, cost less, which meant that many motorists made the switch within a period of about two years. That was achieved by using excise levers to change behaviour in the use of vehicles.
In recent years, we have also seen the explosion in the United Kingdom of the purchase and use of diesel vehicles. That was started under a Labour Government who were trying to cut CO2 emissions, because, mile for mile, diesel engines generally emit lower CO2 per mile driven. That policy succeeded, but it was always contradictory, because there was also a 3% loading—in other words more tax payable—for those who had a diesel-powered company car in contradistinction to a petrol-powered company car.
Clause 8 increases quite markedly the percentage of the purchase price, which is then counted as taxable income for somebody who is provided with a company car. For low-emission vehicles, or those with 76 to 94 grams of CO2 per kilometre—I hope that, when we leave the European Union, we will not revert to imperial—the appropriate percentage goes from 19% to 22%. Under clause 8, the range goes up 3% each time, with a delay, as the Government have announced, for two years. Broadly, that looks to us like a tax-raising measure—there is nothing wrong with that as Her Majesty’s Revenue and Customs is about levying taxes so that the Government have sufficient income to provide the service that our constituents want.
Kirsty Blackman
Absolutely we do. When we talk about “intermediaries” and “different types of worker”, we mean all those who will be impacted by this change in the taxation measures.
Mr Gauke
I am grateful for the various points made in this debate. I will not repeat everything I said in my opening remarks, but I will try to address the questions raised, and we have had plenty of those. Perhaps I should begin by saying how pleased I was to see the hon. Member for Wolverhampton South West (Rob Marris) join us, as one never knows these days who will be on the Labour Front Bench. Given the considerable work that he clearly put into his speech—not forgetting the considerable work put in by Imogen Watson—it would have been a great pity were he not to have been on the Front Bench to ask those questions, so I am delighted to see him.
Mr Gauke
The lengths people will go to in order to avoid attending a parliamentary Labour party meeting are clearly considerable.
Let me address the lengths the hon. Gentleman went to. I will also try to address the other points raised in the debate, and I will run through this in clause order—at least I will attempt to do so. Let me start by discussing clause 7, as he asked about the extent to which there have been problems and uncertainty with the tax law it addresses. There has been some uncertainty about the application of the current tax law in respect of fair bargain from a number of employers and advisers. This clause has been introduced to put the matter beyond doubt. It will give employers certainty about when fair bargain should not be applied to benefits in kind, and these issues have been recently rehearsed by the Court of Appeal. He raised a particular issue as to why there was special provision for cars and vans. Company cars and vans are a particularly valuable benefit, so the codes specify how to calculate the value to apply so that a fair and equitable tax treatment results. We have these provisions because this benefit is particularly valuable.
Rob Marris
There may be a bit of to-ing and fro-ing on this for clarification, and this may well be due to my ignorance, but is this to do with the sale, possibly at an undervalue, of a van or a car, in contradistinction to one that is supplied as a benefit in kind—the classic sales rep’s company car? Is clause 7 talking about a different scenario, such as a potential sale with it undervalued—or how does it overlap?
Mr Gauke
No, it is not talking about that. I hope that provides some clarity.
On clause 8, we were asked why the Government were imposing tax increases on drivers of low-emission cars. The company car tax system encourages people to choose the most fuel-efficient cars while ensuring that the benefit is fairly taxed. It is fair that all company car users, including those in zero-carbon and low-carbon cars, make a fair contribution to the public finances. The tax differential between ultra-low emission and conventionally fuelled cars will be widened in 2019-20 compared with previous plans announced at Budget 2013. If Members so wish, I could provide examples of that.
The question put is, “Why are the Government increasing rates on conventionally fuelled cars by three percentage points after years of two-percentage-point increases?” People also ask about the impact on the type of cars purchased. These increases ensure that the taxation of company cars continues to reflect changes in emissions technology. The rate increase, together with the extra incentive of ultra-low-emission vehicles, promotes the continued move to the cleanest cars. In 2013, there were 1,900 company ultra-low-emission vehicles, which was about 0.1% of the company car fleet, whereas in 2015 there were more than 8,000. That supports the Government’s approach. Over the course of this Parliament, increases in company car tax rates have broadly maintained revenues in real terms, in the face of continued improvements in new car fuel efficiencies, and this will support the move to cleaner, zero-emission and ultra-low-emission cars.
Rob Marris
I think I have asked this before, and the Minister may not have the figure to hand, but can he give us an estimate of how much he thinks the changes introduced by clause 8 will raise, given that for each of the four bands the percentages are going up by 3%?
Mr Gauke
If I may, I will write to the hon. Gentleman and provide him with those details.
On clause 11, the Government will review the van benefit charge support for zero-emission vans, again in the light of market developments, at Budget 2018. This clause is keeping the level at 20%—it is not increasing it as planned—and the review occurs before any further increase beyond 20%. I hope that reply is helpful to the hon. Gentleman. As for what the impact will be on the sales of zero-emission vans, extending the van benefit charge support for zero-emission vans will continue to reduce barriers to the uptake of new vehicle technologies. The Government’s enhanced capital allowances scheme for zero-emission vans and the plug-in van grant that helps with the up-front cost of buying a new ultra-low-emission van will also help to reduce barriers to the uptake of these new technologies. Together these incentives will help sales of zero-emission vans. This in turn will help the development and manufacture of clean vehicle technologies in the UK, consistent with the Government’s wider plans to promote economic growth. However, it is not possible to estimate precisely the impact on sales at this stage.
The hon. Gentleman made a point about EU air quality requirements and whether we should be doing more. The Government are committed to improving air quality, reducing health impacts and complying with legal obligations. Last December, DEFRA published the Government’s plan to achieve these aims. Under this plan, by 2020 the most polluting diesel vehicles will be discouraged from entering the centres of Birmingham, Leeds, Southampton, Nottingham and Derby. The Mayor of London has responsibility for London and his own plans for reductions. I accept that the hon. Gentleman’s amendment is well intentioned, but no vehicles would currently be caught by it and we are instead pursuing these aims more effectively elsewhere.
Rob Marris
Maybe I missed it, and I apologise in advance if I did, but when the Minister referred to stuff going through DEFRA and so on, I understood the milepost to be 2020, but 2020 seems an awfully long way away given that we should have been complying with this air quality stuff in about 2011 or 2012. It seems to be a case of kicking the can down the road while literally tens of thousands of people are dying prematurely. That is worrying.
Mr Gauke
I understand why the hon. Gentleman raises that point, but no vehicles would currently be caught by the amendment. It is a question of finding the most effective means by which to do this. As I have said, last December DEFRA published the Government’s plans to achieve these aims and I accept that further work needs to be done, but we have set out a realistic and achievable target, and by 2020 the most polluting diesel vehicles will be discouraged from entering a number of cities.
Rob Marris
The Minister says that no vehicles would be caught. My understanding of what he means by that is that no vehicles that are currently manufactured would be able to take advantage of the measure set out in amendments 2 and 3. The Minister is, I think, nodding, which is helpful. That is precisely the point of the amendments; it is to drive the market.
Draft Double Taxation Relief and International Tax Enforcement (United Arab Emirates) Order 2016
Draft Double Taxation Relief (Isle of Man) Order 2016
Draft Double Taxation Relief (Jersey) Order 2016
Draft Double Taxation Relief and International Tax Enforcement (Uruguay) Order 2016
Draft Double Taxation Relief (Guernsey) Order 2016
Debate between Rob Marris and David Gauke(8 years, 5 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I thank the hon. Member for Wolverhampton South West for his questions. To answer his first question about why these treaties have not been amended before, we have taken action in this Budget to prevent a form of avoidance that HMRC became aware of relatively recently. This ensures that a loophole that would have prevented the implementation of measures to protect the UK tax base can be addressed. The challenge was first, a recognition that profits relating to land in the UK were being booked in these Crown dependencies—the view being that these profits properly belong in the United Kingdom—and therefore, we announced the Budget measure. The concern was that the measures that we took in the Budget could not be implemented without these changes.
Perhaps if I can address the second point—
Mr Gauke
If I can just address the second point, I think it may be helpful to the hon. Gentleman. The new legislation announced in the Budget will include targeted anti-avoidance rules that will stop property developers structuring around the new charging provisions during the period from the announcement on Budget day, which is the date that the new legislation comes into force. Making the protocol changes effective from Budget day aids the effectiveness of these targeted anti-avoidance rules. This is not backdating all retrospection, as such. The double taxation agreements are changed only from the date that the protocols were signed. The targeted anti-avoidance rules will apply prospectively only from Budget day. I hope that provides a bit of clarification to the hon. Gentleman.
Rob Marris
I am grateful to the Minister for that explanation. Is it then the case that the, and I mean this positively, wonderfully innovative accountancy industry in the United Kingdom did not realise that they could advise their clients, quite legitimately, to offshore land profits—this is my shortening of the situation—to the Crown dependencies? They did not realise for 50 years, and then they suddenly realised and it started to happen. The Government then said, “That was never anybody’s intention, so the measures announced in the Budget”—in the statutory instruments today—“will stop that.” Or is it something else?
Mr Gauke
I understand the hon. Gentleman’s point. I want to be perhaps a little a cautious, if not tentative, about the wording. That is not to say that nobody was making use of these provisions—I think that people were making use of them. However, it was relatively recently that Her Majesty’s Revenue and Customs became aware that this loophole—I think it would be fair to describe it as that—was being used. That was not really the intention of Parliament. One could make an argument—if Parliament addressed its mind to this matter—that it would certainly not be the way that we want the system to work. In recent months, in the run-up to the March Budget, it was concluded that action needed to be taken. These changes to the protocols are all part of ensuring that this is effective.
If I can deal with the third question, I will then make my comments about the double taxation agreements. I was asked why there is no TIIN—tax information and impact note. We have not produced impact assessments because double taxation agreements are not of a regulatory nature. They impose no obligations on taxpayers. Rather, they give UK residents relief from foreign tax in prescribed circumstances. They also provide relief from UK tax for non-residents in a comparable situation. Given that the hon. Gentleman has raised that specific point, perhaps we will look again at the wording of the explanatory memorandum to see whether we can provide a clearer explanation next time. He has made a constructive point.
If I may, Mr Hanson, I will turn to the two other orders, on the United Arab Emirates and Uruguay. This first-time double taxation agreement with the UAE completes our DTAs with the Gulf states and follows the same principles that we have adopted with the other countries in the region. Although the UAE does not currently impose tax on individuals or companies, it has the potential to do so. Legislation was in place, but the UAE chooses for the moment not to apply it. Concluding the DTA now ensures that should the UAE start to apply its tax laws, UK companies will have greater certainty over the liabilities, as the taxing rights are constrained by the treaty.
The DTA generally follows the OECD model. Dividends are exempt from withholding tax, other than where the payer is a real estate investment trust, in which case 15% tax may be charged. Interest and royalties are also exempt, but with a provision to ensure that the benefits of the interest article can flow only to UAE residents and companies owned by UAE residents. The exchange of information article is the latest OECD version, which permits information to be used for non-tax purposes with the permission of the other state.
The Government signed a first-time DTA with Uruguay earlier this year. This is an important treaty for the UK as it expands our treaty network in an increasingly important region. The treaty gives valuable benefits to UK businesses and individuals with interests in Uruguay and will strengthen the economic ties between the two countries.
Withholding taxes can hamper cross-border investment, as they represent an extra and often excessive layer of taxation. I am therefore pleased that withholding tax on dividends is restricted to 5% on direct investment and interest is taxable at source at a maximum of 10%, with some important exemptions—for example, for certain bank loans. As we sometimes do with a country whose economy is in transition, we have agreed a provision that allows the taxation of services in the country where they are performed where they last for more than 183 days. The treaty also contains anti-treaty shopping provisions based on the BEPS—base erosion and profit shifting, as you know, Mr Hanson—recommendations on treaty abuse, the latest OECD exchange of information article and an arbitration provision to assist the mutual agreement procedure, which will be welcome to UK companies investing in Uruguay.
I hope those explanations are helpful. I commend the orders to the Committee and I am happy to answer any remaining questions that hon. Members may have.
UK Economy: Post-Referendum Assessment
Debate between Rob Marris and David Gauke(8 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
The economy is a key issue in the debate and in the choice that the British people will make on 23 June. Today’s analysis is an attempt to assist the British people in making an informed decision, based on the likely consequences of the United Kingdom leaving the European Union. Indeed, many supporters of the leave campaign have been prepared to acknowledge that leaving the EU would at the very least have a short-term impact on our economy and create a shock.
As my hon. Friend said, the analysis produced by the Treasury has been signed off by Sir Charles Bean, the former Deputy Governor of the Bank of England and a distinguished macroeconomist. He said that
“this comprehensive analysis by HM Treasury, which employs best-practice techniques, provides reasonable estimates of the likely size of the short-term impact of a vote to leave on the UK economy.”
It is not only the UK Government who are highlighting the risks of leaving the European Union; the International Monetary Fund, the OECD, the leadership of pretty much every ally we have, business groups, and many respected independent economists have all made it clear that this country would lose out from leaving the EU. However one looks at this debate, we cannot get away from that central fact.
Rob Marris (Wolverhampton South West) (Lab)
Unusually, perhaps, I find myself agreeing with a great deal of what the Minister has said. The hon. Member for Harwich and North Essex (Mr Jenkin) tried to rubbish the report and referred to trade agreements. If we were to leave the European Union, we would have to negotiate in very short order trade relationships with the rest of the world, including more than 50 other countries. Rome was not built in a day, and there would be huge uncertainty. As he will know—and as I know from having been in business—one key concern of business is always uncertainty.
At the moment, our economy is in great shape in terms of jobs, but on almost any other indicator—productivity, balance of payments, the housing crisis, investment in infrastructure, and the national debt, which has risen by two-thirds in the past six years—the economy already has red lights flashing, as almost every economist has said. Were we to leave the European Union, that would become considerably worse. I welcome the fact that the Prime Minister and the Chancellor of the Exchequer now recognise that the large majority of the problems we faced in 2008 and onwards were caused not by a Labour Government, but by a world recession. We now need not a Tory Brexit, but an economy that is strong and will remain stronger if we stay in the European Union, but that still needs considerable changes, particularly in investment in infrastructure and skills. Our security, both economic and military, will be strengthened if we remain within the European Union. We should build on a strong economy by investing, not by leaving the European Union.
Mr Gauke
The hon. Gentleman’s point about uncertainty is right, and there is clearly uncertainty in the economy at the moment as a consequence of the referendum on Brexit. It is absolutely right that we have that referendum, but such uncertainty can resolve itself quickly on 23 June if there is a remain vote. If there is a leave vote, we clearly face at least two years of uncertainty, and quite possibly longer.
On the state of the economy—this is perhaps where the hon. Gentleman and I may differ—we have taken steps to address the long-term challenges faced by the economy, but there is no doubt that the past few years have been difficult for the British economy. We are now one of the fastest-growing major economies in the world, and our progress over the past six years would be put at risk were we to vote to leave the European Union.
draft Employment Allowance (Excluded Companies) regulations 2016
Employment Allowance (Increase of Maximum Amount) Regulations 2016
draft social security (Contributions) (Limits and Thresholds amendments and national insurance funds payments) regulations 2016
Debate between Rob Marris and David Gauke(8 years, 9 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I am grateful for hon. Members’ remarks on the regulations. I will pick up some of the points raised, particularly by the hon. Member for Wolverhampton South West. On the broader issues to do with the efficacy of the employment allowance, the hon. Gentleman talked about take-up. The most recent take-up statistics released in October last year show 1.17 million employers benefiting from the allowance. Around 680,000 employers—48% of all employers—have been lifted out of employer national insurance contributions altogether since the employment allowance was introduced in 2014-15. A further 90,000 employers are expected to be taken out of NICs when the employment allowance rises to £3,000 as a consequence of one of the regulations before us. It is worth pointing out that over 90% of the benefit of the allowance goes to small businesses with fewer than 50 employees.
In terms of what employers do with the employment allowance, that is a matter for them. The hon. Gentleman was right to refer to the debate that those of us who were around at the time had in respect of the primary legislation. The Government were careful not to put a specific number on this, because it depends on how people make use of the sums involved. Ultimately, it is up to employers as to how they use the allowance. We have not set targets for the number of jobs that we expect to be created. According to research by the Federation of Small Businesses, 29% of small businesses will use the employment allowance to boost staff wages; 28% will employ additional staff; and 24% will invest in resources. This is not attributable to one policy, but we are in the position where we have record levels of employment in this country. A measure that reduces the tax liability for businesses, particularly smaller business, plays a role in ensuring that we have a climate in which job creation is encouraged, and it has helped contribute to record levels of employment.
On the cost of the employment allowance, it is forecast to cost the Government approximately £1.4 billion in 2015-16 in tax revenue forgone, and 98% of that tax revenue is to the benefit of small and medium-sized businesses or employers employing fewer than 250 people. On the value for money assessment, the Government will internally review the employment allowance on various criteria, such as take-up levels, to determine the overall value for money of the policy. As a part of this process, we will speak to interested parties to gauge their views of the allowance and to ascertain ways in which their members are using it. However, at this point, we are encouraged by the wide take-up of the employment allowance; it is helping feed through into an environment that is good for employment and good for our constituents. I am sure it is not the intention of the hon. Member for Wolverhampton South West, but I hope that no one who reads his contributions would jump to the conclusion that the official Opposition are looking to abandon the employment allowance in order to save funds to use for other purposes, because that would be damaging for the many smaller businesses in this country that have done so much to ensure that we have such high levels of employment.
Rob Marris
I started my remarks with a quote from the Chancellor of the Exchequer, with which I agree, on support for small business. However, when dealing with revenue and revenue forgone, we must bear in mind the question of opportunity cost. In round terms, the figures that I have show that it is costing £560 million a year; the Minister talked about £1.4 billion. Either way, it is a lot of money. One has to consider whether such revenue support to encourage businesses to grow, a concept that we support, could be better spent by the Revenue in other ways. For that, one needs to measure. It is a question of how one allocates that money, not of support for business.
Mr Gauke
I note the hon. Gentleman’s remarks, which will no doubt be studied closely, probably by someone in Conservative Campaign Headquarters.
The hon. Gentleman and others have raised concern that the single director provisions could be avoided. We do not accept that avoidance behaviour will be as widespread as has sometimes been suggested. There are anti-avoidance provisions in the original legislation, and the proposed measures strike the right balance between maximising yield for HMRC, on the one hand, and ensuring that tax changes do not affect genuine businesses and charities that create employment, on the other hand. The anti-avoidance provision in the National Insurance Contributions Act 2014 provides that employers who would qualify for the employment allowance only by virtue of avoidance arrangements are disqualified. To be entitled to the allowance, companies with a single director cannot simply pay a second employee £10 to requalify. Rather, the regulations will mean that they must pay the second employee enough to accrue a secondary class 1 national insurance contributions liability, which is currently more than £156 a week.
The relief for apprentices under the age of 25 will be simple for employers to claim by inputting information in their payroll software. HMRC published guidance on 2 February 2016 on gov.uk to let employers know how to apply the relief and which evidence they are required to hold to ensure that it has been properly applied. That will include a record of the framework or standard being followed, which has also been publicised via HMRC’s employer bulletin. Ahead of the next tax year, HMRC will work with the Department for Business, Innovation and Skills to circulate the guidance further.
The purpose of the measure in relation to apprentices under the age of 25 is to provide support to businesses, which is helpful in improving the skills of the workforce in the UK. It is right that we use the national insurance contributions system to encourage employers that are undertaking expenditure in that area. The measure will be welcomed by employers, and it will help to achieve very ambitious targets in ensuring that far more people undertake apprenticeships in this country than in the past. We have seen dramatic progress in recent years, and we wish that to continue. The measure on apprentices under the age of 25 is part of that process.
I hope those points are helpful, and I commend the regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Employment Allowance (Excluded Companies) Regulations 2016.
Employment Allowance (Increase of Maximum Amount) Regulations 2016
Resolved,
That the Committee has considered the Employment Allowance (Increase of Maximum Amount) Regulations 2016 (S.I., 2016, No. 63).—(Mr Gauke.)
draft Social Security (Contributions) (Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2016
Resolved,
That the Committee has considered the draft Social Security (Contributions) (Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2016.—(Mr Gauke.)
Protection of the EU’s Financial Interests
Debate between Rob Marris and David Gauke(8 years, 9 months ago)
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Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to appear before you, Sir Edward; I do not think that I have had the pleasure before. I have a brief question for the Financial Secretary to the Treasury. I understood him to say that 0.2% of EU spending was thought to be subject to fraud. Have the UK Government made an assessment of the level of fraud and irregularities, which can be different, relating to the UK’s share of that EU expenditure?
Mr Gauke
I thank the hon. Gentleman for his question. It is 0.02% that is identified as being fraud. I think that a slightly larger number is suspected of and looked at as being fraud, but when it comes down to it, only 0.02% is established as being fraud.
In terms of the UK comparison, it can be difficult to make exact comparisons. All managing authorities across the UK have in place robust anti-fraud measures. Those include fraud risk assessments, mandatory checks on payments, fraud awareness training and regular referrals to OLAF where suspected fraud arises. We also support OLAF through the work of the designated UK anti-fraud co-ordinator, AFCOS, which is based in the City of London Police alongside Action Fraud. AFCOS continues to engage actively with OLAF and other member states to investigate and bring criminal proceedings against perpetrators of EU fraud. It would also be fair to say, looking at the ECA’s assessment of member states, that it samples member states’ activities; it is not intended to be a thorough audit of each and every member state to produce those numbers, so there is not a specific UK error rate on fraud, just as there is not for financial management errors.
Mr Gauke
In terms of UK infringement of state aid rules, the mandate of the relevant audit authorities for structural funds in the UK includes checks on compliance with state aid rules. The UK project reference here is not identified by the ECA, so it is not possible to comment on the nature of the errors. However, if my hon. Friend’s concern is about ensuring that state aid rules are properly enforced, I say to him that we will continue to push the Commission to focus on the areas of greatest error, and we think that that would be beneficial in ensuring that the EU state aid regime works as effectively for Europe as it can.
Rob Marris
I have a question for the Minister of State. In her explanatory memorandum dated 10 December, Baroness Verma, the Under-Secretary of State, Department for International Development, pointed out that the European development fund is the European Union’s main development co-operation instrument and that the total budget for it in 2014 was £34.5 billion. She also said that about 15% of that came from the United Kingdom. I say “about 15%”, because in paragraph 2 she says it was 14.68% and in paragraph 21, on page 391 of the bundle, she says it was 14.82%—it is about 15%. The Minister of State referred to 11% of DFID’s budget being spent via the European Union. Could he say briefly what the process is for deciding the percentage of DFID’s budget that is spent via the European Union?
Small Businesses: Tax Reporting
Debate between Rob Marris and David Gauke(8 years, 10 months ago)
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Mr Gauke
The traditional annual tax return, we can get rid of. What I am saying is that, rather than starting largely from scratch and pulling all the information together, businesses that need to make adjustments at the end of the year will have already done much of that work. Now, as I say, the tax system remains an annual system, and one needs to be able to look at the year as a whole for things such as capital allowances. However, it is worth bearing it in mind that the capital expenditure of the vast majority—something like 98%—of businesses would fall within the annual investment allowance of £200,000, so that is not necessarily too much of an issue for them. However, I understand the point about work in progress.
The hon. Gentleman is absolutely right to make the point that there is still quite a lot to consult on. Sometimes, I fear that we are criticised both for rushing things, charging in and not listening and for things being a bit vague because we are still consulting on them, and there is a certain mutually exclusive element to those criticisms. However, the sense of direction is clear, and it is right that we consult on the details.
Rob Marris
May I gently tell the Minister that the problem, rightly or wrongly, is that it has not been clear to many observers what the Government have been consulting on?
Mr Gauke
I think the information has always been out there, but we are where we are, and I am grateful to have an opportunity to set out where we are consulting. If the hon. Gentleman likes, I can set out some of the communication that has already been done. There are issues we are consulting on, but I believe that the direction is absolutely right.
The hon. Member for Livingston (Hannah Bardell) asked about the cost of the proposal. The hon. Member for Wolverhampton South West (Rob Marris) asked about the cost to business and the publication of an impact assessment. As with any other tax measure, a detailed assessment of the impact on administrative burdens will be published alongside draft legislation, and that is expected to be in December 2016. That assessment will be informed by prior consultation of affected businesses. HMRC anticipates producing an initial draft impact assessment alongside the formal consultation process, which starts in the spring.
Mr Gauke
As I said a moment ago, we are looking at the issue of payments, which I appreciate is a potentially vexed one. We are not rushing into that. We are consulting on it, but it is not part of the proposal announced at the autumn statement. The new arrangement will provide more information. Indeed, one benefit is that it will give a better indication to businesses of what tax they owe when it is due. That will be an advantage to businesses, which I think they will appreciate. However, we have not made any decisions on payments.
The hon. Member for East Antrim (Sammy Wilson) and other hon. Members raised the subject of broadband. I will come back to the issue of people who cannot make use of digital, but I want to respond on broadband, as it is a key point. Through the Government’s £1.7 billion investment programme, we are on track to deliver superfast broadband to 95% of premises by 2017. The Prime Minister announced at the end of last year that we are looking to implement an updated broadband universal service obligation for those not covered by the superfast plans. Industry are also set to roll out 4G mobile connectivity to 98% of UK premises well ahead of the 2017 obligation, through Ofcom’s regulatory spectrum licensing conditions.
In every walk of life, people are embracing the digital revolution. From shopping for groceries to making a GP appointment online or paying invoices at any time of day or night, millions of us benefit from digital services daily. Businesses, too, are harnessing the opportunities of the digital age to transform fundamentally their operations and the services they provide, with customers reaping the benefits. It is only right that the Government keep pace with the world around us. That is why we are seeking to transform HMRC into one of the most digitally advanced tax administrations in the world. “Making tax digital” is at the heart of those plans. At the spending review, the Chancellor announced a £1.3 billion investment in HMRC to make that vision a reality. That will see the end of the annual tax return and, in its place, the introduction of simple, secure and personalised digital tax accounts for businesses and individuals.
Importantly, the changes will deliver what businesses and individuals have told us they need. In particular, many businesses have said they want more certainty about their tax bill and do not want to wait until the end of the year, or often longer, to find out how much they have to pay. Businesses have also said they want tax returns to be more integrated into the way they run their business, rather than something done separately and many months later. The use of digital tools—accounting software or smartphone apps—will, for the first time, create that desired integration.
Businesses will be able to see in their digital account what each update means for their tax position as the year goes by. That will also make it easier for businesses to understand how much tax they owe, giving them far more certainty about their tax position and helping them to budget, invest and grow. Beyond helping businesses to get their taxes right, making tax digital will also help them to improve and develop their business. Targeted guidance and alerts will make them aware of relevant entitlements and reliefs or wider Government services to support business growth.
Apart from the modernisation of business practices, there is another important prize that we cannot ignore. Each year, around £6.5 billion of tax goes unpaid because of mistakes made by small businesses when preparing and filling in their tax returns. These reforms will improve the quality of record-keeping, reducing the likelihood of mistakes and contributing £920 million in additional revenue to the Exchequer by 2020, then £600 million a year thereafter. The alternative would be to stick to a system where taxpayers take out 18-month-old records, stare at them for a while as they try to figure out what they were doing then and tentatively use them to fill in a lengthy HMRC form, or drop on to their accountant’s desk a large carrier bag of records—
Mr Gauke
—or, indeed, a shoe box, and bear the expense of having the accountant do the job. The taxpayer then pays their final tax bill on money made up to 21 months previously. It is a system designed for a world of paper and bookkeeping, in the literal sense, and it is not tenable in the 21st century.
I do not, however, underestimate the scale of changes that making tax digital represents for businesses and their agents, in particular the transition to digital record- keeping. I also make no apologies for the scale of our ambition. With the Government and local authorities investing £1.7 billion to bring superfast broadband to over 95% of the UK by 2017, these changes are possible. As I said, the Prime Minister has announced that we are looking to implement an updated broadband universal service obligation for those not covered by the superfast plans. Equally, I acknowledge the concerns raised about the pace of the reforms. Similar concerns were raised about online filing and real-time information. However, HMRC’s impressive track record in implementing those changes speaks for itself. Working with interested parties, we can match that success.
Some have suggested that the reforms should be introduced on a voluntary basis, rather than requiring businesses to make the change. A voluntary approach would cost the same but deliver only a fraction of the benefits for business and the Exchequer. In the current fiscal environment, without the additional revenue generated by closing the tax gap, we could not have provided the £1.3 billion investment required to transform services for all taxpayers.
Some have said that it is overly ambitious to rely on digital as the primary channel. The fact is that we are going with the grain of the way small businesses are already moving. The benefits of digitisation are readily accepted by the majority of small and medium-sized organisations. While there has been plenty of debate—a lot of it online—about the challenges, I am heartened see that many businesses and their agents are already forging ahead. Already, 2 million small and medium-sized businesses are using software for their payroll and VAT.
I am, however, equally focused on ensuring there is support for those who need it. The Government have already said they will ensure that free software products are available to businesses with the most straightforward tax affairs. Some—a very small minority—will be unable to adopt digital tools due to geography, personal disability or other circumstances. In those cases, help will be provided. There is no question of forcing those who genuinely cannot go digital to do so. We will consult with business and representative bodies to understand fully who cannot get online and what support they need, and we will ensure we provide alternatives, such as telephone filing.
We want the reforms to provide the maximum benefit for business and the UK. We are already talking to a wide range of businesses, agents, software developers and professional bodies, and a wide-ranging consultation exercise will start in the spring. We are introducing the reforms gradually and not phasing them in fully until 2020 because we know how important it is to give taxpayers time to adapt. We are using volunteers to stress-test new services, so that we can be confident the new services work before they are rolled out.
If we get this right, the benefits will be considerable. We will reduce burdens on business, reduce the tax gap and bring tax administration well and truly into the digital age. These important changes will boost economic growth, so I urge hon. Members to support our reforms to make tax digital.
VAT Evasion: Internet Retailers
Debate between Rob Marris and David Gauke(8 years, 10 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship for the first time, Mr Hanson. It was not that long ago that you and I were debating tax matters in your long and distinguished period on the Labour Front Bench, as my shadow. I note that four of the five shadows I had in the previous Parliament are no longer serving on the Labour Front Bench. I hope the hon. Member for Wolverhampton South West (Rob Marris) will not see that as in any way ominous.
Mr David Hanson (in the Chair)
With due respect, I have had a release after 17 and a half years.
Mr Gauke
Yes, that is a very long sentence. I hope you are enjoying your new role, Mr Hanson.
I congratulate my hon. Friend the Member for Daventry (Chris Heaton-Harris) on securing this debate and setting out the case so well. I also congratulate my right hon. Friend the Member for Arundel and South Downs (Nick Herbert) on his passionate speech. He is correct to say that I have met Mr Juretic and listened carefully to the points he raised.
I will turn to specific points, but first I want to acknowledge the important work that Her Majesty’s Revenue and Customs is doing in collaboration with other agencies, both in the UK and internationally, to tackle tax evasion, which, as the hon. Member for Wolverhampton South West pointed out, is what we are talking about today. Tackling tax evasion in all its forms is a priority for HMRC. Last year, HMRC collected and protected a record £26 billion in revenues from compliance activities and secured more than 1,200 prosecutions using intelligence, sophisticated risking systems and smart data.
The phenomenal growth in online sales in recent years, which we have heard about this afternoon, has made many people’s day-to-day lives much easier but presents significant challenges for HMRC. That is because the supply chains are often very complex and involve a number of different entities. Suppliers can be located overseas and their records are not always available alongside the goods. All those factors combined make it much more difficult to spot where tax and duty have been paid.
To make things more complicated, HMRC is looking for frauds taking place in the midst of large volumes of legitimate trade. It is far from our, or HMRC’s, intentions to get in the way of legitimate trade, so HMRC is mindful of the need to target its activities proportionately. Nevertheless, this is a significant issue that we are determined to tackle. Building on its expertise in tackling evasion, HMRC has brought together specialists from across the Department and established in spring last year a taskforce to tackle the specific customs and VAT frauds that we have been talking about. That taskforce currently has more than 75 live investigations open into businesses or entities suspected of flouting the rules, and that figure is expected to grow to 150 before the end of the 2015-16 financial year.
Retailers Against VAT Abuse Schemes has highlighted about 500 businesses that it alleges are complicit in these frauds in some way. My hon. Friend the Member for Daventry drew attention to that list, and other hon. Members have referred to it. I assure the House that HMRC has examined the RAVAS list closely. For reasons of taxpayer confidentiality, I am not in a position to know, let alone say, what conclusions HMRC has reached in respect of each of the companies listed by RAVAS. However, it would only be fair for me to say that one cannot assume every company on the list is non-compliant.
At this point, I should touch on VAT registration numbers, which a number of hon. Members raised, including the hon. Member for Ross, Skye and Lochaber (Ian Blackford). Not all sellers are required to be VAT-registered. Overseas sellers that supply goods, located outside the UK, have no requirement to be registered for UK VAT. If they are compliant, in those circumstances, they would pay import VAT at the border. Of course, that would be a sticking tax, as they would not be entitled to reclaim that VAT. There are complications in this area, and the absence of a VAT number does not, in itself, suggest that a seller is breaking VAT law.
[Philip Davies in the Chair]
The issue is if sellers are claiming to be outside the UK and selling from outside it, but are in fact storing goods in a warehouse in the UK and dispatching them from the UK to a customer here. That changes the circumstances, but I want to be clear that the absence of a VAT number does not necessarily mean that fraudulent activity is occurring.
HMRC is working jointly with other Government agencies, including carrying out joint visits with trading standards and sharing intelligence with UK Border Force, to address risks across the entire supply chain to ensure that all sellers who sell online pay all the taxes that are due. To give hon. Members a flavour of that work, in an operation just before Christmas, HMRC and trading standards seized goods worth half a million pounds. As HMRC’s programme of activity continues, and both its operational intelligence and understanding of fraud improve, it expects to make more interceptions and seizures of illicit goods.
I should stress the point about illegitimate and legitimate trade. HMRC has the powers to seize or detain all goods in a warehouse, for example, but it also has to think about the potential impact of its actions, for instance, on the end consumer. If HMRC were seizing goods that subsequently turned out to be there legitimately, I suspect many of our constituents would want to raise concerns.
We recognise the concerns that have been raised by compliant businesses. Clearly, it is very important that non-compliant businesses should not be allowed to establish any unfair advantage over compliant businesses, as that would distort competitiveness. Again, that point was rightly made by a number of hon. Members. Tackling these frauds is just as much about maintaining a level playing field for business as it is about collecting the tax and duty that should be paid.
That operational work is the first strand of HMRC’s work to tackle these frauds. The second strand is engagement with the online platforms on which goods are sold.
Rob Marris
Before the Minister moves off the first strand—perhaps he is planning to address this point later—23 months ago he talked about the investigations that were going on. He tells us today that there are 75 live investigations. What he could tell us, which would not breach taxpayer confidentiality, is whether there have been any prosecutions—which would be in the public domain—in the last five years for this sort of fraud.
Mr Gauke
I will have to write to the hon. Gentleman with details on that. I am not in a position to give any numbers this afternoon, but I understand his point.
Turning to online platforms, I can tell hon. Members that a meeting with the top online platforms took place recently, at a very senior level, to explore the role that they can play in preventing such frauds. HMRC is proactively following that up to see how it can work with the platforms to tackle the fraud and better quantify the scale of that. However, having looked at the matter, HMRC’s view is that online platforms have no liability for unpaid VAT where the operator merely provides a marketplace for businesses to sell goods.
I know that this point was raised by my hon. Friend the Member for Daventry, and although I am loth to get too much into a legal argument, he mentioned the Kittel case. It is worth bearing in mind that the Kittel case applied in the context of MTIC—missing trader intra-Community—fraud, or carousel fraud, which the hon. Member for Wolverhampton South West and I debated some years ago. Irrespective of that issue, it is worth pointing out that the Kittel case has been used by HMRC in the context of withholding repayments of input tax to members of a supply chain. It is a civil case, not a criminal case, and in HMRC’s view, the important difference here is that all members of a supply chain in MTIC fraud have, at some point or other, title of the goods, enabling them to reclaim input tax. That is not the case when an online platform is involved in providing services relating to the sale. Therefore, HMRC does not believe that Kittel applies in these circumstances in the way that my hon. Friend suggests.
It is also worth pointing out that there are many parties involved in a transaction where this type of fraud may occur—for example, fulfilment houses, payment providers, freight forwarders and agents, and online marketplaces as well as online sellers. HMRC is not limiting anti-fraud work to marketplaces only, although it recognises that they play an important role and is prioritising its engagement with them in the coming weeks.
The third and final strand to tackling this issue is putting together an effective set of policies that can make this sort of fraud harder to perpetuate in the first place. As hon. Members will recognise, unilateral action is not going to solve the problem by itself, as there is an important international dimension to these frauds. They affect the revenues of other EU member states as well as the United Kingdom, and we are in close dialogue with them about how best to combine our efforts to tackle such frauds.
Rob Marris
Welcome to the Chair, Mr Davies. Would the Minister therefore say that in this respect, it would be advantageous to the United Kingdom to remain a member state of the European Union, because of that international dimension and the international action to which he referred?
Mr Gauke
I do not know whether that intervention was for my benefit or for the arrival of our new Chairman —Mr Davies, it is a great pleasure to see you in the Chair this afternoon.
The point I would make is that whether we are inside or outside the European Union, international co-operation is very much necessary in such cases. As an example of that, the customs aspects of these frauds—it needs to be emphasised that this is a customs as well as a VAT issue—are on the agenda for the meeting of the directors general of all EU customs services on 26 March. There is some evidence that the UK has been particularly targeted for these frauds because of our much greater take-up of online shopping. That will make it all the more important that we work closely with our international counterparts, for the benefit of the UK and more widely. HMRC already works closely with the European Commission and OLAF, the EU’s anti-fraud unit.
Of course, there is a lot more to be done, not least as online retailing gets ever more popular worldwide. All taxes are kept under review, and HMRC is considering whether there need to be policy changes or other changes to the rules that apply to online sales. However, for effective longer term solutions, we will need to continue our engagement with other EU member states, the Commission and the OECD, and I would like to assure hon. Members that that dialogue is already under way.
Our goal is simple: one where the customer continues to enjoy the benefits of being able to buy goods conveniently through an online platform, but where unscrupulous businesses cannot undermine, through fraudulent activity, businesses that do the right thing. Although there is still much work to be done, I hope that hon. Members will appreciate the strong and collaborative efforts that HMRC is making to tackle this issue.
Draft Taxation of Regulatory Capital Securities (Amendment) regulations 2015
Debate between Rob Marris and David Gauke(8 years, 11 months ago)
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Mr Gauke
As I set out in my opening remarks, the regulations provide necessary amendments to the existing Taxation of Regulatory Capital Securities Regulations 2013. They are required to clarify the tax treatment of securities issued by insurers to meet new regulatory requirements designed to improve financial stability. The taxation of regulatory capital instruments should be absolutely clear and support regulatory principles of financial stability, but the existing regulations, which provide clarity to the banks, are silent on the tax treatment of similar securities for insurers.
The securities included in these regulations are akin to loans made to the business rather than capital investment. They are therefore more like debt than equity and the tax treatment should reflect that.
Rob Marris
I have two points. First, clarity is always welcome in tax legislation, even though one may be clarifying a policy with which one does not agree, hence our discussion. Secondly, I remain bemused, because the Minister said that regulatory capital securities are akin to loans and more like debt, but they seem to me to be the cost of doing business. Many businesses require capital to do business, and those in the insurance and banking sectors, in particular, and for obvious reasons, have greater capital requirements, which are statutory. Why are they being treated that way?
Mr Gauke
The hon. Gentleman is aware that there are capital requirements on financial institutions because they need instruments that will absorb losses in the event of financial stress. The position for insurers is decided at EU level, as I said in my earlier remarks. In circumstances of financial stress, the debt can convert to equity. It is not simply a matter of it being a cost of doing business that many businesses would experience; it is part of a regulatory regime to ensure that insurers are well funded in circumstances of financial stress so that that does not cause wider difficulties in the financial system.
The hon. Gentleman expressed a concern—I do not know whether it was probing or likely to drive him to oppose the motion—that the regulations could be seen as being soft on insurance companies. I reassure him that they are about providing clarity on the tax treatment of securities that have debt-like qualities and are required to be held for the stability of insurers. The original regulations approved by the House in 2013 are designed to support the EU regulatory frameworks for financial institutions by taxing returns as interest and ensuring that a tax charge is not triggered in the event that coupon payments are altered or suspended as a result of the issuer falling into financial stress.
I hope that those points are helpful and that the regulations will be supported by all members of the Committee.
Question put and agreed to.
Draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Canada) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Kosovo) Order 2015
Debate between Rob Marris and David Gauke(8 years, 12 months ago)
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Mr Gauke
I thank the hon. Member for Wolverhampton South West for his questions. First, he asked whether I could say a little more about the definitions for Guernsey and Jersey. As with all tax treaties, the DTAs with Guernsey and Jersey provide that the UK can tax an enterprise resident in the other territory only if it is operating in the UK through a permanent establishment. The DTAs with Guernsey and Jersey did not include the continental shelf within the definition of the UK. That means that, under the terms of the DTA, the UK currently has no taxing rights over Guernsey and Jersey enterprises operating on the UK continental shelf, whether they have a permanent establishment there or not. The changes made by these orders ensure that companies cannot exploit that feature of the treaties to circumvent the effects of the bareboat chartering rules introduced in the Finance Act 2014. That was an attempt to deal with a particular area of the tax system that was being exploited. The orders are an attempt to be consistent with those rules and to avoid any loophole being exploited.
On the issue of the impact assessment, let me make this point. DTAs remove barriers to cross-border trade and investment, so the effects of a specific agreement will depend on the extent to which activities change as a result. Concluding a DTA is therefore not a zero-sum game—I have made that point before, and the hon. Gentleman accepts it—because possible negative short-term revenue effects are offset in the longer term by increased activity. Given the long timescales, complex and shifting interactions with domestic law, large and unpredictable behavioural effects and the lack of a sensible comparator, it is not possible to produce meaningful estimates of the revenue effects of double taxation agreements, and successive Governments have never attempted it.
I hope there remains a consensus in the House that trade is a good thing. We wish to remove trade barriers and to encourage trade between countries, as that is a source of wealth creation that benefits all participants. DTAs help to remove a potential barrier to trade, which is the risk of double taxation. That is why successive Governments have been supportive of steps, such as those we are taking today, that ensure a large DTA network.
The hon. Gentleman mentioned pendulum arbitration, which is sometimes called “final offer” arbitration or baseball arbitration, particularly in the US, where it is used for setting players’ salaries in cases of dispute. This method or arbitration involves a panel having to choose the position taken by one of the tax authorities. The alternative is a reasoned decision, by which the panel can come up with its own preferred solution. The UK has traditionally followed the latter method—reasoned decisions—as set out by the OECD, but “final offer” arbitration, which Canada favours, has several attractions. Not only is it likely to be quicker, simpler and cheaper than reasoned decision arbitration, but it encourages the two sides to take reasonable positions in their discussions, which decreases the likelihood that arbitration will be required. There is no particular significance in one trade agreement taking one approach and a different agreement taking another. These are matters for negotiation and a case can be made for either approach when arbitration is undertaken.
Rob Marris
Let me put this to the Minister on a pendulum arbitration basis: will he say which he thinks is preferable? All or nothing—give me a reasoned answer.
Mr Gauke
I think probably the best answer is that it depends. It would be fair to say that I am unsure whether it is possible to split the difference between the two, so one either has to use pendulum arbitration or a reasoned decision. That is the default option, but some of our treaties do have “final offer” arbitration and we are prepared to consider it.
As for the five-year provision on termination, a five-year minimum life for a tax treaty given by the termination clause is a provision common to most of our treaties. It ensures that the products of often complex and lengthy negotiations can stand for a minimum period of time. Those who have served in these Committees before will be aware that we often replace very old treaties. These are not things that can be knocked out in a fortnight, so some kind of minimum period of time is helpful.
I hope that those comments and clarification are helpful and that the Committee will support the orders before us.
Question put and agreed to.
Draft Double Taxation RElief and international Tax Enforcement (Jersey) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015.— (Mr Gauke.)
Draft Double Taxation RElief and international Tax Enforcement (CAnada) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Canada) Order 2015.—(Mr Gauke.)
Draft Double Taxation RElief and international Tax Enforcement (Kosovo) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Kosovo) Order 2015.—(Mr Gauke.)
Draft Small and Medium Sized Business (Credit Information) Regulations 2015
Draft Small and Medium Sized Business (Finance Platforms) Regulations 2015
Debate between Rob Marris and David Gauke(9 years ago)
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Mr Gauke
I thank the right hon. Member for Enfield North and the hon. Member for Wolverhampton South West not only for their questions but for their support for the draft regulations. We have had a productive discussion, and I hope to respond to their questions. Before I do, let me reiterate that, together, the draft regulations will generate a significant change in competition in the market for SME finance ,which could improve not only the amount of finance available to SMEs but the cost and quality of services offered to small firms.
As I set out in my opening remarks, there is a large body of evidence that there are market failures in the SME lending market. The draft regulations will help to remove the barriers to entry identified in that evidence; increase competition in a highly concentrated market that is dominated by the four largest banks; and remove information market failures that prevent SMEs from seeking finance and prevent alternative finance providers and challenger banks from knowing of each other’s existence.
I stress, particularly in the context of the first point raised by the right hon. Member for Enfield North, that the regulations are about providing opportunities to businesses seeking finance, so that they do not just go to one place, get rejected and give up, but choose to go to other providers. That is an important option available to businesses. Of course, it is ultimately for businesses to determine how much they wish to borrow, but the way of protecting businesses from over-borrowing is not to have a position whereby they cannot access finance at all. That is an important point.
The shake-up of the lending market for SMEs will improve the ability of our small and medium-sized businesses, which are so vital to UK growth, jobs and opportunity, to access the finance they need to grow, expand and continue to have a significant positive impact on the UK and its economy.
In light of some of the questions that have been asked, it might be helpful if I provide a little more information. The hon. Member for Wolverhampton South West raised a point about overall credit conditions. On an annual basis, the growth rate of net lending to SMEs continues to ease. It was 0.6% in June 2015, up from minus 2.8% in June 2014. Across all SMEs, 67% of applications in the 18 months to quarter 1 of 2015 were successful. That is up from 59% in the same period to quarter 1 of 2014. For small businesses, successful credit applications fell slightly in quarter 2, but the trend over the past few years has been improving.
It also might be helpful for the Committee to have a bit of information about SME finance application rejection rates. The rate for new money is 35%. For new money for first-time borrowers, it is 45%. For renewals it is 2%, with an overall rejection rate of 24%. To break it down in another way, loans are at 33% and overdrafts are at 18%. It would be difficult to provide information on rejections on the basis of the loan application not meeting the bank’s risk criteria. I can understand why the hon. Member for Wolverhampton South West asked that question—I am not sure I can provide that information, but I hope what I have said is helpful to him.
On the provision of data through public bodies, I would argue that the UK is a best practice example throughout Europe of data sharing by CRAs. A register remains an option that can be considered if the current system and the regulations are not effective, but our proposals are part of our desire to ensure that data are properly shared.
A question was asked about the purpose of the Bank of England accessing the data, and whether that would constitute overload. That access should give the Bank of England a much fuller understanding of the regional and sectoral allocation of credit, of the type of small and medium-sized businesses that are getting credit and of the risk profiles of different small and medium-sized businesses. We believe that that access will be helpful to the Bank of England.
On encouraging RBS and Lloyds bank to lend to SMEs, the regulations do just that. They apply to both RBS and Lloyds, which will share the data through the CRAs. That is how the UK system works.
Rob Marris
Will the Minister say what the Government and their predecessors have been doing for the past five and a half years, before these regulations to get RBS and Lloyds to lend to SMEs?
Mr Gauke
The best way of ensuring that our banking sector, including RBS and Lloyds, is in a position to lend to SMEs has been to look at the overall situation of the economy and to ensure, for example, that we have had lower interest rates than we might otherwise have had, and that we have not had to increase interest rates prematurely. That has been part of ensuring that we have good lending conditions. We have had policies such as funding for lending, which was designed to help banks across the piece. We must remember that although RBS and Lloyds are publicly owned, operational decisions are not made by Ministers. That has never been the Government’s approach.
The challenge for banks in recent years has been that we needed them to ensure that their balance sheets were restored and that, to some extent, they moved on from a period of risky lending to ensure that they were more secure, while at the same time ensuring that a flow of finance was available to SMEs in particular. The Government have sought to maintain that balance throughout the past five and a half years but, in truth, there was never an option of simply telling RBS and Lloyds to lend merrily without due regard to the risks. I am not saying that the hon. Member for Wolverhampton South West is suggesting that.
Rob Marris
The Minister is right, that is not what I am suggesting. He mentions interest rates, which the Bank of England sets. It sets the tone for the whole market and does so independently. We have had low interest rates since before the coalition Government came in, and the Bank of England’s interest rate has not changed.
On operational stuff, the Minister must distinguish between strategy and tactics. It is right for a major shareholder, such as the Government in those banks, to set the tone not of individual lending decisions—yea or nay—to an SME, but of the risk matrix used by the institution. On a strategic level, the Government could influence that as a shareholder, but they have apparently abdicated responsibility and failed so to do, thereby hurting SMEs.
Common System of VAT (Vouchers)
Debate between Rob Marris and David Gauke(9 years ago)
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Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray. In past years, you and I have spent many years working constructively, I think, together in this room.
The area is particularly complex. I hope the Minister will confirm whether I have understood the proposal correctly—it is quite possible that I have not—but when we boil it down, it is that single-purpose vouchers would be subject to VAT when they are issued and multi-purpose vouchers would be subject to VAT when they are redeemed. That is what I pick up from the papers. Incidentally, the papers are one of the few places outside church where one hears the word “redeemer” used.
Rob Marris
I understand that the Commission considered four options. One, perhaps unusually for the Commission, was to do nothing. One was what it is pleased to call—I confess that this is a new one on me—the “soft law” approach, which most people would call guidelines. Another was to legislate, and the fourth option was a ban. Which of those four—to do nothing, the guidelines, to legislate or a ban—was the preferred option of Her Majesty’s Government?
Mr Gauke
The first of the UK Government’s objectives was to address a level of inconsistency and confusion that exists under the status quo, so we were not in favour of the do-nothing approach. Equally, we see vouchers as having a role to play. Within the UK, we have one of the bigger markets, as one might expect—although it is perhaps bigger than one would expect based on the proportion of our economy. We would not therefore favour banning vouchers; that would be a very draconian approach.
To get the type of clarity that we think we need, we concluded that guidelines would not be sufficiently strong. Therefore, of the four options, we favour legislating and hope that we can reach agreement among all member states so that the Commission’s proposals can go forward in a legislative form, although, as I said, we have highlighted a couple of areas where we think they can be improved on.
Rob Marris
I have two further questions, if I may. As the Minister is aware, article 30a—I think it is a draft—defines “voucher”. It defines “single-purpose vouchers”, “multi-purpose vouchers” and “discount vouchers”. Are Her Majesty’s Government satisfied with those definitions?
Rob Marris
As the Minister said, this is a matter of considerable complexity. Were the proposals to go ahead—with, as the Minister mentioned, some fine tuning—would complexity for business increase or decrease? Which is the likely assessment?
Mr Gauke
It would be fair to say that there is some complexity in the current system because of inconsistency. The hon. Gentleman asks whether the draft directive will disrupt businesses because they will have to deal with a new regime. I would argue that it will not cause major disruption to businesses here. The most likely to be affected would be large, high street chains. High street shops that issue vouchers through distributors to other businesses would be most affected. Those that issue vouchers direct to their customers would be least affected.
Whether a business will be affected significantly will depend on the balance between the two types of operation within the same business. Some high street retailers issue both types of voucher. Some distributors might want to change their business model from buying or selling vouchers to arranging the sale of vouchers. That is quite possible.
Officials have had wide-ranging discussions with UK businesses on the changes. Although there may be some changes and disruption, the general feedback that officials have received from businesses is that they would welcome certainty on the matter in the future. Again, I make the point that, for the first time, VAT law would have a specific provision for VAT treatment of vouchers, which would mean that EU member states would have the same rules, making cross-border trading using vouchers far easier. Businesses would no longer have to set up different systems for different countries.
To give a topical example, the provisions would also make the collection of VAT on mobile phone roaming charges far simpler. The new rules would allow the UK to make changes to our law to make it easier to collect the right amount of tax on what the customer pays when using a voucher. Yes, there will be some disruption to and impact on high street retailers but, on balance, if an agreement can be reached, this is a favourable change.
National Insurance Contributions (Rate Ceilings) Bill (Second sitting)
Debate between Rob Marris and David Gauke(9 years ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
It is a very great pleasure to serve under your chairmanship, Mr Bailey. I welcome all hon. Members to their places. Progress was brisk and efficient at our evidence session this morning and if it were up to me, that momentum would continue, but of course it is not up to me.
Clause 1 specifies that the class 1 contributions payable by employees at the main primary percentage shall not exceed 12%. Class 1 contributions are payable at 12% on earnings between £155 and £815 a week. For earnings above £815 a week, the additional primary percentage shall not exceed 2%. The provisions in clause 1 will apply to any tax year that begins after the day on which the Bill comes into force before the next election.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship again, Mr Bailey. You commented on the weather. Of course, you and I know that that the weather in West Bromwich and in Wolverhampton is always lovely, especially at this time of year.
Through clause 1 the Government are limiting their room for manoeuvre. I am aware, as are all hon. Members, that there was a commitment by the Conservative party in the general election not to freeze but to put a cap on national insurance contributions at both rates. That was also the policy of my party, so I think that we will have a fairly brisk afternoon.
However, the Bill, as primary legislation, puts restrictions on Government, which, as I suggested to the Minister in the evidence session this morning, creates a measure of uncertainty. When some things are restricted, like this and other tax measures, such as the 1,300 tax reliefs, of which the Audit Commission says that only about 200 are tracked properly, it can create uncertainly by a kind of ripple effect—if one is being certain in one sphere but saying nothing about this other sphere, whatever it may be in terms of the tax regime, perhaps one has plans to change that.
Do the Government currently have any plans to change, in any way, the regime for national insurance contributions, whether in terms of the upper earnings limit or the percentage rates at which it is levied? There are different rates, of course, depending on the different classes, including class 3A, which runs out at the end of next March. Are there any proposed changes to the regime?
Mr Gauke
I am grateful for the hon. Gentleman’s comments and I am encouraged, as I am sure you are, Mr Bailey, by the consensus, at least on being brisk this afternoon.
As for future plans for national insurance contributions, of course, all taxes—and for these purposes, we count national insurance contributions as a tax—are kept under review. Any announcements are made by the Chancellor in Budgets and autumn statements. I have nothing to add to what has previously been said in Budgets and autumn statements. As was touched upon in our evidence session this morning, the Office of Tax Simplification is looking at national insurance contributions and their alignment with income tax. It has examined that in the past, and it and the Government believe that it would be helpful to draw out some of the related issues in quite a complex matter.
Rob Marris
I appreciate that consultation is ongoing and evidence is still being gathered, but is the Government’s preferred option at this point to have such an alignment?
Mr Gauke
The Government’s position is very much an open one. There is no preferred position as such. Clearly, the matter has been raised on numerous occasions over many years. I suspect that all parties have looked at this issue to a greater or lesser extent. The Office of Tax Simplification has made recommendations in the past on this matter, and we think that it would be beneficial for it to continue to look at the subject with a view to developing potential ideas and then, after that further investigation, for us to have an informed debate on whether to take the proposals forward. The Government do not have a predetermined position, but we think that it would be beneficial to the general debate for the OTS, which is a respected organisation that has already done good work in this area, to take the matter forward.
In short, we do not have further proposals other than those that we previously set out—not least, of course, the cap. The hon. Gentleman is right to say that the Bill provides for a cap, not a freeze.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Secondary percentage
Question proposed, That the clause stand part of the Bill.
Finance Bill
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
It is a pleasure to respond to the debate. Let me begin by congratulating the hon. Member for Wolverhampton South West (Rob Marris) on his debut at the Opposition Dispatch Box—and what a debut it was, consisting of a speech lasting more than an hour. In the time that is available to me, I shall attempt to respond to his speech and, indeed, the many other speeches that we have heard this evening, but let me first deal with the measures that we are discussing.
New clause 9 would require the Chancellor of the Exchequer to undertake a comprehensive review of the inheritance tax regime within one year of a current budget surplus. Amendment 89 would remove clause 9 from the Bill, as a result of which the additional transferable nil-rate band for all individuals who leave their home to direct descendants would not be introduced. Clause 9 represents a commitment that was made in the Conservative party manifesto—a promise made to the British people—and recognises that more hard-working families face an inheritance tax bill than has been the case at any time since the introduction of the system nearly 30 years ago.
Last year, 35,000 estates had an inheritance tax liability. It has been forecast that that figure will nearly double, rising to 63,000, in 2020-21. Thousands more worry about leaving their families with inheritance tax bills when they die. The additional transferable nil-rate band will simply return the number of estates with an inheritance tax liability to 37,000 in 2020-21, broadly the same level as in 2014-15. I remind the Opposition that that level is still higher than the level in any year between 1997 and 2010. Furthermore, we have ensured that the wealthiest will make a fair contribution to the public finances through inheritance tax. It will not be possible for the largest estates to benefit from the new allowance. It will be gradually withdrawn by £1 for every £2 that the estate is worth over £2 million.
Those who support amendment 89 demonstrate that they do not understand those who wish to save, pay their taxes, work hard to own their own homes, and pass them on to their children and grandchildren without facing a hefty tax bill. We believe that it is right for people to be able to pass on their homes to their descendants rather than the taxman.
The hon. Member for Wolverhampton South West expressed what sounded like concern about the fact that no properties in his constituency—or very few—would be affected. He also said that he opposed measures taken by the last Labour Government to introduce the transferable nil-rate band. I remind him that in the year in which those measures were introduced, 4.3% of estates paid inheritance tax. If we do not act, some 11% will pay it by 2019-20.
Given the comments that we have heard from the Opposition Front Bench, suggesting that they wish to raise more revenue from inheritance tax, I rather suspect that their desire for a review is connected with their perception of it as a potential cash cow. If I have misunderstood, I am happy to withdraw what I have said, but that seems to me to be the direction in which Opposition Members want to go.
Rob Marris
It is not a question of inheritance tax being a “cash cow”; it is a question of whether we maintain the regime that we have now, and the revenue that it brings in, or move to the much more generous regime that the Government wish to introduce.
Mr Gauke
The regime as it stands will affect more properties than it did under any of the Labour years. The reality is that if we do not take action, inheritance tax will hit more and more estates. It will be a tax that will be much more widespread than was previously the case. If that is the position the Labour party holds, that is the position, but I think we should be aware of what it is.
Mr Gauke
Yes, I will make those representations to the European Commission to allow member states to have the flexibility to do that, which I think is the key issue here.
On the climate change levy, let me briefly explain the policy rationale, as we have debated this on a number of occasions. The climate change levy renewables exemption was misaligned with today’s energy policy, providing indirect support to renewable generators when the Government are now investing in more effective policies that target them directly. Together, policies such as the renewables obligation and the feed-in tariff will provide more than £5 billion-worth of support to renewable electricity generation in 2015-16 alone. I do not believe the report on this clause is necessary. The Chancellor has already written to the Chairman of the Treasury Committee in August setting out the environmental analysis of the summer Budget in 2015.
On enforcement by deduction from accounts, we believe that we are introducing a necessary measure and that we have struck the balance correctly. I am grateful for the remarks made by the hon. Member for Wolverhampton South West in pointing out that the safeguards are strong. I know he still has concerns about the measure, but the safeguards are strong and we believe we are striking the right balance.
To conclude, I urge the House to reject new clauses 1, 2, 7—if it is pressed to a vote, and I hope it will not be—10 and 11, and amendment 90.
Rob Marris
On inheritance tax, the Government have not gone far enough. It is not a problem to us that 11% of estates might face it, as that is still a tiny minority, and if the Government were worried about preserving assets, they would have done a lot more about social care for the elderly and what that takes out of their houses. On new clause 1 and VAT on the Scottish police, that was indeed a decision of the Parliament in Scotland, but simply saying, “They were warned” is not good enough. I understand and support the SNP on new clause 1. On new clause 7, I salute the Minister for coming a very long way, but he has not come far enough. The same applies on new clause 11.
Question put, That the clause be read a Second time.
Draft Double Taxation Relief and International Tax Enforcement (Algeria) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Sweden) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Senegal) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Croatia) Order 2015
draft Double Taxation Relief and International Tax Enforcement (Bulgaria) Order 2015
Draft International Tax Enforcement (Brazil) Order 2015
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under you, Mr Bailey—the first time that I have had the pleasure, I believe. I would prefer, with your permission and that of the Committee, if we dealt with the draft orders on Algeria, Bulgaria, Croatia and Sweden together—I appreciate that that will still lead to four votes—and then, in separate debates, the draft orders on Senegal and on Brazil. Of course, the Minister might have different views on what is appropriate.
The Financial Secretary to the Treasury (Mr David Gauke)
I have no objection to that.
The Chair
I should make it clear that debate on the collective group of statutory instruments will continue for up to an hour and a half, although they will be voted on separately. There is then up to an hour and a half on the other two instruments afterwards.
Mr Gauke
I thank the hon. Member for Wolverhampton South West for his first contribution and my right hon. Friend the Member for Cities of London and Westminster for his first and perhaps last contribution of the afternoon.
First, I will address the point about format. I understand why the hon. Gentleman raised the point but let me reassure him that all UK treaties follow to a large extent the OECD model, as is the case for most treaties throughout the world, which means that all the treaties appear very similar to each other. The hon. Gentleman would find that treaties that did not involve the UK would also look similar, so it is not so much the UK asserting a particular UK model. This is very much the international rule.
Rob Marris
Would that be the case with Algeria, which of course is not a member of the European Union and I believe is not a member of the OECD? Would it still, as far as he knows, tend to follow that common OECD format as a template?
Mr Gauke
Yes, that is very much my understanding. I confess I have not studied Algerian double taxation treaties not involving the UK perhaps as much as I might have done, but my understanding is that this model is used very broadly. Clearly there are advantages in terms of standardisation of the model for these treaties. It comes back to the point made by my right hon. Friend the Member for Cities of London and Westminster that double taxation agreements of this sort—tax treaties—help provide greater certainty to businesses. That greater certainty does help encourage foreign direct investment into countries that have treaties. The UK certainly benefits from a very extensive network of tax treaties, but developing countries also benefit from the certainty provided—the signal that a country is open for business. That is mutually beneficial.
I am aware that some critics of DTAs focus on the potential for abuse that they create, either through the creation of opportunities for non-taxation or the flow of benefits to unintended recipients, but such criticisms ignore the fact that measures can be agreed that protect against abuse, and the UK routinely agrees such measures with developed and developing countries alike. I would speak in defence of these tax treaties, from the point of view of both the UK and developing countries.
I suspect we will return to the role of the UK and the extent to which these matters are something of a compromise. I would just make the point that with any of these treaties, it is not realistic to expect any one party to a treaty necessarily to get their way on everything. These are matters on which there is likely to be some compromise.
I touched upon the fact that a lot of countries would place greater reliance on source income as opposed to residence as a test of where the taxable rights should fall. There tends to be a compromise reached, where an acceptable one can be. After all, each of the treaties before us this afternoon is the result of two sovereign Governments agreeing that it is in their mutual interest to sign it. We believe that a tax treaty can be a powerful tool for development because of the certainty it gives to international investors.
I hope those points are helpful to the Committee, Mr Bailey. I suspect I may refer to them again later this afternoon. I hope that, on those points of clarification, the Committee will support the four draft orders.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Algeria) Order 2015.
DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (SWEDEN) ORDER 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Sweden) Order 2015.—(Mr Gauke.)
DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (CROATIA) ORDER 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Croatia) Order 2015.— (Mr Gauke.)
DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (BULGARIA) ORDER 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Bulgaria) Order 2015.—(Mr Gauke.)
Draft Double Taxation Relief and International Tax Enforcement (Senegal) Order 2015
Mr Gauke
I thank the hon. Gentleman for his questions. I very much appreciate that he is probing the Government, as indeed is his role, and I am grateful that he indicated to me in advance that he would probe along those lines.
We do have to bear in mind that such treaties are not a zero-sum game. The hon. Gentleman did not claim that it is, but we have to bear in mind that a concession by one party to the other may well be to their mutual benefit. That is the nature of a double taxation agreement: it helps to provide greater certainty, for example, for businesses investing in a particular country. It prevents double taxation, which would act as an impediment to foreign direct investment. As we touched on in our earlier debate, that is why these treaties help to smooth the flow of investment funds and help countries to trade more closely together, which is an important source of increased prosperity. I make that general point.
More specifically, regarding the Senegal treaty that we are considering today, I hope that the hon. Gentleman will be reassured by the fact that discussions on this DTA commenced after an approach from Senegalese officials and not after lobbying by UK multinationals—not that such lobbying would necessarily be wrong. Nevertheless, the process was initiated by the Senegalese. The treaty will provide benefits for UK companies investing in Senegal, and Senegal will also benefit from such investment as its economy develops. Indeed, it is important for a country to be clearly open for business and to provide a tax regime that attracts investment rather than deterring it.
I will touch on some of the specific points that have been made. The hon. Gentleman made a point about the difference in withholding tax. The treaty reflects a compromise after extensive discussions. The balance of source state taxation versus residence state taxation reflects that compromise while providing certainty to businesses, which will encourage investment in Senegal. Cross-border trade will be enhanced, increasing taxable income in both states.
The hon. Gentleman raised a concern about UK multinationals exploiting the treaty to the disbenefit of Senegal. Of course, the Government are well aware that treaties can be exploited by some multinationals, but this treaty contains measures that will allow aggressive exploitation to be challenged by both states. Senegal has subjected this treaty to its legislative procedure, just as we are doing here now, and more widely, non-governmental organisations have acknowledged that the transparent nature of treaties is a positive factor for developing countries. I make the point again that the Senegalese Government initiated the discussions about this treaty and have agreed to the treaty.
On the economic and revenue effects of DTAs, they remove barriers to cross-border trade and investment. The effects of a specific agreement depend on the extent to which activities change as a result of it. Given the long timescales involved, the complex and shifting interactions with domestic law, the unpredictable behavioural effects and the lack of a sensible comparator, it is not possible to provide meaningful estimates of the revenue effects of DTAs, and successive Governments have never attempted to do so. I remember asking questions about the effects of a DTA when I performed the role that the hon. Gentleman is performing now, and I never received an answer. In truth, it is difficult to come up with a sensible number. Overall, however, DTAs are beneficial to the world economy and to participants in them.
A couple of other specific points were made about the Senegal treaty. The hon. Gentleman asked why it does not permit Senegal to tax supervisory activities connected with building sites, but it does allow that. The threshold for the taxation of profits arising from building sites is that the activity be carried on in the country for six months. While supervisory activities are not mentioned specifically in the treaty, the OECD commentary on the relevant provision makes it clear that supervisory activities associated with the erection of a building are included in the taxable activity of the building site.
As for why the treaty does not permit the taxation of royalties paid for radio and television programmes broadcast in Senegal, it provides that generally, royalties arising in Senegal can be taxed in Senegal at a rate not exceeding 10%. The definition of royalties includes payments for the use of, or the right to use, any copyrighted literary, artistic or scientific work, including cinematographic films. The OECD commentary on the provision makes clear that cinematographic films include material for TV broadcast. If the material to which the payment relates is subject to copyright and the payment is for the use of the copyright, Senegal may tax the payment. I hope that provides some reassurance.
Rob Marris
I congratulate the Minister on the width of his expertise on taxation in Senegal on cinematographic matters. It is most impressive.
Mr Gauke
I am grateful. It is recently acquired expertise—[Laughter]. As is my expertise on technical services paid to the UK from Senegal.
Fees for technical services fall within the business profits article of the treaty and can be taxed in Senegal if the fees are attributable to a permanent establishment in Senegal through which the work relating to the fees is performed. That reflects the view of the UK and many other states that business profits should be taxed in the country where the business is carried out. Senegal’s approach to the taxation of services differs from that of the UK. The treaty represents a compromise after extensive discussions, and the provisions governing the taxation of services follow the approach of Senegal in important respects—for example, the taxation of mobile services and insurance.
The shadow Minister asked about DFID. The UK seeks the views of UK businesses and Government Departments on agreements and treaty negotiations on an annual basis. I hope he is reassured that when it comes to overseas development, and in particular capacity building, there is a close working relationship between HMRC and DFID to improve the capability of developing countries when dealing with their tax systems. I am talking not specifically about treaty negotiations but more generally about the capacity to, for example, enforce transfer pricing legislation. A considerable amount of work is done by HMRC and DFID together to provide technical support to developing countries. I strongly support that, and I know that my right hon. Friend the Secretary of State for International Development—a former Treasury Minister—takes great interest in it as well.
There has traditionally been consensus in this country on extending double taxation agreements. The shadow Minister raises perfectly reasonable points, but I hope he is now reassured.
Mr Gauke
I beg to move,
That the Committee has considered the draft International Tax Enforcement (Brazil) Order 2015.
This is a standard agreement that sticks closely to the model developed by the OECD and adopted by the UK. It will facilitate exchanges of information on request between the Brazilian and United Kingdom tax authorities and assist HMRC in its tax compliance activities to counter tax avoidance and evasion. I hope the order will have the support of the Committee.
Rob Marris
Will the Minister briefly explain why the order is so different from the other ones?
Finance Bill (Sixth sitting)
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I welcome you back to the Chair this afternoon, Sir Roger; I am delighted to see you.
Clause 47 and schedule 8 introduce new means for Her Majesty’s Revenue and Customs to recover tax and tax credit debts from debtors who refuse to pay. The changes will allow HMRC to recover debts directly from the debtor’s bank and building society accounts, subject to a number of robust safeguards. That will help to level the playing field between hard-working, honest taxpayers and those who seek to play the system and avoid paying debts that they can afford to pay. It will also help to modernise HMRC’s debt collection powers, bringing them in line with those of many other advanced economies.
I would like briefly to explain the context for the changes being introduced, as it is important to understand how this new method of enforcement will complement HMRC’s existing procedures. The UK is a very tax-compliant nation. Last year, £518 billion revenue was paid by 50 million taxpayers. Around 90% of that was paid on time. The remaining 10%—around £50 billion—was not paid on time and was perceived by HMRC as a debt. Most of those with a debt simply need an additional reminder before they pay. Others are businesses and individuals who may be temporarily struggling, unable to pay the full amount that they owe.
HMRC takes a sympathetic approach to those who are in genuine financial difficulty. That includes support through time to pay agreements, allowing people to pay their tax in instalments over a longer time period. There are others who find themselves in a vulnerable position—perhaps because they are going through a difficult time in their lives—and find it a struggle to keep on top of everyday matters such as tax. In those cases, HMRC will provide the additional support that is required. For example, HMRC has established its well-received needs enhanced support service, which offers the appropriate support, including home visits, for HMRC customers who are struggling with their obligations. However, a persistent minority do not respond to HMRC’s repeated attempts at contact and do not require additional help. It is for that group that HMRC uses stronger powers as a last resort.
We should be clear that this measure will apply to the small population of debtors who are refusing to pay what they owe, despite having significant assets in their bank and building society accounts. Almost half of them have more than £20,000 in readily available cash, but are choosing not to pay their tax and tax credit debts. It cannot be fair that some should be able to abuse the process in that way. It is not fair on the people who pay what they owe on time and it imposes costs that are borne by every taxpayer.
The changes made by clause 47 and schedule 8 will allow HMRC to recover funds directly from the bank and building society accounts of those who refuse to pay. In explaining how those changes work, I would like to address three misconceptions about this power.
First, I will address the perception that there is no independent oversight of this power, that HMRC will act as “judge and jury”, and that it cannot be trusted to use these powers responsibly. Independent oversight is embedded in the legislation and debtors will have the opportunity to appeal against the use of the power. Before the stage of direct recovery is reached, taxpayers have the right to challenge and appeal against their liabilities before they go overdue and become debts. These existing rights are unaffected by the changes, and this power will only ever apply to established debts once the appeal process has concluded.
Furthermore, if a “hold notice” is sent to the debtor’s bank or building society to hold moneys up to the value of the debt owed, there is a 30-day window before any funds can be transferred to HMRC. During this time, the debtor can object to HMRC on specified grounds. If they do not agree with HMRC’s decision, they can appeal to a county court.
I understand that some people would argue that a court judgment should always be obtained before that power is used. However, the purpose of this measure is to focus on those who seek to frustrate HMRC’s attempts to recover money owed, including debtors who rely on HMRC taking up costly and lengthy interventions before they agree to settle. These debtors owe, on average, around £7,000 in tax or tax credit debts, and almost half of them have more than £20,000 in their bank and building society accounts.
The power will also be used transparently. HMRC will publish regular statistics on its use, including the number of objections and appeals that are filed and upheld. The Government have also committed HMRC to lay a report before Parliament once the power has been in use for two years.
Secondly, I will address the concern that HMRC will make mistakes and use this power against innocent parties. This is not a measure that will be used lightly, and every case will be assessed by a dedicated team before any action is authorised. However, the Government have listened carefully to the concerns that have been raised, including by those representing vulnerable members of the public and by respected members of the tax agent community. In response to their feedback, the Government have committed that every person whose debts are considered for direct recovery will receive a guaranteed visit from an HMRC officer. This will be an opportunity for debtors to have a face-to-face conversation about their debt, confirm beyond any reasonable doubt their identity and give them another opportunity to pay.
If a payment in instalments is appropriate, that route will be offered, and if the debtor is identified as vulnerable, or needs additional support, they will be referred to a specialist unit and explicitly ruled out of debt recovery through this power.
Finally, I will address the misconception that the moment a tax bill is owed, HMRC will be able to “dip its hands” into someone’s bank account. That could not be further from the truth. As I have explained, this power is a “bolt-on” at the end of a very long process during which HMRC will take every opportunity to recover the established debt that is owed. The power will target those who are making an active decision to delay paying what they owe. Out of the 50 million taxpayers that it serves, HMRC expects to use this power in around 11,000 cases per year. It will only apply to those who have debts of more than £1,000, and a minimum level of £5,000 in funds will be safeguarded in the debtor’s accounts to cover essential living expenses.
I turn to the Government amendments. We have always been clear that vulnerable customers should not be affected by the powers. Our amendments are a result of continued collaboration with the tax agent community and the voluntary and community sector, and I put on the record my gratitude for the advice and expert insight that those groups have given to us. Through this process of open and transparent consultation, we are now able to demonstrate in legislation the strength of the Government’s commitment to protecting vulnerable customers.
Amendment 12 puts a duty on HMRC officers to consider whether debtors may be put at a particular disadvantage if this power is applied to them, and it imposes a positive obligation on officers to ensure that the power is not used inappropriately in those circumstances. Further, amendment 11 requires that HMRC affirms in writing that officers have complied with those requirements.
The amendments make clear our commitment to protecting vulnerable members of society, and we will continue to work with experts to identify best vulnerable taxpayers and provide the most appropriate support.
I hope that clause 47, schedule 8 and amendments 11 and 12 stand part of the Bill.
Rob Marris (Wolverhampton South West) (Lab)
I thank the Minister for that helpful explanation. I place on record also my thanks to the ever helpful Chartered Institute of Taxation for its briefing, with which no doubt the Minister is familiar.
I understand the safeguards, which will, through the amendments, be increased: the debt must be more than £1,000; there will be a face-to-face visit from HMRC; there will be particular reference to and recording of a decision on whether HMRC thinks that the allegedly recalcitrant taxpayer is vulnerable; they must have sufficient money in their account; and there are 30 days in which to object before any money is transferred from the account to HMRC. During the 30-day period, the individual can apply for a court order to prevent HMRC from transferring money without itself seeking a court order, and HMRC must leave £5,000 in the account of the allegedly recalcitrant taxpayer.
There are still problems—for example, with those who hold joint accounts. The innocent or uninvestigated party to a joint account will have to make their objections known to HMRC. The Chartered Institute of Taxation says that
“we do question whether it is right for a totally innocent joint account holder to have to make such representations to stop HMRC accessing their money in the mistaken belief that it belongs to someone else.”
There are safeguards and reassurances, and my critique is not that HMRC would be acting as judge and jury, which the Minister, helpfully, was at pains to say would not be the case. That is not the substance of my critique; it is not why I will ask my hon. Friends to vote against the clause and the consequent schedule in a Division. I oppose clause 47 because in effect it makes one rule for the Government and one rule for everyone else.
I am aware that under what used to be called distraint, HMRC has since, I think, 1970 had powers to seize goods and chattels, not money from bank accounts. The Chancellor of the Exchequer, when mentioning the prospective clause in the Budget on 19 March 2014, said:
“I am increasing the budget of Her Majesty’s Revenue and Customs to tackle non-compliance.”—[Official Report, 19 March 2014; Vol. 577, c. 785.]
I am not entirely sure, despite the Minister’s reassurances this morning, that that has been the case. It certainly needs to be the case.
I did take the opportunity to look at the helpful consultation document on this prospective power; I congratulate the Government on having a long and thorough consultation on the power, and so they should have done because it is quite draconian and quite new. The introduction to the consultation document was written by the then Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire, who has deservedly had a promotion. On page 2 of the document, it gives this as one reason for wishing HMRC to have the power to take money out of people’s bank accounts without a court order:
“The current processes for recovering debts…can be costly”.
In paragraph 2.31 on page 9 of the document, it repeats that rationale, saying that
“a county court judgment…can be a slow and expensive process.”
I am aware of that. I and at least two of my hon. Friends knocked around the county courts for a number of years as solicitors. The process can indeed be slow and costly, but the speed and cost of county court processes in England and Wales are in part down to the Government. The Government decide on the resources available to the court system for the administration of civil justice; we are talking about civil matters, not criminal matters. The Government of the day provide or do not provide the money and make or do not make the rules, in liaison with the judges, who write what used to be called the white book and the green book before the Woolf proposals of 1999. The Government have a big hand not only in funding the courts, but in setting the framework within which the courts and their very able staff, judges and advocates operate.
Mr Gauke
Let me say first that I am disappointed the Labour party will not be supporting the measure. I reiterate: these powers will be used at the end of an exhaustive process, whereby there will have been many opportunities for a debtor to have paid the debt and to have challenged the application of the debt to them. It is a measure targeted at individuals and businesses that are making an active decision not to pay or to delay paying the money they owe, despite having sufficient funds in their accounts and despite attempts by HMRC to contact them and encourage them to put their affairs in order. We must remember that we are talking about allowing £5,000 or so to remain in an account, so that people have the sums to make ends meet in the short term. I accept that court action is appropriate in some circumstances, but it imposes significant costs on both the debtor and HMRC.
Mr Gauke
Let me make this point first, which is not an immaterial one: whatever reforms the hon. Member for Wolverhampton South West proposes for the courts system, there are risks of people gaming the system. For example, they might believe that HMRC will not want to go to court to recover a certain level of debt. It is widely acknowledged that there has been robust engagement with interested parties, and as a Government we have listened constructively to those interested parties to make reforms. In circumstances where substantial safeguards are put in place, this is a proportionate measure.
Rob Marris
I appreciate that there can be unrecovered costs, but if HMRC takes on a court case and wins, it is not the case, as the Minister said in his opening remarks, that the costs are borne by every taxpayer, unless the paying party—the losing taxpayer—does not in fact meet that judgment debt. The costs will be paid by the debtor.
Mr Gauke
I come back to the practical operation of this power. Let us remember that the existence of this power will encourage some debtors to pay tax at an earlier stage in the process, knowing that HMRC is able to pursue them more effectively. In Committee, and on the Floor of the House, we often debate the need to reduce the tax gap. The shadow Chancellor made that point on the Floor of the House yesterday. Of course, the tax gap consists of many things, including corporate tax avoidance, which I did not specifically address in my remarks because this clause does not specifically relate to corporate tax avoidance, but these powers could apply to any debt owed to HMRC, including debt involving corporate tax avoidance. If it is determined that a debt is owed, HMRC may pursue it in that way.
Mr Gauke
The £5,000 limit applies across the board, including for businesses. This measure is used only at the end of a process and, particularly for businesses, HMRC operates a time to pay process. I dare say that members of the Committee have experience of businesses in their constituencies that have had difficulty in paying tax when it is due and that have engaged with HMRC. Very large numbers of businesses have been able to defer such tax payments because of short-term cash-flow issues and have subsequently repaid them. HMRC does a lot of that, and it works successfully.
Joint accounts have been raised with us, and they have been raised in the Chartered Institute of Taxation briefing. If joint accounts were automatically excluded from the scope of this provision, it would provide an obvious opportunity for debtors to avoid paying what they owe. If we had gone down that route, it would be perfectly reasonable for the Opposition to say that it would be easy to walk around the provisions. However, we have made it clear that we want to strike a balance between recovering money from debtors who are refusing to pay and protecting the rights of other account holders. There are safeguards for joint account holders, including third parties who have a beneficial interest in money in a debtor’s accounts. Direct recovery will only be applied to a pro rata proportion of an account’s balance. All account holders will be notified that action has been taken, and all account holders will have equal rights to object or appeal. Joint account holders will also have clear appeal routes if they feel that their funds have been wrongly targeted.
Rob Marris
I am grateful to the Minister for that explanation and apologise for not being clearer. I was not suggesting that joint accounts should be exempt from the procedure; I was using joint accounts as one more example of why the procedure should not pass into law at all.
Mr Gauke
I disagree with the hon. Gentleman, although I appreciate his point. If we are being serious about reducing the tax gap, this is an important additional measure. According to Treasury figures, which have been verified by the Office for Budget Responsibility, it will bring in something in the region of £100 million a year. It will ensure fairness between those taxpayers—the vast majority—who pay the tax that is due on time and in full, and indeed those who pay shortly after being reminded; and the small minority who persistently fail to pay the tax that is due, which they can indeed pay, and fail to engage with HMRC. The power will ensure that taxpayers are more likely to engage with HMRC and more likely to pay the tax that is due, which will fund the public services that we need and help to reduce the deficit. I will be disappointed if the Opposition, who talk a great deal about wanting to reduce the number of people who fail to pay proper taxes, oppose the measure.
Rob Marris
The Minister suggests that £100 million may be recoverable under the procedure and earlier he estimated that the measure will cover 11,000 people, so that is an average of £9,000 per person. I would suggest that such an amount makes going to court well worth while. Of course Labour wants to close the tax gap and get in revenues. Will he address my point that it is a matter of principle that the Government should not—in my words—make a mess of the courts system and then give HMRC an end run around that?
Mr Gauke
The clause will ensure that when HMRC is party to a tax-related debt, the rates of interest payable by or to HMRC are those contained in tax legislation, whether the debt follows from a court order or not. The measure amends the rate of interest on tax-related debts owed by or to HMRC under a court order or judgment to an appropriate level given prevailing interest rates.
When HMRC is party to a tax-related debt, different interest rates currently apply depending on whether the debt follows from a court order. If the debt results from a court order, an interest rate of 8% applies. In England and Wales, that rate is set out in legislation under the Judgments Act 1838 and County Courts Act 1984, which is the responsibility of the Ministry of Justice. Scotland and Northern Ireland set their own rates of judicial interest, which are also 8%.
If the debt does not result from a court order, the relevant interest rates are set out in the Taxes Acts. Different interest rates apply if tax or other duties payable to HMRC are paid late, and if tax or other duties have been overpaid, resulting in repayment by HMRC. Those rates are linked to the Bank of England base rate. They are currently 0.5% if HMRC is paying interest and 3% if interest is being paid to HMRC.
The changes made by clause 48 will ensure that the rates of interest for all tax-related debts are contained in tax legislation, whether the debt follows from a court order or not. It will affect taxpayers in litigation cases where there is a tax-related judgment debt with interest due and HMRC is either the debtor or creditor. The clause will simplify the HMRC debtor and creditor interest rates. The Government will reduce the rate of interest that applies to tax-related debts payable by HMRC under a court order or judgment to a rate equal to the Bank of England base rate plus 2%, and apply the late payment interest rate of 3% as specified in the Taxes Acts to tax-related debts owed to HMRC under a court order or judgment. The changes will apply to new and pre-existing judgments and orders in respect of interest accruing on and after 8 July 2015. The new rates of judgment debt interest in tax-related cases will compensate the receiving party for any delay in receiving the money that a court has ruled is owed to them at an appropriate level considering prevailing interest rates.
The clause ensures that the rates of interest payable on tax-related debts to which HMRC is a party are all contained within tax legislation. It also reduces the rates of interest on tax-related judgment debts owed by or to HMRC to an appropriate level given prevailing interest rates.
Rob Marris
Having so narrowly lost the vote on clause 47, I am tempted to press this clause to a Division, but I can assure the Minister I will not. However, there are similarities between the measures. My objection to clause 47 and HMRC taking money out of people’s bank accounts without a court order was that it was one rule for HMRC and one rule for everybody else. In the clause immediately following—clause 48—the Government cannot wait to do that again, and I am worried about that trend. I understand that if one wishes for consistency, one cannot always achieve it because the situation depends on the corresponding factor with which another factor is compared. In this case, the Government are saying, “We don’t like comparing the interest payable on moneys owed to HMRC pursuant to a court order,” as per the Judgments Act 1838 or the County Courts Act 1984, which I have written endlessly in pleadings—as they used to be called—over the years. They are saying “We want to compare it with an internal rate that HMRC has for debts owed to HMRC,” which are adjudicated on, but not via the court system.
There is an inconsistency if you have what I would call, for shorthand, an internal, non-court HMRC rate and an external, court HMRC rate. The bigger issue for me, however—this is where I come down decidedly for the opposite comparison for consistency to the Government’s—is that there should be consistency for the individual when faced with the court system of England and Wales, and there should be consistency in the interest rate payable on a county court or High Court judgment, regardless of who the applicant, claimant or, to use the old term, plaintiff is. Even if the plaintiff is HMRC in a tax-related case and the claimant or plaintiff wins that case—HMRC wins—the interest payable upon that judgment debt should be the same as if the winning party who successfully claimed at court that they were owed money was a private individual or a company.
As I said, I appreciate that there is a certain dilemma for HMRC, but it has put up with that dilemma since about 1838, as far as I can tell. I therefore think that it should carry on putting up with that in the interests of having one court rule for everyone, rather than one that relies on the identity of the claimant.
Mr Gauke
I note the hon. Gentleman’s remarks. I am pleased that he is not seeking to divide the Committee on this particular clause, as he did on clause 47. I argue that the measure is appropriate and proportionate. I understand that the Ministry of Justice is reviewing why there is not one court rule regarding when the Judgments Act rate of interest is reduced. I do not know whether the hon. Gentleman takes any comfort from that, but I am pleased to inform the Committee of the fact.
The clause is reasonable in respect of tax-related debts which, of course, flow both ways—there is money owed to HMRC and money owed by HMRC. There should be consistency, and provisions on the rates of interest payable to debts to which HMRC is party should be in tax legislation. Although the hon. Gentleman and I disagree about the operation of the process, I am pleased that we do not have a disagreement on the clause, which I hope will stand part of the Bill.
Question put and agreed to.
Clause 48 accordingly ordered to stand part of the Bill.
Clauses 49 and 50 ordered to stand part of the Bill.
Rob Marris
I beg to move, That the clause be read a Second time.
Hon. Members will be pleased to hear that I will not detain the Committee for long. I have to say that in recent years HMRC and the Treasury have done a pretty decent job of carrying out consultation. They have got a lot better regarding the number of issues on which they consult, and especially the timeframe allowed. Rushed consultations were carried out under the previous Labour Government and in the early years of the coalition Government, and they sometimes still happen. Sadly, all of us have probably come across such consultations in local government around the country. It is a question of not only a consultation’s terms of reference or whether something is put out for consultation at all—I do not agree with consulting on everything—but the timeframe. HMRC and the Treasury have got better at that, for which I thank the Minister.
For a number of years—this is not exclusive to the coalition Government and the new Government—there has been a lack of monitoring of tax reliefs, which are the substance of new clause 4. I understand that the National Audit Office has criticised the Government for not properly monitoring their tax reliefs. The NAO has found more than 1,300 tax reliefs, which seems an awful lot for a Government of any political colour when we want a simpler system. The NAO found that only 200 of those reliefs are properly monitored by HMRC, meaning that the vast majority—1,100—are not. We could have a long debate—we will not—about what proper monitoring means, but if I understand the NAO report properly, there are difficulties in a major area of our tax regime.
I would venture that Governments around the world have any number of tax reliefs. Other countries may have more or fewer, but we have an awful lot and they are not being properly monitored. They are integral to our tax regime in terms of not only revenue and foregone revenue, but the Government using taxation as a lever to encourage and discourage certain behaviours. We sometimes overlook that, although we debated it earlier in the context of the effect of vehicle excise duty on people’s behaviour when buying light passenger vehicles. Some reliefs are intended to encourage behaviour, such as tax relief on pension contributions, which is quite properly being lessened by this Bill, but an awful lot of relief still remains. We are talking about billions of pounds, so there should be proper monitoring.
It might be that the Minister, who is very assiduous, can reassure the Committee that there is an overarching, ongoing consultation, or even a new consultation, on our tax relief system and, as is proposed in new clause 4, on reforms, specifically in relation to tax reliefs for businesses. I referred to Governments using tax reliefs to encourage and discourage certain behaviours, and there is agreement across the House that tax reliefs have a part to play in fostering the business growth that we all want.
Mr Gauke
The hon. Gentleman will be aware that his party’s leadership is looking to eliminate what I recently heard the hon. Member for Leeds East refer to as £93 billion of “corporate welfare” to reduce the deficit and fund public services. Some of that constitutes tax reliefs or exemptions—however one wants to describe them—including £20 billion of capital allowances. Does the hon. Gentleman consider the £93 billion of “corporate welfare” to be a potential source of revenue for a future Labour Government?
Rob Marris
I thank the Minister for that question. The £93 billion figure has been much misunderstood.
The new clause is part of the probing that we want the Government to carry out on behalf of the country. My hon. Friends the shadow Chancellor and the Leader of the Opposition want to examine what tax reliefs exist—what we are spending the money on, in lay terms, although I appreciate that the process often involves leaving it in the taxpayer’s pocket. As the shadow Chancellor made abundantly clear to the House last night, he is quite rightly in the business of evidence-based policy—[Interruption.] Someone says that he is in the business of “changing his mind”. Yes, my hon. Friend is, as he made clear last night. He interprets the evidence, and evidence changes as more comes out. Like him and, I presume, other colleagues, I want evidence-based policy making.
Whether the figure is £93 billion, £193 billion or £3 billion, the fact is that the Government are foregoing billions of pounds of tax revenues. I think it would be agreed across the House that some of that will be a jolly good thing. There might be differences of opinion among hon. Members about whether a given tax relief is socially desirable, in the sense that its intention is to achieve a socially desirable outcome, and about the evidence of whether a socially desirable outcome is in fact being achieved through the tax measure. There therefore could be disagreement in two ways: first, about the outcome; and, secondly, about whether the tax relief is getting us anywhere nearer to that outcome, or near enough to it—about if we are getting bang for the buck, to use the vernacular.
New clause 4 would require a wider review of tax reliefs for businesses to encourage long-term investment. Were the review carried out and the evidence collected, it might be that my party would call for changes, and I do not rule out the possibility of increases in tax reliefs for businesses. I am not making a pledge on behalf of the Labour party, but it might be that we would think, on the basis of the evidence, that there should be greater relief for businesses regarding research and development—innovation.
On Tuesday, we discussed tax matters for small, growing, knowledge-based companies. We had that debate because the previous Labour Government set up a tax relief regime to encourage research and development. Again, I think there is generally agreement across the House—perhaps not among every right hon. and hon. Member—that encouraging research and development is a desirable goal for any Government. I think that there is also general agreement across the House—again, perhaps not from every Member—that the tax regime has a role to play in encouraging the research and development that almost all of us, if not all of us, want.
Mr Gauke
On a point of clarity, and to reassure businesses throughout the country—including, I suspect, in Wolverhampton—while the shadow Chancellor and the Leader of the Opposition talk about eliminating £93 billion of “corporate welfare”, to use their phrase, is the hon. Gentleman saying that there is no plan to remove capital allowances or R and D tax credits, which constitute sizeable elements of that £93 billion? When he says that the £93 billion “corporate welfare” estimate has been much misunderstood, does he mean by his own leadership?
Rob Marris
I said to the Committee earlier that I was not about to start freelancing on tax policy for the Labour party. That will not surprise the Minister, or other hon. Members. It might disappoint him, but it will not surprise him. He tempted me on two major areas of tax relief for business; I will repeat what I said earlier. We are in the business of trying to develop evidence-based policy, so if the review were, as we hope, to be accepted by the Government and to take place, we might say that business tax relief should be increased in certain areas. I do not rule out that possibility. We might say that it should be reduced in other spheres of activity. I do not know yet.
I cannot help the Minister any more than that, because that is the whole point—or perhaps not the whole point: the major point of having the review is to get the evidence so that all parties can review their policy. After the review, perhaps the Government would review their policy and increase or decrease tax relief for businesses in certain areas.
As to the £93 billion, it has, as I said, been much misunderstood. It may be a coincidence, or perhaps it is a borrowing—many politicians are prone to borrow—but until very recently the most successful federal election in Canada for my party’s sister party, the New Democratic party, of which I used to be a member, was in 1972 under the then leader Ed Broadbent, the honourable member for Oshawa. He was a great leader of the New Democratic party. The campaign slogan referred to “corporate welfare bums”, and it was about large corporations—often multinational—having unfair tax breaks. It was very successful.
There is a tradition in capitalist democracies of corporate welfare. [Interruption.] Yes, there is, and I think we should be honest about that. Sometimes we socialists would support that, to encourage certain activities. I gave the example of research and development; but, yes, there is corporate welfare. Some of it, I suspect—but do not know—is unjustified. I will not know unless we can gather the evidence, and the Labour party will endeavour to gather the evidence as best we can, but it would help if the Government would put resources into doing so by accepting new clause 4, as I hope they will.
Mr Gauke
I thank the hon. Member for Wolverhampton South West for the thoughtful way in which he put his case, injecting, to some extent, scepticism into claims of £93 billion of corporate welfare that might be easily available to reduce the deficit and fund public services, as some of his colleagues have perhaps been inclined to suggest in recent weeks.
Having welcomed some of his remarks I will, I am afraid, disappoint the hon. Gentleman by urging my hon. Friends to oppose new clause 4. The Government are committed to supporting investment and growth through the tax system, which is why we provide businesses with a range of tax reliefs and allowances. The Treasury and HMRC keep all tax policies under review and routinely consult on changes as part of the policy-making process. However, a general consultation on the system of tax reliefs would not be appropriate, since each relief has been designed in a particular way to address a specific issue.
The new clause raises questions about the impact of tax reliefs on investment and growth. The Government recognise the importance of supporting growth and investment through the tax system. In fact, we have designed tax reliefs to do exactly that. For example, through the annual investment allowance, businesses can offset the first-year costs of plant and machinery against their corporation tax liabilities. That supports investment by reducing its cost to businesses. Small businesses in particular benefit from that; 85% of the total value of the annual investment allowance goes to small and medium-sized enterprises.
To support further investment, the Government are raising the permanent level of the AIA to £200,000—its highest permanent level ever. Similarly, R and D tax credits, which the hon. Gentleman referred to, are an incentive to invest in research and development. A recent HMRC study found that each £1 of tax forgone through tax credits stimulates between £1.53 and £2.35 of additional R and D investment, which fosters innovation and helps the economy to grow.
Looking forward, the Government remain committed to supporting investment and growth. We will publish a business tax road map by April 2016, setting out our plans for business taxes over this Parliament. That will provide businesses with the certainty they need to plan for long-term investment.
Rob Marris
I am somewhat reassured by the Minister’s remarks about the framework document in 2010, for which I thank him; I hope that we will see another framework document soon. I am also somewhat reassured about the “road map”, as he calls it, that will be published next year, and the consultations that he referred to. For example, he referred to the annual investment allowance increase in the Budget this year. From memory, when I spoke in the House on the Budget on 8 July I praised that increase in the allowance.
However, the Minister went on to say that he was concerned that if he accepted the new clause it would call into question and create uncertainty about many tax reliefs that are working effectively. With due respect to him, to some extent that assumes what he is trying to prove, by saying that things are working effectively when Opposition Members are asking for an investigation to be carried out holistically—to use the everyday term that is used these days—into the business relief part of the tax regime. The risk is that the Government’s consultations, which I have previously spoken positively about, will become somewhat piecemeal in their approach.
We would like an overarching investigation, because tax reliefs—whether the 1,300 overall, or the smaller number within that 1,300 that apply to businesses—may produce what in chemical terms would be called the cocktail effect. In fact, some such effects have been addressed by provisions in the Bill. That is where a tax measure is put into place and then it is found that it contradicts an existing tax measure. Not surprisingly, those contradictions are often resolved in favour of taxpayers, which is understandable, but correspondingly that is at the expense of revenue for the Exchequer.
A piecemeal approach is not what we need. The new clause is part of our desire to have evidence-based decision making, a holistic approach and zero-based budgeting, to which we are committed. I will not press the new clause to a Division, but I urge the Government to avoid being piecemeal. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Mr Gauke
On a point of order, Sir Roger, before we conclude I would like to take a moment to make one or two remarks and thank a number of people. I am pleased that the first Finance Bill of this Parliament has received excellent scrutiny from members of the Committee. Inevitably, more focus has been placed on certain clauses than on others, but debate has been insightful and wide-ranging throughout. I am pleased that the Committee has reached consensus over much of the content of the Bill, including measures that will support businesses and tackle avoidance and aggressive tax planning.
Most impressively, the Committee has displayed unparalleled efficiency, with debate on all clauses concluded in just six sittings. Having done every Finance Bill since 2006, Tuesday afternoon’s session was perhaps my favourite, on the basis that it lasted only 17 minutes.
I thank you, Sir Roger—through you, I also thank Mr Howarth—for your guidance and your wisdom in steering both new and experienced Committee members through what can be a complex process. The hon. Member for Wolverhampton South West is of course both new and experienced. I also thank my hon. Friend the Member for Wyre Forest for his brief unexpected spell as Chairman during the debate on corporation tax, and his guidance at that time was invaluable.
I thank all members of the Committee for their contributions and non-contributions. I thank Members on the Government side for their patience, forbearance and, above all, attendance. I also thank the Members from the SNP and from the Labour party where, for understandable reasons, there has been something of a changing of the guard over the course of the Bill. For me, it is surprising that Front Benchers change from decade to decade, but they perhaps change more frequently when a party is in opposition.
I put on record my thanks to the hon. Member for Worsley and Eccles South (Barbara Keeley) for the work that she undertook from the Labour Front Bench at the beginning of the process. I was delighted to see the hon. Member for Wolverhampton South West in his place. I say delighted, but I was slightly apprehensive, knowing that he is an extremely assiduous Member. It is very difficult to get much past him, and I welcome him to the Front Benches, as I do the hon. Member for Leeds East.
Earlier this week, the hon. Member for Wolverhampton South West compared our encounter to the South by Southwest festival—SXSW—given that we both represent seats that are in the south-west of their particular areas. He is clearly more familiar with trendy festivals than I am. Though I admit that the Finance Bill Committee can occasionally resemble Glastonbury in a wet year—a confused crowd struggling through a vast expanse of mud while someone at the front is shouting loudly—I am pleased that on this occasion, proceedings have been far more harmonious. For that, we have to thank the usual channels: my hon. Friend the Member for Central Devon, who has worked with quiet efficiency with both the hon. Member for Scunthorpe and now the hon. Member for St Helens North. I am particularly grateful for the assistance I have received from my hon. Friend the Economic Secretary, who led on the banking measures.
Finally, I thank the representative bodies and interested parties that have submitted to the evidence to the Committee. I thank our Clerk, Mr Hamlyn, the Hansard Reporters and the doorkeepers, who have ensured the smooth running of the Committee, the HMRC and Treasury officials, and the Office of the Parliamentary Counsel, without whom none of this would be possible. I am sure all hon. Members will join me in looking forward to Report and other stages of the Finance Bill in due course.
Rob Marris
Further to that point of order, Sir Roger. I will briefly add my thanks to many. First, I thank my colleagues who were previously members of the Committee, most notably but not only my hon. Friend the Member for Worsley and Eccles South. I thank the staff both within and outside the House, most explicitly the Treasury staff, who were very astute in assisting the Minister to remember the details of certain matters.
I thank all members of the Committee on both the Government and Opposition sides for their assiduous attention to our proceedings. I thank the Economic Secretary, who was the first Minister I went up against, as it were. I also thank the Financial Secretary, who I went up against a lot more. As Members will know, he has done this a lot more than I have. This is my seventh Finance Bill Committee, but he is probably up to 11 or 12 now, because in years—such as this—there is more than one Finance Bill. I salute his tenacity.
In terms of the speed of proceedings, this is not like Glastonbury; it is more like the South by Southwest festival, which takes place in Texas, where mud is much less frequent and one just makes breezy progress in the sunshine, in a collective and collegial manner. Finally, I thank the two Chairs, Sir Roger and Mr Howarth. I will always remember the Committee, because if I have the honour to lead or contribute for the Opposition officially in future Committees, this will always be the first one in which I was able to do so. Thank you for your chairmanship.
Finance Bill (Fifth sitting)
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
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Mr Gauke
Clause 37 makes changes to ensure that the correct amount is used when calculating taxable profits when trading stock is transferred between related or connected parties. Clauses 38 and 39 are concerned with the same issue. Clause 38 makes similar changes to those in clause 37 but for cases where a trade ceases; clause 39 does likewise for cases where intangible fixed assets are transferred to a related party.
A number of situations can arise when trading stock is sold or transferred outside the course of trade. The stock can be transferred to a separate business run by the same person, or sold to a business run by a family member. The intention of the tax system is that the stock should always be brought into account at its market value when calculating the taxable profits from the trade—a well established principle that originated in a court judgment many years ago and was subsequently brought into legislation.
Some situations have been identified, however, in which the full market value of stock may not be brought into account. This can occur when transfer pricing rules take precedent over market value rules. Transfer pricing rules aim to identify and bring into account an arm’s length price for the stock. In many situations that will be the same as the market value, but that is not always the case. Where the transfer pricing rules apply, the market value rules are turned off; as a result, there is a risk that the transfer pricing rules will give an amount below market value when calculating profits for taxation, which was not the intention of the legislation. Similar issues have been identified where stock is valued when a trade ceases, and also where intangible fixed assets are transferred between related or connected parties.
Clause 37 is fairly simple. It removes the rule that states that if the transfer pricing rules apply the market value rules cannot also apply, so that where the transfer pricing rules apply in a way that does not give the full market value, the market value rules can be applied, adding the extra amount needed to bring the total up to market value. The true market value will therefore be brought into account when calculating taxable profits. Similar changes are made by clause 38 for cases where a trade ceases, and by clause 39 for cases where intangible fixed assets are transferred to a related or connected party.
Clause 37 removes an unintended consequence whereby two pieces of tax legislation do not, on occasion, work together properly. The changes will ensure that the correct amount is brought into account for tax, as intended by the legislation.
Rob Marris (Wolverhampton South West) (Lab)
As I understand it, all three clauses are anti-avoidance measures designed to clear up conflicting legislation on market price and transfer pricing. Transfer pricing has occasionally been used by companies immorally—not illegally, but immorally—to pay less tax, effectively, by not using the market price. As the three clauses are anti-avoidance measures, I invite my hon. Friends to support them.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Clauses 38 and 39 ordered to stand part of the Bill.
Clause 40
Carried interest
Question proposed, That the clause stand part of the Bill.
Rob Marris
Looking round the room, I think that one hon. Member, the Minister, will remember that I was not a member of the last Labour Government when I was previously in the House—[Interruption.] I was “supportive” says an hon. Member from a sedentary position; we will get on to that—[Hon. Members: “Ah!”]. The Minister is well aware of this. I am aware that Alistair Darling, when Chancellor of the Exchequer, cut the capital gains tax rate to 18%. I said at the time that I thought that that was wrong and I have to say now that I think that it was wrong. Furthermore, I have to say, bearing in mind the time at which it took place, that it is shocking that I do not recall in the debate on that change any debate about how it would affect positively many right hon. and hon. Members who at that time, within the rules, owned second properties in London, on which they would accrue a capital gain, and on that capital gain, they would pay a lower rate of 18%. The hon. Member for Croydon South is absolutely right to say that it was the wrong thing to do. Putting it up to 28% is a step in the right direction, but on these measures and these activities of investment fund managers, they should pay income tax on what most people, including me, would regard as income.
As I have said, I have considerable sympathy with new clause 2. I shall listen with great interest when the Minister speaks at greater length about the new clause—he said he would and it would be helpful. Having heard his side, I and my hon. Friends will make up our own minds. We are not only swayed by the arguments for equity, equality and justice; we also bear in mind, as the hon. Member for Kirkcaldy and Cowdenbeath mentioned in speaking to new clause 2, the OECD’s recommendation that such incomes should be treated as incomes and be subject to income tax, not treated as capital gain and subject to capital gain tax. To those of us who are not taxation experts, it appears that calling it a chargeable gain is a manoeuvre to lessen the tax paid by those who benefit from that form of remuneration.
Mr Gauke
I will respond to the remarks, not necessarily at length. The comments from the hon. Members for Kirkcaldy and Cowdenbeath and for Wolverhampton South West were pithy.
I shall deal straight away with the question of carried interest. Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. It is therefore capital in nature and should continue to be charged against capital gains tax. That has been the approach followed by Governments of both major parties for many years, and it is consistent with what happens in many other jurisdictions.
My hon. Friend the Member for Croydon South was right to say that capital gains tax was 18% when the Labour Government left office. If I remember correctly, it was possible for private equity managers to benefit from taper relief, so there was often an effective rate of 10% for many years under the Labour Government. There at least seems to be a consensus in the Committee that that was not the right approach. We believe we were right to take steps to change the capital gains tax rate, as we did at the beginning of the previous Parliament, but I would still argue that, as is the case in many jurisdictions, it is perfectly reasonable to treat carried interest as essentially a capital gain issue rather than an income issue. Of course, if any part of a manager’s rewards payments are properly regarded as income rather than capital, they should be charged to income tax. That is what drives the Government’s approach. We have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.
I will just pick up a couple of points made by the hon. Member for Kirkcaldy and Cowdenbeath. He is correct that national insurance is not chargeable on capital gains; it is payable only on earned income. However, it is not the case that entrepreneur’s relief can be accessed by investment managers, as the activity of the underlying fund is investing, not trading. Entrepreneur’s relief therefore does not apply in those circumstances.
If I were so inclined, I could quote extensive comments from the likes of Ed Balls, when he was a Treasury Minister, in support of the capital gains treatment of carried interest, and that was a period when the gap between income tax and capital gains tax was much greater, but I will spare the Committee that this morning. I am not sure that Ed Balls is a particular hero of the hon. Member for Wolverhampton South West, but our approach on carried interest is consistent with that of other countries and previous Governments.
We are determined to ensure that the rate at which private equity managers pay tax is never lower than their cleaners pay. That was the case under previous Governments, but it is not the case any more. Nor is it acceptable that what should be charged as income is in fact charged as capital gains. The Government have taken action on those points. I hope that provides reassurance to the Committee and I urge the hon. Member for Kirkcaldy and Cowdenbeath not to press new clause 2.
Mr Gauke
My hon. Friend makes a good and important point. In thinking through the impact of the policy advocated by some Opposition Members, we need to understand the international implications and the implications for the UK’s competitiveness. Clearly, any assessment of the revenue effects would have to take account of what are likely to be significant behavioural responses. Claims of large revenue sums may be based on a static analysis, without an understanding that there is also a competitiveness point.
Rob Marris
The Minister mentioned Ed Balls. I think the Minister was on a Committee in the position that I am now in when Ed Balls was trumpeting the fact that London had become the financial centre of the world and had surpassed New York because of light-touch regulation. Some of us on the Labour Back Benches pointed out to him that that was a bad move that might end in tears. Sadly, our warnings were more than fulfilled in 2008, with the Lehman Brothers meltdown and what happened in this country. I caution the Minister not to go along with the argument made by the hon. Member for Croydon South that people will go offshore and so on. We should not have had light-touch regulation and we should be careful about regulation now.
Mr Gauke
Again, I think we can find some consensus. I will not dwell on this, Sir Roger, because we will depart from the business before us if we start to discuss the failures of the regulatory system in the run-up to the financial crash in 2008. However, that is why we have undertaken substantial reform of financial regulation in the UK.
We should want a competitive and thriving financial sector in this country, but we must ensure that it does not pose systemic risks for the UK economy as a whole. That is the challenge that the Chancellor has referred to as the British dilemma in having a major financial centre, with many benefits to us. It is important that the City thrives. Some of my ministerial colleagues and I have visited the City—I do not know whether everyone can say that. However, we must ensure that we have a regulatory system that does not impose greater risks on the overall taxpayer. There is a question of judgment here, and ensuring that we have a thriving private equity industry is something we should welcome.
Mr Gauke
The clause reforms vehicle excise duty to support uptake of the cleanest cars. It also addresses the current system’s unfairness and sustainability challenges. The reformed VED will apply to cars first registered from 1 April 2017 onwards. The reformed tax will raise the same revenue as today, but the changes will ensure that revenues are sustainable in the long term. It supports creation of a new roads fund, so that from 2010 all revenue raised from VED in England will go into the fund, which will be invested directly back into the English strategic road network.
I will set out why the Government believe the current system needs changing. VED for post-2001 cars is currently banded according to carbon dioxide emissions for both first-year rates and annual standard rates. The current CO2 bands are out of date. They were introduced in 2008, when average new car emissions were 158 grams of CO2 per kilometre. Today they are 125 grams of CO2 per kilometre, so owners of many ordinary new family cars such as the Ford Fiesta now pay nothing or next to no VED, and by 2017 owners of nearly three quarters of new cars will pay only £30 a year or less. That has weakened the incentives for people to purchase the cleanest cars.
Clearly that level of revenue is unsustainable. It also creates unfairness. The average VED across all UK motorists is £166, whereas the average VED on a brand-new car is only £85, which will fall to £62 by 2017. Therefore, families who can only afford older cars are increasingly shouldering more of the tax burden than those who can afford to buy a new model every few years. Evidence from studying car purchase decisions across Europe suggests that the first-year rates of VED are the most effective in influencing people’s choices to buy efficient cars. VED annual standard rates are less effective, as people place little weight on future costs, so basing VED annual standard rates on CO2, as the current system does, has little impact on environmental outcomes, causes significant unfairness and makes revenues unsustainable.
Changes made by the clause maintain first-year VED rates based on CO2, but five new VED bands in the nought to 100 grams of CO2 per kilometre range will be created. The new bands will distinguish between zero-emission cars, plug-in and hybrid vehicles and efficient, conventionally fuelled cars. The very cleanest zero-emission cars that produce no air pollutants will pay nothing; rates on the most polluting cars will be increased. The changes strengthen the incentive to purchase the cleanest cars and incentivise continued improvement by manufacturers. For all subsequent years, the new VED system moves to a flat standard rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth more than £40,000 to apply for the first five years on which the standard rate is paid.
These changes improve fairness for all motorists, strengthen environmental signals and sustain revenues in the long term. No one will pay more in tax than they do today for the car they already own. For cars in the new system, around 95% of motorists will pay less than the average £166 they pay today. The change will put revenues on a sustainable path, but the total car VED burden will not increase. The change updates and strengthens incentives to purchase the cleanest cars and particularly incentivises the uptake of fully zero-emission cars. Their uptake will drive the greatest reduction in carbon emissions reductions as well as air pollutants.
I would like to say a few words about new clause 5 before the hon. Member for Wolverhampton South West has a chance to speak on it. New clause 5 would require the Chancellor of the Exchequer, within two years of enactment, to undertake a review of the impact of introducing a flat rate of VED on the automotive sector, on emissions and on revenue. The new clause calls for such a review within two years of Royal Assent, but hon. Members should note that that would be only approximately eight months after the reforms actually came into effect.
The new clause is not necessary. The Chancellor already announced in the summer Budget that we will do precisely that kind of review as necessary, to assess how the arrangement works in practice and to ensure that the reforms continue to incentivise the cleanest cars. Adopting a flat annual rate of VED while strengthening support for the cleanest cars ensures the change is a fair, simple and sustainable solution able to provide long-term certainty for the UK car market.
Clause 42 strengthens incentives to purchase low-emission cars over efficient conventionally fuelled cars. It sustains VED revenues, allowing for the creation of the roads fund, and it will improve fairness for UK motorists. I stress that the proposed new clause is entirely unnecessary.
In conclusion, clause 42 reforms VED for cars first registered from 1 April 2017. It ensures the tax keeps pace with technological change, is fairer, simpler and sustainable in the long term, and it allows for the creation of a new roads fund, which will ensure our national road network gets the multibillion pound programme of investment it needs. I therefore urge that the clause stands part of the Bill, and hope to persuade the hon. Member for Wolverhampton South West not to press new clause 5.
Rob Marris
With your permission, Sir Roger, I will start by addressing clause 44 in the group, lest I forget it. Have I understood that correctly?
Mr Gauke
Clause 44 makes changes to ensure that the aggregates levy will no longer be due on less environmentally damaging sources of aggregate, including waste from slate, and ball and china clay production. It ensures that exemptions found lawful by the European Commission are reinstated, with retrospective effect from 1 April 2014. Finally, it changes the former shale aggregate exemption to reflect the European Commission’s decision that part of the exemption provided unlawful state aid.
The Government believe it is right that the aggregates levy is used to encourage more efficient quarrying by shifting demand towards less environmentally damaging sources of aggregate. The levy was therefore designed with exemptions for recycled aggregates and by-products of other industrial processes, such as slate or ball and china clay waste. However, following legal action from a UK trade association, the European Commission launched an investigation into several of the aggregates levy exemptions on state aid grounds. During the investigation, the Government were required to suspend the aggregates levy exemptions, which were removed by the Finance Act 2014. The Commission announced on 27 March 2015 that it had found all the exemptions lawful except for part of the shale exemption, namely for shale aggregate that is not produced as a by-product of untaxed materials.
Clause 44 will restore in full the exemptions that were suspended on 1 April 2014, except for the shale exemption. It repeals the removal of the levy exemptions in the 2014 Act, so that they are reinstated with effect from 1 April 2014, the date from which they were originally suspended. Businesses were able to stop paying the aggregates levy on materials covered by the reintroduced exemptions from 1 August 2015. They can also reclaim levies that they have paid on such materials since the exemptions were suspended. To provide clarity to businesses, details of the repayment process have been published by HMRC in a Revenue and Customs brief, ending the uncertainty that businesses such as slate quarries in Wales and ball and china clay quarries in south-west England have faced since the start of the Commission investigation. We estimate that some 120 businesses will be able to claim repayment of the levy for reinstated exemptions.
Clause 44 will also change the former shale exemption, with only the part of the exemption found lawful by the Commission being reinstated. A new exemption process for shale will be introduced so that only shale used for construction purposes, which includes shale aggregate, and shale produced as a by-product of other taxed materials will be taxable under the aggregates levy.
To conclude, clause 44 will reinstate the aggregates levy exemptions found lawful by the European Commission with retrospective effect from 1 April 2014 and change the former shale exemption in line with the Commission’s decision. It will restore the environmental aim of the levy to shift demand towards less environmentally damaging sources of aggregate by exempting such materials once again.
Rob Marris
It may surprise hon. Members to know that aggregates are dear to our heart in Wolverhampton, which was the site of the headquarters of Tarmac, as was, which grew to be one of the biggest aggregates companies in the European Union. I am pleased that the coalition Government were able to persuade the European Commission that the 2002 regime introduced by the then Labour Government was not unlawful state aid and that the decision made in March this year went in favour of our country. It is unsurprising that HMRC now wants to sort out the shouting, it being all over bar the shouting for the 120-odd companies that were caught up while that investigation was ongoing. The clause is an entirely sensible way of going about that, so I invite my hon. Friends not to oppose it.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 46
International agreements to improve compliance: client notification
Rob Marris
Clause 46 is a step forward. I congratulate, with one cheer, the Government on that, but it is a small step. The common reporting standard comes in, I think, from 2017. The Government are talking now about another amnesty. How many amnesties can we have? Hon. Members will remember the CD of information on tax evaders that leaked out of Switzerland and was used constructively by several other countries in Europe to clamp down on those of their citizens who had illegally squirrelled away money in Switzerland. My recollection is that we had some kind of amnesty in the United Kingdom for such citizens and, lo and behold, when the Swiss papers—the Swiss bank records—were finally opened several months later, the money had all gone walkies and the amount that the Chancellor of the Exchequer got in was far less than he had been proudly trumpeting would be recovered by HMRC because of that information.
I fear that the same may happen in this case. The clause is a step forward. As for the regulations, which are being consulted on, I say to the Minister that I have not seen it anywhere—it may be somewhere—that this advice should be given in writing and recorded in writing by the financial adviser. That would be a step forward, but a greater step forward to protecting the Revenue from this offshoring avoidance, if not evasion, would be, as I said to the Committee two days ago, to have much more pressure from Her Majesty’s Government on transparency, on beneficial ownership and on the tax havens around the world, which assist aggressive tax avoidance and sometimes assist, perhaps unknowingly, with tax evasion. Many of those tax havens, whether Crown dependencies or otherwise, have a relationship with the United Kingdom. We have considerable leverage there and, in terms of what is disclosed publically, Her Majesty’s Government—both this Government and the previous, coalition Government—have not used that leverage as decisively as we on the Labour Benches would wish.
This externalising of costs to financial advisers, although understandable and welcome, is an externalising of costs, so the financial adviser has to remind the client of the penalties for undertaking certain types of financial transactions. Meanwhile, the number of staff at Her Majesty’s Revenue and Customs, who are one of the lines of defence against aggressive tax avoidance, is being slashed by one quarter, as I understand it, from 70,000 to 52,000 in the period 2010 to 2016. I would be delighted if the Minister could tell me that I have got that figure very wrong—I may have got it wrong slightly around the edge. If he could tell me that the number of HMRC staff is in fact being increased as part of a Government measure to increase markedly the number of staff who can help to crack down on aggressive tax avoidance and illegal tax evasion, I would be delighted, but I fear that he will not reassure me that there has been a major increase in staff. So, although the clause is a step in the right direction, it is nibbling around the edges. A much stronger and more effective way forward would be to have a larger number of properly trained HMRC staff investigating and applying pressure, and the legislation that already exists.
Mr Gauke
I welcome the support for the clause, even if the enthusiasm for it was somewhat limited. I will not dwell at length on the wider issues raised by the hon. Member for Wolverhampton South West, but it is worth pointing out that we have been a world leader in our pursuit of tax evaders. It is a driving force behind the implementation of the common reporting standard, to which all overseas territories and Crown dependencies have signed up. It is also worth pointing out that HMRC has the option to prosecute where it deems that suitable and where it is in the public interest. We are also currently consulting on tougher penalties, including new civil and criminal offences.
The common reporting standard will give HMRC access, for the first time, to data about accounts held by UK residents in over 90 countries, which will make a significant difference to HMRC’s ability to crack down on tax evasion. We are also toughening up the penalties for those engaged in tax evasion. HMRC has been consulting on new criminal offences for corporates and individuals and on new penalties, including applying to the underlying asset for individuals and enablers. The Government will report on the outcome of the consultations shortly. Disclosure facilities are one of a number of approaches—we are also introducing tougher sanctions against those who abuse the rules—and the disclosure facilities have brought in more than £2 billion in tax.
Rob Marris
Can the Minister say briefly what the Government are doing about disclosure of beneficial ownership?
Mr Gauke
The UK is introducing a central register that is publicly available. We are leading the way on that; I am not aware at the moment of any other jurisdictions elsewhere that are pursuing that. We believe that we should set the benchmark, so I am pleased that we as a country are leading the way.
The hon. Gentleman mentioned HMRC resources and so on. He referred to headcount. He will be aware of the dramatic reductions in headcount that occurred under the last Labour Government. In the last Parliament, we invested more than £1 billion in HMRC to tackle evasion, avoidance and non-compliance between 2010 and 2015. We made more than 40 changes in tax laws, closing loopholes and introducing major reforms to the UK tax system. I think most people would agree that it is much harder to avoid and evade taxes now than it was five years ago. Over this Parliament, up to 2020-21, we will be investing more than £800 million in funding in HMRC for matters relating to evasion and general non-compliance, which will help HMRC tackle evasion.
We have a proud record. It is not purely about staff numbers, although as it happens, enforcement and compliance numbers were not reduced in the last Parliament; the reductions in head count were generally within personal tax. It is not simply about headcount; it is about making use of technology and information and acting efficiently. We have a proud record on that front and we will continue in that vein. The clause is part of that process.
Question put and agreed to.
Clause 46 accordingly ordered to stand part of the Bill.
Finance Bill (Fourth sitting)
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship once again, Mr Howarth. Welcome to what may prove to be a briefer sitting than you were anticipating. I hope that that does not upset your plans too much.
The hon. Member for Wolverhampton South West raised a concern that the clause might permit aggressive tax planning or tax avoidance by multinational companies, and that a consequence could be lost revenue to the Exchequer. Let me reassure him. We believe that the clause will have a negligible impact on the Exchequer, but it will simplify the UK tax system. To some extent, if the existing rules were designed to deal with tax avoidance, they were not going to be able to do that effectively anyway because companies could put in a European economic area or UK-linked company.
We do not think the clause opens up a particular vulnerability in any event, but the hon. Gentleman made an important point about ensuring that our tax system is fit for purpose in a world in which multinational companies have choices and can structure themselves in particular ways. That is why the UK was keen to encourage the OECD to look at the international tax system as part of the base erosion and profit shifting project. That project reported recently; it was debated by G20 Finance Ministers at Lima last week and recommendations have been taken on board. As my right hon. Friend the Chancellor of the Exchequer has made clear, the UK will implement the BEPS recommendations.
There is an important point, but I do not believe that it is relevant to the clause. The Government remain determined that the international tax system should ensure a closer alignment between economic activity and taxing rights. That is the key to the BEPS reforms, which is an agenda we are keen to push forward.
Rob Marris (Wolverhampton South West) (Lab)
There is a difference between something that affects those currently trading in a particular way and the actions that a group of companies might take in the light of a changed tax regime. Is the Minister confident that a change of behaviour through company restructuring following the changes in the clause is unlikely because there will not be much of a loss of revenue from linked companies and so on, and there will not be a change in behaviour that will lead to such a loss in the future?
Mr Gauke
Clauses 35 and 36 make changes to prevent the offsetting of UK losses and other surplus expenses against tax that should be paid by UK companies in accordance with the reformed controlled foreign companies rules. That will improve the effectiveness of our CFC regime in countering aggressive tax planning by UK multinational groups while maintaining the competitiveness of the UK corporation tax regime.
The CFC rules are designed to protect the UK corporate tax base from the artificial diversion of UK profits to low-tax jurisdictions. The rules were extensively reformed in 2012 during the previous Parliament as part of the corporate tax road map, which provided the protection necessary for a more territorial corporate tax base while ensuring that the rules operate in a way that reflects modern global business practices.
A CFC charge arises on a UK company in relation to CFC profits that have been diverted from the UK. Under the CFC rules, UK losses and other surplus expenses could be set against profits taxable under the CFC rules, which can reduce or eliminate the amount of UK tax actually paid on those diverted profits. The Government believe that tax should be paid on profits diverted from the UK. These changes will ensure that that happens.
The changes made by clauses 35 and 36 will remove the ability of a UK company to reduce or eliminate its CFC charge by offsetting UK losses and surplus expenses against that CFC charge, which will improve the effectiveness of the CFC regime in deterring the diversion of profits from the UK by ensuring that those profits are taxed. The changes made by clauses 35 and 36 apply to corporate entities, not individuals. They will apply with effect from 8 July 2015 to UK-resident companies that hold an interest in a CFC on which a CFC charge will arise. The changes will mainly affect large UK multinational groups with overseas subsidiaries. The changes will raise an estimated £860 million in additional tax receipts over the next six years.
The reform of the CFC rules in 2012 was an important part of corporation tax reform. These clauses ensure that the CFC rules work as intended by preventing UK losses or other surplus expenses from reducing or eliminating the amount of UK tax paid on diverted UK profits. The changes are in line with our broader corporate tax policy objectives, which seek to balance competitiveness and fairness.
Rob Marris
It is a pleasure to serve under your chairmanship, Mr Howarth. I do not think I have had the pleasure since taking a five-year sabbatical.
Rob Marris
I will endeavour to conduct myself in a way that produces that result.
I wish I had thought of clauses 35 and 36 myself. They contain great anti-avoidance provisions, for which I again salute the Government. I understand that they seek to ensure that the CFC legislation operates as intended. There is one sting in the tail—I may have misunderstood—but clause 35 addresses loopholes that have been exploited since the introduction of provisions in the Finance Act 2012. That does not instil great confidence in the creation, drafting and passage of that legislation. The more so with clause 36, which—again, I may be mistaken—attempts to close a loophole or dissuade companies from a course of conduct with their tax affairs pursuant to rules that were introduced by the Finance Act 2015. If that be the case, I am concerned that the House is repeatedly battling against aggressive tax avoiders. If it be the case that we are amending legislation introduced about six months ago to close a loophole, we are not doing as well as we should be and might be on countering the actions of aggressive tax-avoiding companies, which is a goal shared on both sides of the House. Although the different ways one might do that may be the subject of debate, the goal that companies should pay their fair share of tax is a shared goal. Again, we can debate what is a fair share of tax, but loopholes appear to be popping up all over the place at very short notice, which is a concern.
Mr Gauke
I again thank the hon. Gentleman for supporting the content of these clauses. I have general and specific points to make in response to his comments. He is right that there is a consensus across the House that aggressive tax avoidance should be tackled. Although he was on sabbatical for the previous Parliament, he will be aware that measures designed to deal with that matter were brought forward in the previous Parliament. A lot of the work that needed to be done in the context of large multinationals is essentially of a multilateral, international nature, and we have pursued that agenda through the BEPS project, which I mentioned a moment ago, so there has been a determination on that front.
We brought in measures over the previous Parliament, as have previous Governments, to address what could be described as loopholes in domestic legislation. Her Majesty’s Revenue and Customs has also been very effective in collecting more tax from large businesses. The position of tax administration at HMRC has ensured that those revenues are collected.
If I were to argue against the provisions for a moment, I could say that a UK company can set its losses against UK profits, so why can it not also set its losses against profits that have been diverted from the UK? We are not persuaded by that argument, hence the measures in front of us. The provisions are consistent with our wider policy of protecting our corporation tax base against the diversion of UK profits, which is consistent with our approach to the diverted profits tax, for example. It is right to take action, but it is also right to ensure that we get the balance right between fairness and competitiveness. As evidence has emerged of particular practices that companies pursue, it is right to make adjustments as and where necessary ensure that legislation reflects those twin objectives of fairness and competitiveness.
Rob Marris
Can the Minister indicate when the Government will push forward hard on what they have said that they will do on transparency of beneficial ownership of companies in tax havens and so on? Anecdotally, there is quite some evidence of tax avoidance, which the introduction of that transparency could lessen. The Opposition want it and the Government say they want it, but it appears to be slow in coming.
Mr Gauke
The hon. Gentleman takes me into wider matters, but I am happy to respond even though it takes me a little way from clauses 35 and 36. The UK is leading the way by introducing a central register of beneficial ownership. That issue relates more to tax evasion as opposed to tax avoidance. We are encouraging other jurisdictions, including overseas territories and Crown dependencies, to move in the same direction as the UK.
On the subject of transparency and tax avoidance, the hon. Gentleman will be aware that one of the earlier recommendations from the BEPS project was on the introduction of county-by-country reporting information that goes to tax authorities. To ensure that we made progress on that front, we debated it before the conference recess. Such a measure would be more helpful and beneficial to tax authorities than a different arrangement. They could more easily assess a multinational’s tax affairs around the world and understand whether significant profits located in a low-tax jurisdiction might be indicative of a need for a closer look at the tax affairs of that multinational company.
Returning to the clauses before us, the hon. Gentleman referred to the interaction with the loss restriction rules that were introduced in a previous Finance Bill this year. The measure amends the rules restricting the use of carried forward losses introduced in the Finance Act 2015 to put it beyond doubt that those rules apply to arrangements involving CFCs. The measure is in addition to and, I would argue, complementary and consistent with the previous legislation. It puts it beyond doubt that that anti-avoidance measure applies to CFCs.
I hope those points are helpful to the Committee. We are determined to ensure that the UK is a competitive place in which to do business. The reforms of the CFC regime that we introduced in the last Parliament have helped the UK to attract additional business and more headquarters have been located in the UK. It is also right to ensure that those reforms do not go beyond what we intended and leave open opportunities for tax avoidance. The clauses are evidence of our determination to address that matter and I hope they will stand part of the Bill.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
Clause 36 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mel Stride.)
Finance Bill (Third sitting)
Debate between Rob Marris and David Gauke(9 years, 1 month ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
It is a great pleasure to serve under your chairmanship again, Sir Roger. I add my words of welcome to the hon. Member for Wolverhampton South West. As he said, we crossed swords in Finance Bills many years ago and I am delighted to see him back. I know that he will be an assiduous and thoughtful scrutiniser of the Bill and I am delighted to see him in place following his overdue promotion to the Front Bench. I also welcome the hon. Member for Leeds East to his Front-Bench position, as well as the hon. Member for St Helens North to the important role of Opposition Whip—although I note that the hon. Member for Scunthorpe is still present to provide any necessary words of guidance. Given his additional Front-Bench duties, that is to be commended. He clearly cannot keep away from Finance Bill debates—an attribute that both I and the hon. Member for Wolverhampton South West appear to share.
Clauses 21 and 22 will reduce the 45% tax on lump sums payable from a pension of individuals who die aged 75 or over to the marginal rate of income tax. These changes will ensure that individuals receiving taxable pension death benefits are taxed in the same way regardless of whether they receive the funds as a lump sum or as a stream of income. April this year marked the introduction of the Government’s radical reforms to private pensions. The historic changes included the removal of the 55% tax charge that used to apply to pensions passed on at death. Under our reforms, lump sums payable from the pension of someone who has died before age 75 are now tax-free. That was not previously the case: the recipient of the lump sum had to pay the 55% tax if the pension had been accessed. We also reformed who can take a pension death benefit.
Individuals can now nominate anyone they want to draw down the money as pension, paying tax at their marginal rate. However, for 2015-16, individuals receiving the money as a lump sum from the pension of someone who has died aged 75 or over pay tax at a special rate of 45%. These clauses meet the Government’s commitment to reduce that special rate to the recipient’s marginal rate from April 2016. That will align the income tax treatment of individuals who take the money as a lump sum with those who receive it as a stream of income.
Around 320,000 people retire each year with defined contribution pension savings. Their beneficiaries could now potentially benefit. Clause 21 removes the 45% tax charge that applies when certain lump sum death benefits are paid to individuals, and clause 22 applies the marginal rate of income tax instead. The 45% tax charge will remain in place where the lump sum death benefit is not paid directly to an individual.
For individuals who have such a payment made to them through a trust, clause 21 ensures that when the money is paid out, the individual will be able to reclaim any excess tax paid. That means that they will ultimately pay tax at their marginal rate, as though they had received it directly. For many people receiving these lump sum death benefits, clauses 21 and 22 will therefore mean a reduction in the tax payable. However, we must of course safeguard the Exchequer. These clauses will therefore ensure that people who leave the UK for a short period, receive the lump-sum death benefit and then return here will not escape UK tax charges, nor will they be able to escape UK tax charges because the member transferred their pension savings overseas in the five tax years before they died. UK tax charges will still apply in such cases, to make sure that people pay the right amount of tax.
Government amendment 13 removes potential unfair outcomes for individuals who have a defined benefit, lump-sum death benefit paid to them by removing the test against the lifetime allowance where the lump sum is subject to another tax charge. That means that any such lump-sum death benefit will be subject to one tax charge only.
Clauses 21 and 22 will make the tax system fairer and ensure that individuals who receive death benefit payments from the pension of someone who dies aged 75 or over are taxed in the same way, regardless of whether the death benefit is paid as a lump sum or a stream of income.
Rob Marris
I knew that we would hit the buffers sooner or later, but I thank the Minister for his kind words. To get it out the way, it will not surprise him to know that we support amendment 13, because taxation should not happen twice. Perhaps he might tell me at some point whether this was another difficulty spotted by Mrs Gauke, who has been known to grace this Committee in the past with her insights and specialties.
Rob Marris
The Minister says it was not.
I am uneasy, however, about clauses 21 and 22, which are twins. As I understand it—I may have misunderstood—an individual who as a beneficiary would previously have been paying tax at 45% on a windfall will in future be paying tax at their marginal rate, whether 20% or 40%. I am uneasy about that for two reasons. First, we have historically tended to impose taxes on death calculated on the estate rather than on the recipient. The inheritance tax, as you may remember, Sir Roger, became the capital transfer tax and then went back to being inheritance tax again, which is where we are now—although they are commonly called death duties. The tax payable back then was calculated on the value of the estate and the thresholds, allowances and so on relating to that. These clauses change that—perhaps the change was made in the past and I am not aware of it, which I readily concede might be the case—and tax payable will now be calculated on the tax rate of the individual beneficiary or recipient.
Secondly, this is money that has been taxed at 45%. It is a windfall. It is money that had tax relief when paid into the pension scheme and it had tax relief while that pension scheme was accumulating its funds. It now gets not tax relief, but a lowered tax rate than has hitherto been the case, dropping from 45% to 20% or 40% due to these two clauses. I am uneasy about that. My fears may be allayed if the Minister or his colleagues can clarify the matter further, but it may be that I will ask my hon. Friends to vote against these two clauses.
Mr Gauke
I am sorry that we seem to have hit the buffers quite so quickly when things were so consensual. First, there is a well-established distinction between the inheritance tax regime and the treatment of lump-sum death benefits. For example, if a spouse dies and leaves his or her estate to the surviving spouse, there is an exemption and no tax is paid. There is no equivalent provision in terms of the tax on lump-sum death benefits. I take the hon. Gentleman’s point, but I disagree with it. His argument does not go very far in terms of a direct analogy between the inheritance tax regime and lump-sum death benefits.
The hon. Gentleman argues that pensions are taxed on the basis of what tax professionals describe as EET—that is, exempt, exempt and then taxed. It is worth pointing out that under this regime, although pension savings are still taxed at the final stage, they are taxed at the marginal rate of the recipient. That does not mean that these sums essentially go completely untaxed—which I think is at the heart of the hon. Gentleman’s concern. More fundamentally, however, I would argue that we want a savings regime that encourages people to save for their pensions and a regime with a charge of 55%—as it was not that long ago—could be seen as punitive. In the circumstances that apply in this case, it is not unreasonable that there should be consistency in the tax treatment of these pension funds, regardless of whether payments are made as a lump sum or a stream of income.
I do not know whether I have succeeded in persuading the hon. Gentleman of the case for this, but I would argue that these provisions make our tax system fairer. They ensure that individuals receiving taxable pension death benefits are taxed in the same way, regardless of whether they receive the funds as a lump sum or as a stream of income. I therefore hope that clauses 21 and 22 can stand part of the Bill.
Amendment 13 agreed to.
Clause 21, as amended, ordered to stand part of the Bill.
Clause 22 ordered to stand part of the Bill.
Clause 23
Pensions: annual allowance
Question proposed, That the clause stand part of the Bill.
Rob Marris
I regard the amendments as technical changes that smooth the transition periods for the input year and tax year. I have to say that I am delighted by the clause. Many years ago, I was a lone voice in Parliament calling for a restriction of tax relief on pension contributions. As the Minister quite rightly said, it cost almost £18 billion a year in 2001 and that figure has shot up.
When I asked the Department for Work and Pensions—in 2003 or 2004—what evidence there was that tax relief on pension contributions encouraged people to save for a pension, the DWP had no such evidence. To me, that was shocking for a tax relief that then cost £18 billion a year. In a sense, the Government were spending, through forgone income, to encourage a pattern of behaviour when there was no evidence that they were encouraging such behaviour. I salute this Government for grasping that nettle.
The other reason I oppose pension tax relief—the Minister generously adverted to this today and clarified for the Committee—is that it has hitherto been incredibly regressive. When I raised this matter 10 or 12 years ago, it was even more regressive. The proportion being claimed by higher and additional rate taxpayers is now down to two thirds; it used to be about 90%. It was astounding to me that a Labour Government—a socialist Government in name—would continue with a tax measure that did not do what it was designed to do and which favoured the very well-to-do. We then had my hon. Friend Ruth Kelly, then Member for Bolton and, I think, Financial Secretary to the Treasury, introducing the nonsense of the annual allowance. It was completely bodged, as the Finance Bill Committee at the time, on which I sat, pointed out to her.
I still think there is a question mark over the whole concept of pension tax relief system for pension contributions, but this measure is progressive and, I have to say, it is somewhat to my surprise that the Government and their predecessor have now grasped the nettle twice. I urge my hon. Friends enthusiastically to support the clause.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Schedule 4
Pensions: annual allowance
Amendments made: 14, in schedule 4, page 99, line 43, leave out “227B(2)” and insert “227B(1)(b) and (2)”.
Amendment 15, in schedule 4, page 100, line 10, leave out “section 227ZA(1)(b)” and insert
“each of sections 227ZA(1)(b) and 227B(1)(b)”.
Amendment 16, in schedule 4, page 100, line 14, leave out “section 227ZA(1)(b)” and insert
“each of sections 227ZA(1)(b) and 227B(1)(b)”.
Amendment 17, in schedule 4, page 103, line 3, at end insert—
“Exceptions in certain cases where individual is deferred member of scheme
(6A) Subsections (3) to (5) do not apply, and subsections (6B) and (6C) apply instead, if—
(a) because of section 238ZA(2), a pension input period for the arrangement ends with 8 July 2015,
(b) another pension input period for the arrangement ends with a day (“the unchanged last day”) after 5 April 2015 but before 8 July 2015, and
(c) section 230(5B) or 234(5B), when applied separately to each of—
(i) the pension input period for the arrangement ending with 8 July 2015, and
(ii) the pension input period for the arrangement ending with 5 April 2016,
gives the result that the pension input amount in respect of the arrangement for each of those periods is nil.
(6B) The pension input amount in respect of the arrangement for the post-alignment tax year is nil.
(6C) The pension input amount in respect of the arrangement for the pre-alignment tax year is the amount which would be the pension input amount in respect of the arrangement for the pre-alignment tax year if—
(a) the pension input period ending with the unchanged last day were the only pension input period for the arrangement ending in the pre-alignment tax year, and
(b) subsections (3) to (5) were ignored.”
Amendment 18, in schedule 4, page 103, line 4, after “Modifications”, insert “in some other cases”.
Amendment 19, in schedule 4, page 103, line 44, at end insert—
“Modification where last input period ends before 9 July 2015
(11A) If the last pension input period for the arrangement ends after 5 April 2015 but before 9 July 2015—
(a) the time-apportioned percentage for the post-alignment tax year is treated as being nil, and
(b) the time-apportioned percentage for the pre-alignment tax year is treated as being 100.”
Amendment 20, in schedule 4, page 103, line 46, at end insert—
“() subsections (6B) and (6C) do not apply,”.
Amendment 21, in schedule 4, page 104, line 7, after “period”, insert
“(for this purpose treating that remainder as a single pension input period if not otherwise the case)”—(Mr Gauke.)
Schedule 4, as amended, agreed to.
Clause 24
Relief for finance costs related to residential property businesses
Mr Gauke
I beg to move amendment 22, in clause 24, page 36, line 23, leave out
“a property business carried on by a company”
and insert
“calculating the profits of a property business for the purposes of charging a company to income tax on so much of those profits as accrue to it”.
Mr Gauke
Clause 24 makes changes to ensure that all individual residential landlords get the same rate of tax relief on their property finance costs. This change will make the tax system fairer. Landlords with the largest incomes will no longer receive a more generous tax treatment. The distortion between property investment and investment in other assets will be reduced, and the advantage landlords may have over those who work hard to save for a deposit in order to own their own home will be minimised.
Let me begin by setting out the problem that the clause remedies. Landlords are able to offset their finance costs, such as mortgage interest, from property income when calculating their taxable income, reducing their tax liability. At present, the relief they receive from this is at the marginal rate of tax. That means that landlords with the largest incomes benefit the most from the relief, receiving relief at the higher or additional rates of income tax—40% or 45%—whereas landlords with lower incomes are able to benefit from relief only at the basic rate of income tax, which is 20%. In contrast, owner-occupiers of properties do not get any tax relief on their mortgage costs, and finance cost relief is also not available to individuals investing in other assets, such as shares in public companies. That creates a distortion between property investment and investment in other assets.
Clause 24 will reduce the inequity by restricting finance cost relief to the basic rate of income tax—20%—for all individual landlords of residential property. It will unify the tax treatment of finance costs for such landlords, including individual partners of partnerships and trusts. The change will ensure that landlords with the largest incomes no longer benefit from more generous rates of relief.
The Government recognise that many hard-working people who have saved and invested in property depend on the rental income they get, so the clause is being introduced in a proportionate and gradual way. The restriction will be phased in over four years from April 2017, ensuring landlords have time to plan for the change.
The Government have tabled five amendments to the clause. Amendment 22 ensures that all companies are excluded from the restriction, even when carrying on a property business in partnership. Amendments 23 to 26 ensure that where a trustee’s finance cost deduction is restricted, basic rate relief is available to trustees with accumulated or discretionary income.
Only one in five individual landlords are expected to pay more tax as a result of this measure. The Government do not expect the change to have a large impact on either house prices or rent levels due to the small overall proportion of the housing market affected. The Office of Budget Responsibility has endorsed this assessment. It believes that the impact on the housing market will be small and, taking account of the other measures in the Budget, has not adjusted its forecast for house prices. By April 2020, only 10% of individual landlords will see a tax bill increase greater than £500.
The clause will make the tax system fairer. It will restrict the amount of tax relief landlords can claim on property finance costs to the basic rate of tax, thus ensuring that landlords with the largest incomes no longer receive the most generous tax treatment. It will also reduce the distorting effect that tax treatment of property has on investment and the advantage landlords may have in the property market over owner-occupiers.
Rob Marris
The amendments, as far as I can tell, are technical measures to smooth things out. As ever, these things come out in the wash, whether it is Mrs Gauke or someone else who spots them.
It is likely that I will ask my hon. Friends to support the clause but I want to probe the Government on it. As the Minister knows, this is one of the higher profile clauses in the Bill and has attracted a rather large postbag. Some landlords—not all—are concerned.
I appreciate that any landlord among the one in five paying more tax under the provision has almost two years from 8 July to April 2017 to sell the property if they wish to do so, so that they are not boxed in with de facto retrospective action, which can happen if there is only three months in which to sell. I salute the Government for giving that transition time.
I am surprised to hear that only one in five landlords will be affected, but the Government and the OBR have done their research. I am concerned that the measure will do nothing for house prices, which is perhaps a debate for another day. Would that it would bring down house prices, which are far too high around the country. Those prices might well get higher when pensioners, under the Government’s freedoms, buy not Lamborghinis but houses with the money freed from their pension funds.
Rob Marris
I welcome the continuation of a Labour scheme from 2007 in clauses 25 and 26, and the refinement of the scheme. I congratulate the Government on securing approval from the European Commission, which has been in question for some time. That is also a replay—we will get on to this—of what happened in 2010 with farming.
I am pleased that the employee limit will be raised—to 500, I think the Minister said. That is helpful. I thank the Minister for the teaser he gave us on two occasions for the amendments to be tabled on Report, which we look forward to with excitement. I am pleased that the EIS and VCT schemes are not to be used to take over existing businesses, because that would undercut their whole raison d’être. However, in the light of that, I am a little concerned about what the Minister said about using the schemes for replacement capital. Prima facie, that is not what the schemes are intended to do, which is to kick-start and help to grow knowledge-based, innovative industries—hence the exclusion, for example, of farming. That replacement capital, of course, would keep such a business going, but in a sense it is not new money, because it is, as its title suggests, replacement capital. I am concerned about that point. We must focus on the tax relief and why it is being given.
I am pleased about clause 27. It concerns a scheme brought in by the last Labour Government—and happily continued by the coalition Government and, now, the current Government—to encourage investment in cases of market failure, and it shows that people will look for loopholes. The Minister adverted to market failure, which is also helpfully mentioned in the explanatory notes. Indeed, let me take this opportunity to pay tribute to those who compile the explanatory notes. I am sure it is a big team and they do an excellent job; the notes are very helpful. [Hon. Members: “Hear, hear!”] Would that this Government and their predecessors were a little more alert to market failure on a broader canvas—for example, in the energy industry. That is one of the things my party is very keen on: using the levers of the state to address market failure.
This small scheme, which is being continued from the Labour scheme in 2007, is of course to do with market failure, but when it comes to farming, it shows just how cunning these tax accountants are at coming up with loopholes. As I understand it, there was no loophole for the three years before 2010. Then the European Union made a ruling on certain aspects of state aid, which meant that a company could not be wholly or mainly a UK company in terms of its operations. Lo and behold, we have a few companies—I think that the Minister’s noun was “handful”—who exploit this to carry on farming activities outside the UK, claiming tax reliefs through EIS and VCT. Had they been carrying out farming activities within the UK from the inception of the scheme in 2007, they could not have claimed that tax relief. Wow, are they cunning! They have been getting with away with it, doing something quite legitimate and lawful, as I understand it—it is avoidance, not evasion—for five years.
Of course, some aspects of farming are very knowledge-based and innovative, but that is not what these schemes are focused on, and this example underlines how vigilant we all need to be as parliamentarians about these cunning tax avoiders. The Minister and his colleagues spent years in opposition decrying my Government for an increasingly long tax code, as shadow Ministers used to call it—although that is an Americanisation, just as they pronounce leverage the American way, rather than using the proper English pronunciation. We will come to the issue of our tax legislation being so long and complicated later, but this is just one minor example of where we have to introduce anti-avoidance provisions because these experts are so cunning with their tax avoidance. I am therefore very pleased about clause 27.
Mr Gauke
I thank the hon. Gentleman for his support for these clauses. He essentially raised two points. First, he raised his concern about whether replacement capital was consistent with the rationale behind these schemes. Let me provide what I hope is some reassurance. The intention is for replacement capital to be available only where there is significant new investment in the company. That will be subject to state aid approval, but there are circumstances where it may be necessary as part of any new investment for there to be some re-organisation of capital. That is what we are getting at in this clause. Our intention is to come forward with secondary legislation on this point, and I look forward to the opportunity to debate this with the hon. Gentleman in detail when we do so.
I welcome the hon. Gentleman’s support for clause 27. It is always disappointing when a technical flaw is found in legislation, especially after a few years. It came to light only recently and we are correcting it as quickly as we can. It arises from a fairly obscure interaction between the main scheme rules and the definition elsewhere in the Taxes Act. Very few cases of farming outside the UK have received tax reliefs under the schemes.
On that point, the most information I can provide to the Committee is this. HMRC does not keep a record of tax reliefs by reference to the activities of the company. However, HMRC’s operational staff can recall seeing no more than half a dozen or so applications a year, most of which were rejected because the company failed to meet all the requirements. The number of cases that have received relief is small, as I said earlier. Given those points of clarification, I hope the Committee is happy with these measures, and I hope they stand part of the Bill.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 26 ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 27 ordered to stand part of the Bill.
Clause 28
Travel expenses of members of local authorities etc
Question proposed, That the clause stand part of the Bill.
Mr Gauke
My hon. Friend makes a good point. It is not my purpose to reopen the debate on pensions and local councillors, however tempting that might be, but I am grateful for my hon. Friend’s intervention.
The clause will support councillors in the vital constitutional role they perform by exempting travel expenses paid by their local authorities from liability to income tax, and I hope it will stand part of the Bill.
Rob Marris
I do not propose to spend a long time on this. I have never been a councillor but it would be seen as navel gazing for us as elected representatives to spend a long time on this clause. The Opposition support the clause because we want to encourage democracy and so that democratic parties can get the best candidates, and this measure is all part of that spectrum.
I would like the Minister to clarify one point. He referred to journeys by public transport. I apologise that I was not concentrating enough when he made that reference. My understanding from the Chartered Institute of Taxation is that this change would not cover travel by public transport. If public transport travel is not covered, will the Minister please explain why? Will he also say whether, for example, a mayor who travelled by bicycle might claim these expenses?
Mr Gauke
I am grateful to the hon. Gentleman for his support for the clause. It is always good to see a consensus on supporting democracy. As I said earlier, the provision does apply to public transport, so the hon. Gentleman can be reassured that there is nothing that would discourage people using public transport. The provision will apply to public transport or where a councillor uses their own vehicle.
Mr Gauke
I am afraid that I do not think that the travel expenses regime will apply to bicycling. I sense that the hon. Gentleman has his first campaigning issue to get his teeth into as a Front Bencher.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
London Anniversary Games
Question proposed, That the clause stand part of the Bill.
Mr Gauke
I can give one good example: we applied the same exemption for the Glasgow 2014 Commonwealth games. That is an example of the Government’s willingness to do that. Again, that was part of maintaining the Olympic legacy and ensuring that we could get top athletes to compete in the Commonwealth games. The hon. Gentleman raises a fair point and I hope he accepts that I have given a fair answer to it. I hope the Committee agrees that the clause should stand part of the Bill.
Rob Marris
My hon. Friend the Member for City of Chester raised a point that I wished to raise. The Minister’s reply was not entirely clear. My hon. Friend’s question, as I understood it, was whether such ad hoc arrangements would continue to be ad hoc, or whether they would be systematised into our tax rules on a general basis, so that we can continue to attract world-class athletes and other competitors, indeed to other parts of the country as well as London.
I echo what my hon. Friend said. As I am sure all hon. Members know, the Olympic games were revived in Much Wenlock, just down the road from Wolverhampton South West, in the late 19th century. We want to encourage such events and we want more to be held outside London, so it seems logical for the Government to look at systematising the tax relief, rather than giving it on an ad hoc basis, with the uncertainty that that brings. Do the Government have any plans to investigate whether there should be—or indeed should not be—such a permanent tax relief?
Mr Gauke
I hope to provide a little more clarity. In my previous answer, I wanted to make the point that we are not London-centric in granting relief. Indeed, as I said, we granted relief for the Glasgow Commonwealth games.
As for providing an overall exemption, we allow tax exemptions for sporting events only if they are a condition of a bid to host an international mobile and major world-class sporting event. We see the clause as part of the legacy of the Olympics, which is why we have made this decision. Any potential exceptions to the rule will be considered on a case-by-case basis and we will continue to take that approach, but we are of course determined to ensure that we attract major sporting events to this country. We are currently hosting the rugby world cup, although unfortunately England are no longer participating in it, and there will be major football finals in Cardiff in forthcoming years. We believe that the current policy of providing exemptions when world-class events request them as part of the bid conditions is the right approach, and we intend to continue with it.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
R&D expenditure credits: ineligible companies
Question proposed, That the clause stand part of the Bill.
Mr Gauke
The clauses and the schedule make wide-ranging changes to the corporation tax rules for company debt—referred to as loan relationships in the statute—and derivatives. These changes bring the rules up to date, making them simpler and easier for companies to use and at the same harder to misuse or manipulate.
It may help the Committee if, before I explain the changes in detail, I provide some background. The rules on loan relationships are almost 20 years old. They are based on the straightforward idea of taxing company debt on the basis of commercial accounts. The rules operate without difficulty for many, particularly for smaller companies with simple financing arrangements, but they also have to cater for commercial situations that can be highly complicated. The Government have frequently received comments on the complexity of the rules. At the same time, the loan relationships and derivatives regimes have frequently been targeted by tax avoiders. Often, the reaction to those attempts at avoidance has been to close loopholes by very specific, narrowly focused changes to the law. That approach has generally been successful, but it has not deterred avoiders from finding new ways to get round the rules or abuse them. It has also added to their complexity. In addition, over the years there have been changes to the accounting standards that underlie the tax rules, and further significant changes are being made at the moment.
Those factors mean that the time is ripe for a general review of this part of the tax code. Indeed, an article in Tax Journal in December 2014 noted that such a review was “long overdue and necessary”. At Budget 2013, the Government announced a consultation on a package of proposals to modernise the legislation. The clauses and schedule before the Committee today are the outcome of that consultation.
We are making extensive changes. I will explain briefly the most significant elements of the package. First, we are aligning taxable amounts more closely with commercial accounting profits, so taxation of loans and derivatives will now be based on amounts recognised in accounts as profits or losses, similar to the way trading profits are calculated. In contrast, up to now the tax rules for loans and derivatives have looked at amounts recognised anywhere in accounts—in equity or reserves, for example. A transitional rule will ensure that this change is broadly tax-neutral and that nothing is taxed twice or not at all. A recent article in Tax Journal described the change as “a hugely welcome simplification”. Alongside it, we are making further changes that will reduce the occasions when taxation does not follow the accounting treatment.
We are introducing new corporate rescue provisions, which will benefit companies that are in genuine financial difficulty and looking to restructure their loans to avoid insolvency. The rules will make it easier for such companies to agree arrangements with creditors without incurring a tax charge. The change has been warmly welcomed and will help companies to stay in business, to continue contributing to the UK economy and to preserve jobs. For example, in its February 2015 client newsletter, Allen & Overy noted:
“These exemptions received a uniformly positive welcome.”
I described how, although they effectively close down avoidance schemes as they come to light, the existing narrowly focused rules have not stopped attempts to target or use company loans and derivatives in tax avoidance arrangements. Because of that, we are strengthening the protection for the Exchequer by introducing new regime-wide anti-avoidance rules, which will deter and block arrangements of any kind that are entered into with the intention of obtaining a tax advantage by way of the loan relationships or derivatives rules. Unlike many existing anti-avoidance provisions, the new rules do not focus narrowly on specific situations or types of avoidance, so it will be harder to sidestep them.
It is important that the rules do not interfere with genuine commercial activity, so we have worked closely with interested parties to ensure that they will prevent avoidance without affecting legitimate business transactions. A number of existing anti-avoidance rules will now be redundant, so we are repealing them, which will be a welcome simplification.
Consultation has continued since the Bill was introduced and has identified the need for Government amendments to schedule 7 to deal with a potential unintended outcome. The amendments do not represent any substantive change of policy, but simply bring forward the date at which the corporate rescue reliefs that I described a few moments ago become available. The Bill currently provides for those reliefs to be available from the date of Royal Assent, but we have recently been made aware in consultation that a small number of companies have entered into transactions on the basis that retrospective relief would be available from 1 January 2015, as was envisaged in earlier draft legislation published in December 2014. As a result, they would not qualify for relief and so would be in danger of becoming insolvent, with possible loss of jobs.
As a rule, the Government do not legislate to take account of the fact that taxpayers have acted on the basis of unenacted legislation, but I am mindful that in this case the whole purpose of the corporate rescue reliefs is to avoid unnecessary insolvencies and preserve businesses and jobs, so the amendments reset the commencement date to 1 January 2015.
In conclusion, the provisions support the Government’s aim of promoting a tax system that is efficient, competitive, predictable, simple and fair. They bring the tax system for corporate debt and derivative contracts up to date and make it simpler. They make it easier for companies to restructure debt to avoid insolvency and they make it harder for tax avoiders to get around or take advantage of the rules. I therefore commend clauses 31 and 33 and schedule 7 to the Committee.
Rob Marris
These are welcome anti-avoidance measures, although I must say that they are of such complexity that I do not understand them and, with respect to my hon. Friends, I suspect that few of them do either. I am pleased that the Government have listened to the consultation and changed the commencement date to 1 January 2015, which was something on which I was lobbied.
The provisions indicate how difficult it is to simplify our tax regime—something with which the Minister will have struggled in the past five and a half years since he got into government. It is easy to argue from the Opposition Benches for a simplified tax regime, and of course I would argue for that as well. Clause 31 looks simple: it is 11 words long—now that is nice and simple. However, those 11 words incorporate schedule 7, which is, at 43 pages, the longest schedule I can recall seeing appended to any Bill. I would like some further reassurance from the Minister, if he is in a position to give it, that a 43-page schedule simplifies our tax regime.
Mr Gauke
The clause removes corporation tax relief in relation to purchased goodwill and certain other customer-related intangible assets. The changes ensure that companies will no longer be able to reduce their corporation tax profits by claiming relief for the cost of purchased goodwill written off in the company accounts. Clause 32 applies to all acquisitions made on or after 8 July 2015. Companies that have completed acquisitions before 8 July 2015 will not be affected.
In accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Goodwill can therefore be thought of as representing the value of a business’s reputation and customer relationships. Customer-related intangible assets include the types of assets associated with the goodwill of the business or the business’s reputation, such as customer lists, customer information and unprotected trading names or marks.
The Finance Act 2002 introduced a new tax regime for companies’ intangible fixed assets commencing on 1 April 2002. The treatment of intangible assets generally follows the accounting treatment set out in the legislation, which treats goodwill like any other type of intellectual property such as a trademark, patent, design right or copyright. However, in reality goodwill is simply the difference between the purchase price of a business and the business’s net asset value. It represents the premium a buyer will often pay to acquire an established business, compared with buying business assets and commencing a new business. It is therefore different from other, separable, intangible assets such as websites and patents.
The existing rules allow the buyer to claim annual corporation tax relief for the cost of the goodwill. That relief reduces corporation tax profits, as the cost of the purchased goodwill is written down in the company accounts or is given on a fixed-rate basis of 4% per annum. That advantage is not generally available to companies that undertake mergers and acquisitions by purchasing the shares of the target company, nor is it available to new start-up businesses or to businesses that grow organically. The current rules can therefore distort commercial practices and lead to manipulation and avoidance. For example, relieving the cost of a business acquisition can affect the price payable in anticipation of the available tax relief.
The changes made by clause 32 will withdraw amortisation and fixed-rate relief for all goodwill and customer-related intangible asset acquisitions that occur on or after 8 July 2015. Instead, relief will be given if and when those assets are subsequently sold or otherwise disposed of. The clause will treat any loss arising on such a disposal as a non-trading loss. That is to limit how such losses can be relieved. Existing cases—companies that acquired goodwill or other relevant assets before 8 July 2015—will not be affected.
In conclusion, clause 32 removes the financial advantage for structuring a merger or business acquisition so that goodwill can be recognised by the buyer. It levels the playing field for mergers and acquisitions, and brings the UK in line with international standards. I hope the Committee will agree to its standing part of the Bill.
Rob Marris
This seems to be a sensible measure to level the playing field, although it may have an effect on businesses that are not incorporated and where there could be no question of shares being substituted. The change builds on the excellent 2002 legislation on the taxation of intangible assets, and Opposition Members should support it.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Clause 34
Group relief
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 34 makes the tax system simpler by removing differences in the treatment of consortium link companies based in the UK and other jurisdictions. The current rules state that, for corporation tax group relief to be available between a group and a consortium, the company that links the two must be located in the UK or the European economic area. Where the link company is in the EEA but not the UK, there are other requirements.
The changes made by clause 34 remove all requirements relating to the location of the link company so that relief may be given regardless of where it is based. The change simplifies the tax system by putting consortium relief on the same footing as normal group relief. That supports the Government’s ambition to continually improve the UK’s international ranking as a place to do business.
Rob Marris
With due respect to the Minister, I would like a little more clarification, because I do not think this is simply a simplifying measure. I may be wrong, but it appears to change the nature of the game. As I understand it, it removes the requirement for all link companies to be either in the UK or the EEA; a link company could therefore be in Canada, Hong Kong or Indonesia, for example. That seems quite a big change and more than merely a simplification.
Will the Minister explain a little more—touching on more than just simplification—why it is desirable for the tax regime of UK plc to be so flexible about the headquarters and location of link companies, when most, if not all, hon. Members present would recognise to a greater or lesser extent that the UK has a particular problem with companies disappearing to, or setting up in, tax havens overseas. I am concerned that the clause, if implemented, would increase opportunities for companies and groups of companies to take advantage of tax havens, to the disadvantage of UK plc, those we represent and companies that are playing morally by the rules, as opposed to companies such as Facebook, which, we heard this week, appears to be adhering to UK legislative rules, but to its considerable financial advantage. That suggests that the UK legislative rules adhered to by the Facebooks, Starbucks and Googles of this world are not sufficiently tight. I am concerned that clause 24 goes in the wrong direction on that issue.
Ordered, That the debate be now adjourned.—(Mel Stride.)
Draft Scottish Rate of Income Tax (Consequential amendments) Order 2015
Debate between Rob Marris and David Gauke(9 years, 2 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
It is a pleasure to respond to the two speeches we have heard. First, on HMRC’s ability to identify Scottish taxpayers, which will be fundamental to the introduction of a Scottish rate of income tax, HMRC will use its own data to determine a person’s status. To give individuals an opportunity to respond, HMRC will encourage them to make it aware of changes of address. HMRC is also looking at the best ways to check the information against other sources, and at the costs associated with the activity. Scottish Government officials have been involved in that process for some time and are consulted about key decisions.
It is worth pointing out that the latest risk register reflects a growing confidence in the effectiveness of HMRC’s plans to identify Scottish taxpayers. As Scottish taxpayer status is determined by main place of residence in the UK, HMRC will use the addresses it holds in its records to identify taxpayers who live in Scotland.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to appear before you for the first time, Mr Bailey, and to have the opportunity to ask a question of the Minister. It was probably 2006 when we last crossed swords on a Treasury matter in Committee, with the Finance Bill of that year.
With regard to Scottish residence, I am not accountant, as the Minister knows, but there used to be a withholding tax for money earned in the United Kingdom by certain foreign residents, such as pop stars or sportspeople. Would the order affect the withholding tax for money earned in Scotland by such a foreign resident?
Mr Gauke
Let us not detain the Committee too long on that ancient history. However, it is great pleasure to respond once again to an intervention from the hon. Gentleman.
The Scottish rate of income will apply to Scottish residents. In the circumstances that the hon. Gentleman sets out, where somebody is not a Scottish resident, the UK rate of income tax will apply. I hope that provides clarity.
I should point out that there is no definitive list of Scottish residents, but HMRC has been and will continue checking its address data against third-party information, for example the Scottish electoral register, to check accuracy. HMRC expects to contact Scottish taxpayers later in 2015, well in advance of the introduction of the Scottish rate in April 2016.
Work on making changes ready for the Scottish rate of income tax is well advanced. It is on schedule and will support further devolution. While it is clearly vital that the public have all the information necessary to understand the Scottish rate of income tax before it comes into force, all the customer research that HMRC has commissioned shows that the timing of information is equally important. If guidance or information highlighting the changes is provided too early, it will not be at the forefront of busy people’s minds.
UK employers and pension providers are amending payroll software to take into account the introduction of the Scottish rate of income tax from next April. Technical guidance on Scottish taxpayer status was published for consultation in June and will be published in its final form, along with a raft of more general support and guidance, later this year. HMRC will write to those whose records show that they are a Scottish taxpayer later this year and tell employers and pension providers which of their employees or pensioners are Scottish taxpayers. I reassure the Committee that progress towards the introduction of the SRIT appears to be well in hand.
Mr Gauke
I do not accept that point. In the course of a year, the establishment of the Smith commission and the bringing forward of legislation to devolve income tax much more fully to Scotland has been remarkably fast-paced. Indeed, the point that the hon. Member for Worsley and Eccles South raised was that it involves, in some cases, really quite complicated changes. Institutions such as insurance companies need to be able to make changes to ensure that it works effectively. Yes, there are times when we need a run-in period to introduce measures, but in reaching a consensus and making progress towards a very substantial transfer of power, I am pleased to say that the Government are delivering on the promises made before the Scottish referendum.
Rob Marris
Perhaps the Minister could confirm whether I have misunderstood, which I may have done, that since the Scottish Parliament was set up, the devolved Administration have had the option of a 3p in the pound income tax change. As far as I am aware—the Minister can correct me on this—successive Administrations of different political colours have not exercised that choice. Does he agree that chomping at the bit to deal with income tax now therefore seems a little strange?
Mr Gauke
I do agree with the hon. Gentleman. Powers have been in place with the Scottish variable rate for many years and have not been used. We now have the additional powers of the Scottish rate of income tax. If the Scottish National party is so keen to make use of those powers, I look forward to hearing what it will do with the Scottish rate of income tax. We have gone even further in providing devolution consistent with the Smith commission, and maybe it is time that the debate moved on from which powers are devolved to how those powers will be used.
Tax Credits (Working Families)
Debate between Rob Marris and David Gauke(9 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
In 2014, the UK was the fastest-growing economy in the G7 and it looks likely that that will also be the case in 2015. [Interruption.] The hon. Lady talks about wages, but they are up 2.7% in the last year. As I said, living standards have risen by 3.9% on the year, despite the fact that we are still living with the consequences of the deepest crash and the biggest deficit, which we inherited from the Labour party.
Rob Marris
Does the Minister not recognise a contradiction in his position? If the economy is as strong as he suggests, there is no need to cut tax credits. If, on the other hand, as Labour Members think, the economy is not nearly as strong as he and his colleagues are making out, we need tax credits because of poverty.
Mr Gauke
The economy is growing strongly, but we are still recovering from the deepest crash. We inherited the biggest peacetime deficit in our history, and we must take difficult decisions to address it. We took difficult decisions in the previous Parliament, which were opposed by the Labour party, and we still have more to do. The Labour party might wish to learn that, if a Government or a political party cannot face up to those challenges, they will not win the trust of the British people.
Scotland Bill
Debate between Rob Marris and David Gauke(9 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Rob Marris
Is it the Government’s view that the existence of APD has had any effect on the number of airline passengers flying to and from the UK, and within the UK, in each year since it came in? Do the Government think the existence of that tax has lessened the numbers, had no effect on them or, paradoxically, increased them?
Mr Gauke
I should put it as neutrally as I possibly can. We do not believe that the behavioural effects are as great as those set out in the PwC report, which is why we believe APD does raise revenue. There is a consensus—not a universal consensus—that it is right that we move on APD. On the point about regional airports, we will come back to that later in the summer.
May I also pick up the point on the aggregates levy? The hon. Member for Edinburgh South (Ian Murray) asked about the likely progress on legal matters. The European Commission was forced to reconsider its 2002 decision that the exemptions from the levy did not provide state aid following legal action by the British Aggregates Association. It announced its decision in March, finding that the levy as a whole was lawful, as were most of the exemptions. The Government are currently informally consulting trade associations on draft legislation to reinstate those exemptions—for example on slate and clay—found lawful by the Commission in March 2015.
With those points of clarification, I hope that the clauses before us can stand part of the Bill.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17 ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 18 ordered to stand part of the Bill.
New Clause 1
Independent Commission on Full Fiscal Autonomy
‘(1) The Secretary of State shall appoint a commission of between four and eleven members to conduct an analysis of the impact of full fiscal autonomy on the Scottish economy, labour market and public finances and to report by 31 March 2016.
(2) No Member of the House of Commons or of the Scottish Parliament may be a member of the commission.
(3) No employee of the Scottish Government or of any government Department or agency anywhere in the United Kingdom may be a member of the commission.
(4) The Secretary of State shall appoint as members of the commission only persons who appear to the Secretary of State to hold a relevant qualification or to have relevant experience.
(5) The Secretary of State shall not appoint as a member of the commission any person who is a member of a political party.
(6) Before appointing any member of the commission, the Secretary of State must consult—
(a) the Chair of any select committee appointed by the House of Commons to consider Scottish affairs, and
(b) the Chair of any select committee appointed by the House of Commons to examine the expenditure, administration and policy of Her Majesty’s Treasury and its associated public bodies.
(7) The Secretary of State may by regulations issue the commission with terms of reference and guidelines for the commission’s working methods, including an outline definition of the policy of full fiscal autonomy for the commission to analyse.
(8) The Secretary of State must lay copies of the report of the commission before both Houses of Parliament, and must transmit a copy of the report of the commission to the presiding officer of the Scottish Parliament.
(9) Regulations under this section must be made by statutory instrument, subject to annulment in pursuance of a resolution of either House of Parliament.” —(Ian Murray.)
This New Clause requires the Secretary of State for Scotland to establish an independent commission of external experts, appointed in consultation with the Treasury Select Committee and Scottish Affairs Select Committee, to publish a report by 31 March 2016 setting out an analysis of the impact of the policy of Full Fiscal Autonomy on the Scottish economy, labour market and public finances.
Brought up, and read the First time.