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Institute and IFS take tax debate to party conferences – and you are invited
4 September 2013

Key policy-makers and high profile journalists will be joining the CIOT and the Institute for Fiscal Studies at the main party conferences this autumn for a series of debates on the future of the tax system.

Exchequer Secretary David Gauke will be on the panel for the Conservative conference event in Manchester, his opposition number Catherine McKinnell will speak at the Labour event in Brighton and another minister, Dick Newby, who speaks for the Government on Treasury issues in the House of Lords, will be taking part in the Lib Dem event in Glasgow.

The events will be chaired by Paul Lewis of Radio 4 MoneyBox fame (Brighton), FT Economics Editor Chris Giles (Manchester) and Channel 4 News Economics Editor Faisal Islam (Glasgow). The IFS’s Paul Johnson and senior CIOT representatives will complete the panels.

This is the first time the CIOT or the IFS have held events of this kind. We are aiming to explore how we can build an efficient, sustainable tax system and raise the resources needed to fund public services in the 21st century. We intend to help develop better informed tax policy and greater understanding of the issues and constraints facing tax policy makers.

As well as politicians, party members and media we are inviting CIOT members, their friends and colleagues to attend these debates. Indeed anyone with an interest in debating tax policy is welcome to attend. Attendance is free of charge and refreshments (hot canapés for evening events, finger buffet for lunch event) will be served. You do not need to register your attendance though you will require a party conference pass (not cheap, I’m afraid) for the Glasgow event as it takes place in the conference secure zone.

Further information including timings and venues is available at: http://bit.ly/18zT261

Hopefully see you there!

George Crozier
CIOT External Relations Manager
Tuesday 3 September 2013

Media and Politics
 
Vodafone ‘tax loophole’ nothing of the kind
3 September 2013

Vodafone announced the sale of its stake in Verizon Wireless yesterday and that it will not pay any UK tax on its profit. The situation is slightly confused by some of the stake being held through sub holding companies but the substance is that a UK company is making a substantial profit on the sale of its 45pc holding in the overseas joint venture.

The Substantial Shareholding Exemption was introduced in 2003 by the last Labour government and the current government has not seen fit to repeal it. This provision was specifically aimed at exempting this sort of profit (that is, profit made by a company from selling shares in another trading company) from tax. It was part of a whole string of measures introduced by the last and the current government aimed at persuading multinational companies to base themselves in the UK.

Some commentators and media have said that Vodafone has used a loophole to avoid paying tax on their profit. Many people use "loophole" to describe a situation where tax is avoided in a way not intended by the government when the law was introduced. It is difficult to understand how that can apply here. This is a deliberate piece of policy that has worked well for 10 years. It’s open to Government to change it, but while it remains it is unreasonable to criticise a company for taking advantage of it.

Patrick Stevens
Chartered Institute of Taxation
Tuesday 3 September 2013

Technical
 
Professions Week set for October
5 August 2013

A group of prominent professional bodies, including the CIOT, have announced the UK’s inaugural Professions Week will run from 21 – 27 October 2013.

The aim of the week is to increase interest and awareness in the professions among 14 – 19 year olds. It will support teachers and careers advisors, providing them with relevant materials to help young people make informed decisions with regards to the professions.

The week will be officially launched with a high-profile reception in the House of Commons on 21 October. The aim is for this to be followed by a series of regional and local activities organised by the professional bodies involving schools, colleges and other institutions.

The CIOT’s Head of Business Development, Irene Redman, who is leading the Institute’s involvement in Professions Week explained that while the initiative is aimed at all young people a particular effort is being made to reach those from non-privileged backgrounds:

“The UK is a world leader in professions such as accountancy, tax advice and other business services.

“The professions already provide one of the most effective routes to advancement for people not from privileged or wealthy backgrounds. The new higher apprenticeship in professional services, which the CIOT and our sister body the Association of Taxation Technicians are key partners in, is just the latest initiative to ensure the professions are open to all.

“With Professions Week we are aiming to make sure that the message about the opportunities the professions offer to those with ability, who are willing to work hard, gets to every part of the country, including groups traditionally under-represented in the professions. A job in tax or one of the other professions may not be for everyone, but we want everyone to at least have considered it. That is why we are putting effort into expanding outreach to schools, finding new places to publicise the profession and developing new routes to entry.

“Professions Week is a key part of this.”

Any CIOT or ATT member interested in promoting the professions in their local area around Professions Week should contact Irfan Qureshi at: iqureshi@att.org.uk.

Note

The founding professional bodies involved in creating the Professions Week are:
• Association of Accounting Technicians
• Association of Chartered Certified Accountants
• Association of Taxation Technicians
• Chartered Institute for Securities & Investments
• Chartered Institute of Taxation
• Chartered Institute of Management Accountants
• Chartered Institute of Patent Attorneys
• Chartered Institute of Payroll Professionals
• Chartered Institute of Personnel and Development
• Chartered Management Institute
• Institute of Chartered Accountants England & Wales
• Institute of Leadership and Management
• Institute for Learning
• International Association of Book-keepers

For further information please visit: www.professionsweek.org

George Crozier
CIOT External Relations Manager
Monday 5 August 2013

Media and Politics
 
Lords moot tax profession regulation
2 August 2013

On Wednesday the House of Lords Economic Affairs Committee published its report: Tackling corporate tax avoidance in a global economy: is a new approach needed?

The focus of media coverage has been the call on the Treasury to "urgently review" the UK's corporate tax regime, warning that the OECD programme of reforms may not be enough to prevent multinational firms avoiding billions of pounds in tax. The Committee has said it is unclear whether the reforms will go far enough. Coverage includes –
Get tough and make global companies pay their dues, peers urge the taxman (The Times, behind a paywall)
Corporate tax ‘not working’, and needs reform, say peers (FT, behind a partial paywall)
Lords say Amazon-style tax avoidance schemes must end (Guardian)

Of particular interest to tax advisers is likely to be the recommendation that government consider regulation of the profession. The key paragraph is:

76. We consider that a new system of regulation of tax advisers could be valuable in helping ensure that advice on tax matters is in accord with a strengthened code of conduct. We recommend that the Treasury and the professional bodies should urgently examine how such a system of regulation might be established and function, bearing in mind the many practical issues involved, including the form of a regulatory body and suitable sanctions for falling short of the standards required, which might include loss of the right to act as a tax adviser.

This recommendation will no doubt be reflected upon by the Institute in due course, perhaps in the context of the HMRC consultation paper on Tax Agent Strategy expected later this month.

The full list of the committee’s main conclusions and recommendations is:

We recommend that Parliament should establish a joint committee—made up of MPs and Peers—to exercise greater parliamentary oversight of HMRC and the settlements it reaches with multinationals. Like the Intelligence and Security Committee, the new Committee would examine confidential evidence in private.

We recommend that the Treasury should urgently review the UK’s corporate taxation regime and report back within a year with proposed changes to be made at home and pursued internationally, especially through the OECD.

On the international front, we recognise that the Treasury are already working for early implementation of the OECD’s Action Plan to tackle Base Erosion and Profit Shifting (BEPS). We recommend that the review should also consider other approaches to the taxation of multinational companies’ profits, such as a destination-based cash flow tax.

In the UK, we recommend that the review should re-examine some fundamentals of the UK’s corporation tax regime, including differential tax treatment of debt and equity and the scope for introduction of an allowance for corporate equity.

We recognise that the Treasury will already be working on policy initiatives against avoidance already announced by the Government, such as naming and shaming promoters of tax avoidance schemes, and self-certification of compliance with tax obligations by companies bidding for public contracts. We recommend that the review should also consider a series of anti-avoidance measures for the shorter term, such as:
(i) regulation of tax advisers;
(ii) measures to penalise users of failed tax avoidance schemes;
(iii) a requirement on companies with large operations in the UK to publish a proforma summary of their corporation tax returns, so as to bring about greater transparency.

We also recommend that HMRC should be better resourced to deal effectively with the tax affairs of complex and well-resourced multinationals.

Anyone interested in reading the full report can access it using these links: HTML / PDF.

George Crozier
CIOT External Relations Manager
Friday 2 August 2013

Media and Politics
 
Review of EU-UK balance of tax responsibilities
25 July 2013

The Government has published a review of the "balance of competencies" between the EU and the UK in the area of tax.

This was one of six reports on different policy areas published on Tuesday of this week. Media articles summarised the reports as having found the relationship is "broadly appropriate", which unsurprisingly riled those of a eurosceptic bent. See:

Having read the tax report through, there is not a lot to get excited about in it. The report (and, I assume, the five in other policy areas too) really just summarises the views of respondents to the review and a wider literature review. The CIOT was one of 16 organisations (plus one individual) to make a submission to the tax review. Most are professional bodies (eg ICAEW, British Bankers Association, Scotch Whisky Association) with a smattering of private companies (eg PWC) and governmental bodies (eg Northern Ireland Executive).

My brief summary of the executive summary is as follows (noting that this is a summary of respondents’ views rather than of government opinion):

  • Decisions on taxation are primarily for Member States, especially on direct taxation and even more especially on personal taxation
  • However EU-level action is appropriate where there is a clear internal market justification (to address obstacles to cross-border business, or administrative co-operation between Member States) and the principles of subsidiarity and proportionality are met
  • Tax policy at the international level preferable where necessary to facilitate global business (eg OECD Model Tax Convention to help address double taxation)
  • Support for indirect taxation measures which have facilitated, or addressed obstacles to, cross-border business activity (eg VAT regime)
  • Support for limited direct tax measures which have provided certainty of the tax treatment in specific cross-border situations (eg Mergers Directive)
  • Broad contentment with current balance of competence on taxation - no respondents identified any major gaps in the existing legislation
  • Unanimity voting for taxation should be retained (though downsides of this were acknowledged)
  • On the policy-making process, support for greater consultation by the Commission, more detailed analysis of the effects of EU tax policy on Member States and greater accountability for impact assessments
  • Concern over
    • risks from inclusion of tax or fiscal measures in non-tax proposals which are not assessed by tax experts and undermine unanimity,
    • use of enhanced co-operation on tax measures which could have extra-territorial effects, and
    • impact of rulings by CJEU on domestic tax measures and Member State competence
  • Appropriateness and utility of EU-level financial transactions tax questioned

The summarised summarised summary? No change please (or at least nothing radical)

You can read the full report here.

George Crozier
CIOT External Relations Manager
Thursday 25 July 2013

Media and Politics
 
OECD publishes BEPS Action Plan
19 July 2013

The OECD has released its Action Plan on BEPS (base erosion and profit shifting).

The Action Plan offers a global roadmap, produced at the request of the G20, to support governments by providing them with the domestic and international instruments to prevent corporations from paying little or no taxes. OECD hopes that it will also give businesses the certainty they need to invest and grow.

Follow-up measures will be proposed over the next two years, including a multilateral instrument for interested countries to amend their existing network of bilateral treaties.

You can read the action plan here, the OECD’s press release here and their FAQs here.

The CIOT’s Patrick Stevens was on Radio 5 this morning ahead of the action plan’s publication, discussing what was expected and the difficulties of reaching agreement on international tax reform. You can listen to his appearance here (report begins 8 mins into the programme).

The CIOT’s advance press release (ie before the report came out) is here. We’re going to let our experts digest it for a bit before issuing any post-publication releases or other statements but we are available for further media comment on request.

George Crozier
CIOT External Relations Manager
Friday 19 July 2013

Media and Politics
 
Finance Bill debates 2013 (4): The GAAR and other provisions
19 July 2013

In the week that Finance Bill 2013 gains Royal Assent and becomes law, the CIOT's George Crozier reviews the Bill's passage through Parliament in a series of four articles. This final article looks at parts 5-6 of the Bill, including the GAAR, statutory residence test and international agreements.

Part 5 – General Anti-Abuse Rule

Debate on the GAAR clauses was fairly brief and non-technical, all of it taking place in ‘committee of the whole House’ (ie on the floor of the House of Commons) and with speeches generally ranging over the whole tax avoidance canvas. No changes were made to this part of the Bill during its passage.

Debate focused on proposals from Labour backbencher Michael Meacher for a broader ‘general anti-tax avoidance principle’ (or GANTIP) with a clearance mechanism, from Conservative backbencher (and chartered accountant) Nigel Mills for a de minimis test for the GAAR (in terms of the amount of the tax advantage for each tax included) and a number of amendments put forward by the Labour Treasury Team, including one to require UK companies to report their use of tax schemes which have an impact on developing countries. Labour’s spokesperson offered qualified support for the GAAR, quoting the CIOT on the importance of not overstating the rule’s impact, and also on the need for its impact to be subject to an early review. Responding to the debate the Exchequer Secretary questioned the practicality of some of the measures proposed but said the Government had not ruled out future changes to the GAAR such as attaching penalties, and would keep the matter under review. He also stressed that the GAAR was “an additional tool that HMRC can use; it does not necessarily mean that for those outside the GAAR, everything is fine”.

Part 6 – Other Provisions

The most significant measures in the ‘any other business’ section of the Bill were the schedules introducing a statutory residence test and abolishing ordinary residence, both the product of extensive engagement between the Government and tax professionals, as acknowledged by the Exchequer Secretary. Indeed both the minister and his Labour shadow quoted CIOT views on the SRT, which amounted to broadly welcoming (highlighted by the minister) but highlighting some areas still needing attention (highlighted by the opposition). The Government introduced a number of further amendments to this part of the Bill during committee stage, including:

  • Introducing a replacement rule providing an order of priority for split-year cases for individuals who come to or leave the UK part way through the tax year.
  • Introducing a transitional rule for individuals and their spouses who return to the UK in 2013-14 from working full time overseas.
  • Correcting a technical oversight in the legislation whereby an individual who finishes working in the UK just before the start of a tax year could become UK tax resident by spending only a day working in the UK in that tax year.
  • Ensuring that people who leave the UK but keep a home here and who happen to die while living overseas will not be treated as being resident here as long as they have spent sufficient time in the tax year up to the date of death in an overseas home.

The Government also made a number of changes to the legislation on the treatment of trusts with a vulnerable beneficiary. Amendments expanded the definition of “disabled person” to include all those who obtain constant attendance allowance (including those who obtain it by way of an increase in disablement pension) and also those who would be entitled to receive a qualifying welfare benefit were it not for their being in a publicly funded institution, such as a hospital, or abroad. Two further amendments addressed harmonisation of the way in which the trust income and capital can be used, and ensured the preservation of grandfathered rights under the commencement rules. During the debate, the opposition repeated LITRG’s criticism that “a golden opportunity to make more extensive alignments and simplifications to the vulnerable trust regime has been missed.” LITRG concerns were also raised during a later debate on RTI penalties.

The longest debate on this part of the Bill was on international agreements to improve tax compliance. The legislation specifically gives effect to UK-implementation of FATCA (US anti tax evasion legislation). However the debate ranged more widely, with Labour tabling amendments on transfer pricing abuse and public registration of ownership of companies and trusts. The only successful amendments however, were the government ones, which will enable potentially similar agreements with other jurisdictions (such as the Crown dependencies) and provide legal cover for financial institutions to obtain details of the tax residency of all their account holders (rather than only those with links to the US). The minister said this was a key element in moving to a new global standard in the automatic exchange of information.

At report stage the Government introduced a new clause (added as clause 234) to limit the circumstances in which interim payments may be granted in tax cases originating in a common law claim as opposed to appeal through the tax tribunal, designed to bring the treatment of tax cases under the two routes into closer alignment.

The other articles in this series can be read here:

Finance Bill debates 2013 (1): Income tax provisions
Finance Bill debates 2013 (2): Corporation tax provisions
Finance Bill debates 2013 (3): Annual tax on enveloped dwellings and other provisions

George Crozier
CIOT External Relations Manager
Friday 19 July 2013

Media and Politics
 
Finance Bill debates 2013 (3): Annual tax on enveloped dwellings and other provisions
18 July 2013

In the week that Finance Bill 2013 gains Royal Assent and becomes law, the CIOT's George Crozier reviews the Bill's passage through Parliament in a series of four articles. This third article looks at parts 2-4 of the Bill, including oil, the new Annual Tax on Enveloped Dwellings and excise duties.

Part 2 (Oil)

There was less than half an hour’s debate on this part of the Bill, the most notable element of which is the introduction of decommissioning relief deeds, aimed at providing certainty over tax relief. No amendments were made.

Part 3 (Annual Tax on Enveloped Dwellings)

Residential property was a running theme through much of this year’s debates, with Labour’s Treasury Team using amendments to push proposals for a mansion tax and also to probe non-tax measures such as the Government’s new Help to Buy Scheme and other ideas for stimulating the housing market. Within the Bill itself the key measure was the Government’s Annual Tax on Enveloped Dwellings (ATED), which occupied MPs for one and a half committee sittings. The opposition did not oppose the measure but did raise a range of probing questions about its impact and practicalities, drawing on briefing material provided by the CIOT.

No fewer than 33 amendments were passed by the Government to this part of the Bill:

  • Three amendments to further target the ATED only at circumstances where tax avoidance is a risk, by adjusting the aggregation of interest rules to prevent any separate interests held by an individual in a dwelling from being aggregated with an interest held by a connected company, if the taxable value of the interest held by that company is not more than £500,000.
  • 18 amendments to adjust the relief from ATED for charities, allowing it to be claimed if a property or its gardens are normally open to the public for at least 28 days per year, and that is on a commercial basis or for charitable purposes.
  • The remaining 12 amendments were described as minor and technical drafting changes.

Part 4 (Excise Duties and Other Taxes)

As ever, there was a mixed bag of measures in the ‘other taxes’ part of the Bill. To no-one’s surprise MPs spent longer debating fuel, alcohol and tobacco duties, and their impacts on their constituents, than they did some of the more esoteric measures, but briefings from the professional bodies did ensure that concerns on the technical clauses got an airing too.

CIOT concerns about the treatment of liabilities for inheritance tax purposes, and their potentially damaging effects on business, were pressed at length during both committee and report stage debates. The Government did not act on the CIOT’s central concerns but did amend the commencement date so that the new rules dealing with liabilities incurred to acquire relievable property will apply only to new loans taken out on or after 6 April 2013. A number of other clarificatory changes were also made, including ensuring that a liability is not deducted again against other types of property if it has already been taken into account.

The Government also introduced a set of amendments at report stage in response to concerns raised by the CIOT about the IHT treatment of non-dom spouses and civil partners. The amendments remove the condition that a person must be non-UK-domiciled at the time of making an election, and remove the requirement that the person making the election is married or in a civil partnership with the UK-domiciled individual throughout the relevant period.

A number of other government amendments were passed to this part of the Bill:

  • Five amendments to extend clause 192, an SDLT anti-avoidance measure relating to transfer of rights (henceforth to be known as pre-completion transactions), to a third scheme that HMRC has identified
  • Four amendments to schedule 39, which is designed to simplify the reporting requirements for certain lease transactions, in order to avoid a taxpayer being required to submit two returns under some circumstances
  • A technical new clause (added as clause 205) to prevent banks cutting their bank levy liabilities by clearly defining ‘high quality liquid assets’ (a part of banks’ balance sheets not liable for the levy) to stop banks defining it more widely.

The Labour frontbench used debate on the bank levy clauses of the Finance Bill to make the case for a bank payroll tax (with revenue raised used to create new jobs and tackle unemployment). The opposition also put in a pre-emptive strike against the Government’s plans to abolish stamp duty reserve tax (which is levied on UK-domiciled asset management funds), trying and failing to get the Government to produce a report on the distributional impact of the proposal (which is expected to be in next year’s Finance Bill).

A debate on VAT on the floor of the House of Commons saw two hours of discussion not on any of the clauses of the Government’s Finance Bill but on a Labour proposal for a temporary cut in the main rate of VAT from 20% to 17.5% until such time as “the UK economy has returned to strong growth”. Additionally, at the instigation of the SNP and Plaid Cymru, MPs debated whether air passenger duty should be devolved to Scotland and Wales.

A further article to be posted tomorrow will cover parts 5-6 of the Bill, including the GAAR, statutory residence test and international agreements.

George Crozier
CIOT External Relations Manager
Thursday 18 July 2013

Media and Politics
 
Finance Bill debates 2013 (2): Corporation tax provisions
17 July 2013

In the week that Finance Bill 2013 gains Royal Assent and becomes law, the CIOT's George Crozier reviews the Bill's passage through Parliament in a series of four articles. This second article looks at the corporation tax and other non-income tax provisions in Part One of the Bill.

Part 1 (Corporation tax and other provisions)

As ever, debate on corporation tax measures began with lengthy debate about the general merits or otherwise of the Government’s policies for business, before eventually moving on to the technical clauses of more interest to tax advisers. The Exchequer Secretary held up successive corporation tax (CT) cuts, and the unification of the main and small profits rates, as evidence of how the Government was building a more competitive and simpler system. But Conservative backbencher Nigel Mills wanted him to go further. Mills tabled an amendment (not pressed to a vote) which would have required the Office for Tax Simplification to publish a report setting out proposals for a new, simplified CT code. Mills lamented the “incredibly complex” process involved in filing tax returns from large and medium-sized businesses. He pointed out that tax regimes in a number of foreign countries allow “whole groups” of companies to file returns instead of having to do it individually.

CIOT and ATT concerns about the impact of the Government’s ‘chopping and changing’ were centre-stage during debate on the annual investment allowance. The minister’s response to the professional bodies’ concerns about the complexity this was introducing was that the increase was temporary because it was a response to “the particular challenges that businesses face in the current economic climate”. Concerns raised by the two bodies about flaws in the provisions for disincorporation relief, and the practicalities of the Government’s employee shareholder scheme, were also picked up by shadow ministers, although again without getting much reassurance from ministers. However, more positively, MPs were reminded of the CIOT’s strong criticism of the original (apparently inadvertent) exclusion of off the shelf companies from the seed enterprise investment scheme, which had helped prompt a clause in this year’s Bill reversing this.

MPs enjoyed debating clause 35 and its three schedules – which introduce three new CT reliefs for animation, high-end TV production and video games development – as these gave them a chance to discuss Doctor Who, Wallace and Gromit and other favourite shows, many of which turned out to have been produced in and around their constituencies. In the light of an ongoing European Commission investigation into video games tax relief, the Government passed 11 amendments to provide them with powers to update the schedules to reflect any changes needed to ensure compliance with state aid rules.

There were also a range of other government amendments to this part of the Bill:

  • 16 amendments to schedule 14, which introduces the ‘Above the Line’ credit for R&D expenditure, brought in following discussions with professional advisers, to ensure that the ATL credit provides a consistent level of support to all companies irrespective of their corporation tax liability.
  • 4 amendments to clause 54 and schedule 22, which introduce the tax reliefs that form part of the new employee shareholder employment status, to ensure that prospective employee shareholders will not face a tax bill for receiving independent advice on whether to take up such an agreement.
  • 5 amendments to schedule 28 on close companies, aimed at targeting the legislation more narrowly, and removing ambiguity by more clearly defining which loans and repayments should be taken into account in applying the first test on how such repayments should be treated.
  • A new clause (added as clause 73) amending the Capital Allowances Act 2001 to “put it beyond doubt that existing rules on the treatment of contributions from another business towards capital expenditure on plant or machinery operate as intended”.
  • A new clause (added as clause 34) and schedule (added as schedule 14) on ‘Transfer of deductions’, and a further new clause (added as clause 71) and schedule (added as schedule 26) on ‘Restrictions on buying capital allowances’, to prevent companies from entering into arrangements to access, as part of a business transfer, various forms of unrealised CT losses from unconnected third parties.
  • Five amendments were made to the legislation on Real estate investment trusts in response to representations that the legislation might not otherwise work as intended (that is, allowing a REIT to treat income from another REIT as income of its tax-exempt property rental business).

A further article to be posted tomorrow will cover parts 2-4 of the Bill, including oil, the new Annual Tax on Enveloped Dwellings and excise duties.

George Crozier
CIOT External Relations Manager
Wednesday 17 July 2013

Media and Politics
 
Finance Bill debates 2013 (1): Income tax provisions
16 July 2013

In the week that Finance Bill 2013 gains Royal Assent and becomes law, the CIOT's George Crozier reviews the Bill's passage through Parliament in a series of four articles. This first article contains an overview and then looks at debate on the income tax provisions.

Overview

Exchequer Secretary David Gauke closed 49 hours of standing committee debate on Finance Bill 2013 with an expression of thanks not only to his fellow committee members but to the representative bodies and other interested parties who had also contributed thorough scrutiny to the Bill during its passage. And the contribution of the CIOT, ATT and LITRG was highly visible throughout, with the three bodies’ views being directly cited by government or opposition in 28 different debates during the Bill’s passage, featuring in almost every sitting. This included a number of occasions when the bodies’ role in achieving change to the original legislation was directly acknowledged by the Government, the minister on one occasion noting defensively that previous governments too had had “to come forward with lots of amendments as a consequence of points that had been raised by the likes of the Chartered Institute of Taxation”.

While there were no changes with the high profile of last year’s VAT anomaly ‘u-turns’ there were some 170 amendments, five new clauses, two new schedules and one clause deleted from the Bill during its passage. The most significant of these are included in this report. Few will be surprised to learn that all of the successful amendments, new clauses and schedules were tabled by the Government. All opposition and backbench amendments were withdrawn or defeated.

Part 1 (Income Tax provisions)

Once again the parts of the Bill which got most debate – and definitely the most heated debate – were those relating to income tax rates and allowances. The reduction of the additional rate from 50p to 45p, the phasing out of age-related allowances (both of course introduced in last year’s Finance Bill) and the general ‘squeezing’ of middle income households were the focus of much of the opposition’s attacks during the early sessions of the Bill’s committee stage (and at report stage), with Labour’s shadow ministers pursuing their now well-established practice of tabling amendments calling for reports on the impact of particular measures in the Bill and potential measures that they would like to see. None of these passed (nor had they expected them to) but they provided a helpful hook for shadow ministers’ lengthy critiques of the Government’s economic policies.

In return the Government and coalition MPs focused on the impact of the rising personal allowance. Report stage saw a high profile diversion onto a proposal to make personal allowances partly transferable between spouses. This is a Conservative proposal which appears in the coalition agreement with a Lib Dem ‘opt out’ (ie. the party’s MPs have the right to abstain). The Exchequer Secretary promised restless Conservative backbenchers that the party leadership remained committed to this and wanted to implement it “at the soonest opportunity”.

There was disappointingly little debate, and no changes made, on the reliefs cap, although the concerns of the CIOT and other professional bodies that the measure could have an “adverse effect on genuine businesses and the UK economy” were quoted by Labour’s spokesperson, Catherine McKinnell. McKinnell intervened in Exchequer Secretary David Gauke’s winding-up speech to ask him if he could “provide reassurance that he has taken on board the concerns raised by a number of accountancy organisations, whose opinions are very reputable, that the change will not only counteract the clamping down that the Government are correctly introducing but hamper the growth of genuine small businesses that are struggling?” Gauke responded that the Government had listened carefully to representations received but felt the cap was a “sensible approach” and a “matter of fairness”.

Clauses 17 and 18 of the Bill, giving small business the option of a cash basis and fixed rate deductions, passed without amendment, despite extensive criticism from the opposition, drawing heavily on briefings from the CIOT and ATT about the complexity and general lack of attractiveness of both measures for most of those they are aimed at, as well as identifying potential loopholes. Shadow Financial Secretary Chris Leslie quoted ATT President Yvette Nunn’s assessment of the cash basis as “a good idea gone bad”.

On other measures Conservative backbencher (and chartered accountant) Nigel Mills pressed the Government tabling an amendment intended to oblige the Chancellor to bring forward, in time for the 2014 Budget, proposals in relation to exempting competitors in major sporting events, including the criteria for determining whether a sporting event meets the requirements for exempting competitors from tax.

Government amendments were made to three of the schedules in this part of the Bill. Three were made to schedule 2, on tax advantaged employee share schemes, during committee – one to “remove minor duplication” and two relating to concerns that a provision in the Bill was too restrictive. Nine were made to the same schedule at report - to clarify the scope of what constitutes a “general offer” for the purposes of the provisions. 13 amendments were made at report stage to schedule 9, on qualifying insurance policies, to ‘ensure the regime works as intended’ by providing flexibility to deal with potential future exclusions from some elements of the legislation.

On transfer of assets abroad (schedule 10), three CIOT concerns were put directly to the minister. The first relates to a flaw in the drafting of the Bill which could cause confusion over the definition of the term “person abroad”. In response the Government passed amendments making clear that a company’s domicile is not relevant in deciding whether the company is a person abroad. The second was the need for further clarity on the phrase “provision…of goods or services”. The minister responded that the term would have its everyday usage applied, but HMRC would also publish guidance for consultation. The third concern was a broader one that the provisions did not achieve the objective of ensuring that UK law complies with EU law. On this the minister maintained, unsurprisingly, that the Government believed that the legislation was EU compliant, however, in keeping with government practice, they were not prepared to share their legal advice in this area publicly. CIOT concerns about lack of EU compliance of a number of other clauses in the Bill were also discussed by the committee.

LITRG concerns over some of the proposals in this part of the Bill were put to the Government by the opposition front bench. In particular these related to taxation of compensation payments at source (clause 27) and the introduction of a general rule on disguised interest for income tax purposes (clause 28). On the first of these the minister responded that, “Non-taxpayers receiving interest as part of compensation payments can reclaim the tax, as they can if they receive any other payment under deduction of tax, but it would be disproportionate to design a system equivalent to the R85 system for these one-off payments.” Nevertheless, he said, HMRC would be very happy to continue to work with the LITRG on the R85 or other matters in this area. On the latter the minister did not accept that the legislation went too far in extending what is taxable as interest.

A further article to be posted tomorrow will cover the Corporation Tax and other provisions in Part One of the Bill.

George Crozier
CIOT External Relations Manager
Tuesday 16 July 2013

Media and Politics
 

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