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.
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 All opposition and backbench amendments were withdrawn or defeated.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.
CIOT External Relations Manager
Tuesday 16 July 2013