Finance Bill 2017-19 Committee - 1st sitting
A liveblog on the first sitting of Finance Bill Public Bill Committee. Clauses 1-9 were approved, covering topics including the new income tax exemption for pensions advice, changes to the Money Purchase Annual Allowance, a reduction in the nil rate for dividend income and a legislative fix to the disproportionate tax charges that can arise from partial surrenders of life insurance policies.
Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.
At time of writing a transcript of proceedings is not yet available (in due course it will be available at the documents link above) but proceedings can be listened to here.
Clauses 5, 15 and 25 were dealt with in Committee of the Whole House, a report of which can be read here. That report also includes a background note on this Finance Bill, its history and its contents.
Today's sitting ran from 9.25-10.55am and covered the following clauses:
FINANCE BILL 2017-19 PART 1 - DIRECT TAXES
Income tax: employment and pensions
1 Taxable benefits: time limit for making good - PASSED
Financial Secretary to the Treasury (FST) Mel Stride spoke first, explaining that the 'small but sensible' change relating to treatment of benefits in kind would provide clarity to employers and employees. He said employers and large accountancy firms had asked for changes. He was the only speaker and the clause was passed without a division.
2 Taxable benefits: ultra-low emission vehicles - PASSED (and amendment 13 - WITHDRAWN)
Shadow Treasury Minister Anneliese Dodds (Labour) briefly introduced Labour's amendment which would require the Chancellor to produce a report reviewing impact of these changes as well as air quality in towns and cities.
The FST said the clause amends the appropriate percentage for ultra-low emission vehicles for the purpose of calculating the taxable benefit of a company car. He said it would encourage use of cleaner, zero and ultra-low emission cars. He said Labour's amendment was asking for a review of the effect of the measure before it was implemented.
Dodds withdrew the amendment. The clause was passed without a division
3 Pensions advice (New income tax exemption to cover first £500 of pension advice provided to an employee in each tax year) - PASSED (and amendments 14 (DEFEATED), 11 (WITHDRAWN) and 15 (WITHDRAWN))
Shadow Chief Secretary to the Treasury Peter Dowd (Labour) introduced Labour's amendments (14 and 15). He said that the proposal of a £500 exemption did not go far enough. People in the advice sector thought this was a small amount. He asked the minister to explain how the figure of £500 was reached and what basis it has in terms of the pensions advice market. Amendment 14 would increase the income tax exemption in relation to pensions advice from £500 to £1,000. Amendment 15 would require HMRC to undertake a review of the effectiveness of the new income tax exemption for pensions advice in the first two years of its operation. Rather than rushing ahead with further reforms the Government should accept a review, he said.
SNP Treasury spokesperson Kirsty Blackman highlighted the SNP's amendment 11, which would require HMRC to undertake a review of the use of the new income tax exemption for pensions advice in the first two years of its operation. She said there had been a lot of changes to the pension landscape over recent years. She also flagged the 'WASPI issue' and the 'equalisation problem'. If some people had had more appropriate advice ahead of retirement they would have chosen a different route to retirement and would as a consequence be better off. The review she proposed would consider in particular the use of the relief by persons over 55, and the use of the relief by women born on or after 6 April 1950. Like Dowd she queried whether £500 was the appropriate amount. A Labour MP intervened to highlight a Which report in 2015 that the average cost of pension advice was about £1800.
The FST responded for the Government. He explained that the purpose of the clause was to increase the affordability of pension advice for those saving through a workplace pension.He said the amount balanced this aim with cost to the Exchequer. The £500 amount was more than a tripling of the previous figure (£150), he said. The Government had not formally consulted on this issue but it had been included in a wider consultation on financial advice markets. He said the Financial Advice Markets Review would review and report in 2019.
Labour pressed amendment 14 to the vote. It was defeated by 10 votes to 9. Amendments 11 and 15 were withdrawn. The clause was passed without a division.
4 Legal expenses etc (To confirm employers can provide you with legal advice in circumstances other than formally cautioned by police (and get appropriate reliefs) - PASSED (and amendment 16 - DEFEATED)
Labour's amendment 16 would require HMRC to undertake a review of the effectiveness of the changes relating to relief in connection with legal expenses in Clause 4. Introducing it, Peter Dowd (Labour) stressed the importance of providing clarity in this area. He said his party was concerned this was a tax break for employers to the detriment of employees.
The FST explained that clause 4 would ensure fair and consistent tax treatment for legal advice provided by an employer, eg where an employee is asked to give evidence before a public inquiry, where the relief is currently only available where a police investigation is underway. He said the cost of this measure to the Exchequer would be negligible wih fewer than 1500 people a year taking advantage of this relief. He said the review proposed by Labour would be disproportionate.
Responding, Dowd stressed the importance of this issue and said a revuiew even of a narrow area could flag other issues needing to be addressed. He pressed the amendment to the vote. It was defeated by 10 votes to 9. The clause was passed without a division.
[Clause 5 on Termination payments was covered in Committee of the Whole House]
6 PAYE settlement agreements - PASSED
The FST said these agreements were introduced in the 1990s as an administrative easement for HMRC. The Office of Tax Simplification had highlighted various issues and it was agreed that the process should be simplified, which is what clause 6 would do. Employees would now be able to make a request at year end or ad hoc during the year.
Peter Dowd (Labour) said Labour supported the changes in principle but had some concerns. He wondered if there was a link between the removal of the need for an agreement with an officer at HMRC and reductions in HMRC staff numbers. He also linked the proposal to HMRC's digitialisation strategy. He raised some questions about HMRC's Making Tax Digital pilots. How was this proposal consistent with a requirement for quarterly reporting he asked.
Responding, the FST drew attention to the change to the MTD timetable. This is a Government in listening mode, he said. On the pilots he said he would write to the Labour spokesman answering his questions.
Responding, Dowd thanked the minister for his response and looked forward to reading the letter.
7 Money purchase annual allowance (Reducing allowance from £10,000 to £4,000 where someone has already taken benefits from pension scheme) - PASSED(and amendment 17 - WITHDRAWN)
Peter Dowd (Labour) opened this discussion. He asked how much the Government had spent publicising this change. Uncertainty must be minimised, he said. He felt there was a clear need for this change to be reviewed. Thus Labour were proposing amendment 17 which would require HMRC to undertake a review of the effects of the change to the money purchase annual allowance. He quoted concerns from tthe CIOT's Low Incomes Tax Reform Group that reducing the MPAA was likely to cause problems for some on low incomes.
Responding, the FST said the historic pensions freedoms had given people greater access to their pension savings. The allowance was being reduced to limit the extent to which people can recycle their pension savings to get extra tax relief. He said the review proposed by Labour would be unnecessary. The decision to reduce the allowance followed extensive consultation. The Government had received no evidence that particular groups would be disadvantaged by this change.
In light of reassurances from the minister Dowd withdrew Labour's amendment. The clause was passed without a division.
Income tax: investments
8 Dividend nil rate for tax year 2018-19 etc (Two years ago dividend allowance was announced at £5,000. Now it‚Äôs being cut to £2,000.) (and amendments 18 and 12)
Anneliese Dodds (Labour) said she was keen to hear Government's assessment of the impact of the change on the self-employed. Labour's amendment 18 would require HMRC to undertake a review of the effects of the change to the dividend nil rate in Clause 8.
Kirsty Blackman (SNP) said the SNP did not agree with this change. Some who were self-employed may have been relying on the dividend nil rate being £5,000 and this was not enough notice. People on pretty low incomes would be hit by the change. She was concerned about how hard it was for people to get through to HMRC to get advice on completing forms in this as in other areas. The SNP's amendment 12 would delete clause 8 from the Bill.
The FST explained that the purpose of the change was to reduce the tax differential between those working through their own company and those working as employees or self-employed. Since the dividend allowance was first announced the landscape for small business owners had changed, he said. The cost to the public finances of the growth in incorporation was unsustainable, he continued, and this change would help address that. A formal review as suggested by Labour was not necessary the minister said. The change needed to be considered in a wider context.
Dodds responded that Labour still felt this was a substantial change and there had not been sufficient consideration of the impact of the change on entrepreneurs in particular. Labour pressed amendment 18 to the vote. It was defeated by 10 votes to 9. The SNP called a division on the clause itself (clause stand part). The clause was passed by 10 votes to 3.
9 Life insurance policies: recalculating gains on part surrenders etc (Legislative fix to the wholly disproportionate tax charges that can arise from partial surrenders of life insurance investment policies (ref. Lobler case)) (and amendment 19)
Anneliese Dodds (Labour) said Labour could understand the motivation behind the change. Nonetheless they were concerned with the lack of safeguards in this discretionary remedy including the lack of a right to appeal to a first tier tribunal. Labour felt this to be a fundamental safeguard. Amendment 19 tabled by Labour would require HMRC to undertake a review of the operation of the new provisions.
The FST explained the circumstances in which a disproportionate tax charge could arise. The change would introduce an application process for having a gain recalculated. While there was no right to appeal there were strong safeguards through the complaints procedure which would be independently assessed by a small team at HMRC. Further complaints could be made to the adjudicator. This would affect fewer than 10 taxpayers a year he said. The proposed review would be an excessive requirement for changes so narrow in scope and with so few individuals affected.
Dodds withdrew Labour's amendments but asked for further information to be made available. The amendment was withdrawn and the clause was passed without a division.
The committee adjourned at 10.55am.
It will resume proceedings at 2pm today. A separate blog will record developments, which are expected to cover EIS and VCTs, social investment tax relief, the new trading and property allowances and potentially (depending on pace of progress) changes to corporation tax including treatment of carried-forward losses.
George Crozier CIOT Head of External Relations