Finance Bill 2017-19 Committee - 5th and 6th sittings

Proceedings covered clauses 43-72 of the Bill and a handful of New Clauses (1-5).  Areas under consideration included indirect taxes (changes to air passenger duty, petroleum revenue tax and gaming duty), introducing the Fulfilment Houses Due Diligence Scheme (which relates to VAT) and digital reporting (Making Tax Digital).

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.

Proceedings can be listened to here (5th sitting) and here (6th sitting).

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.

(NB. Notes reflect debate as heard by author and transcription errors cannot be ruled out) 

Liveblog of sitting 5, Tuesday 24 October 2017 (am)

FINANCE BILL 2017-19 PART 2 - INDIRECT TAXES

43 Air passenger duty: rates of duty from 1 April 2018 - PASSED

Sets rates of APD for long-haul flights effective from April 2018, increasing rates by the Retail Price Index (RPI).  The Financial Secretary to the Treasury (FST) Mel Stride, spoke to the clause and indicated that 2019 rates will be announced in the Autumn Budget.  For Labour, Anneliese Dodds asked whether Scottish Government proposals to reduce its Air Departure Tax (ADT) would create a "race to the bottom" and whether the FST believed that the tax changed behaviours (i,.e reducing the demand for air travel).  The FST said the government would monitor the impact of ADT on regional competitiveness with the north of England.

44 Petroleum revenue tax: elections for oil fields to become non-taxable - PASSED

The clause was formally moved.  Kirsty Blackman (SNP) expressed support for the clause and asked whether the Chancellor would bring forward earlier budget pledges around the transfer of late-life assets (mature oil fields) and asked the FST to raise the issue directly.  Anneliese Dodds (Labour) expressed the concern of industry bodies around the potential impact of the move on the exchequer.  The FST provided some background to the measure and explained that on the transfer of life-long assets, he wouldn't expand further on specific taxes at this stage in advance of the November budget.  

45 Gaming duty: rates - PASSED

Moved formally and passed without debate.

46 Remote gaming duty: freeplay - PASSED

Moved formally and passed without debate.

47 Tobacco products manufacturing machinery: licensing scheme - PASSED

Moved formally and passed without debate.

FINANCE BILL 2017-19 PART 3 – FULFILMENT BUSINESSES (Clauses 48-59 - PASSED)

Coming into force on 1 April 2018, the Fulfilment House Due Diligence Scheme (FHDDS) is part of a package of measures announced at Budget 2016 / Autumn Statement 2016 to deal with Non-EU traders who sell goods to UK customers via online marketplaces who are not always paying the correct amount of VAT.

A copy of the CIOT’s written evidence to the committee on Fulfilment Houses can be found here.

Peter Dowd (Labour) welcomed moves to give HMRC powers to tackle online VAT avoidance and said that many small businesses were priced out of the market in competition with online, foreign retailers using online marketplaces.  He called on "large online fulfillment houses" to meet their obligations to the taxpayers and said the action was "better late than never".  He expressed his party's support for the measure.  He said Labour would seek a review of the powers and responsibilities to ensure adequate Parliamentary scrutiny.  Kelvin Hopkins, also Labour, questioned whether there was a need to employ more HMRC staff for enforcement purposes.

The FST spoke in favour of clauses 48-59 in broad terms.  He said that these moves would help deliver behavioural changes and questioned the need for extra HMRC staff to deliver this.  Taken together, the FST said the moves would help HMRC tackle the issue of VAT non-payment more effectively and clamp down on foreign businesses evading their VAT responsibilities.

Labour has proposed a new Clause 5 that would require an annual report to be prepared by HMRC on the operation of the proposals.  This will be voted on at a later session of the committee.

FINANCE BILL 2017-19 PART 4 – ADMINISTRATION, AVOIDANCE AND ENFORCEMENT

A copy of CIOT's written evidence on Clauses 60-62 of the Bill can be found here.

Two written submissions by ATT on Clause 60 of the Bill - "Digital reporting and record-keeping for income tax etc/Penalty for failure to comply with record-keeping requirements"  and "Exemption for the digitally exluded" - can be found by clicking on the respective links.

Reporting and record-keeping

60 Digital reporting and record keeping for income tax etc (including amendments 37 DEFEATED, 7 NOT MOVED, 8 DEFEATED, 9 NOT MOVED, 39 NOT MOVED, 33 DEFEATED and 40 DEFEATED) - PASSED

61 Digital reporting and record keeping for income tax etc: further amendments (including amendment 34 NOT MOVED) - PASSED

62 Digital reporting and record keeping for VAT (including amendment 10 DEFEATED and amendments 35, 38, 36 DEFEATED) - PASSED

Kirsty Blackman (SNP) spoke in favour of amendments 37 and 38, which would provide for a staged implementation of making tax digital.  She expressed the SNP's support for the move to digital reporting (contained in the party's manifesto) but voiced concerns about the government's timetable for implementation.  She said that some small businesses were not technologically advanced and could be impacted negatively by the policy.   She also expressed concerns over rural businesses hampered by poor digital connectivity.  Ruth George (Labour) also spoke about the challenges of digital connectivity and access to fast broadband, which she also said could pose a challenge.

Ms Blackman also said that the impact of HMRC office closures may also have an impact on businesses seeking to make online returns.  A lack of advice may lead to increased difficulties for businesses.  Mel Stride (FST) countered this suggestion and said that HMRC office regionalisation would aid the provision of telephone advice.  On amendment 39, Ms Blackman said there was a need to consider how digital reporting would impact specific groups of people.

Stella Creasy (Labour) moved a series of amendments.  Amendments 7 & 8 would seek to require separate records to be kept of service charges (tips) for restaurant workers and gave examples of this, which she suggested lowered wages, lowered pension contributions and minimised National Insurance liabilities.  The focus of Ms Creasy's intervention was around how restaurants distribute tips around their employees, giving examples of best (and worst) practice.  Amendments 9 and 39 would give employees the right to be able to access the digital records held by their employees for the purposes of understanding what they are being allocated in tips and service charges and the salaries that they receive.  She said that these "simple" amendments would ask employers to set out different streams of income in order to ensure the tax system works in a more efficient manner.

Ms Creasy then spoke in favour of Amendment 10 to Clause 62 that would require HMRC to publish an assessment of the effects on electronic VAT records requirements for small business of the UK’s withdrawal from the EU.  She said that when the UK leaves the EU, it would leave the "simplicity" of the single market trading arrangements.

Peter Dowd (Labour) then spoke to Clauses 60, 61 and 62 and amendments 33,34,35,36 and 40.

These amendments would seek to delay the introduction of digital reporting to 2022 and would remove mandatory participation.

He said that the opposition's concerns over digital reporting had been well versed.  He said Labour supported digital record keeping but that the party had concerns over the timetable for its implementation and the manner in which it will be progressed.  He welcomed the government delaying of digital reporting to 2020 but said they represented only a "short pause".  He said that the move failed to address wider concerns around the implementation timetable and added that business and the tax profession had raised concerns with them about being ready for digital reporting, especially in light of Brexit.

Mr Dowd also voiced concerns over HMRC's readiness for digital reporting.  He cited CIOT concerns over "unrealistic" timetables for HMRC and the business community.  Because of these concerns, he said Labour would move for making tax digital to be delayed until the end of the current Parliamentary term in 2022.  Such a delay would give HMRC and SMEs time to prepare for digital reporting and implement software requirements.  He said the government's timetable would bring "chaos and confusion".

Speaking for the government, the FST outlined the government's approach as a "major step" in digitising the tax system.  He said VAT returns had been digitised since 2010.  MTD would be voluntary for those falling below the VAT threshold, he said, citing announcements made earlier in the summer to delay the rollout of digital reporting that had bene welcomed by businesses and business groups.  Further delays to the scheme would have an adverse impact on its roll-out and the success of pilot schemes underway to determine its effectiveness and efficiency.

On the amendments tabled by Stella Creasy (Labour), the FST said that the Department for Business, Energy and Industrial Strategy (BEIS) had consulted on service charges.  He agreed that this was an important and complex issue but felt that MTD was not an appropriate forum by which to address this issue.  He said it was right to wait for the government's consultation on service charges.  Ms Creasy expressed some disappointment with this, as the government had not formally responded to its consultation for 18 months, and asked how long he (FST) was prepared to wait.  The FST again said it was better pursued via BEIS.  There followed debate between the FST and Labour MPs Ruth George and Stella Creasy on businesses exploiting HMRC guidelines to short-change employees.

On the SNP's amendments, the FST said that businesses lacking digital connectivity would not be required to participate in the scheme, outlining the relevant pieces of legislation that would address these concerns.  In particular, he cited specifications in respect of age, disability and geographic location).  Ms Blackman questioned the FST on the intermittency of digital connectivity, which the FST said he believed was captured in legislation.

The FST then spoke to Labour's amendment 10 and said that appropriate measures were being put in place to prepare the UK for leaving the EU.  He said the government's Customs Bill would provide a framework to promptly bring forward any required changes.

Enquiries

63 Partial Closure Notices - PASSED

Moved formally and passed without debate.

Avoidance, etc.

64 Errors in taxpayers' notices - PASSED

Moved formally and passed without debate.

65 Penalties for enablers of tax avoidance (including amendments 41 & 42 BOTH DEFEATED) - PASSED

The FST outlined the specifics of the clause and the penalties for enablers of tax avoidance.  Penalties of 100% of fees earned would be levied, giving powers over the full supply chain of tax avoidance schemes.  The FST said the move wad carefully targeted and that it would help to protect the vast majority of providers of tax advice who play by the rules.

Anneliese Dodds (Labour) said amendments 41 and 42 would require the provision of information about the operation of the scheme.  She said it was necessary for law makers and the public to know who is being penalised, the nature of the "abusive" tax arrangements uncovered, the extent to which offshore entities are involved and the extent to which successful criminal proceedings are used over the penalties outlined in the measures.  She said the information was necessary as the penalties outlined may be insufficient in tackling the issue.  She questioned the extent of the penalty, saying that in some cases, they may not even cover the costs of HMRC's enforcement activity.  Ruth George (Labour) also asked whether the clause would give HMRC impetus to investigate, arguing that it may delay the need to investigate (as the amount recoverable may be negligible).  More information, Ms Dodds concluded, would help to increase the efficacy of the measures.  Responding, the FST reiterated the government's commitment to clamping down on tax avoidance and tax evasion.  

66 Disclosure of tax avoidance schemes: VAT and other indirect taxes - PASSED

Moved formally and passed without debate.

67 Requirement to correct certain offshore tax non-compliance - PASSED

Moved formally and passed without debate.

68 Penalty for transactions connected with VAT fraud etc - PASSED

Moved formally and passed without debate.

The meeting adjourned at 11.16am.  

Liveblog of sitting 6, Tuesday 24 October 2017 (pm)

Information

Clause 69 - Data-gathering from money service businesses - PASSED (and amendment 43 - DEFEATED)

Peter Dowd, for Labour, said this is an attempt to allow HMRC to collect bulk data from third parties such as from money service business for the first time, to reduce the tax gap. HMRC can fine non-compliers and can apply directly for a tribunal for approval at a hearing without a notice to data holders, ‘effectively going over their heads’. Labour is concerned about third parties collecting ‘masses of data’ to hand over to HMRC, sort of doing HMRC’s job. Bulk data surveillance inverts the traditional relationship between suspicion and surveillance in UK law. This is why Labour were proposing amendment 43 that would require HMRC to review the exercise of its data-gathering powers in relation to money service businesses. At the same time as wanting more information, the Tories are avoiding greater transparency on overseas trusts in this same Bill. He talked of a fear that the only people left with financial privacy are those who can afford to shield their wealth.

The FST said formal assistance from money service businesses will allow HMRC to better find non-compliant taxpayers who hide money behind such businesses, especially in the hidden economy.  They can appeal against a notice if it is onerous or outside the scope of the regulations.  On privacy, Stride said the clause is drafted to reduce any impact on people’s lives. They only allow for any collection of data that such money service businesses already hold.

Spaeking briefly, Labour’s Kelvin Hopkins said money service businesses ought to be better regulated, not least because charges vary so much. We need a state company doing such a business as well, that is regulated, has fair charges and is open and transparent, he added.

Winding up the debate Dowd said this issue went beyond technicalities and reaches "into the very nature of a state which doesn't interfere in the affairs of people where it really has no business interfering. That's not to say that the state in this case doesn't have - of course it does in regard to tax collection, as part of that balance in society, but given the nature of this debate, given the nature of the issue, the clause, that we are dealing with today I don't think it would be appropriate for me to withdraw this amendment".

There was a vote on Labour’s amendment that the Opposition lost 10-9. Clause 69 was approved without a vote.

FINANCE BILL 2017-19 PART 4 – ADMINISTRATION, AVOIDANCE AND ENFORCEMENT

Clause 70 - Northern Ireland welfare payments, updating statutory reference - PASSED

Moved formally and passed without debate.

Clause 71 - Interpretation - PASSED

Moved formally and passed without debate.

Clause 72 - Short title - PASSED

Moved formally and passed without debate.

NEW CLAUSES AND NEW SCHEDULES

Labour backbencher Stella Creasy has proposed new clause 1 that requires a review to be undertaken of the corporation tax reliefs available to PFI companies. This was debated in a previous session.  Creasy moved this formally and this was defeated 10-9 in a vote.

Stella Creasy also proposed new clause 2 to require a review to be undertaken of the treatment of capital gains on commerce. Creasy proposed this new clause to address the pressing problem of a lack of public finances. This could generate potentially billions of pounds of tax revenue for the Exchequer and address problems in the housing market. It is a ‘concrete cash cow’, she added. Why did the government choose to only make it applicable to residential property when it cracked down on non-doms disposing of UK property – creating a commercial property loophole? The Adam Smith Institute says there are a million non-doms in the UK, who she says are getting tax advantages not open to other UK residents. Creasy said: "It has to be asked why anybody would hold UK real estate through a foreign company except for tax purposes." She added that 'almost nowhere else in the world exempts foreigners from tax on selling real estate, so by closing this loophole we would simply bring ourselves into line with Canada, Australia and indeed the rest of Europe'. Creasy is talking about organisations that hold property in the UK through offshore companies and designate that as commercial property. The new clause was defeated 10-9 in a vote.

FST Mel Stride replied that it is a very complex area that needs to be considered carefully, not least because structures used to own commercial property are more complex than residential. We would need a whole tax code for corporates which would need to be considered and applied for people who have no other UK tax obligation, for example. When asked by Creasy if he would commit to publishing how many properties previously classified as residential are now classified as commercial use since the crackdown, he said he was happy to look into it. He said all taxes are under review and he will consider Creasy’s view. The new clause was defeated 10-9.

Labour new clause 3 would require a review to be undertaken of the effects of the provisions for protecting overseas trusts from the new provisions in relation to deemed domicile. This matter has been discussed before and Dowd moved it formally today.  It was defeated 10-9 in a vote.

New clause 4, also tabled by Labour, would require a review to be undertaken of the impact of the measures in this Act on households at different levels of income and a yearly review to be carried out on the impact of government fiscal measures on households at different levels of income. Not moved to a vote.

Labour’s new clause 5 would require HMRC to produce an annual report on the operation of Part 3 relating to third party goods fulfilment businesses and specifies some of the information to be included in that annual report. This matter was discussed in this morning's session (see above). It was defeated 10-9 in a vote.

In a point of order, Mel Stride thanked members for the ‘rapid’ progress of the committee stage, 'having rocketed through this Bill, efficiently and in near record time'. He thanked opposition spokespeople and offered special praise for the determination and eloquence of Stella Creasy. He was impressed ‘immensely’ with the help of the Treasury and HMRC for what he called a ‘highly technical’ Bill.

Peter Dowd and Kirsty Blackman also made brief closing remarks.

Committee stage was concluded.

Sitting 5 reported by
Chris Young

Sitting 6 reported by
Hamant Verma