Finance Bill 2020 Committee - 2nd sitting (liveblog)

4 Jun 2020

The second public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), took place on Thursday 4 June 2020 at 2pm. Clauses 13-20 and Schedule One were debated this afternoon and all were passed. The majority of these clauses related to the contentious loan charge. Below is a 'live blog' of the proceedings.

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 back to here

NB. The live blog below is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.

New clauses debated during proceedings will not be voted on until the end of the committee's proceedings

Committee members

Committee members are listed here. The main contributors were:

For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
Kemi Badenoch, Exchequer Secretary to the Treasury (XST)

For the Opposition:
Bridget Phillipson (Labour), Shadow Chief Secretary to the Treasury
Wes Streeting (Labour), Shadow Exchequer Secretary to the Treasury
Alison Thewliss (SNP), Lead SNP Treasury Spokesperson
Stephen Flynn (SNP), SNP Treasury Spokesperson

Finance Bill Public Bill Committee - Sitting Two - Thursday 4 June 2020, 2pm

Clause 13: Voluntary office-holders: payments in respect of expenses

This legislates that if you pay a voluntary office holder's expenses that's not remuneration (putting them on same footing as volunteers who don’t hold a position within the organisation). (Background is HMRC has been carrying out a review of all its existing extra-statutory concessions (ESCs) after the House of Lords ruled in the Wilkinson case in 2005 that Inland Revenue (now HMRC) had less administrative discretion to make concessions that depart from the strict statutory position than had previously been believed to be the case.) Govt note gives magistrates and special constables as examples of voluntary office holders.

FST Jesse Norman said he did not expect any contention on this clause. The exemption recognises the role of voluntary office holders and it is right to legislate to create certainty. This is a simple technical change.

Bridget Phillipson (Labour), Shadow Chief Secretary to the Treasury, has no issue with the clause and wanted to put on record her thanks to volunteers, particularly during the COVID-19 crisis. She said the CIOT has identified technical issues, such as lack of definition of volunteer officer in the legislation, and whether the legislation will achive its goals.

The FST replied there is adequate clarity to this measure and it is up to commissioners to action the measures in this clause. On what counts as an 'allowable expense', he said there is a definition of 'reasonableness' which exists in law that reflects the facts of the case.

Clause 13 was approved without opposition.

Clause 14 and Schedule 1 (Part 1): Loan charge not to apply to loans or quasi-loans made before 9 December 2010

The committee then moved onto Clauses 14-20 and Schedule 1 which implement changes to the Loan Charge following Sir Amyas Morse’s independent review of the policy. Clause 14 is probably the most significant of these clauses, amending the date from which disguised remuneration (DR) loans will be taxed under the Loan Charge from 6 April 1999 to 9 December 2010, and removing loans made before 9/12/10 from the Charge.

The FST said this is the first of seven clauses that bear on the loan charge, which is a controversial matter, he accepts. He described disguised remuneration as tax avoidance during his explanation of what the loan charge is. He talked up the independence and depth of Sir Amyas Morse's report and recommendations. Norman said these clauses take thousands of people out of the loan charge.

Wes Streeting (Labour), Shadow Exchequer Secretary to the Treasury, called the loan charge one of the most political contentious issues in recent years. Labour takes a dim view of tax avoidance, he said, saying tax is the price of a civilised society. He does not oppose the Government's approach on the loan charge today. Instead, he gave an airing to some of the contentious issues relating to the charge. But he warned that amendments from MPs to these clauses are likely at report stage.

Streeting said he was most energised today about the amendment to the date from which disguised remuneration loans will be charged. He praised HMRC for its work on COVID-19 and on Brexit implementation in these 'extraordinary' times - before criticising HMRC on its approach to the loan charge, particularly on retrospection. MPs hate retrospective measures, he charged. HMRC should have done their job more thoroughly by looking at people's tax affairs in more detail in the past, he said. HMRC officials should be dragged over the coals for not enforcing action on loan charge cases until recent times despite saying they knew about it for years and claiming such payments were illegal. Had HMRC picked up on these issues earlier, many taxpayers would have corrected their tax position, he claimed.

Streeting criticised the discrepancy, as he sees it, between action taken on taxpayers and lack of action on enablers of tax avoidance. He wants action on the latter who do a disservice to the tax and accountancy profession. The APPG on Loan Charge is still unhappy with the date in the amendment, saying the retrospectivity of the loan charge is still going back too far, especially after they sought the views of tax experts in their ongoing work.

Alison Thewliss, SNP economy spokesperson, said it is clear that the way HMRC has implemented the loan charge is wrong and should be reviewed. She said COVID-19 may change some taxpayers' financial circumstances, something HMRC should take into account in its continuing implementation work on the loan charge. She wants a fresh review to look at enablers/promoters of these schemes, who she said knew all about the irregularity of putting people into such disguised remuneration. She mooted an independent arbitration panel to look at the implementation of the loan charge.

The FST repeated that the Government supports the independent recommendations of Sir Amyas. He said Labour is wrong to say the loan charge is retrospective. The Morse review accepted the principle of the loan charge. The Government did not accept that arrears in tax should be written off after ten years because it will mean people who were using disguised remuneration for many years will be treated more favourably over those who had used it for far less time. He talked about the concerted political lobbying of MPs by people representing those caught up in the loan charge, which he argued calls into question the independence of the Loan Charge APPG's findings/views. 

Clause 14 was approved without opposition.

Clause 15 and Schedule 1 (Part 2): Election for loan charge to be split over three tax years

This introduces new provisions to allow taxpayers subject to the Loan Charge to elect to spread their outstanding loan balance evenly across three tax years (2018-19, 2019-20 and 2020-21).

Two amendments to clause 15 were tabled by the Government -
Amendment one will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 11 to the Finance (No.2) Act 2017.
Amendment two will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 12 to the Finance (No.2) Act 2017.

The government amendments to clause 15 and clause 17 (see below) were discussed together by the FST. Jesse Norman said the changes will give taxpayers greater flexibility on when the outstanding loan balance is subject to tax. This spreading of the loan charge over three years means the Government is balancing the needs of people affected by higher marginal rates of tax against the adminstrative needs of people, employers and HMRC. The financial impact on taxpayers of COVID-19 has softened the Government's approach a bit and made it more flexible on repayments.

Wes Streeting said these are straightforward government amendments to enable people to spread the loan charge. But Norman is wrong to say that the Loan Charge APPG is unduly influenced as it is common to have external secretariats of APPGs. He said it is embarrassing for the Government to receive a report such as Sir Amyas's which has forced a humbled government to alter its track on this matter. He said: “The CIOT think that 30 September 2020 deadline for making an election to spread the loan charge should be amended. They consider that an extended deadline of 31 January 2021 – which is the normal deadline for amending 2019 self assessment tax returns – should apply.  I think we are all aware of the impact of the current COVID-19 pandemic and the CIOT quite reasonably points out that some taxpayers will require additional time in some cases because the records and documents that taxpayers need to access are not currently or readily available to them.” No doubt many taxpayers will need this extra time, partly because of COVID-19, he said. Streeting's other issue was whether it is possible for people to amend their election up to 30 September 2020.

The FST clarified his position on the Loan Charge APPG, saying he was just remarking on the intense pressure put on it by those caught up in the loan charge. The Government is not 'always right' and was 'suitably humble' in accepting all but one of the recommendations of Sir Amyas Morse. Sir Amyas accepted the wisdom of government policy, he added. On CIOT's call for an extended deadline, Norman understands its concern and will reflect on it. There is no overwhelming case for changing it, though, he said.

Government amendment one was approved without opposition.
Government amendment two was approved without opposition.
Clause 15 was approved without opposition.
Schedule one was approved without opposition.

Clause 16: Loan charge reduced where underlying liability disclosed but unenforceable

This provides for a reduction of the sums treated as chargeable to tax for years 2015/16 and earlier where (a) a reasonable disclosure of the loan had been made and (b) HMRC had not taken steps prior to 6 April 2019 to recover the tax.

The FST said this clause is a reponse to the Sir Amyas Morse's report. He spent some time explaining the clause to the MPs on the committee.

Wes Streeting wanted confirmation that HMRC will adopt a 'practical approach' to interpret what is a reasonable disclosure. He said the CIOT pointed out that amendments to Finance (No.2) Act of 2017 appear to permit disclosure in tax returns other than the taxpayers' to be taken into account.

The FST said the principle is as laid out in the legislation and wider than might have originally been done because of concerns in the consultation phase about reasonable disclosure. Disclosure can be made in more than one tax return at the same time and includes any accompanying accounts, he said.

Clause 16 was approved without opposition.

Clause 17: Relief from interest on tax payable by a person subject to the loan charge

This provides for no interest to be charged on persons subject to the Loan Charge on any tax liabilities (income tax and capital gains tax) due in respect of the tax year 2018/19 and outstanding between 1 February 2020 and 30 September 2020, or in respect of the tax year 2019/20 and outstanding prior to 31 January 2021, provided that certain conditions are met.

One amendment to clause 17 was tabled by the Government -
Amendment three will allow HMRC to extend, for particular classes of person subject to the loan charge, the period within which liability to income tax and capital gains tax for the tax year 2018- 19 may be discharged without incurring interest on those liabilities.

The FST, Jesse Norman, said this clause will have limited and wholly positive retrospective implications.

Wes Streeting, for Labour, said this is a technical measure and offered no opposition.

Government amendment three (debated wirh clause 15) was approved without opposition.
Clause 17 was approved without opposition.

Clause 18: Minor amendments relating to the loan charge

This includes changing date by which loan charge information must be provided from 1/10/19 to 1/10/20.

The FST played down this clause saying this is a minor and technical measure.

Clause 18 was approved without opposition.

Clause 19: Repaying sums paid to HMRC under agreements relating to certain loans etc
Clause 20: Operation of the scheme

Clause 19 and 20 and new clause 7 were grouped together,

Clause 19 implements Morse recommendation that HMRC should repay voluntary restitution that has been paid by individuals and employers under settlement agreements entered into since the Loan Charge was announced in March 2016, for any unprotected tax years where (a) the Loan Charge no longer applies (loans made before 9/12/10); or (b) the loans were made in any tax years before 6/4/16, a reasonable disclosure of the avoidance scheme use was made to HMRC and HMRC did not take action (for example, by opening an enquiry).

Clause 20 puts in place an HMRC scheme to deliver the repayments (and waiving of payments not yet made) under clause 19. One concern is that there is no appeal right to the Tax Tribunals if HMRC refuses an application for a rebate under the scheme.

New clause seven, tabled by the SNP, would require a review of the impact of the scheme to be established under Clauses 19 and 20.

The FST said the Government does not see the need for a new report on the implementation of the loan charge above that done by Sir Amyas. He asked MPs to reject SNP's new clause seven.

But Alison Thewliss said the SNP wants a review to understand the impact of the loan charge, including the impact on different sectors, such as oil and gas, and on the different nations in the UK. MPs regularly overlook the impact of Finance Bill measures she said. She is unclear of the refund mechanism.

On clause 19, Wes Streeting said there is no independent view of the process, something that worries him since he learned of HMRC's conduct in regards to the loan charge. The Bill gives HMRC wide discretion, so how will the Government ensure HMRC carries out its work along the lines Parliament intended?

On clause 20, he cited the CIOT which notes the clause refers to 'any other person'; this authorises HMRC to make repayment conditional on the applicant and any other person agreeing to the termination or variation of a qualifying agreement or making new agreement. Who is 'any other person'? What is the thinking behind that part of the Bill?

Separately, he asked if a loan write-off arising from or in relation to a settlement agreement will not cause a tax charge triggered where repayment is made in respect of a tax year now dropping out of the loan charge?

On SNP's new clause seven, Streeting was struck by reference to whether HMRC has avoided business failures and bankruptcies. He said the clause would focus minds at HMRC because there should be some 'checks and balances' to scrutinise HMRC. Knowing that a review is coming will keep HMRC on their toes in regards to this and give the public reassurance, he thought. He branded the loan charge 'a fiasco', saying it has brought shame and distress on some of his London constituents unnecessarily. The Government praises independence of Sir Amyas' report and accepts all but one of his recommendations. The Government should accept all of the report - rather than 'dismissing' this one recommendation (The Government is not accepting a recommendation in the Review to introduce a write-off of tax due on the Loan Charge after 10 years for individuals whose time to pay arrangement is longer than 10 years. That would allow those who have avoided tax through use of Disguised Remuneration tax avoidance schemes more favourable terms than taxpayers with other debts, including tax credit claimants, the Government argues).

Streeting wants more information on recall of loans.

The FST said the Government and HMRC are not downplaying the stress the loan charge puts on individuals, which is why people are not forced to sell homes or whittled down to their last pennies. Thewliss intervened to say one person with a loan charge liability was told lunch money paid to his children was 'disposable income'. Norman went on to say the distribution of people caught up in the loan charge has been published and analysed. 

HMRC will refund voluntary restitution already made for years now out of scope of the loan charge but they will not refund settlements for the underlying tax liability where HMRC have protected their position. This is so the treatment remains in line with the existing legal framework for HMRC to recover tax.

In regards to the impact on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers, only where they are the direct result of unreasonable delay in dealing with the taxpayer. Refunding fees to people who used disguised remuneration schemes would send out the wrong signal.

The Government will report to Parliament on all aspects of its implementation of loan charge changes before the end of 2020, he promised. It will draw on input from the HMRC Customer Experience Committee, he said.

It would be inaccurate to say HMRC is minimising going after promoters and enablers where it can do subject to law and with new powers if so decided after a period of consultation, said Norman.

Clause 19 was approved without opposition.
Clause 20 was approved without opposition.

The committee then adjourned, to resume at 9.25 on Tuesday morning, when the clauses to be considered will include:
Clause 21: Annual allowance: tapered reduction
Clause 22 and Schedule 2: Entrepreneurs’ relief: reduction in lifetime limit
Clause 23: Relief on disposal of private residence

By Hamant Verma