Finance Bill 2020 Committee – 7th sitting (live blog)

15 Jun 2020

A live blog of the seventh public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on the morning of Tuesday 16 June 2020. The session covered clauses 72 to 85 in Part 3 of the Bill, which covers areas including IHT, Stamp Duty, VAT, alcohol, tobacco and vehicle excise duties.

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

Reports on previous debates on this Finance Bill are available:

Second Reading debate - Monday 27 April 2020
Public Bill Committee - 1st sitting (liveblog) - Thursday 4 June 2020 (am)
Public Bill Committee - 2nd sitting (liveblog) - Thursday 4 June 2020 (pm)
Public Bill Committee - 3rd sitting (liveblog) - Tuesday 9 June 2020 (am)
Public Bill Committee - 4th sitting (liveblog) - Tuesday 9 June 2020 (pm)
Public Bill Committee - 5th sitting (liveblog) - Thursday 11 June 2020 (am)
Public Bill Committee - 6th sitting (liveblog) - Thursday 11 June 2020 (pm)

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 Treasury Spokesperson
Stephen Flynn, SNP Treasury Spokesperson

Finance Bill Public Bill Committee - Sitting Seven - Tuesday 16 June 2020, 9.25am

Clause 72: Excluded property etc

Leaving the DST we come to part 3 of the Finance Bill - 'Other Taxes'. This clause provides that additions of assets by UK-domiciled individuals to trusts which were established when they were non-domiciled cannot be excluded property and are therefore within the scope of Inheritance Tax. CIOT are concerned about deficiencies in the legislation and have written to HMRC requesting the clause be withdrawn for further consultation.

Clause 73: Transfers between settlements etc

This is about whether property transferred between trusts is treated as excluded property for IHT purposes. It will now depend on the current domicile of the settlor (or other person) that caused the property to move to the other trust.

The FST said that these clauses have been introduced to provide legislative certainty in the wake of a decision by the Court of Appeal. He said that stakeholders have been given two years of notification of its introduction, the measure having been introduced at Autumn Budget 2018. The FST said that the Chartered Institute of Taxation, and other professional bodies, had been consulted on the measures. 

Bridget Philipson said that the move was 'welcome' and provided greater fairness in the tax system. She raised a number of concerns raised by the CIOT in relation to the application of the rules, which may result in unexpected consequences for some taxpayers, such as being wrongly brought within the scope of tax avoidance investigations. She also raised the concerns of ICAEW around the retrospectivity of the legislaton and the lack of prior consultation.

Responding, the FST said HMRC have given reassurances that it will adopt a proportionate response to its enforcement. He also assured Ms Philipson that the legislation was not retrospective, although he acknoweldged the concerns that had been raised. On the issue of consultation, he reiterated the 'considerable period of time' that has elapsed since the measure was first introduced. He warned that not introducing the measure now risked avoidance behaviours.

Clause 72 and Clause 73 were passed unanimously.

Clause 74: Relief for victims of persecution during Second World War era

This clause provides that one-off compensation payments of €2,500 made to eligible survivors under the Kindertransport Fund will not be subject to Inheritance Tax.

The FST said this measure was a 'small but important' feature of the Bill that will ensure Kindertransport payments are exempt from Inheritance Tax. He said this would provide reassurance to survivors of persecution and their descendants.

Bridget Philipson said that the measure was supported by the oppositon. She spoke to the background of the measure and said it was important for survivors and their descendants to receive the payment in full. She 'gently urged' Ministers to consider how it could protect child refugees currently fleeing violence and persecution. The FST said the government had a 'proud record' of supporting child refugees.

Clause 74 passed unanimously.

Clause 75: Stamp duty: transfers of unlisted securities and connected persons
Clause 76: SDRT: unlisted securities and connected persons

Where UK securities are transferred, the transaction is subject to stamp tax (either stamp duty or stamp duty reserve tax (SDRT)). Finance Act 2019 introduced a targeted market value rule to prevent contrived arrangements involving transfers of listed securities to connected companies to minimise stamp taxes on shares liability. Following consultation, the government is extending the market value rule to the transfer of unlisted shares to a connected company.

The FST said the measures were intended to prevent avoidance and maximise tax revenues. They will apply to transactions made on or after the date of Royal Assent of the Bill.

Bridget Philipson welcomed the measures on behalf of the opposition. However, she said that HMRC's impact assessment of the policy said that it would disproportionately impact small or micro-sized businesses. She said that the CIOT had expressed concern over the significant additional costs that could be borne by businesses that could be dispropriate to the amount of tax at stake. She said this was an unintended consequence that could prevent commercially attractive transactions from taking place where there is no effort to avoid tax. She also said that the CIOT had expressed concern that the shareholding of 25 per cent will be 'an excessive hurdle' (this relates to clause 77). The CIOT has suggested that the shareholding requirement should be reduced to 10 per cent.

Responding, the FST said that the measures were tightly focused on a 'relatively small' number of organisations. On concerns raised by Ms Philipson that businesses may already be impacted by the costs of the COVID-19 pandemic, he said it was wrong to conflate these matters, given that the legislation is primarily intended to prevent tax avoidance.

Clauses 75 - 76 were passed unanimously.

Clause 77: Stamp duty: acquisition of target company’s share capital

This clause clause removes an anomaly where a double-charge can arise on certain company re-organisations. Specifically it provides for relief from stamp duty (in relation to instruments transferring shares in one company to another) in a ‘partition demerger’ scenario where a double charge would otherwise occur.

The FST told MPs that these measures were intended to remove the double charge anomaly, which he said were 'in the long grass of tax intricacy'. The measures achieve this by tightening existing anti-avoidance legislation to ensure greater fairness and certainty in the system. Bridget Philipson reiterated the concerns that she had raised during consideration of Clause 75.  The FST said that he would follow-up with Ms Philipson in writing, although he said that HMRC had addressed these concerns with stakeholders.

Clause 78: Call-off stock arrangements [together with new SNP Clause 13]

Transposes into UK law parts of an EU Directive which provides for a simplified VAT treatment of call-off stock. Call-off stock refers to goods removed by a supplier from an origin State to a destination State where, at the time of the removal of the goods, the supplier knows the identity of the customer to whom these goods will be supplied after they have arrived in the destination State.

SNP new clause 13 would require the Government to report on the effect of Clause 78 on a number of business sectors detailed in the amendment. Those sectors are leisure, retail, hospitality, tourism, financial services, business services, health/life/medical services, haulage/logistics, aviation, transport, professional sport, oil and gas, universities and fairs.

The FST said the measures will apply to goods removed from or to the UK from 1 January 2020 and will remain in place for the remainder of the transition period. They are an 'administrative easement', providing sellers with a statutory obligation to ensure appropriate record keeping. The measures are expected to be revenue neutral and HMRC will provide updated guidance on the implementation of the measures. The FST said that new clause 13 would provide for the government to review the measures within six months of its introduction. He said that because the measures were expected to have a 'negligible' impact of businesses - and that he was unaware of any businesses impacted within the sectors detailed in the new clause - MPs should reject the proposal.

Alison Thewliss (SNP) spoke to new clause 13, saying a comprehensive assessment was needed as there was a chance that these sectors could be affected in the future. She asked if businesses have been notified of the changes and asked how the guidance would be implemented. She also asked what will happen to the measures after the transition period has ended.

Wes Streeting (Labour) said it was 'very welcome' that the Treasury appeared to suggest that divergence from EU rules and regulations should not be 'an aim in and of itself' and appeared to run contrary to the views of some pro-Brexit Conservative MPs. He hoped that such a 'common sense' approach would help to maintain a cooperative approach with the European Union. He cited comments by Angela Lang-Horgan in Taxation magazine of the increased complexity and confusion that the measures may cause when implemented. He asked whether HMRC would introduce a soft-landing period for the meaures and (as Ms Thewliss had also raised ) how government would communicate with impacted businesses.

The FST said that the measures were 'optional' for companies, who may wish to continue with the current arrangements. He said that around 200 companies had already taken up the new measures, which he described as a relatively small number. In response to Alison Thewliss, the FST said he would write to her with information on the number of companies making use of existing arrangements. He reiterated that the measures would only apply for the duration of the transition period. On issues of divergence from the EU, the FST said that the government wasn't interested in divergence for its own sake, but that as a sovereign nation, the UK would seek to make changes where appropriate and in its own national interests.

Clause 78 was passed unanimously.

Clause 79: Post-duty point dilution of wine or made-wine

This measure will introduce new prohibitive sanctions for anyone diluting wine or made-wine once that product has passed a duty point. (NB. Made-wine is defined by government as any drink other than wine or cider that has alcohol made by fermentation. For example, mead is a made-wine. Beer may be classed as made-wine if it’s mixed with other products and has an ABV greater than 5.5%.)

SNP moved amendment ten which would require the Government to review the impact of the proposed changes to alcohol liquor duties on public health.

Stephen Flynn, SNP Treasury Spokesperson, said there is a lot of passion about pints in Parliament but sadly not the same passion about health.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, said it is right to look at the relationship between tax and alcohol. Long past time to look seriously and sensibly to look at alcoholism.

On this clause, Streeting said the change is sensible and accepts the revenue risk. The financial burden put on businesses impacted by this clause and the impact of COVID-19, means 50 per cent of companies involved in wine expect to make people redundant. Will the Treasury consider a one-year delay to give them time to recover from the COVID-19 shock? The Government has already announced an intention to conduct a wider review of alcohol taxation, notes Streeting, and perhaps the issue in this clause can be looked at within that review? He also said that, in general, the supply chain is pretty much wholly British when it comes to companies impacted by this clause. Streeting calls for a ‘jobs first’ Budget.

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), talked about the tax advantages in diluted wine and made wine. Excise duty should be calculated on final product, which leads to fairness. HMRC have engaged with the industry about this clause. Businesses have had three years to get ready for this change. On amendment ten, she said the Government looks at health impact. The change will lead to an increase in price for affected products and that will reduce the amount drunk, she claims. Postponing the change by 12 months will unfairly penalise companies that have made adjustments ahead of the change, in favour of those companies which have not made any effort to prepare. The Government is monitoring the impact on public health of minimum alcohol pricing in Scotland, she said.

Amendment ten was defeated in a vote.

Clause 79 was approved without division.

Clause 80: Rates of tobacco products duty

Increases excise duty on all tobacco products by 2% above the rate of inflation. The excise duty rate for hand-rolling tobacco is increased by an additional 4%. Increases the Minimum Excise Tax on cigarettes from £293.95 to £305.23 per 1000 cigarettes.

SNP Amendment 11 would require the Government to review the expected impact of the revised rates of duty on tobacco products on public health.

Stephen Flynn, SNP Treasury Spokesperson, said taxation and public health are extricable linked.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, agreed with Flynn about the link between tax and public health. As a fan of progressive tax, he is concerned about flat taxes. Has the Government given any consideration to the Smoke Free 2030 campaign, especially the call for a levy on tobacco manufacturers that is hypothecated to stop smoking?

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), said smoking rates are falling in the UK.  She said the Government will consultat on strengthened penalties on illicit tobacco trading. On the SNP amendment, the TIIN published at the time was enough. On Smoke Free 2030’s campaign, she said a levy is not an effective way to raise revenue or protect public health.

The amendment was defeated.

Clause 80 was approved without a division.

Clause 81: Rates for light passenger or light goods vehicles, motorcycles etc

Makes changes to Vehicle Excise Duty (CED) rates from 1/4/20. VED rates depend on various factors including the vehicle type, engine size, date of first registration, fuel type and CO2 emissions data – hence the complexity of this clause.

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), explained the clause.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, said Labour supports moves to ‘greener’ forms of transport for the sake of air quality. He particularly welcomes the changes to alternative fuelled light passenger vehicles.

Kemi Badenoch said the government announced at the Budget more incentives for people to choose zero-emission vehicles.

The clause was approved without division.

Clause 82: Applicable CO2 emissions figure determined using WLTP values

Another clause that is about implementing the Worldwide Harmonised Light vehicles Test Procedure (WLTP), a new, more rigorous, emissions test. Specifically it amends the Vehicle Excise and Registration Act 1994 to facilitate implementation of the new regime.

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), WLTP reflects real world driving emissions, and the clause follows a review by the Government.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, said it is important to revist arguments about this. Did WLTP lead to a distortion in consumer behaviour? There were concerns that cars with smaller engines could see an above average increases in their reported CO2 emissions under WLTP, whereas cars with higher CO2 emissions will not be impacted by WLTP.

Kemi Badenoch offered to write to Streeting with more details.

The clause was approved without division.

Clause 83: Light passenger vehicles with low CO2 emissions – extension of exemption

Incentivises the uptake of zero-emission light passenger vehicles by reducing their VED liabilities. From 1 April 2020 the Government are exempting all zero-emission vehicles registered until 31 March 2025 from the VED expensive car supplement for vehicles with a list price exceeding £40,000.

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), will incentive uptake by reducing tax liabilities.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, said the Government could reduce further the costs of switching to electric vehicles. He also spoke about the need for more electrical car power points.

Kemi Badenoch said the Government is committed to spending £500 million in next five years on electric vehicle charging infrastructure.

The clause was approved without division.

Clause 84: Motor caravans

Changes VED treatment of new motor caravans to ensure that those with the latest engine technology do not attract significant VED increases as a result of an EU Regulation which would have reclassified them from being commercial vehicles to being cars. From 1st April 2021, VED for new motor caravans will be aligned with the Private Light Goods commercial vehicle VED class, which will be based on CO2 emissions from 1st April 2021, to incentivize the uptake of lower-emission motor caravans. (NB. This responds to a campaign led by the National Caravan Council and NCC has welcomed the change as a ‘victory’.)

As a result of this clause, Kemi Badenoch, Exchequer Secretary to the Treasury (XST), all new motorhomes will move to a flat rate of vehicle excise duty.  She said this clause will help UK manufacturers.

Wes Streeting, Labour, Shadow Exchequer Secretary to the Treasury, said motorhome industry is hit hard by COVID-19, and welcomes this clause.

Clause 84 was approved without division.

Clause 85: Exemption in respect of medical courier vehicles

Exempts purpose-built vehicles used by medical courier charities, commonly referred to as Blood Bikes, from VED.

SNP amendment 12 would ensure that vehicles carrying human breastmilk would benefit from the exemption from Vehicle Excise Duty. Alison Thewliss, SNP, Lead SNP Treasury Spokesperson, said the amendment will not cost the Government much. Like blood, breast milk must be properly processed and like blood it needs special carriage. Charities would appreciate the SNP’s suggested amendment. This is about supporting milk banks, she said.

Kemi Badenoch, Exchequer Secretary to the Treasury (XST), said clause 85 already provides for the transport of breast milk. The amendment is too vague in terms of defining the type of vehicles it attempts to cover, she added,

The amendment was defeated.

The clause was approved without division.

The committee adjourned until 2pm today (Tuesday).

By Chris Young