Finance Bill 2017 Committee of the Whole House
MPs began committee stage debate of the second Finance Bill of 2017 with a day of debate on the floor of the House of Commons covering three areas picked out by the opposition. Specifically: termination payments (clause 5), business investment relief (clause 15) and Northern Ireland corporation tax (clause 25).
This post is part of a series liveblogging all stages of Finance Bill 2017-19.
Scroll down for background on Finance Bill 2017-19.
The proceedings for Committee of the Whole House ran as follows -
1.30pm Termination payments etc: amounts chargeable on employment income (Clause 5 plus amendments 1 + 12 + 2 to 4)
3.50pm Business investment relief (Clause 15 plus amendment 13 + new clause 1 + new clause 3)
4.29pm Trading profits taxable at the Northern Ireland rate (for corporation tax) (Clause 25 stand part + new clause 2)
Text of amendments can be found here.
Debate on Finance Bill Committee of Whole House – Wednesday 11 October 2017 (live blog)(Notes reflect debate as heard by author and transcription errors cannot be ruled out)
1.30pm Termination payments etc: amounts chargeable on employment income (Clause 5 plus amendments 1 + 12 + 2 to 4)
Amendment 1 (Labour) seeks to remove the power for the Treasury to amend the meaning of “basic pay” for the purposes of calculating “post-employment notice pay” by regulations. Amendment 12 (SNP) seeks to require the Chancellor to carry out a review of how the changes to termination payments will affect low income workers before these provisions come into effect. Amendments 2 and 3 (Labour) seek to remove the power for the Treasury to reduce the £30,000 threshold in connection with the taxation of termination payments by regulations. Amendment 4 (Labour) seeks to explicitly include (rather than exclude) injured feelings within the definition of “injury” for the purposes of this legislation. Amendment 5 (Labour) proposes deleting clause 5 from the Bill.
1.30pm Peter Dowd (Labour; Shadow Chief Secretary to the Treasury)
Peter Dowd asked the House to put themselves in the position of people at Bombardier and BAE whose jobs are under threat. An intervention from a Conservative MP accused him of scaremongering saying those workers would not be affected by the changes in this Bill. Dowd said he was concerned that the Government was giving itself powers to change the basis of calculations of taxation of termination payments. He identified a pattern of government actions removing powers from parliament and giving them to ministers, He said it was clear that the Government was laying the ground so that workers who have already lost their jobs pay tax on more of their termination payments. “There can be no other reason for this clause”, he asserted. Dowd criticised the Office of Tax Simplification for classifying termination payments as an ‘employee benefit’. A Labour backbencher intervened to say the Government was squeezing money out of less well off people who are losing their jobs rather than chasing ‘the big money people who evade and avoid taxes’. Dowd said that amendment 2 would only allow the threshold to be increased through delegated legislation and not decreased.
There was then a spat over tax avoidance. The Financial Secretary intervened to draw attention to figures showing a falling tax gap. Dowd replied that these did not include profit shifting by multinationals. He claimed the Bill was part of a pattern of the Government taking away employment rights, and called on the minister to withdraw the proposal.
1.46pm Mark Harper (Con)
Harper, who was an accountant before entering Parliament, took the debate onto job creation, defending the Government’s record on both quantity and quality of jobs created. He said there was nothing in these proposals which should alarm anybody who is playing by the rules. Anyone at BAE or Bombardier who is worried about their jobs should know there is no proposal to cut the £30,000 tax free at all, he said, adding that if there were any change it would need to be brought forward in an affirmative resolution and passed by the House.
The rules are complex and there is some abuse, said Harper. This was why the Government had brought this proposal forward. He said amendment 4 on injured feelings was very foolish. It would introduce a large loophole which would be abused to pay people a tax free payment on loss of office, labelling it like that and avoiding paying tax and national insurance.
1.59pm Kirsty Blackman (SNP; Treasury spokesperson)
Blackman drew attention to the Government statement that this change will generate an extra £430 million a year. This is extra tax from vulnerable people receiving a termination payment, she said. SNP are particularly concerned about the impact on low income workers. We are still not clear about people who face termination payments for people who receive injuries or psychiatric injury, she said. "We do not want them to receive less payment as a result of this change." Asked for a commitment that if this does get introduced HMT will do an impact assessment in 1-3 years to look at impact on low income workers.
2.04pm James Cleverly (Conservative)
Spoke of his own experience as co-owner of a business. He said the tax treatment of severance payments was very complicated. He welcomed the general move to simplify and clarify in this area, to give small businesses in particular the confidence to employ people knowing the HR and financial treatment around that employment will be as simple as possible.
Peter Dowd intervened to say that at this particular time it was inappropriate and heartless to introduce the legislation. Cleverley said he did not agree. "The idea that we delay changing tax treatment of severance payments when there is no-one in British society who is in danger of losing thei job is a farcical notion."
The opposition's attempt to put a definition of injured feelings into the Bill was an invitation to tax avoidance, he suggested. He said he had no sympathy for those attempting to bend the rules.
2.17pm Ellie Reeves (Labour)
Reeves said she had been an employment rights lawyer before entering Parliament. While tax avoidance should be clamped down on the Government's own consultation had not revealed evidence of widespread abuse in this area, she said. She said the Bill was seeking to introduce legilation that would tax awards based on injury to feelings. She said discrimination can have a devastating effect on a worker's life. She gave the hypothetical example of a mother dismissed for taking maternity leave. A Conservative MP intervened to say such a case would not be affected. Reeves said the intervener was talking about discimination as determined by a tribunal, the Bill was talking about awards made as part of termination settlements. Any injury to feelings element above the £30,000 threshold would now be taxed, she said, and such a person would be worse off.
2.25pm Neil O'Brien (Conservative)
O'Brien said the clause followed in the footsteps of 75 different anti-avoidance measures introduced by the Government, which had raised £160 billion for public services. He said it was part of 'an ongoing war on tax avoidance which this government is waging'. He particularly criticised amendment 4 which, he said, would lead to people in the 'tax avoidance industry' rubbing their hands together at the prospect of a new loophole.
2.29pm Kelvin Hopkins (Labour)
Hopkins said the focus of tackling avoidance should be the big corporates not 'squeezing small amounts of income' from people who are losing their jobs. He highlighted PCS calls for more HMRC staff, better paid. He said PCS had told him that every tax officer collects many times more than their own salary so hiring more tax officers would mean more money raised.
2.33pm Rachel Maclean MP (Conservative)
Maclean said she was worried by Labour's amendments, particularly around injury to feelings. The Government's clause protected the taxpayer against abuse. The tax system depended on fairness she said, and preventing avoidance. She said the measures here would end exploitative practice of big businesses. She said she had run her own business and worked for and advised other small businesses. She had seen the stress termination caused for employers as well as employees.
2.39pm Eddie Hughes (Conservative)
Hughes said the Government were not changing the £30,000 threshold and if they wanted to they would need to come back to Parliament to propose that. He set out some of the Government's achievements on employment levcels and tax cuts.
2:47pm Mel Stride (Conservative; Financial Secretary to the Treasury)
The Financial Secretary said that the tax treatment of redundancy payment in the UK is one of the most generous in the world and this clause does not change that. The complexity in the system keeps it open to ‘manipulation’, he argued, explaining that those who get the most generous pay-offs try to keep more of their money by classifying them as termination payments rather than earnings, which is tax abuse.
Employees with evidence of an identified medical condition related to leaving their job will pay no tax on their termination payments, he was keen to say.
On Labour’s amendment one that would remove the power to amend the meaning of basic pay for the purposes of calculating post-employment notice pay by regulation, the minister said that the Treasury had listened to responses to make it simple and now it excludes overtime, commission and tips. The Government wants the clause to allow it to act quickly and remain flexible to respond to manipulation, and therefore called for the House to resists this amendment.
Stride also wanted the House to reject amendments two and three. Both ask to remove the power to eliminate the £30,000 threshold by regulation. The Government has no intention of reducing the threshold, he said.
Amendment four would include injured feelings within the definition of injury. Termination payment as a result of physical or psychiatric injury will be tax exempt, he said. Allowing exemptions of Injury to feelings without medical evidence will lead to manipulation, he warned.
In an intervention, Kirsty Blackman (SNP) said that, on injury to feelings, rather than give people the benefit of the doubt, the minister has made sure everyone is caught by this. The minister responded that employers and employees could collude on injury to feelings to gain from a loophole.
The bid by Blackman (amendment 12) to ask for a review of how these changes affect low income workers is unnecessary, said Stride, because of the high threshold. The Government recognises the difficulty people face when losing a job but we must remain vigilant on tax abuse, he argued.
2.59pm Peter Dowd (Labour; Shadow Chief Secretary to the Treasury)
Winding up the debate Dowd said the Government was going for a ‘scatter gun’ approach. As for consultation, the bottom line is that it was ‘inconclusive at best’. He called the proposal ‘iniquitous’.
Amendment one failed to win enough votes (269 v 311)
Amendment two also failed to win enough votes (272 v 312)
Amendment four also fell (281 v 312)
3:50pm Business Investment Relief (Clause 15 plus amendment 13 + new clause 1 + new clause 3)
Amendments 6-9 (Labour) seek to create a new condition to be met in order for business investment to qualify for relief, namely that the source of the investment appears on a public register, and that these amendments shall come into force from the date of Royal Assent. New clause 1 (Labour) seeks to require HMRC to carry out a review of the conditions under which business investment relief is available, including estimates of the value of the reliefs (before and after the changes proposed in this Bill) and an analysis of the characteristics of those using the relief, including their domicile status. New clause 3 and amendment 13 (SNP) seek to require HMRC to carry out a review of efficacy of the conditions under which business investment relief is available and the Chancellor to lay it before the House of Commons, and to provide that the changes in Clause 15 do not have effect until this has happened.
3.50pm Kirsty Blackman (SNP; Treasury spokesperson)
Blackman spoke about her amendment and new clause. The SNP is still not clear of the impact of the Business Investment Relief (BIR) clause. Everyone who benefits from BIR is a non-dom, she said. This will increase the ability of non-doms to get away without paying tax on things. She is also concerned about the amount of time and energy that the Commons is spending on this matter when only 200-400 individuals benefit from BIR. This is the third time this matter has been discussed in the Chamber this year.
In an intervention, Craig Mackinlay (Con) said non-doms contribute, in terms of ‘investments’ to the UK, about £1.6 billion since 2012, according to HMRC.
Blackman went to on say the likely hard Brexit that damages the Scottish economy will not be softened by BIR in any shape or form.
3:57pm Anneliese Dodds (Labour; Shadow Treasury Minister)
Dodds said many of her concerns have been raised by Blackman. She is concerned that given that the Tory government is borrowing huge amounts of money, it is considering extending BIR and depriving the Treasury of revenue. There is no evidence of much positive impact of BIR on the economy, she said. The BIR impact assessment when it was first brought in shows it was only ever predicted to have a ‘negligible’ impact. Labour is today calling for a review of BIR.
On the tax gap Dodds observed that the Government’s tax gap calculation contains a growing element of error, which is, she said, a concern given the forthcoming closure of HMRC offices. The figure does not cover tax avoidance resulting from profit shifting, on which, she argued, the Opposition have a strong record. She attacked the Government over what she called 'secret sweethart deals with large multinationals'.
4.05pm Bambos Charalambous (Lab)
Charalambous said the idea of tax exemptions for non-doms dated back to the 18th century and was not fit for purpose in the 21st century, when people can shift money at the click of a button offshore. He is sceptical how much will trickle down from BIR.
Charalambous suggested that the 'generous tax breaks' given to non-doms take for granted the many benefits of life in the UK and of London as a financial capital. "Why would nom-doms who have lived in the UK for more than a decade, who perhaps send their kids to schools in the UK, carry out business in the UK and own property here, need further incentives via tax breaks to invest here?" he wondered. A good business investment is a good business investment whether it gets tax relief or not, he concluded.
4.09pm Mel Stride (Conservative; Financial Secretary to the Treasury)
Stride said the OBR confirmed in its costings that without BIR ‘this money’ would be simply left offshore. Any UK gains are taxable in the UK, he added. The new rules will widen the relief so it can used to purchase existing shares and lengthen the time before a new start-up has to become a trading business – this will help large infrastructure projects, we are told.
On the SNP’s amendment and new clause 3 which would delay the clause until the Government can show the House a review of the efficacy of the conditions for BIR, Stride said no more proof was needed. Investment using BIR had increased from £197 million in 2012-13 to £837 million in 2014-15. In only three years more than £1.6 billion had been invested. Invited to provide information on the sectors which had been invested in the minister said there had been investment in the hospitality and energy sectors, in manufacturing and pharmaceutical science businesses in the midlands and north of England, and a £3 million investment in aerospace businesses in the north-west of England. He urged MPs to reject the SNP proposal.
On Labour’s New Clause 1 that requires the Government to review the conditions for BIR and the characteristics of those who use it, he said HMRC already publishes much of this information.
New clause 1 was pressed to the vote and defeated 274-309.
None of the other amendments or new clauses on BIR were pressed to a vote.
4.29pm Trading profits taxable at the Northern Ireland rate (for corporation tax) (Clause 25 stand part + NC2)
New clause 2 seeks to require HMRC to carry out a review after the first year of operation of the Northern Ireland rate of the effect of the changes in Schedule 7 on the location of companies in Northern Ireland and in Great Britain, the extent to which trading profits and losses are treated as subject to the Northern Ireland rate and on employment in Northern Ireland and in Great Britain.
4.29pm Mel Stride (Conservative; Financial Secretary to the Treasury)
Stride said the introduction of the Northern Ireland corporation tax regime had received nearly unanimous support from Northern Ireland parties and businesses. He said the motive is to ‘rebalance’ the Northern Ireland economy by attracting new investment. This is not all about brass plating but about generating growth, he said.
He explained that there were two key features to the regime’s design. "First, the devolved rate will apply only to a company’s trading profits; investment activities, which are highly mobile, are not in scope. Secondly, the Act requires large companies with a substantial trading presence in Northern Ireland to calculate their Northern Ireland profits separately from the rest of their profits. That calculation must follow internationally accepted principles for attributing cross-border profits." An SME with 75% or more of employment time and costs in Northern Ireland would have all its trading profit taxed at the Northern Ireland corporation tax rate. An SME below the 75% threshold would have all its trading profits, including those generated in Northern Ireland, taxed at the UK corporation tax rate.
The minister explained that clause 25 would give all SMEs trading in Northern Ireland the potential to benefit from the devolved rate, should they choose to do so, by giving them the option to benefit from the Northern Ireland corporation tax rate on the proportion of their profits generated by trading activity in Northern Ireland. "Like large companies, those SMEs that opt to take advantage of this measure will be required to calculate their Northern Ireland profits according to well-established principles," he said.
Labour's new clause 2, which asked for a review of the changes, is unnecessary, the minister said, because the Government would monitor the regime closely in any case.
A company has to have a ‘substantial presence’ in Northern Ireland to benefit from this planned tax regime, he assured MPs.
4.36pm Jonathan Reynolds (Labour; Shadow Economic Secretary to the Treasury)
Reynolds reiterated the Labour view that corporation tax rate is falling too low. The relationship between this Northern Ireland rate and the UK rate is a cause of concern to Labour, as it creates a risk of arbitrage.
Some business may make their domicile decision purely with regard to taxation, which while a fact of life, the regime proposed in this clause may see companies who seek to exploit the proximity of Northern Ireland to the UK, to benefit from a low tax regime without really investing in Northern Ireland.
It is critical we protect against unintended consequences and which is why Labour have tabled an amendment (New Clause 2) that has asked for a review after the first financial year that the regime has been in operation. The UK cannot afford to lose money to tax avoidance.
4.49pm Sammy Wilson (DUP)
Wilson is ‘bemused’ by Labour’s amendment because it goes on the basis that devolving corporation tax to N Ireland and it having a different rate than the UK, opens the door to abuse, which is an objection that could have been made most appropriately when the decision was made on the principle to devolve the tax in the first place. There are safeguards in place because companies must have a physical presence in NI and they must register profits commensurate with work in N Ireland, to fall under the new regime. The biggest safeguard to abuse is decisions made by the N Ireland Executive, he said, because it is not in their interest to allow the kinds of negative situations described by Reynolds. A review after a year is quite pointless, he added.
4.49pm Emma Little Pengelly (DUP)
Little Pengelly, a former chair of the Northern Ireland Assembly Finance Committee, said the review asked for by Labour after 12 months of the new regime will just lead to uncertainty. "What international business would look at the UK and invest in plant, employees and recruitment when one of the big incentives to moving - the lower corporation tax rate - could be removed following a review after just 12 months?" Let’s remain positive about the impact on N Ireland, she said.
New Clause 2 fell after a vote (231 v 308)
Finance Bill 2017-19 - Background
In April 2017 the Government introduced a Finance Bill to implement, in the main, measures announced in the March 2016 Budget and consulted on in the intervening 12 months. The calling of a snap general election required the Bill to be rushed through with committee stage and third reading compressed into a single day.
During the proceedings the Government deleted 72 out of 135 clauses and 18 out of 29 schedules, leaving the residual Bill (now an Act) only 148 pages long compared to the original 762 pages. This was in line with a call by CIOT in a letter to the Chancellor (see press statement), copied to the Shadow Chancellor (changes are negotiated between government and opposition), sent the previous week. Clauses dropped included those on Making Tax Digital (MTD), corporate loss relief and interest deductibility, VAT in relation to fulfilment houses and penalties for enablers of defeated tax avoidance schemes. A full list of what was kept and what was dropped can be seen here.
Finance Bill 2017-19 (initially referred to by the Government as the Summer Finance Bill) was published on Friday 8 September along with its explanatory notes. It will pass through Parliament during the autumn and is thought likely to get Royal Assent during November. With two exceptions (see press release here) all of the provisions withdrawn have returned. There are no surprising additions to the Bill.
There will be a further Finance Bill in December specifically to implement measures announced in the March 2017 Budget (which are fairly limited in number). Draft clauses for this Bill were published on Wed 13 Sep.
For further information on the July announcements – including significant changes to Making Tax Digital - and updated draft legislation published at the time click here.
Prior to Finance Bill 2017-19 being presented, MPs approved a series of Ways and Means Resolutions relating to the Bill. Normally these resolutions are debated at the end of the annual Budget debate but the changed timetable due to the general election meant they got a debate of their own (which we blogged on here). These resolutions needed to be passed before the Bill could be published.
For a report on the Bill's second reading debate (Tue 12 Sep) click here.
George Crozier, CIOT Head of External Relations Hamant Verma, CIOT External Relations Officer