Finance Bill 2017-19 Report Stage and Third Reading
A live blog on report stage and third reading debate on the floor of the House of Commons, which took place between 1.25pm and 5.20pm on Tue 31 Oct. Debate focused on amendments on deemed domicile, termination payments, quarterly reporting and digital record-keeping and treatment of chargeable gains on commercial property by persons with foreign domicile. Government amendments were passed and opposition amendments were defeated.
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 viewed here.
Reports on committee stage debates can be read here.
(NB. Notes reflect debate as heard by author and transcription errors cannot be ruled out)
Liveblog of Finance Bill report stage and third reading, Tuesday 31 October 2017
1.25pm ‚ Deemed domicile: protection of overseas trusts and qualifying individuals for certain purposes
New clause 1 (Labour) - This new clause requires a review to be undertaken of the effects of the provisions for protecting overseas trusts from the new provisions in relation to deemed domicile - NOT PASSED
Amendment 17 (Government) ‚ in Schedule 8 Part 4 (Cleansing of Mixed Funds), page 521, line 18, leave out ‚ or‚ and insert ‚ and‚ - PASSED
1.27pm Shadow Chief Secretary to the Treasury Peter Dowd (Labour) moved new clause 1. He said non-dom rules are a hangover from the British Empire. He claimed the Government has undermined its own reforms by protecting overseas trusts, despite their association with tax avoidance, citing the information revealed by the Panama Papers leak. He referred to the use of such trusts by footballers. Dowd said HMRC is underresourced to tackle such tax avoidance, which enables such trusts to continue. He wondered why the Government continues to refuse a public register for offshore trusts. The Govenrment wants to be seen to be doing something but its efforts are 'artificial', he argued.
Financial Secretary to the Treasury Mel Stride (Con) interjected to say that last week the tax gap was shown to be at a low of six per cent. Dowd said that does not include profit shifting by multinational companies. Stride said the tax gap 'does matter'. Nusrat Ghani (Con) weighed in, in support of Stride's view of the tax gap.
Lucy Frazer (Con) asked how much a review would cost. Dowd said a review was a reasonable way forward 'if there is nothing to hide'. He estimated that the cost of a review will pale into insignificance compared to how much money could be brought in. "The British people are no fools [on offshore trusts]" said Dowd. All UK citizens either be treated the same or not, is the heart of this matter, he said. The Government can act to send a message to tax dodgers rather than 'supine support', he added.
Ghani said the measures will bring in £1.6 billion. Dowd's speech ended.
1.50pm John Redwood (Con) compared ISAs to people taking advantage of other methods of avoiding tax - 'we cannot object'. In the past, governments have taken a pragmatic view of encouraging successful people to come here and it is unfair to tax their assets held elsewhere. Labour thinks there is a 'huge crop of gold' but the reality that it does not exist; this is why past Labour governments have not done anything about offshore trusts and that sort of thing, Redwood said. He spoke of the 'art of taxation' - resolving this problem without deterring people from coming here. He cited the current debate in American politics where it is suggested there may be a revision of income tax and corporation tax down, to maybe 20 per cent, because they want to become 'tax competitive' again. Charlie Elphicke (Con) interupted to talk of the USA moves as a potential threat to the UK in attracting people and business. Redwood reiterated his wish for people to 'stay and pay', to create an 'exciting economy'. Sammy Wilson (DUP) accused Labour of being soft on non-doms when last in government. Redwood repeated his view about the 'comparable' acts of using ISAs and non-doms using tax advantages in the UK tax system.
2pm SNP's spokesperson Kirsty Blackman bemoaned the complexity of the UK tax system, which leads to loopholes and poor compliance. The suggestions from Tory backbenches to move the UK to a 'tax haven post-Brexit' is something the SNP rejects. If we want excellent public services, we need to have a tax system that means people are paying for them. Elphicke said Brexit is an opportunity for tax cuts but Blackman sees no positive outcome from Brexit for Scotland. The SNP rejects anything that increases the likelihood of loopholes and that is why the SNP will support Labour on new clause 1, said Blackman.
2.05pm James Cleverly (Con) said that far from being on the side of tax dodgers, the Tories have put measures into place that have resulted in an extra £160 billion in related measures. This Government has ensured the closing of the tax gap that started under Labour. He does not like the phrases 'conmen' and 'tax dodgers' to describe non-doms - perhaps it is 'fun' for Labour to vilify non-doms, he suggested. Anna Soubry (Con) said some companies do not feel welcome in this country. Elphicke intervened to accuse the Bank of England for talking this country down. Vicky Ford (Con) called new clause 1 a 'distraction'.
2.16pm Bim Afolami (Con) said the British public realise that Tories have reduced the tax gap to 'the lowest anyone can record'. He agreed with Ford about the disruption caused to the timing of such a review by new clause 1 because of the Brexit negotiations. We cannot 'rest on our laurels' because of likely heavy competition in tax when the UK leaves the EU. He agreed with Blackman's desire to see a simpler tax system but the UK must think about how to make tax fairer and level the playing field, in general, for companies that work in the UK. Elphicke interrupted to say we should shrink our Finance Bills, a point repeated by Craig Mackinlay (Con). Elphicke said leaving the EU is a great opportunity to simplify the tax code. The current one is a 'whopper' Afolami admitted. He suggested that there is a consenus in the House for tax fairness and to shorten the tax code. Ford said Finance Bill Clauses 28-32 remove the loophole of permanent non-dom status but Clause 8 means the UK can continue to benefit from the £9 billion from overseas investment.
2.30pm Alex Burghart (Con) said people with offshore trusts 'are not breaking the law' and are bringing wealth to our country - and it is wrong to go after money secured in that fashion. Their behaviour is legitimate, he added. Soubry said if you start to be overly onerous in tax, people exploit those loopholes. Burghart said there is a form of review already in play, which makes new clause 1 unnecessary. Colin Clarke (Con) said unless we keep the tax regime competitive we may lose out on inward investment.
2.43pm Financial Secretary Mel Stride (Con) urged the House to reject new clause 1, among other reasons because non-doms should be allowed 'sensible tax planning'. Soubry interrupted to say non-doms are not all millionaires and billionaires and it is a myth to think they are all 'fat cats'; many are entrepreneurs. The Government's proposals provide 'certainty' Stride told a Labour MP. Referring to Blackman's remarks, he said the Government is working with the OTS on simplifying the tax code. Referring to the OECD's BEPS project, the minister said the Tories are no 'slouches' on tax avoidance and evasion. The new rules will fundamentally change the way non-doms pay tax by ending permanent non-dom status. For the sake of fairness and to keep the UK competitive, the measures do not include offfshore trusts. The offshore trusts the measures protect were set up before someone becomes UK domiciled, he said. "The trust structures will have been set up long before the individual even thought about moving to the United Kingdom... In the circumstances it is not unreasonable that the new domicile rules are introduced in a way that protects the trusts from unintended consequences". He said amendment 17 corrects a typo.
2.58pm Peter Dowd (Lab) replied 'what is wrong with a review'?, quoting William Shakespeare by saying the Tories 'doth protest too much' about it.
New clause 1 was voted on but not passed (ayes 279 - noes 309)
Amendment 17 was agreed without a vote
3.17pm Termination payments: power to reduce £30,000 threshold and eligibility in respect of injured feelings
Amendments 1 and 2 (Labour) ‚ These amendments remove the power for the Treasury to reduce the £30,000 threshold in connection with the taxation of termination payments by regulations.
Amendment 3 (Labour) - This amendment explicitly includes (rather than excludes) injured feelings within the definition of ‚ injury‚ for the purposes of payments which are excluded from the provisions of Chapter 3 of Part 6 of the Income Tax (Earnings and Pensions) Act 2003 (payments and benefits on termination of employment).
3.17pm Anneliese Dodds (Lab), a member of Labour's Treasury team, introduced the party's amendments to this part of the Bill. She accused the Government of focusing its tax increases on those being made redundant. If the Government had no plans to do this, why create the power, she wondered. The FST responded that a statutory instrument to change the £30,000 threshold would need to go through the House and be voted on. Dodds, in turn, responded that passing a measure through secondary legislation would mean less scrutiny. Arrangements for those facing redundancy should not be only of technocratic interest, she said. She argued there was no conclusive evidence of abuse in this area or clamour to reduce the threshold.
On 'injuries to feelings' payments Dodds said that the Government had claimed that payments allotted by tribunals would not be subject to these matters. It is not the case that employment tribunals can decide whether payments are subject to tax or otherwise, she said. The measures in this Bill would cover the far more common payments made directly by an employer to settle discrimination complaints as part of a redundancy or other dismissal. She concluded by accusing the Government of missing opportunities with the Finance Bill and focusing on "soft targets rather than those who can afford expensive accountants" to avoid tax.
3.28pm SNP spokesperson Kirsty Blackman spoke briefly. She highlighted that this was a revenue raising measure for the Government. These were people who were vulnerable, losing their jobs. For that reason the SNP would be supporting Labour's amendments. A Conservative MP intervened to ask Blackman if she included in that category Fred Goodwin who received a very large advance on his pension as part of his redundancy package when he left the Royal Bank of Scotland. Blackman responded that she was not sure whether that was a redundancy package that would be included within this measure.
3.31pm Ellie Reeves (Lab), a former employment rights lawyer, said she had represented employees who had been discriminated against. This Bill makes it harder for people to get proper compensation for their ill-treatment, she said. She gave examples of cases where it would not be clear what was taxable and what was not - whether an award is connected to a termination or to a previous unconnected determination. "For example, a woman is subjected to sexual harassment at work over a sustained period. She subsequently tells her employer that she is pregnant and is dismissed as a result. She pursues a claim for sexual harassment, unfair dismissal and maternity discrimination. She is awarded £30,000 for loss of earnings, so that takes her up to the tax free theshold, and she is awarded another £10,000 for injury to feelings, Who determines what part of the award is for the harassment unconnected to the termination of her employment, and therefore not taxable, and who determines what part is in relation to the pregnancy-related dismissal and therefore taxable?"
3.38pm Financial Secretary Mel Stride (Con) responded. He said current rules around termination payments can be unclear and complicated. Unfortunately this complexity has led to a small minority of individuals and employers, particularly those with the most generous pay-offs, seeking to manipulate the rules to avoid paying the tax that is owqed, by characterising large pay-offs as termination payments rather than earnings. He repeated that the Government has no intention of reducing the £30,000 threshold. Amendment 3 would open a large loophole and the House should reject it too.
Amendment 1 was defeated in a vote (ayes 274, noes 308). Amendments 2 and 3 were not moved.
4.03pm ‚ Digital reporting and record-keeping, treatment of chargeable gains on commercial property by persons with foreign domicile, disguised remuneration and sports image rights, impact analyses, review of conditions for registration for third country goods fulfilment businesses, and deductions for loan costs when calculating profits of a property business on the cash basis
Digital reporting amendments
Amendment 7 (Labour) - This amendment provides that the provisions for digital reporting in Clause 60 may not be brought into force before 2022.
Amendment 8 (Labour) - This amendment would require the Chancellor of the Exchequer to report on software suitability and testing before giving effect to the provisions of Clause 60.
Amendment 9 (Labour) - This amendment provides that the provisions for digital reporting in Schedule 14 and Clause 61 may not be brought into force before 2022.
Amendment 10 (Labour) - This amendment provides that the provisions for digital reporting in Clause 62 may not be brought into force before 2022.
Amendment 11 (Labour) - This amendment provides that any system for quarterly updates to be generated must not be mandatory.
Other opposition amendments and new clauses
New clause 2 (Stella Creasy and others) - This new clause requires a review to be undertaken of the treatment of capital gains on commercial property disposed of by UK taxpayers with a foreign domicile.
New clause 3 (Labour) - This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of provisions for disguised remuneration in relation to income provided through third parties, including particularly the effects in relation to sports image rights.
New clause 4 (Labour) - This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of the provisions of the Bill on households with different levels of income, people with protected characteristics and on a regional basis.
New clause 5 (Labour) - This new clause requires a review to be undertaken of the conditions of registration for third country goods fulfilment businesses and the traders using their services.
Government amendments on cash basis
Amendment 12 (Government) ‚ Schedule 2, page 121, line 40, leave out ‚ on the last day of the tax year‚ and insert ‚ at the end time‚
Amendment 13 (Government) ‚ Schedule 2, page 121, line 41, leave out ‚ on that day‚ and insert ‚ at the end time‚
Amendment 14 (Government) ‚ Schedule 2, page 122, leave out line 13 and insert ‚ at the end time,‚
Amendment 15 (Government) ‚ Schedule 2, page 122, line 21, leave out from ‚ if‚ to end of line 22 and insert ‚ ‚Ä it is involved in the property business at the end time, or although it is not involved in the business at the end time‚Ä (i) it was last involved in the business at an earlier time in the tax year, and (ii) the person carrying on the business holds the property throughout the period beginning with that earlier time and ending with the end time.‚
Amendment 16 (Government) ‚ Schedule 2, page 122, line 32, at end insert‚Ä ‚ ( ) The ‚ end time‚ is‚Ä (a) the time immediately before the end of the tax year, or (b) if in the tax year the person carrying on the business permanently ceases to carry it on, the time immediately before the person permanently ceases to carry on the business.‚
3.57pm Jonathan Reynolds from Labour's Treasury team spoke to his party's amendments around Making Tax Digital. He said he was speaking to the concerns of business and many others, including the CIOT. He conceded that the Government had made a number of concessions on this over the summer. Labour supports digitising tax returns but the Government has made 'a chaotic mess' of this reform. Accountants and tax experts had warned that the Government's target implementation date is unrealistic and unworkable, he said, and will coincide with Brexit-related uncertainty. No-one is sure whether HMRC or business can be ready for the implementation date. That is why Labour are proposing pushing the start date back to 2022. Labour also want to see robust evidence that the software will be ready. Businesses need time to accustom themselves to using the new system, he said. "We urge the House to listen to us, to listen to the warnings of independent experts outside this building, and support this pragmatic and sensible package of amendments today," he concluded.
4.03pm Financial Secretary Mel Stride (Con) said that amendments 12-16 "fix a small technical error that could otherwise result in an outcome that was not intended. They will ensure that landlords who stop renting out a property and move in rather than sell it are not unintentionally disadvantaged when using the cash basis."
On Making Tax Digital the FST said that under the Government's proposals businesses that provide VAT updates to HMRC would not be required to do so more frequently than they are now, or to provide any more information. The Government is already committee to ensuring there is a full range of software products available for MTD and that these have been tested thoroughly, he said. Nigel Mills (Con) intervened to observe that the HMRC chief executive had told the Public Accounts Committee that Making Tax Digital was the highest priority digital project for HMRC. Did the minister agree or should we be prioritising all the many changes that will be coming about with Brexit? The minister replied that there are a number of HMRC-led IT programmes including MTD and the Customs Declaration Service which also has a very high priority placed on it and is on target. He was satisified that the balance is correct. The minister was also asked about learning lessons from the universal credit project.
Turning to new clause 2 the minister said that the new clause fell foul of some of the complexity in this area. "Contrary to the wording of the new clause it is residence and not domicile that determines whether the disposal of an asset in the UK is within the charge for capital gains tax. UK residents including non-doms will always be liable for CGT on the profits from selling UK land whether that land is residential or commercial. Also it does not appear that the change the honourable lady (Stella Creasy) is proposing will apply to foreign companies owning UK commercial properties as domicile doesn't apply to companies." He said a property being designated commercial property when it ought to be residential property was a matter of avoidance or evasion, not of the scope of CGT. HMRC have not seen any evidence of this in practice, he added. While he wanted the House to reject new clause 2 he felt it raised a number of points worthy of consideration and said the Government would continue to look closely at this area.
On new clause 3 relating to sports image rights he said there had been cases where employers had tried to inflate payments for image rights. "The courts have ruled that genuine image rihts payments made to an individual are not taxable as earnings. It is therefore for HMRC to ensure image rights payments are genuine and taxed in the right way." Clear guidelines have been published. This new clause is not necessary, he said.
On new clause 5 on goods fulfillment businesses the minister said VAT fraud was a complex international problem. The Government had already undertaken extensive consultation on the scheme and would continue to monitor the impact of the legislation. Nigel Mills intervened to encourage the Government to commend "a better solution to this issue, that is making the online marketplaces themselves liable for the VAT on sales that are outside the EU. Amazon at the Public Accounts Committee actually thought that was a better solution and they would be happy to implement it. So the EU want to do it, the Government have consulted on split payments, isn't it about time to make sure we press ahead with getting all that revenue we deserve and need?" The minister agreed this was one the approcahes that could be taken - the split payment approach where the platform itself is responsible for collecting the VAT and passing it on - and that is certainly something the Government is considering.
4.11pm Kirsty Blackman (SNP) said her party continues to have concerns about how MTD is to be implemented, especially a lack of clarity about how to help people with intermittent access to the internet. The SNP support the phased implementation of MTD and will not vote to support Labour's amendment 11 because that goes against the SNP Manifesto. She supports Stella Creasy's cross party new clause 2.
4.15pm Stella Creasy (Lab) spoke in support of her new clause 2, which is about the fairness of our tax system and how it extends to foreign ownership. Why should UK businesses have to pay corporation tax on capital gains when selling commerical properrties but overseas businesses trading in the UK on UK based properties do not? It is not fair and lets foreign companies 'off the hook', she argued. It is hard to see what the justification is for this loophole, she said. The purpose of this amendment is to find out the facts on what HMRC estimate they are missing out on because of this anomaly, she said. About 30 per cent of commercial property in the UK is held in offshore trusts and companies, with 20 per cent of commercial property overall sold every year. Assuming a long term rate of an increase of eight per cent in prices, if 20 per cent of commercial property is sold with a corporation tax rate of 19 per cent, Creasy estimates there will be about £11 billion of taxable gains every year, so there may be about £6 billion of tax can be collected every year. This is something other countries do in Europe and the OECD double tax treaty allows Creasy's suggestion. If it is really too complicated as the Government suggests (such as the definition of domicile) why can other countries manage to do it? She went on to give examples of what £6 billion can do for public services.
4.27pm The minister, Mel Stride, said digital exclusion was covered in the Bill and there are powers within the Bill to allow HMRC to bring in further measures on this. On Creasy's new clause 2, she must accept that it confuses non-doms with residents on the other hand and seeks to classify companies as non-domiciled which they cannot be, the minister said. He accepts this is an area that the Treasury should 'seriously' look at, but did not give a commitment to publish anything in relation to this work. Creasy pressed him further to publish any figures the Government have. The minister asked the House to reject the Opposition amendments and new clauses.
Jonathan Reynolds (Lab) withdrew amendment seven.
Amendment 11 was voted on and defeated (ayes 243 - noes 309)
New clause 2 was voted on and defeated (ayes 279 - noes 309)
The government amendments 12-16 were approved without a vote
No other amendments were pressed to a vote.
Third reading debate
5.03pm Financial Secretary to the Treasury Mel Stride (Con) said that every time a new loophole opens in the tax code it is another school we cannot open or another nurse we cannot hire. He spoke in support of the Tories‚Äô record on tax avoidance and tax evasion. The Government is committed to making the tax system fair. Non-doms have made a great contribution to our society, he added, and should not all be branded as ‚ tax dodgers‚Äô. MTD can help reduce mistakes and errors in the tax system.
5.07pm Shadow Chief Secretary to the Treasury Peter Dowd (Lab) said the Finance Bill is a wasted opportunity; rather than putting forward proposals on investment, fair taxation and measures to raise productivity that will bolster people in their everyday life, we have watered down workers‚Äô rights, added burdens to businesses and offshore trusts clear of reform to non-dom status. The Chancellor is in denial about the rising number of people in insecure work, he added. Dowd said Labour will not support the Bill.
5.11pm SNP spokesperson Kirsty Blackman (SNP) was concerned that the Finance Bill does not take account of Brexit and neither did the first Finance Bill of 2017. It is wrong that Scottish Police and Fire services are still paying VAT and all VAT paid by these services should be paid back to them by the Exchequer. On MTD, she was pleased about the phasing of the programme. The Treasury often responds to questions from opposition parties during the Finance Bill, that ‚ all taxes are kept under review‚Äô. Blackman said these should be published to give MPs confidence that this is actually the case. On the changes to the dividend nil rate band, she said they are being brought in too quickly for the public to know and to build into their business plans. She also spoke of her concerns that people are getting poorer as a result of wage stagnation and the rise in inflation - she questioned whether the Finance Bill actually takes account of that trend.
5.34pm The Finance Bill was successfully put to a vote (302- 276) and the Bill has been read a third time.