Finance (No.2) Bill 2017-19 ‚ 5th and 6th sittings

12 May 2018

A live blog of the fifth and sixth public bill committee sittings of Finance (No.2) Bill 2017-19, which took place on Tuesday 16 January at 9.25am and 2pm. Issues debated included double tax relief, offshore trusts, VAT and online marketplaces and landfill tax. Clauses 30-50 were passed along with a range of amendments.

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 from the 9.25am session of the committee can be listened to here. Proceedings from sitting the 2.00pm session can be listened to here.

Clause 8 and Clause 33, together with Schedule 9; Clauses 40 and 41 and Schedule 11 were dealt with in Committee of the Whole House on Monday 18 and Tuesday 19 December 2017. Reports on day 1 and day 2 of these proceedings can be found by clicking on the respective links. These reports also include background notes on the Finance Bill, its history and its contents.

Clauses 1-29 of the Bill were passed during the Bill's first four sittings last week. A summary of these proceedings can be found on the CIOT website.

NB. The notes below are 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.

Fifth sitting (Tuesday 16 January 2018, 9.25am)

Clause 30 ‚ Reduction of relief in cases where losses relieved sideways etc - PASSED and Clause 31 ‚ Countering effect of avoidance arrangements - PASSED (including consideration of new clause 13 - "Review of effectiveness of limit to double taxation relief" NOT VOTED ON)

The Financial Secretary to the Treasury (FST), Mel Stride, said that this clause would ensure that companies operating overseas would not benefit from tax relief twice for the same loss. The measures would further ensure that companies would pay their fair share of tax and contribute to funding public services. Anneliese Dodds moved Labour's new clause 13, which would provide for a review of the new limit for double taxation relief available to companies for foreign tax paid on the income of a foreign permanent establishment. She said that the opposition would request a review of the effectiveness of the measures and their impact on both businesses and the exchequer. The review would also allow the government to assess the impact of its measures against those of other countries while she questioned the efficacy of the government's tax gap figure of 6%, which she said failed to take into account the impacts of profit shifting. Responding for the government, the FST rejected the new clause, which he said was unecessary given that these issues were already routinely reviewed. He said that the UK's tax gap figure had been identified as one of the most 'robust' in the world.

Clause 32 ‚ Double taxation arrangements specified by Order in Council - PASSED (including Amendments 54 - DEFEATED and 55 - NOT VOTED ON)

In a wide ranging debate Anneliese Dodds moved Labour‚ s amendment 54, which would require the government to undertake a review of double taxation arrangements and for the Chancellor of the Exchequer to report its findings to the House of Commons. She spoke of the effectiveness of the OECD's Multilateral Instrument (MLI) in identifying and tackling abuses of tax treaties and also identified some of the challenges that the UK had encountered in its adoption of the MLI. For the government, FST Mel Stride moved clause 32, explaining that it would prevent base erosion and profit shifting in line with the MLI signed by the government in 2017. This would help the UK develop economic relationships with other nations and vice versa. He set out the standards expected of signatories to the MLI and noted that the UK had been at the forefront of these efforts. The measures contained in the clause would give effect to these provisions in domestic law "quickly and efficiently". A draft affirmative statutory instrument would be introduced after the passage of the Bill, ensuring parliamentary scrutiny (an issue raised by Ms Dodds in earlier remarks). Mr Stride responded to the proposals set out in opposition amendments 54 and 55. Amendment 55 would have sought to remove the retrospective effect of the foregoing provisions of Clause 32.

Following a division, amendment 54 was defeated by 10 votes to 9. Amendment 55 was not pressed to a vote.

[Clause 33 ‚ Bank levy was considered by the Committee of the Whole House in December 2017]

Clause 34 ‚ Debt traded on a multilateral trading facility - PASSED

Clause 34 was formally moved and passed without debate.

Clause 35 ‚ Settlements: anti-avoidance etc - PASSED (including opposition amendments 62-63 - DEFEATED and government amendments 2, 51-52, 5-27, 53 and 28-32 - PASSED)

FST Mel Stride said that clause 35 would safeguard the integrity of the UK tax system to ensure that UK domiciled residents using offshore trusts are prevented from avoiding their tax liabilities. He said that the UK had extensive anti-avoidance measures in place already to ensure that UK domiciled residents with offshore trusts pay income tax or capital gains taxes on any income derived from the use of offshore trusts. The measures contained in clause 35 would allow the government to close some of the loopholes in legislation that the FST said would end "contrived tax planning" and ensure that those living in the UK pay their fair share of taxes. Mr Stride described the government's amendments as "minor". The rationale for amendments 2-32 proposed by the government was set out in a letter to the chairs of the Public Bill Committee on 21 December 2017, a copy of which can be found here. The amendments seek to amend new provisions within the Income Tax (Trading and Other Income Act) 2005 to ensure they work as intended.

Mr Stride rejected the opposition's amendments. Amendment 62 would require the Chancellor of the Exchequer to review the effects of changes to the TCGA 1992 made by the Bill in relation to the taxation of capital payments received from a settlement. Amendment 63 would create an obligation for the Chancellor of the Exchequer to create a public register of trust beneficiaries, settlors, and trustees. It also amends section 98(1) of TCGA 1992 to expand, to include new section 87Q, the existing power for HMRC to require any person to provide information as they think necessary to fulfil certain sections of that Act. The FST rejected calls for a register on the grounds of taxpayer confidentially and stressed that HMRC already had access to the information it required to enforce the law. In moving the clause, Mr Stride expressed his confidence in the government's ability to enforce these provisions and called for the amendments to be withdrawn.

Anneliese Dodds spoke to both of Labour's amendments. She likened the government's efforts to a "sticking plaster" and said that they would not achieve the fundamental reform of the non-dom regime that her party wished to see. She suggested that the issue of taxing offshore trusts had proved to be a "challenging" public policy issue and that an overhaul of the UK's approach to trusts was necessary to simplify and improve the regime. Ms Dodds reiterated the Labour Party's support for the creation of a public register of UK trusts and challenged the FST on the issue of confidentiality, which she suggested could be overcome. In drawing her remarks to a close, Ms Dodds said the opposition would continue to make the case for increased transparency, even if its amendments were defeated.

Kirsty Blackman (SNP) noted that the government's amendments had been put forward in response to evidence received from "expert stakeholders" which had corrected errors in earlier government amendments. She said that this provided further evidence of the need for future Public Bill Committees to take oral evidence from external experts, an issue the SNP pressed to a vote in the first session of the committee last Tuesday. Ms Blackman also paid tribute to Anneliese Dodds for her "thoughtful" contributions, a point echoed by the FST in his follow-up remarks.

Sir Roger Gale (Chair), suggested that Ms Blackman's points on external evidence may have been out of order, but nevertheless suggested that the government would have been attentive to them. Mel Stride, in responding to the opposition's amendments, said that the measures in place to tackle non-doms were much improved in comparison to the last Labour administration. Responding to Ms Blackman, Mr Stride said that it would be more effective for evidence to be taken at an earlier, pre-consultation stage, rather than the "granular, line by line" scrutiny of the Finance Bill. He expressed confidence that the move to a single fiscal event would help to improve the process.

Opposition amendments 62 and 63 were both defeated by 10 votes to 9.

Government amendments 2, 51-52, 5-27, 53 and 28-32 were grouped together into a single vote and formally passed.

Clause 36 ‚ Fixed rate deduction for expenditure on vehicles etc - PASSED (including consideration of new clause 14 - Fixed rate deduction for expenditure on vehicles: review of change to eligibility - NOT VOTED ON)

The FST said that clause 36 would ensure that unincorporated property businesses can use mileage rates to deduct expenses and calculate allowances. He said that this measure would represent an 'effective' means of simplifying the tax system for landlords and would be immediately available, having been backdated to take effect from April 2017. Mr Stride rejected the opposition call for a review of the effectiveness of the scheme, saying that its budgetary impact had been calculated by the OBR to be negligible and would have little information available to study. Anneliese Dodds (Labour), in moving new clause 14, said that there was a need for a review to consider the effectiveness of the change and to calculate the administrative burdens on businesses.

Clause 37 ‚ Carried interest - PASSED (including consideration of new clause 2 - NOT VOTED ON)

Mel Stride said that this clause would remove certain transitional rules no longer required for the effective taxation of carried interest charged to capital gains tax (CGT). The provisions would take effect from November 2017 and ensure that CGT is paid on the full, eligible amount. Kirsty Blackman (SNP) said that new clause 2 would require HMRC to carry out a review of the impact of removing transitional tax arrangements. She said that this was important in understanding the financial impacts of these changes on the Treasury. Mel Stride, in response, questioned the SNP's justification for a review and said that it was now important to focus on taking forward the proposals set out in clause 37.

Clause 38 ‚ Online marketplaces - PASSED

(including Amendment 56 - PASSED, Amendment 57 - DEFEATED, Amendment 58 and Amendment 59 - NOT VOTED ON)

Peter Dowd (Labour) moved Labour's amendments. He acknowledged that the government's efforts to make online sellers jointly and severally liable would represent a welcome step forward but said that the proposals put forward by his party would send a message to online retailers that they could no longer "defraud" the government by evading their VAT liabilities.

He said that online sales had risen exponentially since the mid-2000s, highlighting the growing proportion of sales carried out online. He cited evidence suggesting that in the last 3 years, VAT fraud and evasion had cost the taxpayer around £27 billion in lost revenue and noted the Public Accounts Committee view that HMRC had been "slow" in responding to the challenges of online trade. It had also proven difficult, he said, for HMRC to pursue prosecutions for online VAT fraud. Mr Dowd said that he wanted to see from HMRC what steps had been taken to identify online fraud, educate the public and UK businesses on the issue and how it would make use of the powers at its disposal to clamp down on the issue, including against organised crime syndicates. He also said it would be important to understand how UK Border Force had tackled the growing use of fulfillment houses. Mr Dowd also suggested that Brexit would have a detrimental impact on tackling VAT fraud and added further uncertainties. He said it was incumbent on the FST to show how the proposals included in clause 38 could be future-proofed against the outcome of the Brexit negotiations.

The session was adjourned at 11.18am.

Sixth sitting (Tuesday 16 January 2018, 2pm)

Clause 38 ‚ Online marketplaces (continued)

Debate continued on clause 38. FST Mel Stride said this strengthens existing rules and that they are ‚ strong enough‚ . He said HMRC have additional funding to deal with this. The Government has accepted ‚ gratefully‚ Opposition amendment 56 but not the others. Peter Dowd (Lab) joked it was ‚ a major climb-down‚ by the Government and said it was wrong to claim the other amendments are ‚ onerous‚ .

Amendment 57 was pushed to a vote, ‚ to make a point‚ , said Dowd. Other amendments were dropped.

Clause 39 - VAT refunds to public authorities - PASSED (including consideration of New Clause 1 - Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority - NOT VOTED ON)

This clause amends section 33(3) of the Value Added Tax Act 1994 to extend refunds of VAT to a number of public bodies. These are the combined authorities, police and crime commissioners undertaking the function of the fire and rescue authority, the London Fire Commissioner, the Scottish Fire and Rescue Service and the Scottish Police Authority. The Government has listened and acted, said FST Mel Stride but he added this was a complicated area.

Alison Thewliss, SNP, said if the argument for the change stands today, it should stand in the past: ‚ÄúThat is only right and fair.‚Äù As a reminder, the SNP wants the Scottish Fire and Rescue Service and the Scottish Police Authority to get back the VAT they have been charged since they were formed. She said that the SNP‚ s New Clause 1 will be pushed to a vote because the SNP wants more detail on the administrative consequences of retrospective claims, for example.

Peter Dowd (Lab) understands the anxieties of the Scottish Government, especially in a time of austerity. In the March 2015 Budget, the Government allowed hospice charities, search and rescue and blood bank services to reclaim VAT ‚ while the Government 'played politics' with fire and police in Scotland, he argued. A VAT refund will not prevent cuts in the Scottish fire service, however, he added. Labour support the SNP on this clause.

The FST said the government were not forced into the change because of upcoming changes to fire and police in England. No government would bring in retrospective taxes, he argued.

Clause 42 and Schedule 12 - Landfill tax: disposals not made at landfill sites, etc - BOTH PASSED (including consideration of New Clause 15 - Landfill Tax disposals: review of changes to disposals within charge - NOT VOTED ON)

This clause and Schedule amend Part 3 of Finance Act (FA) 1996 to include disposals at sites without an environmental disposal permit (but which ought to have) within the charge to Landfill Tax. They will also introduce changes to what constitutes a taxable disposal for Landfill Tax purposes. This will take effect for disposals on or after 1 April 2018, subject to any transitional arrangements.

FST Stride said landfill is down 60 per cent by since the tax was introduced in October 1996. Illegal dumping sites are a ‚ blight‚ . Waste crime costs the English economy ¬£600 million a year annually. After strong support from industry the government pushed ahead with extending the scope of landfill tax to illegal sites. Changes made by this clause will make all persons responsible for disposals at illegal waste sites jointly and severally liable for the tax.

Labour's New Clause 15 will compel the government to commission a review within three months of the passing of this clause in the Finance Act. The minister said this was ‚ unnecessary‚ .

Peter Dowd (Lab) said that while HMRC have a range of criminal and civil powers, there is a question about whether it actually uses them. It is positive that the Government is taking action in the Finance Bill today, he said, claiming that the landfill ‚ tax gap‚ is about ¬£150 million. The OBR predicts that tackling ‚ waste crime‚ will bring in ¬£30 million in the first year alone. There is a need for a review to see if HMRC can manage this, although he said that the Opposition is unable to do more than ask for a review in its amendment because of the restrictive nature of the resolutions the government passed on the Bill. Dowd is very concerned about a lack of landfill ‚ centres‚ in the UK, the importing of non-recyclable material from abroad and the lack of a systemic process to judge when to end landfill. This is why Labour is pushing its amendment to establish how much revenue the measure in the government‚ s clause will generate and the important behavioural impact it will achieve.

FST Stride responded by saying many of Dowd‚ s opinions relate to other Departments than the Treasury. This Bill brings more people into the scope of taxation. He told Dowd that the measures in the clause will bring in to the Exchequer ¬£145 million over the ‚ scorecard period‚ .

Clause 43 - Air passenger duty: rates of duty from 1 April 2019 - PASSED (including discussion of New Clause 16 - Review of changes to rates of air passenger duty - NOT VOTED ON)

This clause provides for changes to the rates of air passenger duty (APD). The rates for APD are set out in section 30 of the Finance Act 1994.

FST Stride said only those going long-haul, Business Class, First Class or by private jet will pay more because of this measure. The aviation sector continues to perform strongly and airports are busy. Since 2012, all short haul rates have been frozen. The changes will affect less than five per cent of air travellers.

On the Opposition‚ s new clause which calls for a review of the effects of the measures on aeroplane usage and carbon emissions by March 2019, he said a review is unnecessary because the government keeps aeroplane usage under review and has already taken action globally to reach agreement on carbon offsetting reductions.

Anneliese Dodds said Labour's review would examine the impact of the changes. There is a lack of a specific long-term direction of travel on air travel from the government, she said. What we do not have at the moment is an indication of the government‚ s approach compared to others, she added, hence the need for a review. She said many people do not have a choice but to travel long-haul. She added that short haul flights are easier to avoid on environmental grounds.

FST Stride repeated his earlier remarks, adding that the timing of a review suggested by Labour would come before the tax change. On the devolution of APD, he said it will be a case of each tax jurisdiction making sure their respective passengers are not disadvantaged. The competitive outcome of that will probably be lower tax, he opined.

Clause 44 - VED: rates for light passenger vehicles, light goods vehicles, motorcycles etc. - PASSED

This clause provides for changes to certain rates of VED by amendments of the Vehicle Excise and Registration Act 1994 (VERA).

Anneliese Dodds (Lab) said committee members have received a submission about about a specific case of a zero emission capable taxis which will be exempt of VED supplement from 2019 but not until then. Added complication is that taxis are classified as ‚ passenger cars‚ rather than commercial vehicles, which means they are subject to VED standard rates. She wants to know if some further calibration can be done that does not harm zero emission taxis. FST Stride said the government will publish a consultation in the spring to address the issues she raised.

Clause 45 - Tobacco products duty: rates - PASSED (including consideration of New Clause 17 - Review of changes to rates of duty on tobacco products - NOT VOTED ON)

This clause provides for changes to the rates of excise duty on tobacco products (cigarettes, cigars, hand-rolling tobacco, other smoking tobacco and chewing tobacco) and to the Minimum Excise Tax (MET) on cigarettes.These changes took effect at 6pm on 22 November 2017.

FST Mel Stride said smoking is still the single biggest cause of preventable illness and death in the UK. Opposition New Clause 17 calls for a statutory review of tobacco rates, he told the committee.

Anneliese Dodds said Labour will continue to push for a review, although accepting the duty changes in the Bill, especially on hand rolled tobacco. ‚ÄúWe are concerned about the sufficiency of the duty rises reported here for the government‚ s overall anti-smoking efforts.‚Äù She cited a report that shows that cuts to health budgets have led to less interventionist work to help people stop smoking. She added that tobacco taxes are regressive because of their impact on people on low incomes. If you just increase duty without a suite of measures, it will not be effective on smoking cessation rates, she argued.

FST Mel Stride attempted to assure Dodds that tackling illicit tobacco is a priority for the government. Stride said the government‚ s commitment to non-tax efforts to reduce smoking is evident in its Tobacco Control Delivery Plan, which provides for robust policies on smoking prevalence.

Clause 46 - Power to enter premises and inspect goods - PASSED (and amendment 60 - WITHDRAWN)

This clause extends the scope of section 24 of the Finance Act 1994 (“section 24”) to enable an officer of HMRC to inspect, examine and take account of goods held on a premises which that officer reasonably believes is used for the purpose of carrying on a trade or business in respect of goods which may be liable to customs duty; and to require specified individuals to provide the officer with reasonable assistance for that purpose.

Peter Dowd (Lab) spoke for amendment 60. He said tax evasion is unacceptable and it is unacceptable for popular online sellers not to be charging VAT. However, he has ‚ serious concerns‚ about the scope of the new measure which seems to give wide ranging and almost uncurbed powers to HMRC‚ s officials to enter premises and search vehicles and vessels. The rules could be open to significant abuse. He is worried about the lack of thought about the impact of the proposals. Labour wants to add a layer of security and protection for people‚ s rights while allowing HMRC to get on with its job. These actions should only be permitted in the circumstances that are usually needed for a search warrant; this is the crux of Labour‚ s amendment. He said a lack of resources for HMRC cannot be balanced by giving them such wide ranging new powers. The government needs to do more in this measure to protect citizen‚ s rights.

FST Stride said the new powers will really only be used where goods have been mis-declared. He said an officer - at present a customs officer - can enter a premises suspected of housing dodgy goods but they can only search visible goods. The new measures will extend more comprehensive searches to check goods against declarations. The measure will enable customs officers to check goods inland where suspicion is that goods have been mis-declared. As the customs will be searching containers, boxes, etc., and not premises, a warrant is not needed. This new measure is not intended as a substitute for seeking a warrant. He added that there are safeguards in place to make sure the powers are proportionate.

Clause 47 - Power to search vehicles or vessels - PASSED This clause makes an amendment to section 163 of the Customs and Excise Management Act 1979 (“section 163”) to clarify the powers officers have to use reasonable force to gain entry to a vehicle.

Clause 48 - CO2 emissions figures etc - PASSED (and amendment 61 ‚ WITHDRAWN)

Peter Dowd said Labour want the measure to be judged against our progress on meeting the UK‚ s target on carbon emissions. Labour's amendment 61 proposed a pre-commencement review of the appropriateness of the current regime for calculating carbon dioxide emissions and the effects of a change to the Worldwide harmonized Light-duty vehicles Test Procedure (WLTP) procedure.

FST Stride said the amendment will delay the measure. He said the DVLA's use of the New European Driving Cycle (NEDC) methodology for calculating CO2 emissions to set tax bands means there is no need for another international measure.

Clause 49 (Interpretation) ‚ PASSED Clause 50 (Short title) - PASSED

The final two clauses were passed without debate.

Votes on New Clauses

As indicated above, while new clauses are debated alongside relevant clauses of the Bill they are not voted on until after the existing clauses. The following votes took place without further debate.

New Clause 1 - Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority (moved by Kirsty Blackman) - DEFEATED

(New Clause 2 - Review of the impact of the removal of the transitional taxation arrangements for carried interest (tabled by Kirsty Blackman) - was not called)

(New Clause 3 - Review of the effects of changes to the transferable tax allowance for married couples and civil partners (tabled by Kirsty Blackman) - was not called)

New Clause 4 - Review of the impact of increasing Research and Development Expenditure Credit (moved by Kirsty Blackman) - DEFEATED

(New Clause 5 - Impact of benefit in kind tax supplement on the use of diesel cars (tabled by Peter Dowd) - was not called)

(New Clause 6 - Review of risk to capital changes (tabled by Peter Dowd) - was not called)

(New Clause 7 - Review of changes to EIS and VCT reliefs for knowledge-intensive companies (tabled by Peter Dowd) - was not called)

New Clause 8 - EIS, SEIS, SI and VCT reliefs: review of operation (moved by Peter Dowd) ‚ DEFEATED

New Clause 9 - Review of change to level of research and development expenditure credit (moved by Peter Dowd) ‚ DEFEATED

(New Clause 10 - Analysis of effect of income tax rates on incentives into employment (tabled by Ruth George) - was not called)

New Clause 11 - Review of financial impact of postponement of charge on share exchange in overseas transferee company (moved by Peter Dowd) ‚ DEFEATED

New Clause 12 - First Year Tax Credits: Review of effectiveness (moved by Peter Dowd) ‚ DEFEATED

New Clause 13 - Review of effectiveness of limit to double taxation relief (moved by Peter Dowd) ‚ DEFEATED

New Clause 14 - Fixed rate deduction for expenditure on vehicles: review of change to eligibility (moved by Peter Dowd) - DEFEATED

Proceedings suspended at 4pm. Restarted at 4.45pm.

New Clause 15 - Landfill Tax disposals: review of changes to disposals within charge (moved by Peter Dowd) - DEFEATED

(New Clause 16 - Review of changes to rates of air passenger duty (tabled by Peter Dowd) - was not called)

(New Clause 17 - Review of changes to rates of duty on tobacco products (tabled by Peter Dowd) - was not called)

The Bill has now passed Committee stage