Finance Bill 2021 Public Bill Committee - 4th sitting (liveblog)
A live blog of the fourth public bill committee sitting of Finance Bill 2021 (also known as Finance (No.2) Bill), which took place on Tuesday 27 April 2021 from 2pm. The session covered clauses in part 4 of the Bill including a new penalties regime and financial institution notices.
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.
Reports on previous debates on this Finance Bill are available:
Second reading debate - Tuesday 13 April (here)
Day One of Committee of Whole House - Monday 19 April (here)
Day Two of Committee of Whole House - Tuesday 20 April (here)
Public bill committee (1st sitting) - Thursday 22 April (am) (here)
Public bill committee (2nd sitting) - Thursday 22 April (pm) (here)
Public bill committee (3rd sitting) - Tuesday 27 April (am) (here)
Public Bill Committee does not debate clauses and schedules debated at Committee of Whole House, that is: Clauses 1 to 14 and Schedule 1, Clauses 24 to 26, Clause 28, Clause 30 and Schedule 6, Clauses 31 to 33, Clause 36 and Schedule 7, Clauses 40 and 41, Clauses 86 to 89 and Schedules 16 and 17, Clauses 90 to 96 and Schedule 18, Clause 97 and Schedule 19, Clauses 109 to 111 and Schedules 21 and 22, Clause 115 and Schedule 27, Clauses 117 to 121 and Schedules 29 to 32, Clauses 128 to 130.
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 should be listed here. The main contributors were expected to be:
For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
Kemi Badenoch, Exchequer Secretary to the Treasury (EST)
For the Opposition:
James Murray (Labour), Shadow Financial Secretary to the Treasury
Abena Oppong-Asare (Labour), Shadow Exchequer Secretary to the Treasury
Alison Thewliss, lead SNP Treasury Spokesperson
Peter Grant, SNP Treasury Spokesperson
Finance Bill Public Bill Committee - Sitting Four - Tuesday 27 April 2021, 2pm
PART 4: MISCELLANEOUS AND FINAL
Penalties (clauses and schedules will be debated together)
Clause 112 and Schedules 23 and 24 (Penalties for failure to make returns etc) - Introduces a new penalty regime for late submission of tax returns. Schedule 23 introduces new points-based penalties for failure to submit various returns, including MTD quarterly updates; Schedule 24 provides for penalties for deliberately withholding information by failing to submit returns. The new regime will initially apply to regular VAT and income tax self-assessment obligations. The government intends to extend the scope of the new regime to other excise, environmental, insurance and transport taxes as well as Corporation Tax at a later date. (PASSED)
Clause 113 and Schedule 25 (Penalties for failure to pay tax) - Introduces a new two-penalty model for individuals and businesses that fail to pay their tax liability on time. They set out how the penalty will work, reasonable excuse provisions and the appeal process. (PASSED)
Clause 114 and Schedule 26 (Penalties for failure to make returns etc or pay tax: consequential provision) - Amendments to existing legislation which are consequential on the introduction of the new penalty regimes in schedules 23-25. (PASSED)
Amendments and new clauses in this group:
Amendment 24 [SNP] reduces the time limit for assessment of a penalty for failure to make a return in the more common situations. (NOT MOVED)
Amendments 3 to 14 [SNP] would remove the proposed penalties at 15 and 30 days after the due date. (NOT MOVED)
Amendment 25 [SNP] would ensure that taxpayers who enter into a time to pay arrangement with HMRC within 15 days of their tax being due are not subject to high penalties where they fail to meet the terms of that agreement. (NOT MOVED)
Amendment 26 [Labour], by leaving out paragraph 36 of schedule 26, would retain references in the Corporation Tax Act 2009 to the VAT Default Surcharge. (NOT MOVED)
New clause 6 [SNP] would require a report on the impact of these provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships.
Relevant briefings and representations for this group:
Clause 112 and Schedule 23 - ATT Briefing - Penalties for failures to make returns, etc
Clauses 112-113 – LITRG Briefing - Penalties
Clause 113 and Schedule 25 - ATT Briefing - Penalties for failure to pay tax
The sitting opened with Financial Secretary Jesse Norman explaining that this group of clauses deal with the small group of taxpayers who fail to file or pay their taxes on time. HMRC will adopt a light touch approach in the first year, he said. "As long as taxpayers make a reasonable effort to fulfil their obligations the first late payment penalty of 2 per cent will not be applied after 15 days. The effect of this is that for the first year taxpayers will have 30 days to contact HMRC before any late payment penalties are charged."
Amendment 24 would reduce the time limit for HMRC to assess a penalty for failure to make a return from 2 years to 3 months. The 2 year time limit is longstanding and strikes a careful balance, argued the FST. "In the vast majority of cases penalties will be levied quickly and automatically close to the date of any missed obligation." A two year time limit is required because there will be times when HMRC need longer to conduct their investigations. Amendments 3-14 would remove the first penalty entirely. "The first late payment penalty is essential to incentivise compliance and to protect public finances", argued the FST. It is also the case that no penalty will be charged if the taxpayer approaches HMRC for a Time to Pay arrangement in the first 15 days.
Norman continued: "Amendment 25 would remove any penalty for a taxpayer who agrees a Time to Pay arrangement with HMRC and then fails to fulfil the terms of that agreement. Of course some taxpayers may encounter difficulty in paying their taxes on time. HMRC recognise that there are often valid reasons for that. Time to pay arrangements are designed to help taxpayers who are struggling to meet their obligations and HMRC strongly encourage those taxpayers to talk to them as soon as possible if they need to. They will also look to agree a time to pay arrangement tailored to the taxpayer's needs. If a taxpayer's circumstances change then time to pay arrangements can themselves be renegotiated. HMRC are required and must strike a balance between supporting taxpayers who are struggling to meet their obligations and identifying those who are deliberately avoiding them. If a taxpayer has not upheld a time to pay arrangement and has not approached HMRC to amend that arrangement in order to reflect the change in circumstances it is appropriate that a penalty should be applied. That is designed to encourage anyone who may be struggling to meet their obligations to engage actively with HMRC in order to agree further support. It is also designed to ensure that those taxpayers who regularly meet their obligations are not put an unfair disadvantage."
On new clause 6 the minister argued that the effect of these measures should not be viewed in isolation and the government publishes information on the tax gap every year. There is further information in the TIIN, he said. Amendment 26 would, he said, 'confusingly and mistakenly' retain reference to the repealed VAT Default Surcharge.
James Murray, for Labour, welcomed the stated aim of encourage compliance without punishing taxpayers who make occasional mistakes. "The regime has been developed through three separate consultations, however, "as the Low Incomes Tax Reform Group makes clear, whilst HMRC have taken on board comments on the structure of a new penalty regime, LITRG consider the legislation in the Bill to be far more complex than originally envisaged. As LITRG point out taxpayers coming within Making Tax Digital for VAT for the first time in April 2022 and within Making Tax Digital for income tax self-assessment for the first time in April 2023 face a complex and unfamiliar penalty regime at the same time as having to get to grips with their obligations under Making Tax Digital. For people with a single source of income within Making Tax Digital or income tax self-assessment it appears that there will be six separate filing obligations over the course of a year at which penalties could potentially be incurred: four periodic updates, one end of period statement and one final declaration. I would welcome the minister setting out his response, his view, to the suggestion by LITRG that the introduction of the new penalty regime should be delayed to allow these taxpayers time to familiarise themselves with the new obligations before they begin to accrue penalty points for non-compliance. I would also welcome the minister's thoughts on the suggestion by LITRG that the legislation should include an obligation on HMRC to keep taxpayers regularly informed of their penalty points total."
Murray also raised some LITRG concerns on clause 113, relating to late payment of tax. "Again the Low Incomes Tax Reform Group has raised a number of concerns about the operation of this new regime, including their concern over the interaction of Time to Pay arrangements with the new late payment penalty regime, and we would welcome the minister's views on that point." On amendment 26 he welcomed the minister's clarification of the point Labour had sought to raise by tabling it. They had been concerned that the paragraph in question appeared to remove a prohibition on any surcharge of VAT, a penalty for missed payment, late payment or non-payment of VAT, being written off as a loss on the company's taxes.
Peter Grant, for the SNP, was concerned that the legislation allows HMRC two years to levy a penalty. It shouldn't routinely take two years - if there are specific circumstances why can't they be identified in the Bill, wondered Grant. Amendments 3-14 seek to simplify the proposed penalty regime, he said. The regime has to be propoertionate and what is proposed in schedule 25 is not proportionate, he said. They agree with ICAEW that the regime is too complex. SNP also have a concern that in the period between the 15 days and the 30 days that is not long enough for much to happen other than for the taxpayer to clock up a second stage of penalty. Wouldn't it be better to say that the cut off period is simply 30 days at that point? It seems to me we are taking a system which has its flaws but at least it's fairly simple, and making it more complex, he said. "Amendment 25 looks at the specific instance where someone has entered into a time to pay arrangement and then where there's a single, isolated failure to keep to that arrangement, our reading of the Bill just now is there is a danger that someone has tried to do the right thing, come to an arrangement to pay, and has then missed one of the payments, even by a short period, they are in danger of being treated exactly the same as somebody who has made no attempt to make an arrangement at all. It just doesn't seem correct."
Finally on new clause 6, he said it was a way of saying to the government: we and others have told them for years that the way Scottish Limited Partnerships can be abused by some very sophisticated and significant players in the criminal world is something the government have got to face up to and they have to start taking action.
The FST replied. He sought to allay concerns about complexity. The reforms themselves have been very widely welcomed. "The Chartered Institute of Taxation has said that they welcome the harmonisation of interest rules, they welcome the fact that HMRC will apply a light touch giving otherwise compliant taxpayers enough time to adjust to the new rules. The honourable member mentioned the Low Incomes Tax Reform Group. They have said that HMRC have consulted on many aspects of the penalty regime in recent years, particularly with a view to ensuring that it is fit for purpose for Making Tax Digital. This is welcome as is the fact that a number of LITRG concerns have been taken on board. It's good to see that and I am glad that they recognise this because it's been a carefully considered piece of legislation."
On the two year time period, some people have very complex tax affairs and in a small minority of cases HMRC does need to reflect before making a judgment, he said. Removing the first penalty would be to remove a lot of the early energy that incentivises people to comply with theitr tax obligations. He described the first penalty as 'a little nudge'.
Peter Grant pressed the minister to commit to bringing back a report at a future point on whether the new regime was encouraging compliance. The minister would not make that commitment.
On communications HMRC have made a commitment to informing taxpayers at regular intervals about points or penalties they have incurred. The legislation requires HMRC to notify taxpayers when a point or penalty is levied. For those wishing to check their points totals on their digital tax accounts the points will be displayed there but there will also be a written letter of notification.
Clauses 112, 113 and 114 and schedules 23, 24, 25 and 26 were agreed without objections. None of the amendments were moved.
Clause 116 and Schedule 28 (Late payment interest and repayment interest: VAT) (PASSED)
Taxpayers pay interest on late paid taxes and can receive repayment interest for the overpayment of a liability in certain taxes. This measure changes provisions for VAT late payment and repayment interest to bring it in line with income tax self-assessment.
Government amendment 19 removes the provision that would have prevented an amount of VAT credit from carrying repayment interest under Schedule 54 to the Finance Act 2009 for a period referable to the raising and answering of an inquiry by HMRC or the correction by HMRC of errors or omissions in a VAT return. [This follows representations made on this issue by CIOT.] (PASSED)
The FST explained that clause 116 harmonizes interest charges on repayment interest to bring VAT into line with other taxes. Amendment 19 "would allow for repayment interest to be paid to taxpayers for the period covering HMRC's investigations as is already the case in income tax self-assessment and corporation tax. HMRC's policy is always to make payments to taxpayers as soon as possible when a repayment is due. As taxpayers would expect this can only be done once HMRC have undertaken checks to guard against fraud and to protect the public finances. The Government, for its part, has committed to treating taxpayers fairly and consistently. We have consulted extensively on these measures and listened carefully to stakeholder feedback, including on this detail."
James Murray, for Labour, said Labour recognised the purpose of the clause and did not oppose it.
Clause 116 was agreed without opposition. Government amendment 19 was agreed.
Clause 122 (Financial institution notices) (PASSED)
This clause has been introduced to allow HMRC to obtain third party information from banks and building societies without tribunal approval. Follows an OECD recommendation criticising the UK for being too slow in providing information to other countries, but applies to HMRC’s own information seeking too.
The minister, Jesse Norman, introduced this clause. He said that co-operation with other tax authorities is crucial. In international cases obtaining information takes on average 12 months. This means the UK does not meet its commitment to the OECD standard of 6 months.
The shadow minister, James Murray, said key change introduced by the clause is that it brings in financial institution notices (FINs) which can demand information without the agreement of either the taxpayer or a tribunal, and the institution has no right of appeal. "The Low Incomes Tax Reform Group has raised its concern that this represents the removal of important taxpayer safeguards. Now I understand that HMRC have justified the introduction of financial institution notices on the basis that the existing statutory safeguards on third party information notices mean that they can not meet international obligations to tackle offshore tax avoidance and evasion in obtaining information on behalf of overseas jurisidctions on a timely basis. As the minister will know, we welcome any efforts to tackle tax avoidance and evasion, however we would like to ask him why he considers this approach to be justified. HMRC are introducing powers which will be used in a domestic context, even though there is no domestic justification for them, with HMRC's apparent reason being that it is not possible to introduce a new process for domestic cases because of restrictions in UK law and international treaties. However the House of Lords Economic Affairs Finance Bill Sub-Committee recently heard evidence, including from HMRC themselves, that the vast majority of the delay in obtaining information in international cases was not down to the UK Court Service who HMRC acknowledge take 4-6 weeks to process an application, but rather to delays in obtaining information required from overseas jurisdictions, which HMRC told peers takes over eight months on average. The Lords recommened that rather than removing important taxpayer safeguards, HMRC should review the whole process for dealing with international information requests requiring tribunal approval, and work with financial institutions, the tax tribunal and others to find other means of streamlining the process." He asked the minister to respond to these points, and also to ICAEW concerns that FINs would be used routinely domestically.
The FST replied. He stressed the importance of meeting international standards that we have helped set. He said the measure has important safeguards built into it. It may only be issued where the information is 'reasonably required' and an authorised HMRC officer must approve each notice. There is an appeal right for the financial institution against any penalty for failure to comply, and there is a requirement for hHMRC to make annual report to Parliament on use of FINs. On the Lords points he said HMRC had consulted in 2018 and there had been a further technical consultation and no new options were put forward that would allow the UK to meet its international obligations and this was the option with most support. He said it wll be possible to chart the use of these powers to check they are not abused.
Clause 122 was agreed without opposition.
Clause 123 (Collection of tax debts) (PASSED)
Allows HMRC to obtain documents or information for debt collection purposes. It could be used, for example, when a taxpayer owes tax and is suspected of having hidden assets.
The FST said the UK does not currently fully meet its commitment to OECD standards on exchange of information requests. This clause will rectify that.
James Murray, for Labour, raised a point "which has been articulated by the Chartered Institute of Taxation in connection with the amended schedule 36. The Chartered Institute are concerned that the new notice for collection of tax debts can be used for the purposes of collecting a tax debt whenever arising. The Chartered Institute explain that this means the use of these notices is not restricted to cases involving tax years after the date this measure becomes law, which for them raises a concern that this is a very wide ranging power. I'd therefore welcome the measure setting out in his response what reassurance he can offer that HMRC will use the new power granted by way of this clause proportionately and with appropriate oversight."
Peter Grant, for the SNP, said he had no issue with the changes proposed but thought it important that when Parliament passes legislation and we give what appear to be draconian powers to HMRC or other government agencies, we have to rely on those agencies not using them widely. He asked for an assurance that these powers would be used 'with an even softer touch than they have in the past'.
The FST replied, emphasising that this measure is an information power. He stressed that "the Government takes very seriously all of the input from its stakeholders, and of course the Chartered Institute is a very important stakeholder amongst many others, and one of the things that has been very striking is that over the last year or two stakeholders have been very positive in flagging the degree of engagement that HMRC have had with them - there is a close and professional engaged relationship between the different parts, and of course concerns that stakeholders have are vey carefully evaluated as part of the policy process." He also stressed the challenges faced by HMRC seeking to maintain their activity as a tax authority in current difficult times.
Clause 123 was agreed without opposition.
Clause 124 and Schedule 33 (Miscellaneous amendments of Schedule 36 to FA 2008) - PASSED
Miscellaneous amendments to HMRC’s civil information powers. Including, in some situations, prohibiting a third party or financial institution from disclosing an information notice, or anything related to it, to a taxpayer or any other person. Also a freeports-prompted move to enable HMRC to give a taxpayer information notice up to 4 years from the date of transaction to check continued entitlement to SDLT relief.
Jesse Norman, Financial Secretary to the Treasury (FST) said the clause makes technical changes, along with schedule 33, and outlined very briefly what it does.
James Murray (Labour), Shadow Financial Secretary to the Treasury, said he recognises that this clause makes miscellaneous changes and does not oppose it.
Schedule 33 was also passed without a vote
Clause 125 (International arrangements for exchanging information on the gig economy) - PASSED
Introduces a power to make regulations to implement the OECD Model Rules for Reporting by Platform Operators. These rules will require certain UK digital platforms to report information about the income of sellers of services on their platform. The power also allows regulations to be made to implement other, similar international agreements or arrangements. HMRC say they will consult on the draft regulations before they take effect.
Jesse Norman outlined the clause as set out above. Government will consult on the OECD rules in the summer, he confirmed. Norman was keen to say that the marketplace platform will give a copy of the information to the seller, not least because sellers often do not always understand their current responsibilities. But there is no change in the amount of tax due, he was keen to say. HMRC will also be able to exchange information with different tax authorities based outside the UK. The benefit is not just for the gig workers and tax authority. The major digital platforms are welcoming the change.
James Murray wanted the Government to set out what help they will provide to digital platforms and the businesses providing services on these platforms for their new tasks (which they will be doing for the first time).
Norman recognises that businesses will need time and that is why they are not coming into force until January 2023. The goal is to create a functional and flexible regime. There will be no significant administrative requirements on platforms and where there are costs, the Government will seek to minimise them.
Clause 126 (Unauthorised removal or disposal of seized goods) - PASSED
Supports HMRC and Border Force officers by introducing a civil penalty for the unauthorised removal of a thing that has been seized ‘in situ’. This will align with the existing penalty for the unauthorised removal of detained things.
Jesse Norman said this is a small but important amendment. The pressure on existing warehouse space means increasing number of goods are held in situ. Removing these goods without HMRC’s consent does not attract a penalty, which this clause seeks to address with new civil penalties. It will mirror the penalties for detained goods, he said. HMRC have a duty to take robust action on this. Detaining goods in an important tool for HMRC.
James Murray wants to see HMRC taking robust action against people who bring things into the UK in which duty is due but not paid. He welcomes the clause.
Clause 127 (Temporary approvals etc pending review or appeal) - PASSED
Introduces a new power enabling HMRC to grant temporary approval to a business appealing a decision to remove, or reject, a trading approval, in order that its appeal right is safeguarded. It had been believed that the High Court had the power to require HMRC to do this but a recent Supreme Court decision cast doubt on that.
Kemi Badenoch, Exchequer Secretary to the Treasury (EST) said where evidence shows businesses are not fulfilling their responsibilities, HMRC should act. Currently, HMRC have no power to pause or suspend its decision or to allow the business to continue with controlled activity while it pursues its right to appeal. HMRC can now issue temporary approvals in respect of the controlled scheme covered by this clause. The clause also creates a new appeal right to help a business to seek protection following a decision by HMRC, as long as it can provide proof of a significant impact on their business by not being allowed to undertake controlled activities. The evidential proof levels are high to protect revenue. There will be strict rules on any temporary approval, she said. This clause gives HMRC the chance to give temporary approval that give fairness to taxpayers.
James Murray is glad that a business’ right to appeal is safeguarded.
Other (clauses will be debated together) - PASSED
Clause 131 (Interpretation) - This clause provides for the use of abbreviations for a variety of Acts.
Clause 132 (Short title) - This clause provides for the bill to be known as “Finance Act 2021” upon Royal Assent.
Jesse Norman moved the two clauses.
The Opposition did not speak.
No debate on these two clauses.
New clauses not already debated will be debated here. All new clauses, including those debated earlier will be voted on here, if moved.
New clause 1 (Review of capital allowances and business reliefs) [SNP] - NOT MOVED
This new clause would require a report on the impact of the capital allowance provisions on GDP, including comparing them with the impact of copying the level of fiscal intervention in the US.
Peter Grant, SNP Treasury Spokesperson, moved the New Clause. The clause highlights a number of issues but he complained that the UK’s current way of approving tax plans or public spending plans does not allow for a great deal of detail debate. He wants some to compare what will happen if none of the changes in clauses 15-20 had happened and how will the economy look if they would happen and how will the economy look if they did something more radical. The USA is starting to take different tax incentive decisions from the UK despite having a similar economy to the UK. It would be great to assess the impact they have had. If the stimulus package that the UK Government had put forward has been as bold and radical as put forward by Biden, the impact on Scotland would have been 134,000 additional jobs and the impact on UK debt would have been unnoticeable. There is a better way for this government to arrive at decisions on its tax and spending plans, he told the committee of MPs. He went on to complain about the confrontational approach to Finance Bills in the UK Parliament, rather than discussions and expert opinion.
Jesse Norman said the Government is committed to improving the tax policy progress, such in its Tax Administration Strategy consultation. It is not for this government to publish analysis of other countries’ tax policies or fiscal arrangements, he said, and where would it end? We are not a global comparison service. The Government does publish an awful amount of information detailing on impacts of tax policies, and they are wide ranging and comprehensive.
Peter Grant did not push the new vote and it was withdrawn.
New clause 2 (Optional remuneration arrangements: statutory parental bereavement pay (review)) [SNP] - already debated - NOT MOVED
This new clause would require the Secretary of State to publish a report about the impact of the measures in section 27, including take-up of statutory parental bereavement pay
New clause 3 (Review of impact of section 98) [SNP] - already debated - NOT MOVED
This new clause would require a report on the effects of section 98 on progress towards the UK Government’s climate emissions targets.
New clause 4 (Review of impact of section 104) [SNP] - already debated - NOT MOVED
This new clause would require a report on the effects of section 104 on the volume of gambling.
New clause 5 (Review of impact of sections 105, 106 and 108) [SNP] - already debated - NOT MOVED
This new clause would require a report on the effects of sections 105, 106 and 108 on progress towards the UK Government’s climate emissions targets.
New clause 6 (Penalties: review of effect on tax revenues) [SNP] - already debated - NOT MOVED
This new clause would require a report on the impact of these provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships
New clause 7 (HMRC powers: review of effect on tax revenues) [SNP] - NOT MOVED
This new clause would require a report on the impact of these provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships.
Jesse Norman thanked Dame Angela Eagle and Sir Gary, Hansard and government officials. James Murray thanked the clerks and wider House authorities, all MPs on the committee and Opposition whips. Peter Grant also said thank you to the SNP Shadow Treasury team and the large number of external stakeholders who have worked in a constructive way and this Bill is much better for their input.
End of session. BIll now goes to Report stage, expected to be in the second half of May.