Finance Bill 2021 Report Stage - Government pressed over global minimum tax rate and umbrella companies

Amendments and new clauses tabled for the report stage were divided into three groups – corporation tax, freeports and everything else. There were no significant rebellions so all opposition proposals fell by substantial margins and all government amendments – of which there were a significant number – passed.

In the first group, covering corporation tax, there were two main focuses – pressure from opposition MPs for the Government to explicitly support US proposals for a global minimum rate of tax on corporate profits, and whether eligibility for the super-deduction should be restricted to stop it disproportionately benefiting big tech firms. A government amendment was passed to enable background plant and machinery in leased property to qualify for the super-deduction.

In the second group a Labour attempt to apply four tests when establishing freeports was voted down.

In the third group there were two main focuses of debate – whether the SDLT surcharge for non-residents should be larger, and proposals from a cross-party group of MPs led by Conservative David Davis for action to tackle abuses by umbrella companies. Other opposition amendments and new clauses covered whether coronavirus economic support schemes and the VAT reduced rate should be continued for longer, and requests for analysis of the Bill’s impacts on – among other things – the environment, the tax gap and poverty.

Also in the third group were 20 government amendments, 4 new clauses and a new schedule. These covered a number of post-Brexit VAT issues including VAT on distance selling in relation to Northern Ireland, as well as dealing with two areas where the Government acknowledged the SDLT surcharge legislation did not work as intended.

You can read the debate in full here.

Group One: Corporation Tax

Considered in this group

This group included one government amendment (amendment 2) which will enable background plant and machinery in leased property to qualify for a super-deduction or an SR allowance.

The group included a number of new clauses relating to corporation tax. These were:

• New Clause 23 (Labour frontbench) which called for a review of the impact on corporation tax revenues for 2022 and 2023 of a global minimum rate of corporation tax (at 21 per cent in both years, and 21 per cent in 2022 and 25 per cent in 2023).
• New Clause 6 (Labour backbencher Dan Carden) which would have required the Government to publish an assessment of the revenue effect of a global minimum corporation tax rate of 21 per cent.
• New Clause 12 (SNP frontbench) which sought a report on the effect of the changes in the Act on investment, comparing scenarios in which (a) the UK reaches an agreement with OECD countries on a minimum international level of corporation tax and (b) the UK does not reach such an agreement, on various economic indicators.
• New Clause 22 (Labour backbencher John McDonnell and Green Party MP Caroline Lucas) which would stop companies registered, or with subsidiary companies registered, in tax havens from benefiting from the tax reliefs in this Bill.

Also debated in this group were Labour’s proposed amendments limiting access to the super-deduction:

• Amendment 1 would, in respect of companies with qualifying expenditure of over £1 million, have added a condition relating to climate-related financial disclosure to the conditions that must be met for expenditure to qualify for super-deductions.
• Amendment 29 would have excluded companies liable to the digital services tax from being eligible for the super-deduction.
• Amendment 30 would have limited access to the super-deduction, for companies with more than £1 million in qualifying expenditure, to those which adhere to International Labour Organisation convention 98 on the right to organise and collective bargaining, and which are certified or in the process of being certified by the Living Wage Foundation as a living wage employer.

Finally, amendment 31 in the names of Dame Margaret Hodge (Lab), Caroline Lucas (Green) and Andrew Mitchell (Con) would have barred multinationals with a history of corporate tax avoidance from accessing super-deductions. This is defined as having “at any time been involved in arrangements giving rise to a liability for diverted profits tax, or which would give rise to such a liability but for the effect of section 83 of Finance Act 2015”.

The debate

Shadow Financial Secretary James Murray (Labour) complained that the super deduction is not targeted at British businesses that have been struggling in the pandemic but rather stands to benefit some of the biggest multinational tech firms that have done very well in the pandemic. Murray also complained that 99 per cent of businesses already benefiting from the annual investment allowance will benefit only marginally from the new super deduction. Separately, he is frustrated that the Government does not heed a poll that suggests it should back action to tackle global corporate tax avoidance, such as backing President Biden’s plan – and instead giving the impression the UK wants a ‘race to the bottom’ on corporation tax.

Stephen Hammond (Conservative) warned that OECD Pillar Two (global minimum tax rate) would go well beyond what is normally considered to be within the ability of national states, in terms of using the flexibility of fiscal policy to ensure that investment and incentives are properly rewarded within their economies, and may well have some perverse effects on a number of multinational industries, such as the insurance industry. Hammond added that it is right that governments still retain the ability to set fiscal measures according to their economic circumstances. He told Labour’s Murray that a review is too speculative now given OECD discussions on the precise nature of the agreement are still under review and OBR will assesses the impact for the UK economy and globally in any case. Separately, he remarked that the super deduction is likely to bring forward investment in the economy at just the time it is needed.

SNP Treasury Spokesperson Alison Thewliss wondered why the UK Government seems to be in favour of the types of profit shifting that this international co-operation (on the Biden plan) is trying to stamp out. It is important that we can fully understand the impact should the UK pursue ‘some kind of crazy isolationist stance against this global growing consensus’.

Thewliss welcomed government amendment 2 as providing ‘some recognition of the issues facing those who have background plant and machinery in leased properties’ but said she remained ‘hugely frustrated that there is yet to be any wider support and any wider recognition of the many businesses both involved in leasing and those that lease machinery themselves.’ There are so many companies that would benefit from the super deduction if it were not for the fact that they have always leased machinery, she observed.

Dame Margaret Hodge (Lab) wants to make the culprits of aggressive tax avoidance ineligible for the super deduction, saying these companies can undercut and destroy our high streets and community businesses. Although in support of Biden’s plan, she argued the proposals need further thought: the UK should not agree a new set of international rules that benefit only the richer nations and leave developing countries disadvantaged and still unable to tax the profits earned in their jurisdictions.

On the super deduction, John McDonnell (Lab) branded it ‘super tax deductions to super tax avoiders’, saying the Government must not act as ‘subsidisers for tax avoiders or laundering tax reliefs into their coffers’.

Danny Kruger (Conservative) countered McDonnell by giving the example of Wadworth brewers in his Devizes constituency that will use the super deduction to invest in more buildings, more jobs, more brewing and more beer in Wiltshire. Kruger said low corporation tax has not driven the sort of private sector investment we need. On corporation tax, he remarked that the key challenge for us is to ensure that the tax that is gathered through whatever global agreement we can make is paid in the right places.

Lib Dem Treasury spokesperson Christine Jardine stated her party’s view that the Government must stamp out the malpractice and mis-selling to public and private sector freelance and locum workers by unregulated umbrella companies. Jardine suggested that the Government extend furlough and SEISS into the new year because the ‘crisis is not behind us’. She wants the Government to review the impact of the Bill specifically on small businesses and whether it will offer them adequate help with their debt, rent arrears, solvency and ability to employ people, suggesting a revenue compensation scheme that could help those struggling with their finances and fixed expenses to stay afloat.

Anthony Browne (Conservative) said the OECD is so big that it is difficult to get agreement and progress is ‘absolutely glacial’ which is why the UK went it alone with a Digital Services Tax.  Browne added that ‘there is no point in agreeing a global level of corporation tax if all we are doing is taxing companies in California’. He also worries that a review of a global corporation tax set at 21 per cent in the middle of an international negotiation is bad because it will ‘tie our hands’.

Dan Carden (Lab) opined that the decades-long race to the bottom on corporation tax may finally be coming to an end with the proposal to raise the headline rate in 2023, but alongside it measures in this Bill will do more harm than good when it comes to fair taxation and plugging the hole in the nation’s finances. He said the Government were backing secrecy over transparency, tax havens over progressive taxation and multinational corporations over small and medium-sized UK businesses.

Miriam Cates (Con) said that since global minimum rate are still subject to international negotiation, any assessments now would be purely speculative and a complete waste of resources. Cates remarked that: “There is no absolute right or wrong level of taxation. Tax rates should change with the times and challenges we face.” She added that the super deduction and freeports will kickstart our recovery and help businesses across the country to build back better.

Zarah Sultana (Lab) complained that there is nothing in the Bill to tackle the ‘tax loophole’ that means that income earned through wealth, owned overwhelmingly by the rich, is taxed at a lower rate than income earned through work, or to ‘fairly’ tax the ‘obscene’ profit that companies such as Amazon have made during the pandemic. Sultana is appalled at the £15 billion more in annual cuts to government departments and a super deduction tax cut in capital spending that the rich are ‘already reported to be using to purchase jacuzzis’.

Richard Thomson (SNP) said a global minimum tax rate for companies will reduce the opportunities for companies to minimise their tax liabilities by funnelling revenues through other jurisdictions. Thomson said: “Frankly, it should be taken as a given that any company qualifying for tax reliefs should be domiciled in the tax jurisdiction offering those reliefs. It should have an exemplary history when it comes to paying taxes that are due on its activities in that jurisdiction and an exemplary record of behaviour towards its employees, in terms of recognising the right to organise their labour and paying a living wage for that labour.”

The super deduction will make no difference to investment in the long run because all it does is change when businesses will decide to invest, rather than encouraging them to invest more, suggested Kate Osborne (Lab). She asked: “Do the Government really believe that all large corporations should be entitled to tax breaks, regardless of how well or how badly they treat their employees?” She claimed a universal minimum rate of corporation tax would also bring an end to tax havens and avoidance more widely.

Claudia Webbe (Independent, ex-Labour) opined that the UK should not only rejoin the international plan led by Biden but that the minimum threshold be increased. Webbe said the super deduction is wasteful and open to abuse.

Jim Shannon (DUP) believes the corporation tax rate in Northern Ireland repels investors. He urged the Financial Secretary to look at the issue again. “I understand that historically he has wanted a UK-wide rate of corporation tax. However, I want a UK-wide customs market, and that is not the case… There are differences made by this insidious protocol that affect our corporations and small businesses alike. It is clear that if the Financial Secretary insists on one size fits all, it must be applied in every aspect of manufacture, delivery and retail.”

Financial Secretary to the Treasury Jesse Norman responded to this section of the debate. Norman accused Labour of tarnishing the super deduction, ‘a measure from which many capital-intensive businesses around this country will benefit’. He remarked that the ‘tax gap’ is at its lowest rate in history. He argued that the Government is constantly innovating to seek to improve the quality and payment of taxation and to ensure that tax is paid in the due amounts by those who are due to do so.

Winding up the debate for Labour, James Murray said he was disappointed the Government had failed to take a lead on ‘this once-in-a-generation opportunity for a global deal on tax avoidance’. “Through the vote on our new clause, we will push them to review and be transparent about the impact that a global minimum corporate tax rate no lower than 21% would have.”

Votes

New clause 23 – DEFEATED (364 – 261)
Amendment 29 – DEFEATED (357 - 268)

Government amendment 2 was PASSED without a division to enable background plant and machinery in leased property to qualify for a super-deduction or an SR allowance.

No other amendments or new clauses in this group were moved.

Group Two: Freeports

Considered in this group

This group included:

• New Clause 25 (Labour frontbench) - Report on the impact of new arrangements on each freeport
• Amendments 24-26 (Labour backbencher John McDonnell), which would collectively prevent the creation of freeport tax sites in the UK.

The debate

Shadow Exchequer Secretary Abena Oppong-Asare (Labour), spoke to New Clause 25, proposed in her name. The clause proposed four tests that the government should apply when establishing freeports. The opposition believe that freeports must:

• Create jobs
• Deliver improvements in training and skills for local residents
• Produce ‘tangible’ transport and infrastructure improvements beyond the port
• Be free from tax evasion, smuggling and criminal activity

Oppong-Asare warned that a range of organisations, including the OECD, the Royal United Services Institute and the Financial Action Task Force had warned of the risks to freeports from tax avoidance and evasion.

She said: “The public deserve to know that the Government’s money is not being used to give tax breaks to criminals or dodgy companies”, and called for the “highest possible standards… transparency, and stringent regulation and enforcement of all activity within freeports”. She also sought reassurances that HMRC “will not be overstretched as it seeks to manage these risks”.

Oppong-Asare said that Labour wanted to see all of the nations and regions of the UK succeed economically, with or without freeports. A review of freeports against the criteria outlined above would, she said, show whether they were meeting their objectives.

Richard Thomson (SNP) gave his party’s backing to the opposition proposal. He said: “Given the incentives on business rates that are on offer, the potential national insurance exemptions and the exemptions on customs duties, it is absolutely vital to make sure that the economic activity attracted to freeports is not simply being displaced from elsewhere, and that the activity is new, adding value and resulting in economic output that is greater than would otherwise have been the case”.

Thomson said that the Scottish Government had adapted the freeport model to incorporate a range of environmental, social and economic benefits – such as a commitment to a real living wage and fair work principles – and that it stood ready, “armed with the fresh mandate they received… earlier this month” to press ahead with these proposals. He called on UK Ministers to ‘move forward’ and “commit to working as quickly as possible with the Scottish Government to bring green ports to fruition”.

Conservative MPs voiced their support for freeports. David Simmonds said that freeports could play a ‘significant’ role in delivering the government’s objective of creating and sharing wealth across the UK’s nations and regions. He was supported in this by his party colleague Jamie Wallis, who accused the Welsh Government of ‘dragging their feet’ and refusing to work with UK Ministers on the delivery of freeports in his constituency, and by Andrew Jones, who said that tax reliefs and incentives would help to boost economic opportunity.

John McDonnell (Labour) was scathing about the risks posed by freeports. He warned the House that they could: “accelerate tax avoidance in this country on a massive scale and cause economic damage to the neighbouring areas of freeports”. He continued: “We are shovelling huge tax giveaways to corporations and developers for, as far as I can see, literally no return to society”.

McDonnell also voiced concern that the government had been unable to cost the value of tax reliefs granted to freeports. He said it was “irrational” that MPs were being asked to “sign off a blank cheque that will be filled in at a later date”.

The former shadow chancellor drew parallels between the freeport plan and Conservative economic policies of the 1980s, such as Enterprise Zones. As was the case then, he argued, “tax breaks for developers and big business as a way of stimulating growth failed in the 1980s..and it risks failing again in the 2020s”.

Jacob Young (Conservative) spoke in the debate as MP for an area (Teesside) that has received freeport status. Young welcomed the designation, and spoke against the opposition proposals that he said would ‘delay (their) implementation’. He spoke in general terms about the economic benefits being delivered to the region in the wake of the government’s election win and the region’s designation as a freeport area. He also called on opposition MPs to ‘work with us to make it (freeports) a success’. Robin Millar (Conservative) also spoke about regional economic benefits, focusing his remarks on the benefits to his constituency and to North Wales more generally.

Responding on behalf of the government, tax minister Jesse Norman said that contributions from MPs in the debate showed that ‘the excitement about freeports is tangible’.

Norman said that the tax reliefs being proposed as part of the freeport agenda – such as “a stamp duty land tax relief, an enhanced structures and buildings allowance, and an enhanced capital allowance for plant and machinery… simpler import procedures, (and) duty benefits in customs sites” would all contribute to “a comprehensive package designed to boost trade, to attract inward investment… and thereby to level up communities”.

The FST said it was “astonishing” that the opposition had chosen to oppose the introduction of freeports and warned that the opposition amendment would delay investment and economic growth. He pledged the government’s continued commitment to working with the devolved administrations of Scotland, Wales and Northern Ireland to implement freeports there.

Abena Oppong-Asare pressed the New Clause to a vote, saying that it represented “a reasonable way to assess the impact of freeports on… local areas and the country as a whole”.

Votes

New clause 25 – DEFEATED (357 – 268)
No other amendments or new clauses in this group were moved.

Group Three: SDLT, umbrella companies and everything else

Considered in this group

There were a significant number of government amendments and new clauses passed as part of this group, plus one new schedule:

• Amendment 3 corrects a minor error in schedule 7 (hybrid and other mismatches).
• Amendments 4-6 relate to the introduction of the SDLT surcharge for non-resident transactions. They respond to feedback from the Stamp Taxes Practitioners Group, a group the CIOT works closely with. STPG identified two areas where the legislation does not work as intended - the application of the non-UK control test to corporate trustees, and the workings of the de minimis rules for attribution to relevant participators - and the government have accepted this, bringing forward these amendments.
• Amendments 7-21 - 14 amendments to schedule 20, which introduces changes to remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022 as part of the government’s net zero strategy.
• Amendment 22 ensures that references to “category 1 information”, for the purposes of penalties for deliberately withholding tax information, operate as intended by reference to “offshore matters”.
• New clauses 17-18 and new schedule 1 make provision in relation to the Protocol on Ireland/Northern Ireland in the EU withdrawal agreement about VAT and distance selling, and provide the Treasury with a power to make further such provision.
• New clause 19 clarifies the effect of the continuing application of the principle of EU law preventing the abuse of the VAT system.
• New clause 20 ensures that the correct amount of VAT is charged on works of art, antiques etc when they are imported in a low value consignment.

As usual most opposition proposals are calling for reports and reviews from the government. This is largely a result of the restrictive nature of the Budget resolutions tabled by the government for this year’s Finance Bill and its recent predecessors. Those specific to particular parts of the Bill were:

• New clause 2 and new clause 24 (Labour frontbench) - report on the effect of the 2% SDLT non-resident surcharge on (a) tax revenues and on the price and affordability of property, and (b) tax revenues, property prices and affordability, and the volume of property purchases by non-residents.
• New clause 1 (Labour frontbench) - review of the effects of SDLT provisions on equality (household and geographical).
• New clause 3 (Labour frontbench) - review into the effects of the provisions of the Bill about replacing LIBOR.
• New clause 9 (SNP) - report comparing the effect of (a) the coronavirus job retention scheme and the self-employment income support scheme being continued until 30 September 2021 and (b) CJRS and SEISS being continued until 31 December 2021 on various economic indicators.
• New clause 10 (SNP) - review comparing extension of temporary 5% reduced rate of VAT for hospitality and tourism sectors being continued until end Sept 2021 and if it were continued until end Dec 2021 on various economic indicators.
• New clause 14 (SNP) - review of the efficacy of the proposed plastic packaging tax
• New clause 16 (SNP) - report on the effects of gaming duty increase on the volume of gambling.
• New clause 26 (Lib Dems) - review of coronavirus job support schemes
• Amendments 27-28 (Plaid Cymru) – analysis of impact of (a) extension of temporary increase in annual investment allowance, and (b) changes to R&D tax credits for SMEs, in terms of impact on economy, geographical reach and efforts to mitigate climate change.

The following new clauses called for reports / reviews / assessments of the impact of the whole Finance Bill on the following areas –

• Environmental impact - new clause 4 (Labour backbencher Bell Ribeiro-Addy), new clause 15 (SNP), new clause 28 (Lib Dems)
• Tax gap - new clause 11 (SNP)
• Tax avoidance and evasion - new clause 7 (Labour backbencher Zarah Sultana)
• Human and ecological health and wellbeing - new clause 21 (Green Party MP Caroline Lucas)
• Equality impact - new clause 5 (Labour backbencher Bell Ribeiro-Addy)
• Public health and poverty - new clause 8 (Labour backbencher Debbie Abrahams)
• GDP (compared to US levels of fiscal intervention) - new clause 13 (SNP)
• Small business - new clause 27 (Lib Dems)  
• Supply chain and other workers - new clause 29 (Lib Dems)  

Amendment 23 (Labour backbencher John McDonnell) sought to ensure that the thresholds for the personal allowance and for the higher rate of income tax continue to rise in line with inflation.

Amendments 32-34 and new clause 31 relate to umbrella companies. They have been tabled by a cross-party group of MPs led by Conservative David Davis. Amendment 32 is an enabling amendment to allow amendments 33 and 34 to be inserted. Amendment 33 amends the off-payroll rules so umbrella companies can only operate with strict standards. Amendment 34 would stop umbrella companies operating at all from April 2022. New clause 31 calls for a review into this issue.

The debate

Speaking to new clause 2, Shadow Exchequer Secretary Abena Oppong-Asare (Lab) drew attention to the announcement made by the Chancellor in 2019, when he was Chief Secretary to the Treasury, on implementing a non-resident stamp duty surcharge at 3%. She noted that the Finance Bill introduces a non-resident surcharge at 2% rather than 3%. “In Committee, I asked the Minister why the Government had watered down that commitment; I do not believe I have received an answer. We believe that this means that the Government will lose out on about £52 million a year in revenue, which they said they would have spent on tackling homelessness and rough sleeping. Perhaps the Minister could use his closing speech to clear up any confusion.”

Turning to new clause 24, Oppong-Asare said the Government had set a deadline of introducing legislation to set up a register of overseas entities by 2021, but there was nothing on this in the Queen’s Speech. Noting a Transparency International UK statement that “The London property market is highly vulnerable to corrupt wealth flowing into it” she said the “tidal wave of dirty money is poisoning the housing market for ordinary people”. Labour’s new clause 24 requires the Government to review how the Registration of Overseas Entities Bill could work alongside the non-resident surcharge to mitigate the housing crisis, she explained.

Former cabinet minister David Davis (Con) spoke to amendments 32 to 34 and new clause 31, which he had tabled. He said that, far from rationalising the collection of tax from contractors, IR35 “has created and has now unwittingly extended a wild west of umbrella companies that operate without regulation and where malpractice is rife. This malpractice has seen contractors forced to operate through non-compliant umbrella companies that maximise their profits by using sleight-of-hand tactics. This includes: misrepresenting tax thresholds; skimming off pension contributions and other payments such as the apprenticeship levy; forcing contractors to opt out of their rights as agency workers; and withholding billions in holiday pay that is legally due.”

A number of opposition intervened in Davis’ speech to make supportive points. Catherine West (Lab) called that changes to Companies House’s approach. John Spellar (Lab) said government should insert in the contracts with their main contractors a clause stating that if such practices are found within their supply chain, they will not be considered for future contracts. (Davis agreed.) Sammy Wilson (DUP) said that it was “very often the people who were conned into operating with umbrella companies who are penalised, while the umbrella companies walk away with no investigation and there is no means of holding them to account.” (Davis agreed again.)

Davis said his amendments give the Government and Parliament three options. New clause 31 is the de minimis position - review the whole operation of umbrella companies and off-payroll working. (This doesn’t require legislation.) His preferred option is amendment 33: “that the Government should introduce regulation into this problematic sector to clear up some of the most egregious aspects, including mis-selling and malpractice. They should require… umbrella companies to meet five strict requirements: they should pay all holiday pay due; maintain all employment rights; ban kickbacks to third parties; end the skimming off of excess profits through sleight-of-hand tactics; and, finally, ensure that the worker himself has no material interest in the umbrella company.” Davis added that, if properly enacted, any company operating in contravention of those strict conditions would be liable for the unpaid tax.

“Finally, and this is not my favoured option,” said Davies, “if that cannot be made to work, amendment 34 would ban—simply outlaw—the umbrella companies. It is an imperfect solution, because some umbrella companies do a decent and proper job, but if we cannot clean up the wild west, we should eradicate the wild west. It is as simple as that.”

SNP spokesperson Alison Thewliss began by expressing concern about “the very large amendments and new schedules concerning Northern Ireland and VAT. It concerns me greatly that we are looking at this huge new swathe within the Finance Bill that has not been considered at any other point in the Bill’s passage and that we have been given very limited time to delve into it at very short notice. That speaks to some of the complexity that Brexit has imposed on Northern Ireland. There needed to be a great deal more scrutiny of the measures prior to now, and the Government should not be bringing forward huge swathes of new schedules at this very late stage of the Bill.”

Of the seven new clauses she had tabled Thewliss picked out new clause 9, which calls for a report on the impact of extending coronavirus economic support schemes until the end of the year, rather than just September. She explained: “For those who are watching and are unfamiliar with Finance Bills, if they are wondering why we keep talking about reports and reviews, the rules of Finance Bills are such that we cannot just ask for the extension in a simple way. We are not allowed to do that—it is part of the restrictions that these Bills have—so we ask for reports.”

Similarly, her new clause 10 called for a review of the extension of the 5% VAT reduced rate for hospitality and tourism. “The VAT rate for tourism has been too high for too long, and this year, when we are being strongly encouraged to holiday at home, it makes absolute sense to extend this provision, which many people have not had sufficient opportunity to benefit from.”

Thewliss said new clause 14, on the plastic packaging tax, was intended to be helpful to the Government. “Not all plastics are equal, and the Government should recognise that in the provisions they put forward. Some lend themselves more to being recycled and can be brought to 100% reusable content, and some are very far away from that. We should not treat them all the same.”

Finally, on the amendments tabled by David Davis, Thewliss asked the Government to consider their merits: “Stopping the malpractice of umbrella companies would be another step forward in closing loopholes and protecting those who may be tempted to sign up to, or coerced into signing up to, such schemes in the future. Those promoting such schemes always seem to be a step ahead, and the Government should not let them get further steps ahead and become a dot on the horizon.”

Sir Iain Duncan Smith (Con) was another signatory of David Davis’ amendments. He said the unacceptable practices of umbrella companies have now become very clear. “Contractors are being forced into schemes and are being forced by recruitment agencies to use umbrella companies, which they may not wish to do and may be concerned about. Opting out of the conduct of employment regulations is often mandatory, which removes the rights contractors had as agency workers. We are seeing kickbacks, problems over holiday pay and the skimming of the assignment rate. We are also seeing mini umbrella companies, which some contractors sign up to, believing them to be compliant, only to then discover that they are employed by a company with a different name and owned by a director in, say, the Philippines… The problem is that the worse the level of malpractice, the greater the rewards and kickbacks for the agencies, reducing the revenue for the Treasury.”

Duncan Smith made the case for amendment 34, which would abolish umbrella companies. In reality, he said, “all inside-IR35 workers could easily be paid via a recruitment agency payroll… and umbrella companies are of benefit to recruiters, not to workers. Under the original drafting of the off-payroll rules, an umbrella company could classify as a payment intermediary, so payment would have to be made to the umbrella net of tax, reducing an incentive to exist. The behavioural effect will mean agencies will put workers on payroll if they are not outside IR35. The key thing is that this would give the sector a year to re-gear and provide its service as agencies in a payroll payment bureau-type manner, instead of the Government taking other decisive action, including banning certain practices and statutory regulation.”

Public Account Committee chair Meg Hillier (Lab) said she backed new clause 24. “Although we are seeing a 2% uplift [In SDLT for non-residents], it is not what was originally promised, and even that, I would say, is still not enough to prevent people from speculating, particularly in my constituency and elsewhere in London, on the expensive London housing market and overheating that housing market.” We need to increase stamp duty immediately, said Hillier, and we should increase it further for overseas purchasers. “We should not have a housing market that has led to homes being owned by finance vehicles or absentee landlords who have no interest in it being a home but simply see it as an investment.”

Green Party MP Caroline Lucas focused her remarks on new clause 21, which would require the Chancellor of the Exchequer to review the impact of the Finance Bill on human and ecological health and wellbeing, including the wellbeing of future generations. The new clause “reflects the urgency of shifting to an economic system fit for the 21st century - a modern economic system, designed to serve people and planet for the long term, rather than one that prioritises economic growth at all costs and short-term profit,” she said.

Andrew Jones (Con) addressed the SDLT cut and off-payroll working. On the former he said his concern was “that it has perhaps proved so effective that the market is in danger of overheating. We are seeing quite a bit of inflation, which obviously would need monitoring.” On the latter he emphasized the need to separate disguised employment from when contractors are truly adding value, but thought there was a need to address problems with umbrella companies. He wasn’t sure this was something for a Finance Bill but he looked forward to hearing more on it from the Government ‘sooner rather than later’.

Debbie Abrahams (Lab) spoke to new clause 8, of which she was the lead signatory. This, she explained, “seeks to compel the Chancellor to assess the impact of this legislation on poverty, inequalities and, subsequently, our health.” She reminded MPs that, in February 2020, Professor Sir Michael Marmot published a review of health equity in England 10 years on from his initial study. “His review revealed that instead of narrowing, health inequalities - including how long we are going to live and how long we are going to live in good health - have got worse,” said Abrahams. “Most significantly, his analysis showed that unlike the majority of other high-income countries, our life expectancy was flatlining.” She said her new clause was a practical way to recognise that our economy and health are linked, and the improvement of our health and wellbeing must be a priority for the Government.

Plaid Cymru spokesperson Ben Lake was next to speak. He described amendments 27 and 28 in his name as ‘probing’. They “would require the Government to analyse the impact of changes to the annual investment allowance and research and development tax credits on the UK economy, their geographical reach and their impact on efforts to mitigate climate change. The amendments reflect a concern not only that existing tax reliefs are being used wastefully, but that we need to better support the levelling-up agenda and the decarbonisation of our economy so that we can achieve our legally binding net zero targets.”

Lib Dem business spokesperson Sarah Olney spoke to new clause 29, standing in her name. Noting that the pandemic has introduced new ways of working across the economy she said these represented both opportunities – eg digital meeting software may reduce the need for travel, and help workplaces become more accessible – and threats. She is particularly concerned about those employed on precarious contracts, especially in the distribution sector. “My new clause calls on the Government to report on the effects of the Bill on workers in this sector. We cannot continue to allow critical supply chains to depend on exhausted and overworked drivers. My concern extends to those on zero-hours and agency worker contracts… Many of these workers will be unprotected by standard terms and conditions and may find themselves pressured into working longer hours in unsafe conditions. We cannot build our recovery from this pandemic on such unsustainable foundations.”

Olney also backed amendment 33, calling for greater regulation of umbrella companies and the way that they offer their services. “All the loan charge casework I have taken up in my constituency relates to people who, in good faith, took professional advice in the organisation of their tax affairs and the submission of their tax returns. It is entirely reasonable that people should instruct professionals and take their advice. It is up to the Government to regulate and legislate to ensure that professionals are clear about the legality of that advice and that innocent people are not held accountable for advice they took in good faith. It cannot be right that companies exist that offer services that have been proven in a court of law to be illegal.”

Catherine West (Lab) endorsed new clause 24, accusing the Government of ‘a bit of a U-turn’ in going from a promised 3% to 2% on their non-residents surcharge. She focused most of her remarks on the proposal for a register of overseas entities, expressing her disappointment “that we have failed to hold to account those abroad who seek, for various reasons, to hide their financial interests in the UK.”

Former shadow chancellor John McDonnell (Lab) said he had tabled amendment 23 (which would have cancelled the income tax threshold freeze) “not in the hope of converting the Conservative Government, but to enable me to express justifiable anger about the Government’s approach. The Government are attempting to legislate for a real-terms pay cut that will affect millions of low-paid workers through the freeze in the tax threshold. Those include many of my constituents who have had to make ends meet on 80% of their wages for much of last year.” He added that the Chancellor should have used the occasion of the Budget and this Bill to level up capital gains tax to income tax rates. “That would have been a much fairer way of raising revenue than increasing taxes for people on low and average wages, which the Government’s proposals on tax thresholds will do.”

Tax minister Jesse Norman replied to the debate for the Government. Acknowledging that this was ‘a bit of an omnibus group of measures’ he said he would focus on some of the key themes from across the discussion. He began with the non-resident SDLT surcharge, highlighting “that in 2019 the Government carried out a public consultation on whether there should be a 1% non-resident surcharge, and decided on the basis of that consultation that the surcharge should be levied at 2%. That is twice as high as was originally contemplated in the consultation. That also should be seen in the context of the additional tax that people pay on second and third properties, many of which will fall into the scope of this measure. That is an important factor to bear in mind.”

Turning to some of the requests for reviews, and accompanying criticisms of government policy, the minister accused critics of having ‘a misunderstanding at some very deep level’ of what the Government are doing on tackling climate change. On health inequalities he emphasized the Government’s ‘enormous investment in the NHS’ and plan for a new office for health promotion. He expressed ‘a great deal of personal sympathy’ with Ben Lake’s call for greater transparency in relation to reliefs, noting that a review of R&D tax reliefs is currently underway.

Turning to the umbrella company amendments Norman stressed that there are legitimate reasons why an agency or an individual might wish to use an umbrella company: “such companies can perform useful payroll functions for agencies, provide choice for individuals and have multiple engagements. Notably, the Low Incomes Tax Reform Group pointed out recently: “For freelance contractors who cannot work for their clients on a sole trader or limited company basis…the option to be able to work through an umbrella can be very valuable.””

But he acknowledged there is also abuse. HMRC are, he said, taking measures to combat umbrella companies that are disobeying the rules or trading fraudulently. Challenged by Sir Iain Duncan Smith on whether he was content that this issue ‘will just resolve itself’ he said he was not. “[T]he Government have been clear that there needs to be an extension of the employment agency standards inspectorate in this area, and there may well be operational measures that HMRC needs to continue to undertake.” He observed that “none of this really falls within the context of a Finance Bill, let alone the one that we have laid out in front of us.” He also noted that HMRC has used real time information in order to try to be ‘more forward-leaning’ in this area. “We recognise the concern and HMRC is highly active in it, but in many cases these umbrella companies do have a legitimate function, and it is important to recognise that.”

On IR35 the minister claimed that the Government’s changes have in some quarters been widely welcomed. As an example he cited the off-payroll advisory firm Qdos, which had said: “In recent months the tide has turned, with thousands of businesses now aware of the fact that IR35 reform is manageable”, as it was manageable in the public sector some years before. Challenged by Meg Hillier that IR35 ‘has decimated sections of the tech and IT industry in my constituency’ he said he was not suggesting that all is fine. “One cannot make meaningful change to a market that is not performing as one would like and expect everything to be perfectly fine within weeks of the implementation of the measure.”

Abena Oppong-Asare responded to the debate for Labour, praising the contributions of her colleagues during the debate on the housing crisis and the impact of the Bill on poverty and public health. She said she shared concerns about people being forced into umbrella companies and losing rights as a result, and urged the Government to ‘look carefully at this issue’. On the non-resident stamp duty surcharge she said she was aware of the 2019 consultation seeking views on the decision on 1%, which led to the 2% stamp duty surcharge. But Rishi Sunak made an announcement in that same year, when he was Chief Secretary to the Treasury, in relation to implementing a non-resident surcharge at 3%, ‘so this commitment has been watered down’.

Votes
New Clause 24 (Review of impact of 2% non-resident surcharge) – DEFEATED (358 – 218)
New Clause 9 (Review of changes to coronavirus support payments etc) – DEFEATED (365 – 261)

Government amendments 3-22, new clauses 17-20 and new schedule 1 were all PASSED without a division. (See above for details on these.)

No other amendments or new clauses in this group were moved.

Third reading debate

Moving that the Bill be read a third time, the Financial Secretary, Jesse Norman, said that consideration of the Finance Bill came “at a critical juncture for our economy and our public finances as the UK recovers from…the greatest economic and social crisis since world war two”. He added that the measures proposed in the Bill would “begin the process of fixing the public finances; and to lay the foundations of a resilient future economy”.

DUP MP Sammy Wilson intervened to ask the minister about new schedule 1 covering VAT on distance selling in relation to Northern Ireland: “It covers 55 pages and was introduced tonight without much chance of consideration. It will affect businesses with a threshold of sales of £8,818, which will require them to register and to do special accounting. What assessment has been made of the likely impact of that on small businesses in Northern Ireland that sell goods into the EU?” The minister replied that the provisions have been given proper consideration. He said the new schedule “will affect a small number of businesses in Northern Ireland”, putting into law “a set of measures that has already been adopted elsewhere in the United Kingdom, in recognition of commitments that we made to the EU as part of the process of striking our new trade arrangements. That is that”.

The Shadow Financial Secretary, James Murray, said that the Bill – and six weeks of deliberation in Parliament – had failed to demonstrate how the government intends to support people and businesses as they begin to recover from the pandemic.

Murray said the Bill would “force half of all people in the country…to pay more from next year by freezing income tax personal allowances” while giving “an immediate tax cut to some of the biggest multinational tech firms, which have done so well over the last year”. He said the opposition had “tried to right some of these wrongs” but “did not succeed…despite giving Government Members today, in as straightforward a way as possible, another chance”.

He said the opposition would continue to press the government to do more to support those in low paid, insecure work, including those exploited “by rogue umbrella companies”.

Murray was scathing of the government’s refusal to back American plans for a global minimum tax. He said “Britain should be taking a leading role” in efforts to promote Joe Biden’s proposal. Murray added that the opposition’s proposal for a review of the tax’s impact on multinationals based in the UK would have shown that it would bring in “billions of pounds of tax every year”, level the playing field for British businesses competing against “a few large multinationals that shift profits overseas”, and would have showcased Britain’s commitment to fairness ahead of June’s G7 summit.

Alison Thewliss (SNP) said the Bill fell short in demonstrating the benefits to Scotland of being part of the UK. She said that the government was “always keen to talk about the power of the Union” but that the Union has failed to protect businesses and livelihoods and had continued to fail to tackle tax avoidance and evasion.

Thewliss offered particular thanks to the CIOT, ATT and LITRG for their support and advice during the passage of the Finance Bill and for “explaining many of the tax measures to those of us who are not as well versed in the tax system”.

Following the short debate, the Finance Bill was passed by 365 votes to 261. It now passes to the Lords where peers will debate but cannot amend the Bill.

By CIOT External Relations Team