Finance Bill 2025-26 Committee: MPs pass Loan Charge Settlement Scheme and changes to the replacement tax regime for non-doms

Government amendments were passed to clause 13 (enterprise management incentives), clause 15 (EIS and VCTs), clause 24 (umbrella companies), clauses 25 and 27 (loan charge settlement scheme), schedule 6 (transfer pricing) and schedule 8 (Pillar Two).

Other measures passed by MPs included confirmation that corporation tax will remain at 25%, changes to taxation of employee benefits and the taxation of charities, and amendments to the tax regime put in place last year for taxing ‘non-doms’. The corporate writing-down allowance and relief for disposals to employee ownership trusts have both been made less generous.

Shadow ministers raised CIOT and LITRG concerns on a number of the measures in the Bill. The opposition parties tabled a range of amendments and new clauses; however, they were all rejected by the government.

You can view the amendments paper here. The Bill can be read here. Explanatory notes can also be read here.

Session 1 – Tuesday 27 January 2025, 9.25-11.25

PART 1 - INCOME TAX, CAPITAL GAINS TAX AND CORPORATE TAXES

Clauses 1-10 were debated and agreed in Committee of Whole House

Corporation tax (Clauses 11-12)

Clause 11 - Charge and main rate for financial year 2027
Clause 12: Standard small profits rate and fraction for financial year 2027

The sitting began with the agreeing of the programme motion and the accepting of written evidence, including from CIOT. Then the Economic Secretary to the Treasury, Lucy Rigby, introduced the clauses, confirming the main corporation tax rate at 25% and the small profits rate at 19% for the financial year beginning April 2027, tying them to the government’s 2024 corporate tax road map and a commitment to rate stability.

The Shadow Economic Secretary, Mark Garnier, pointed out that Labour’s promise to cap the corporation tax rate at 25% for the whole of this Parliament “has not been done in legislation”.

Clauses 11 and 12 - passed.

Enterprise management incentives: thresholds and period for exercise (clause 13 plus government amendments 37 and 38 and opposition new clause 24)

The minister suggested that clause 13 “significantly expands the enterprise management incentives (EMI) scheme eligibility”. She added “the measure will cost £585 million in 2029‑30… expansion is expected to support an extra 1,800 of the highest growth scale-up companies over the next five years”.

She explained that government amendments 37 and 38 “are consequential to the business asset disposal relief legislation, updating it to align with the EMI maximum holding period expansion provided by the clause”.

The Shadow Exchequer Secretary, James Wild, backed expansion but pressed to raise the individual £250,000 cap. He referenced TheCityUK, which suggested that “UK’s tax schemes such as… EMI offer lower relief thresholds and tighter eligibility than international equivalents”. He explained the Conservatives' new clause 24, which would require the Chancellor to report to the House of Commons on the impact of this measure on recruitment and retention in qualifying companies, on high-growth and innovative businesses, and on the Exchequer finances. He added that the numbers that the minister gave of the measure’s expected impact “may be higher or lower [than what actually happens], but we need to have a post-implementation review”.

Joshua Reynolds, Liberal Democrat spokesperson for investment and trade, supporting the measure, asked how to “go further to ensure… fantastic UK companies will not head overseas”.

The minister highlighted the government’s “call for evidence” across EMI and venture capital trusts schemes, saying the government’s objective is to make sure the UK is the “best place in the world” to start and grow a business.

Government amendments 37 and 38 passed, as well as clause 13.

New clauses are voted on, if at all, at the end of public bill committee.

Enterprise investment scheme and venture capital trusts (clauses 14-15, plus government amendments 3 and 4, opposition new clauses 1 and 29)

Clause 14: Enterprise investment schemes (EIS): increase in amounts and asset requirements
Clause 15: Venture capital trusts (VCT): rate of relief and amounts and asset requirements

The minister explained that annual company limits for EIS and VCT will increase, and the VCT income tax relief will reduce from 30% to 20% from April 2026. The two government amendments “fix wording in clause 15 so that the annual and lifetime investment limits consistently apply to “the relevant company”, removing any ambiguity in how the VCT limits should be interpreted.”

The Shadow Exchequer Secretary called the package “a story of two halves” and said, “As the Chartered Institute of Taxation rather adeptly put it—we are grateful for its support in scrutinising the Bill—these changes give with one hand and take with the other.” While supporting clause 14, he said they have ‘doubts’ about clause 15.

Citing the British Private Equity & Venture Capital Association, he warned that clause 15 “could lead to a decline in fundraising that would impact the high growth”. He explained the Conservatives' new clause 1 and amendment 29, claiming that they are ‘supported’ by the industry. New clause 1 would require an impact report on clause 15. Amendment 29 would maintain the rate of income tax relief for investments into venture capital trusts at 30%.

The minister argued that a specific change to VCT “rebalance[s] the up‑front tax reliefs” given VCTs invest at later stages, while retaining “100% tax relief on dividend payments and 100% capital gains tax relief”.

Clauses 14 and 15 and government amendments 3–4 – passed.

Division: Conservative amendment 29 was defeated (Ayes 2; Noes 10).

New clauses are voted on, if at all, at the end of public bill committee.

CSOP schemes and EMI (clause 16)

Clause 16: CSOP schemes and EMI: private intermittent securities and capital exchange system (PISCES) shares

The minister suggested that this change will support more employees of growing UK companies to access the tax advantages of EMIs and ensure that the “tax system keeps pace with innovation in the wider economy”.

The Shadow Exchequer Secretary supported PISCES’ core objective; however, he raised the concerns of the Association of Taxation Technicians (ATT) that the Bill introduces an “arbitrary cut-off” date of 5 April 2028. He continued that ATT “sensibly recommends that this easement be extended to at least 6 April 2030, better aligning the provision with the government’s stated policy objectives and allowing proper time for awareness of PISCES to develop among businesses and advisers”.

Wild asked for an update on how the operation of PISCES is progressing. The minister responded that the Financial Conduct Authority has approved two PISCES market operators: JP Jenkins and the London Stock Exchange.

The minister also acknowledged the shadow minister's concern, saying that PISCES can be written into new contracts when they are agreed, “meaning that those contracts should not need to be amended to include PISCES, because it can be there ab initio.” She continued that the April 2028 extension “allow[s] PISCES to become more embedded”.

Clause 16 - passed.

Employment income relating to cars etc (clauses 17 to 19)

Clause 17: Employee car and van ownership schemes
Clause 18: Car or van made available on arm’s length terms
Clause 19: CO2 emissions figure for certain cars with an electric range figure

The Economic Secretary said clauses 17 and 18 will ensure ‘fairness’ to other taxpayers, reduce “distortions in the tax system” and reinforce the emissions-based company car tax regime, which incentivises the take-up of zero emission vehicles.

The Shadow Economic Secretary voiced concerns about “unintended consequences” of these clauses, citing the Society of Motor Manufacturers and Traders prediction that changing the schemes will “endanger 5,000 manufacturing jobs” in the UK. Additionally, he believed that clause 18 does not “adequately protect[s] the automotive industry and its workers”

Joshua Reynolds (Lib Dems) asked for draft guidance on clause 18’s definitions and some certainty about “what will and will not be included”.

The minister said the government had “listened very carefully” and is “delaying the proposed changes to employee car ownership schemes until 2030”. She also confirmed guidance would be published “in due course”.

Clauses 17- 19 - passed.

Other employment income (clauses 20-23)

Clause 20: Employment income: miscellaneous exemptions
Clause 21: Disallowing deduction from earnings for additional household expenses
Clause 22: Payment for cancelled shifts, etc.
Clause 23: Location of duties of employment where duties are not performed

The Economic Secretary said that clause 20 reduces administrative burdens for employers and “gives greater clarity to the tax treatment” of common workplace health and equipment costs. On clause 21, she reported that the changes aim to address concerns around non-compliance and to ensure “fairness” across the tax system.

The Shadow Economic Secretary highlighted ATT’s suggestion that the government consider including Covid vaccinations in this provision. This point that was also raised by Oliver Ryan (Lab).

On clause 21, the shadow minister quoted CIOT saying it “creates an uneven situation in which two employees with identical working arrangements and costs are treated differently for tax purposes solely on the basis of their employer’s reimbursement policy”. Similarly, Reynolds (Lib Dems) believed clause 21 will “increase unfairness”.

In regard to clause 20, the minister explained that the government is limiting relief to flu vaccinations because employers have “consistently highlighted them as a common relief” in relation to which reimbursement would be helpful. She argued that clause 21 would not impact employers’ existing ability to reimburse employees for costs relating to home working.

Clauses 20–23 - passed.

Umbrella companies (clause 24 plus government amendments 5-8)

The Economic Secretary said clause 24 is intended to encourage “increased due diligence” among businesses that choose to use umbrella companies to engage workers.

She explained that government amendments 5 to 8 “will ensure that the legislation works as intended by making a small technical change. This will ensure that HMRC is able to recover underpayments of tax from businesses that are within scope of the new rules because they purport to be umbrella companies, in the same manner that underpayments will be recovered from the other businesses that are within scope of the new rules. Amendment 5 will ensure that HMRC is able to keep taxpayers informed about its investigations concerning sums to which they are jointly and severally liable. That will help taxpayers to take action to mitigate their exposure to unpaid liabilities.”

The Shadow Economic Secretary supported the clause, but raised two issues that have been pointed out by the CIOT:

“First, there seems to be an absence of safeguards. Currently, HMRC can transfer liability to the agency regardless of its circumstances. When an agency has done all it can to ensure the integrity of the supply chain, but has been the victim of fraud by the umbrella company, we think there should be safeguards in place to prevent the transfer of debts.

“Secondly, there is some concern that the definition of ‘purported umbrella company’ is too wide. The clause defines such a company so as to include any entity supplying an individual with services where that individual has a material interest in the entity.”

The minister replied that whether to use an umbrella company when supplying a worker to a client is a commercial decision for agencies. She added that that commercial decision has been incentivised not “just by the ability to outsource administration to umbrella companies, but by the shielding from exposure to tax risk that that model provides.”

She further explained that employment is a “fundamental characteristic” of how most umbrella company workers are engaged and is the “key aspect” in determining when this legislation will apply.

Clause 24 and government amendments 5–8 - passed

Loan charge settlement scheme (clauses 25-27 plus government amendments 9-11 and opposition new clauses 25 and 26)

Clause 25: Loan charge settlement scheme
Clause 26: Loan charge settlement scheme: inheritance tax
Clause 27: Loan charge settlement scheme: supplementary

The Economic Secretary told MPs that these clauses enable the government to “create a settlement opportunity in line with their response to the independent review of the loan charge, and to encourage those who have not yet settled with HMRC to come forward and do so.” Due to the changes, “around 30%… could see their liabilities removed entirely… most other individuals will see their liabilities reduced by at least half.”

Turning to government amendments 9-11, she said that while clause 25 makes provision for the exclusion of tax avoidance promoters from the settlement opportunity, these amendments were needed to tighten those provisions “to ensure that HMRC is able to prevent the controlling minds behind promoter companies from inappropriately accessing the settlement opportunity”. The amendments also “clarify that where an employer still exists, it can enter into a settlement on behalf of its employees who used disguised remuneration schemes”.

The Shadow Economic Secretary welcomed the loan charge independent review and shared a concern that was raised with him by the Low Incomes Tax Reform Group. He said that by not extending the more generous settlement opportunity to those who have already fully settled and/or paid the loan charge, the provision “arguably does not achieve fairness for all taxpayers”. The approach “will effectively put those who chose not to comply… in a better position than those who did… [and] could create perverse incentives, harm future tax compliance and damage trust in the tax system.”

This concern was also raised by the Lib Dem spokesperson, Joshua Reynolds, who spoke to his party’s two new clauses. New clause 25 would require HMRC to report on the operation and fairness of the settlement opportunity. It would consider whether more favourable terms are, or should be, available to those who have already settled or fully paid liabilities, and to those with arrangements outside the loan charge years.  New clause 26 would require HMRC to report on the exclusion from the settlement opportunity of disguised remuneration arrangements outside the loan charge years, including arrangements which HMRC considers to fall outside the loan charge but within the disguised remuneration rules. These were both issues which had been raised with opposition parties in written and verbal briefings by CIOT and LITRG.

Responding to the debate the minister said that the scheme’s purpose was to “bring the matter to a close for those who had not yet settled… That by its very nature meant focusing on open cases and outstanding liabilities.” She added that the government will consult on further measures to target promoters in early 2026.

Government amendments 9–11 and clauses 25–27 – passed.

New clauses are voted on, if at all, at the end of public bill committee.

Capital allowances (clauses 28-29 plus opposition new clause 2)

Clause 28: Main rate of writing-down allowances for expenditure on plant or machinery
Clauses 29: First-year allowance for main rate expenditure on plant or machinery

The Shadow Exchequer Secretary described the reduction in the main writing-down rate as “another structural tax increase on businesses with large asset bases”. On clause 29, he urged the government to monitor the impact on business investment and to look at options for a “more streamlined or neutral capital allowances structure” in future.

The Conservatives proposed new clause 2 which would require the Chancellor to report to the House on the impact of clause 28 on business investment, employment in capital-intensive sectors, the manufacturing sector, small and medium-sized enterprises and the public finances.

The Economic Secretary claimed that changes made by clauses 28 and 29 will raise approximately £1.5 billion per year and impact businesses with “pools of historic main rate expenditure”. Meanwhile, she rejected new clause 2, arguing that the government has already published the relevant tax information.

Clauses 28 and 29 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Expenditure on zero-emission cars and electric vehicle charging points (clause 30 plus opposition new clause 3)

The Shadow Exchequer Secretary suggested that the measure could create a “stop‑start approach”  discouraging confidence and investment. He put forward new clause 3 which would require the Chancellor to review and report on the impact of the expiry in 2027 of the 100% allowance made under clause 30, including the case for ongoing capital allowance support for zero-emission cars and electric vehicle charging points. He said such a report would give Parliament and businesses the information they need to plan ahead”.

Sean Woodcock (Lab) welcomed the measure while Reynolds of the Lib Dems questioned the 2027 cut‑off saying “businesses need long‑term security… One‑year extensions… do not give the certainty”.

The Economic Secretary rejected new clause 3, telling MPs that the government annually review the rates and thresholds of taxes and reliefs.

Clause 30 – passed.

New clauses are voted on, if at all, at the end of public bill committee.

Creative industries reliefs (clauses 31-33)

Clauses 31: Payments for surrender of expenditure credit
Clause 32: Transition from video games tax relief
Clause 33: Special credit for visual effects

The Shadow Exchequer Secretary asked for estimates of how many video game development companies will be impacted by clause 31 and how many production companies have had calculation errors due to previous rules under clause 33.

In response, the Economic Secretary replied that the payments for the surrender of expenditure credits will have an impact on roughly 12,000 claimants of R&D expenditure credit, audiovisual expenditure credit and video games expenditure credit. She continued that there are no figures available to show the impact on companies, adding “it is normally in the tax line, so it is not treated as taxable by most companies”.

Clauses 31 -33 - passed.

R&D undertaken abroad: Chapter 2 relief only (clause 34)

The Economic Secretary said the government are making this change to provide clarity to businesses and ensure that the legislation aligns with the original policy intent of the Finance Act 2025.

The Shadow Exchequer Secretary asked if the minister could confirm that exemptions under the enhanced R&D intensive support scheme still apply to firms based in Northern Ireland. In response, the minister said the legislation clarifies that the rules are the same for all R&D expenditure credit companies across the UK.

Clause 34 -  passed.

Restriction of relief on disposals to employee ownership trusts (clause 35 plus opposition new clauses 28 and 29)

The Economic Secretary explained the rationale for this reduction in the generosity of relief for disposals to employee ownership trusts (EOTs) saying that while the government “are committed to building on the success of the existing scheme so that the UK remains a leader in the field of employee ownership” the cost of this relief was becoming unaffordable. “The cost of the CGT relief alone reached £600 million in 2021-2022, and forecasts suggest that it could rise to more than 20 times the original costing to £2 billion by 2028-29, if action is not taken.”

She said that clause 35 overall means that disposals to an EOT will benefit from a rate of tax that is broadly equivalent to half of the usual rate, which will still constitute “an effective incentive to encourage company owners towards employee ownership”.

The debate was adjourned after two hours.

Session 2 – Tuesday 28 January 2025, 14.00-16.26

Restriction of relief on disposals to employee ownership trusts (clause 35 plus opposition new clauses 28 and 29) (continued)

The debate on EOTs continued in the day’s second sitting.

The Shadow Economic Secretary, Mark Garnier, warned the policy “will have a direct effect on trustees’ ability to benefit company employees” and cited the Financial Times report that tax advisers are concerned that these changes will “slow the pace of change to EOTs”. The minister replied that even after these changes, the relief “remains more generous than for many other options and deeds, such as business asset disposal relief”.

Joshua Reynolds, for the Lib Dems, proposed two new clauses. New clause 28 would require HMRC to assess the potential benefits of establishing a digital application process for taxpayers to pay capital gains tax by instalments in respect of disposal to employee ownership trusts. This was something suggested by CIOT in a briefing sent to MPs. New clause 29 would require the Treasury to produce a report on the impact of clause 35 on small and medium-sized enterprises.

The Economic Secretary, Lucy Rigby, rejected the two new clauses. “The process for applying to pay by instalments is clearly set out within HMRC guidance and applications are dealt with swiftly once they have been received by HMRC,” she argued, adding that her officials “have met representatives from the employee ownership sector to provide bespoke guidance on how these instalment payment provisions apply to disposals to EOTs”.

Clause 35 – passed.

New clauses are voted on, if at all, at the end of public bill committee.

Reconstruction rules (anti-avoidance) (clauses 36-38)

Clause 36: Anti-avoidance: Collective investment scheme reconstructions
Clause 37: Anti-avoidance: company reconstructions
Clause 38: Anti-avoidance: reconstructions involving transfer of business

The Economic Secretary said the clauses “make changes to the CGT anti-avoidance provisions that apply to company share exchanges and reconstructions, or the reconstruction rules, as they are known.” She explained that the amendments introduced by the clauses “will allow HMRC to address situations where arrangements have been added to otherwise commercial transactions that reduce or eliminate, rather than just defer, a tax charge, allowing them to be more effectively challenged.”

The Shadow Economic Secretary supported the clauses, however he emphasised that “we must also ensure that no business that utilises no gain/no loss for legitimate commercial purposes is penalised or hung out to dry through denied relief claims.”

Clauses 36-38 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Incorporation relief: requirement to claim (clause 39)

The Economic Secretary said the clause would allow HMRC to monitor the relief and tackle avoidance more effectively.

The Shadow Economic Secretary queried “whether enough awareness has been made to affected people”, saying that that “is crucial as claiming incorporation relief has [up until now] been a passive process because it happens automatically”. Joshua Reynolds (Lib Dems) also raised this point, asking how the government will communicate the change to the public.

In response, the minister said that new guidance will be provided alongside the self-assessment return.

Clause 39 passed.

Non-residents (clauses 40-41)

Clause 40 - Non-residents: cell companies
Clause 41 - Non-residents: double taxation relief relating to collective investment vehicles

The Economic Secretary said that clause 40 would ensure that, for the purposes of non-resident capital gains legislation, each cell in a cell company is looked at individually for the purposes of the property richness rules. This will protect the tax base. Clause 41, meanwhile, would reduce administrative burdens by clarifying when non-resident companies and individuals have to notify HMRC of a disposal, she explained.

The Shadow Economic Secretary agreed that corporate structures should not be exploited to shelter people from paying their fair share of tax. However, he said that “we must consider the practicalities of how an audit of one cell may affect other cells and the PCC [protected cell company] itself.” He said PCCs have benefits and the government must protect “innocent parties”.

Clauses 40 and 41 - passed.

Abolition of notional tax credit on distributions received by non-UK residents (clause 42)

The Shadow Exchequer Secretary, James Wild, flagged CIOT scepticism about the estimate that fewer than 1,000 individuals are affected and queried whether non-resident trusts have been included within the government’s calculations. The minister maintained the figure and added “the removal… will not discourage foreign investment… as it will not impact the overwhelming majority of overseas investors who remain outside the scope of UK tax.”

Clause 42 - passed.

Residence-based tax regime (replacement for the non-dom regime) (clauses 43-44 plus schedule 3 and opposition amendments 1, 2, 30-35)

Clause 43 & Schedule 3: Non-resident, and previously nondomiciled individuals
Clause 44: Trust protections etc: minor amendments and transitional protection

The Economic Secretary explained that clause 43 amends the residence-based tax regime that was introduced in the Finance Act 2025 in response to feedback from stakeholders “to make sure that the regime works as well as possible”. Part 1 of schedule 3 makes minor corrections to the foreign income and gains (FIG) regime and to legislation connected with the ending of the remittance basis. Part 2 makes technical amendments to the legislation for the temporary repatriation facility (TRF). Part 3 amends the temporary non-residence rules by removing the concept of post-departure trade profits from legislation. Clause 44 ensures that tax-free or exempt income is taken into account correctly under the settlements and transfer of assets abroad matching rules.

A number of opposition amendments were debated

Two were tabled by Conservative backbencher Jack Rankin (not a member of the committee). Amendment 1 sought to prevent “double counting” and knock-on tax charges when designated qualifying overseas capital is remitted during the TRF years, by disregarding connected payments/transfers up to the value of the remittances or benefits in that year. Amendment 2 sought to ensure that when determining if a transaction had a tax avoidance purpose, no regard is given to avoidance motives for transactions effected before 6 April 2025 if the individual was non-resident or entitled to the remittance basis at that time.

The other five amendments were tabled by the Conservative frontbench and the Shadow Exchequer Secretary spoke to them:

• Amendment 30 provides that where an investment derived from foreign income has fallen in value, the TRF charge is paid on the reduced value of the investment at the point the TRF opened
• Amendments 31-32 provide that a double tax charge created by paragraph 13 of Schedule 3 shall not apply retrospectively.
• Amendment 33 provided that the TRF would also be available to non-residents.
• Amendment 34 would enable offshore trust beneficiaries who have not themselves used the remittance basis to use the TRF.
• Amendment 35 would enable trustees to pay a TRF charge on the trust’s past FIG while retaining the funds within the trust.

 The shadow minister argued that, with its replacement for the non-dom tax regime, the government have “once again produced needlessly complex legislation that contains retrospective elements and leaves ordinary people potentially facing unexpected tax bills”.

Turning to the measures before the committee, the shadow minister said the Conservatives “support the initiative behind these measures - to encourage people to bring more of their money to the UK, precisely so it can help fund our public services. Our concern is about the implementation, and I will come on to some of the comments that representatives of the Chartered Institute of Taxation, who are widely acknowledged as experts in this area, have raised about the complexity and the retrospective elements.”

These include the suggestion that the government should “remove the requirement to report every possible element of FIG as part of the claim, and instead making relief from UK tax on FIG the default position; similarly, extending the relief to the personal representatives of a deceased individual who themselves qualified; and finally, simplifying the legislation by aligning the income tax position on trust distributions with the capital gains position”.

The shadow minister continued: “Our friends at the Chartered Institute of Taxation pointed out some serious concerns that there are several paragraphs within the schedule… that do not appear to work as intended or that produce unintended consequences”. Explaining the amendments in his name, he suggested that, as a result of the steps the government has taken in this area, people, including the wealthiest, are leaving the UK. He cited the CIOT as saying that “tax rules under the measure make the UK a less attractive destination for people. It should be easier to understand and apply measures aimed at getting people to bring money back to the UK. There is a risk that, as drafted, these measures drive against the government’s intention”.

Blake Stephenson (Con) spoke on amendments 1 and 2, saying that they provide the ‘needed certainty’ and make the TRF “usable in practice, not just in theory”. 

The minister rejected the Conservative amendments. She argued that amendment 1 was “unnecessary as provisions already exist to prevent the double-counting that it seeks to address”. Amendment 30 was also unnecessary as “[t]he current position set out in the Bill ensures consistency and avoids distortions from market movements”. Amendments 31 and 32 were rejected “because paragraph 13 was always intended to operate in this way”. Amendment 33 was rejected because “[w]idening the scope of the [TRF] to allow non-residents to benefit from the reduced charge without living or contributing in the UK would remove any incentive to become or remain a UK resident”.

The minister said that the aim of the reforms is “simplicity”. She noted that the shadow minister had mentioned CIOT and noted that CIOT had said: “Moving from domicile to residence as the basis for taxing people who are internationally mobile makes sense. As well as being a major simplification, it is a fairer and more transparent basis for determining UK tax. Residence is determined by criteria far more objective and certain than the subjective concept of domicile.”

She said the TRF “offers a helpful transition” and “in this instance, the government feel that a retrospective change is a proportionate response to protect revenue.”

Clauses 43-44 and Schedule 3 – passed.

Divisions: Conservative amendments 1 and 30 were voted on and defeated (10-3 in both cases). Other amendments were not moved.

PAYE for treaty non-residents etc (clause 45 & schedule 4)

The Shadow Exchequer Secretary cautioned that the clause could mean that employers will now be “expected to monitor the day-to-day working practices of globally mobile working employees”. He continued that for multinational companies with hundreds of employees, this represents a “potentially significant compliance burden”. He urged the government to provide comprehensive guidance on exactly what level of review and monitoring employers are expected. 

The minister promised guidance would be forthcoming in April and said “no additional administrative burden” arises because employers already enter a percentage figure on the PAYE notification form.

Clause 45 & Schedule 4 - passed.

Unassessed transfer pricing profits (clause 46 & schedule 5)

The minister highlighted that this clause will replace the diverted profits tax, providing a “significant simplification”. While supporting this in principle, the Shadow Exchequer Secretary shared the CIOT concerns about the drafting of the clause, saying the measure is “very broad: it captures transactions designed to reduce, eliminate or delay UK tax liability. There is a question as to whether legitimate commercial decisions made for regulatory compliance or capital requirements could be caught by the condition simply because they are deliberate and happen to reduce tax liability, even when tax planning is not the primary motive”.

He continued, “As the Chartered Institute of Taxation rightly says, it is unsatisfactory to pass legislation with a wide definition and simply hope that HMRC guidance and rules will narrow it down later. That is not how we in Parliament should legislate”.

The minister said there was “no intention at all to change the scope of the regime”.

Clause 46 & schedule 5 - passed.

Transfer pricing reform (clause 47 & schedule 6 plus government amendment 20)

The Economic Secretary said this clause will update UK law in line with international standards, reduce compliance obligations and address areas of potential legislative weakness. Government amendment 20 “will ensure the consistent use of terminology with respect to financial transactions throughout the legislation.”

The Shadow Exchequer Secretary added: “I believe that these measures flow from a consultation process launched by the last Conservative government, so they have a good origin”.

Clause 47 & Schedule 6 and amendment 20 - passed.

International Controlled Transactions (clause 48 plus opposition new clause 4)

Clause 48 will create a power for the commissioners of HMRC to issue regulations requiring certain taxpayers to file an international controlled transactions schedule, said the Economic Secretary. She expected it to have an impact on approximately 75,000 businesses.

The Shadow Exchequer Secretary put forward new clause 4, seeking a government report on the impact of this measure on cross-border trade and business administrative burdens. He emphasised the need for the government to explain how the system will work in practice and how it will be seen to work. He worried that each new requirement, “whether it is the ICTS, pillar two returns or transfer pricing documentation adds to the cumulative impact on businesses”.

In response the minister disagreed, saying that the proposal is intended to mitigate additional administrative burdens by “requiring the reporting of readily available objective information”. She rejected new clause 4, arguing that “we do not expect the international controlled transactions schedule to have a significant impact on cross-border trade”. 

Clause 48 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Permanent establishments (clause 49 & Schedule 7)

The Economic Secretary said the “greater clarity” provided by these changes will assist taxpayers and HMRC and simplify the UK’s law on permanent establishments.

The Shadow Exchequer Secretary noted that, in November 2025, the OECD published new guidance on the definition of a “permanent establishment”. He asked whether the UK’s current approach reflects that updated guidance. The minister said that the legislation is “interpreted in accordance” with the OECD model tax convention and commentary.

Clause 49 & Schedule 7 - passed.

Pillar Two (clause 50 & schedule 8 plus government amendments 20-24 and opposition new clause 5)

The Economic Secretary said that the changes in these clauses are technical, but “very important”, adding they implement “internationally agreed” changes and ensure that the pillar two rules continue to be “effective and administrable” in the UK.

She told MPs that government amendment 23 ensures that the legislation works as intended by making a small correction to legislative references used. Government amendments 21, 22 and 24 “temporarily extend the deadline for making elections to give taxpayers more time to bed in the new IT systems needed to meet their filing obligations”.

The Shadow Exchequer Secretary put forward new clause 5 to require regular reviews of the implementation of these measures, including consideration of international implementation of Pillar Two, any competitive disadvantage for UK-based multinationals and possible remedial measures. The minister rejected this, arguing that the government keeps all areas of tax policy under review.

Challenging the minister’s comment, the shadow minister said that if the Treasury is conducting regular reviews of measures ,“why not share it with Parliament, and accept that it is a proportionate step to ensure ongoing parliamentary scrutiny in a very important area”?

The shadow minister continued: “I simply note that the Chartered Institute of Taxation pointed out that it thinks the burdens of pillar two continue to appear disproportionate to the amount of tax that will be raised”. He also believed that international co-operation on tax is essential, but “we need to ensure not only that the UK is honouring its commitments, but that other countries are meeting theirs, so that UK companies are not losing out as a result”.

Clause 50 & Schedule 8 and government amendments 21, 22, 23, 24 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Controlled foreign companies: interest on reversal of state aid recovery (clause 51)

The Shadow Exchequer Secretary enquired whether the clause marks “the final chapter” in the UK’s compliance with the EU state aid rules relating to the controlled foreign companies regime, or could other outstanding matters give rise to further issues or payments?

The minister replied that “it is a requirement of UK domestic legislation to put companies in the position that they would have been in had the recovery legislation not been introduced, and it is that principle on which the clause is based”.

Clause 51 - passed.

Legacies to charities to be within scope of tax (clause 52 plus opposition new clause 6)

Opening debate on three clauses relating to charities, the Economic Secretary said that the government was seeking to close the tax gap by strengthening compliance powers to challenge abusive arrangements by which donors or trustees of charities can enrich themselves. lause 52 brings legacies into the definition of “attributable income”.

Acknowledging the burden on small charities, the minister explained that the changes mean that legacies received by a charity will become chargeable to tax “if they are not spent charitably”. Adding that the changes reflect that this income may have already received considerable tax relief, she continued: “We have no plans to stop charities accumulating donations, so there will be no deadline for the spending of legacy funds”.

The Shadow Exchequer Secretary highlighted concerns that have been raised – for example, by ICAEW – that expanding rules to cover legacies could have “unwelcome implications if charities do not apply inherited funds quickly enough to their charitable purposes, leading to them being taxed”. He voiced concerns about the administrative “burden” it may place, particularly on smaller charities.

Conservative new clause 6 would require the Chancellor to report on the impact of this measure on charitable giving through estates and on the income of the charity sector. The minister responded that, once these measures have been implemented, “HMRC will assess the impact by monitoring tax reliefs claimed by UK charities, so a formal evaluation is not required.”

Clause 52 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Approved charitable investments: purpose test (clause 53 plus opposition new clause 7)

The Economic Secretary explained that this clause changes the definition of “approved charitable investments”. The government recognise 12 types of investments for charitable tax relief, but presently only one type of investment is required to be for the benefit of the charity and not the avoidance of tax. The government is extending this rule to all 12 types of investment, making the rules both “simpler and tighter”.

The Shadow Exchequer Secretary shared a concern that there could be “increased obligations for compliance on trustees who have to demonstrate that their every investment in…their portfolio was made for the benefit of the charity rather than an ancillary purpose therein”. He noted that ICAEW had suggested that the test be reframed from “for the sole purpose of” to “wholly or mainly” to the benefit of the charity.

Conservative new clause 7 would require the Chancellor to report on the impact of this measure on charity investment strategies. The minister said it was not needed the Tax Information and Impact Note “showed that these measures will have a negligible impact on businesses and civil society organisations such as charities”.

Joshua Reynolds (Lib Dems) also asked about HMRC guidance for charity trustees. The minister confirmed that HMRC will be coming forward with guidance that will “make clear the exact scope of the changes” and what needs to happen on behalf of charities.

Clause 53 - passed.

New clauses are voted on, if at all, at the end of public bill committee.

Tainted charity donations: replacement of purpose test with outcome test (clause 54 & schedule 9 plus opposition new clauses 8 and 9)

These changes would tighten the rules on tainted donations by strengthening compliance powers to challenge abusive arrangements by which donors or trustees of charities can enrich themselves, the Economic Secretary explained. The Shadow Exchequer Secretary cited the Charity Finance Group, which had expressed concerns around the change, warning that “the outcome test could unfairly penalise both donors and charities for results outwith their control”. He said he had tabled two new clauses to “ensure Parliament understands the effect on the charitable sector and whether donations continue to be given”. New clause 8 seeks a report on the impact of these measures on legitimate charitable giving and the prevention of tax avoidance, while new clause 9 would require a review of the implementation of the ‘outcome test’ in clause 54 to assess whether it is clearer and more effective than the existing purpose test.

The minister rejected the new clauses, again on the basis that the TIIN showed these measures would have a negligible impact on businesses and civil society organisations.

Clause 54 & Schedule 9 - passed.

New clauses are voted on, if at all, at the end of public bill committee.