Finance Bill Briefings and Representations
This page bring together briefing notes and representations from the CIOT, our Low Incomes Tax Reform Group and our sister body, the Association of Taxation Technicians, produced for committee stage of Finance Bill 2021, which began on Monday 19 April.
This page initially included briefings and representations for Committee of the Whole House debate only. These are grouped into the six groupings of clauses which were debated at this stage, in the order that they were debated.
Briefings and representations for Public Bill Committee are included below in clause order.
Parliamentarians and their staff with any questions on these representations briefings should contact the CIOT/ATT Head of External Relations, George Crozier ([email protected] or 0207 340 0569).
Committee of Whole House Day One – Monday 19 April
Group One - Family finances (including personal allowance and the clause relating to Working Tax Credit)
Clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86; any new Clauses or new Schedules relating to the impact of any provision on the financial resources of families or to the subject matter of those Clauses
Briefings / representations applying to this group
Clauses 21-29 - CIOT briefing - Employment income and pensions (single briefing covers Committee of Whole House and Public Bill Committee clauses)
Clause 26 - ATT briefing - Exemption for coronavirus tests
Clause 31 - LITRG briefing - Working Tax Credit payment
Clause 32 - CIOT briefing - Self-employment Income Support Scheme
Clause 32 - LITRG briefing - Self-employment Income Support Scheme
In summary
CIOT Briefing - Clauses 21-29: Employment Taxes and Pensions (single briefing covers CWH and PBC clauses)
(Committee of the Whole House – Clauses 24, 25, 26 and 28)
Clause 24 – Extends a welcome time-limited exception for participants of enterprise management incentives schemes who are not able to meet the necessary working time commitment as a result of the coronavirus pandemic.
Clause 25 – A welcome relaxation of the requirement that, for an employer-provided cycle (and cycle safety equipment) to be an exempt benefit-in-kind, the employee must use the cycle/equipment mainly for qualifying commuting and/or business journeys. But in our view the relaxation should include cycles and equipment provided after 20 December 2020, where there is an intention to use the cycle for qualifying journeys as and when the employee is able to return to their normal workplace.
Clause 26 – A welcome tax exemption for advance payments, or reimbursements, made to employees in respect of the cost of obtaining qualifying antigen coronavirus tests. We suggest the exemption includes the cost of travel to the test too, and that it should extend to antibody tests. Additionally, we encourage the government to review its approach to employers paying for, or reimbursing the cost of, vaccines generally.
Clause 28 – Freezes the pensions lifetime allowance. We encourage the government to review the pensions tax regime as a whole with a view to making it less complex.
Association of Taxation Technicians Briefing - Clause 26: Exemption for coronavirus tests
Clause 26 introduces an exemption from any income tax charge on an employee in respect of employer-funded coronavirus antigen testing in the tax years 2020-21 and 2021-22. We think that there is an opportunity to expand the scope of the exemption so that it could apply to comparable testing in future critical health situations.
LITRG Briefing – Clause 31: Covid-19 support scheme: working households receiving tax credits
This measure relates to the £500 one-off payment for certain working households receiving tax credits. It ensures that the payment is not taxable, which is welcome. The clause also means that an income tax charge, equivalent to 100% of the payment not subsequently repaid, arises where a person receives a payment that they were not actually entitled to under the scheme rules.
We have two concerns with the clause:
As the payment is made automatically by HMRC, without requiring a claim from the individual, if HMRC mistakenly make a payment to someone who is not entitled under the Direction and it is not subsequently repaid, it appears that the tax credit claimant will automatically be subject to a tax charge under Finance Act 2020. This triggers notification requirements for the individual, assessing powers for HMRC and potential penalties. We suggest an amendment to deal with this.
How HMRC will define/determine what counts as fraudulent activity in order to determine who the tax charge might apply to. We seek a ministerial commitment that HMRC will set the bar high in terms of what constitutes fraud and that it will be limited to those people who fall under Section 35 of the Tax Credits Act 2002 in relation to their underlying tax credit award.
CIOT Briefing - Clause 32: Self-Employment Income Support Scheme
Clause 32 makes three amendments to the existing legislation relating to the tax treatment of Self-Employment Income Support Scheme (SEISS) payments:
1. Extends the Treasury’s regulation making powers in relation to the taxation of SEISS payments – on which we have no comments.
2. Clarifies that the SEISS grant payments are taxed in the tax year of receipt – which whilst simple, could give rise to unfair outcomes for those who do not prepare their accounts in line with the tax year. The government should consider how these could be addressed.
3. Provides a mechanism which will apply a tax charge if a person ceases to be entitled to a SEISS payment received on or after 6 April 2021 – which concerns us because it will apply to all taxpayers (not just fraudulent claims), can only reduce or eliminate a SEISS claim (not increase or create eligibility for one), and will be difficult for taxpayers to understand and comply with.
More generally, we are disappointed that the government has not gone further to fill some of the gaps between the SEISS scheme and the Coronavirus Job Retention Scheme, which will leave some without support for nearly eighteen months.
LITRG Briefing - Clause 32: Self-employment income support scheme
Taxpayers who make amendments to their Self Assessment tax returns on or after 3 March 2021 may have to pay back some or all of the grant(s) claimed. We are concerned that unrepresented taxpayers may not be aware of their obligation to notify HMRC and accordingly may face penalties. We would like a stronger commitment from HMRC that they will help taxpayers become aware of any obligation to repay, in time to avoid such penalties.
In particular, it is very unsatisfactory that taxpayers who have made amendments on or after 3 March 2021 but prior to the date of the claim appear to be in a situation where they are obliged to pay back some or all of the grant immediately upon receipt. Some may be unaware they have to do so, but they may face harsh penalties originally aimed at fraudulent claims for failing to do so on a timely basis. We do not think these penalties should apply for such a taxpayer.
Group Two - Corporation tax and the super-deduction
Clauses 6 to 14 and Schedule 1; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedule
Briefings / representations applying to this group
Clauses 6-14 - CIOT Briefing - Corporation tax and the super-deduction
Clause 7 - ATT Briefing - Corporation tax small profits rate
Clauses 9-12 - ATT Briefing - Super-deduction and the interaction with the small profits rate
In Summary
CIOT Briefing – Clauses 6-14: Corporation tax and the super-deduction
The increase in the corporation tax rate for larger businesses from April 2023 is a big change in direction of government policy, following an acceleration of rate cuts in the last decade and the abolition of the previous small profits rate after 2014. The reintroduction of a small profits rate will obviously be welcomed by those who will benefit from it, but it will add to the complexity of the tax system and misses an opportunity to alleviate the ‘three person problem’.
Clause 8 increases the rate of diverted profits tax to ensure that the rate of diverted profits tax will remain 6% above the main rate of corporation tax.
The super-deduction (clauses 9 to 14), alongside a new special rate and other temporary first-year allowances, will be a real incentive for companies to make or accelerate investment. It will make most difference to larger businesses, as smaller ones benefit proportionally more from the existing Annual Investment Allowance. The new allowances will remove a fiscal incentive for larger companies to defer investment until 2023 when the higher rate of corporation tax will apply, in order to attract the corresponding higher rate of relief. There is a case for reviewing the extent of exclusions from the super-deduction.
Clause 7 and Schedule 1 introduce a new small profits rate of corporation tax with effect from 1 April 2023 and provide for consequential amendments.
Our primary concerns and suggested amendments are as follows:
- The lower limit of £50,000 above which the small profits rate ceases to apply is significantly lower than that which applied under the small profits rate abolished in 2015. As a result, many relatively small companies will fall within complex marginal relief provisions, and have profits which will be subject to tax at an effective rate of 26.5%.
- The introduction of a new definition of ‘associated companies’ results in additional complexity when existing provisions could have been used instead.
- New s18G, which only applies when two companies do not have substantial commercial interdependence, should be amended to use an existing definition of that term and so that the title of the section better reflects its purpose.
Clause 9 introduces an enhanced First Year Allowance (“Super-deduction”) which in relation to qualifying expenditure incurred in the two-year period from 1 April 2021 to 31 March 2023 gives tax relief for the chargeable period on 130% of the actual cost.
The Super-deduction, which is only available to businesses within the charge to corporation tax (so not those subject to income tax), appears to have been designed without full consideration of its interaction with the introduction from 1 April 2023 of the Small Profits Rate.
Group Three - Regional economic development (primarily freeports)
Clauses 109 to 111 and Schedules 21 and 22; and new Clauses or new Schedules relating to the impact of any provision on regional economic development
Briefing/representations applying to this group
Clauses 109-111 - CIOT Briefing - Freeports
In Summary
CIOT Briefing - Clauses 109-111 and Schedules 21-22: Freeports
The Finance Bill legislates for some of the tax incentives and reliefs for businesses in freeports.
There are important questions for government to answer in relation to freeports, including how the area of freeports will be designated, the treatment of joint ventures and the circumstances in which reliefs will be withdrawn for subsequent non-qualifying activity. We are concerned that some of these uncertainties might hinder investment; clarification needs to be provided.
Additionally there is the broader question of whether freeports will generate additional economic activity or only displace activity from other, fully taxed areas.
Committee of Whole House Day Two – Tuesday 20 April
Group One - Tax evasion and avoidance
Clause 30 and Schedule 6; Clause 36 and Schedule 7; Clause 41; Clause 115 and Schedule 27; Clauses 117 to 121 and Schedules 29 to 32; any new Clauses or new Schedules relating to tax avoidance or evasion.
Briefings applying to this group
Clause 30 - CIOT Briefing - Construction Industry Scheme
Clause 36 - CIOT Briefing - Hybrid and other mismatches
Clause 115 - CIOT Briefing - Follower notices
Clauses 117-120 - CIOT Briefing - Avoidance
Clauses 117-119 - LITRG Briefing - Avoidance
Clause 121 - LITRG Briefing - Conditionality - licensing
In summary
CIOT Briefing - Clause 30 and Schedule 6: Construction industry scheme
This clause and schedule implement four measures aimed at tackling abuse of the CIS rules. We have significant concerns about two of these:
- The changes to the registration and de-registration rules for deemed contractors lack an evidence base and will create significant new administrative problems.
- The restriction that prevents material costs indirectly incurred by a sub-contractor from being deducted when calculating CIS deductions will cause a huge problem that did not previously exist. It runs counter to the purpose of CIS, which is to ensure tax withholdings on labour and not on materials.
The remaining two measures are reasonable but we believe a right of appeal needs to be added to each of them.
CIOT Briefing - Clause 36 and Schedule 7: Hybrid and other mismatches
This measure introduces changes to the hybrids and other mismatches regime, part of the G20/OECD project to tackle Base Erosion and Profit Shifting by multinational companies.
We welcome these changes, in particular the mechanism to allow taxpayers to elect to make the changes retrospective and to make necessary amendments to claims, returns and elections already submitted.
The changes to this regime since it was introduced mean that an update of HMRC guidance is needed.
CIOT Briefing - Clause 115 and Schedule 27: Follower Notices
This measure reduces the rate of penalty in some Follower Notice cases. We are supportive but expect its impact to be fairly limited. We are disappointed that there continues to be no right of appeal to a tribunal over the issuing of a Follower Notice, and we think HMRC need to make their communications and guidance clearer to reduce confusion.
CIOT Briefing - Clauses 117 to 120 and Schedules 29 to 31: Tax Avoidance
These clauses contain measures to combat tax avoidance schemes and those who promote or enable them. We are supportive of robust action in this area, noting HMRC’s acknowledgement that today’s promoters are rarely members of professional bodies and many, perhaps a majority, are not tax advisers at all. While we support HMRC’s efforts to deal with the problem, we are concerned that the seemingly endless chasing down of a small number of promoters through potentially widely applicable legislative change seems to be achieving diminishing returns while adding significant complexity to the tax system. We have a number of suggestions for potentially more effective approaches.
LITRG Briefing - Clauses 117-119: Tax avoidance
Clauses 117 to 119 widen and strengthen HMRC’s ability to sanction people for promoting or enabling certain forms of tax avoidance.
None of these measures are particularly controversial. But they are bolted on to a regime that was designed to tackle traditional tax avoidance. The ‘disguised remuneration’ arrangements that LITRG see today are no longer always, or mainly, an issue of traditional tax avoidance but often more about exploitation of the economics of supply chains and the nature and scale of the temporary worker labour market. HMRC should urgently but comprehensively explore other ways of tackling current arrangements. We believe that these would offer quicker, easier and more effective routes than via HMRC continuing to focus on ‘promoter powers’ (even if they are widened and strengthened). What is before us is a different, more complex problem, and it requires a different, more holistic approach. There is also a fairness issue with regards to the impact of the status quo on taxpayers - who are not the main drivers of the current problem.
This measure, aimed at tackling the ‘hidden economy’, makes renewing certain licences conditional on completing a tax check with HMRC. The measure applies from April 2022 to taxi and private hire vehicle (PHV) drivers, and scrap metal dealers, in England and Wales.
We are pleased that some of the concerns we have raised previously on these new requirements have been addressed. However, we think that the legislation still needs amending regarding various time limits to provide greater clarity and protection for the taxpayer. This includes imposing a time limit on HMRC to complete the tax check.
We also consider that a requirement should be placed upon HMRC to provide a non-digital means for taxpayers to complete the tax check.
Group Two - Property taxation (including Stamp Duty Land Tax)
Clauses 87 to 89 and Schedules 16 and 17; Clauses 90 and 91; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules
Briefing / representation applying to this group
Clauses 87-91 - CIOT Briefing - SDLT and ATED
In Summary
We have two main areas of concern in relation to these clauses:
Clause 87 – There is a need to evaluate the temporary SDLT cut to ensure it is cost-effective as a previous temporary rate reduction in 2010-2012 appeared to lead to higher prices for home buyers.
Clause 88 - The mechanism for applying the non-resident SDLT surcharge to UK resident companies controlled by non-residents is disproportionately complex especially for conveyancers, most of whom are not tax specialists, who will need to apply the tests. The complexity carries the significant risk that the rules will not be understood or followed. A simpler test would look at ultimate beneficial ownership.
Group Three - Support to business
Clauses 92 to 96 and Schedule 18; Clause 97 and Schedule 19; Clauses 128 to 130; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules
Briefing / representation applying to this group
Clauses 92-93 - ATT Briefing - VAT temporary rate
In Summary
Our primary concerns are that:
- Introducing a new 12.5% reduced rate of VAT for a temporary period of only six months poses practical problems for businesses. The impact of these problems could have been limited if the current 5% rate had been extended until 31 March 2022, or the 12.5% rate applied on a more permanent basis.
- Clause 93(6) gives the Treasury the power to either increase or decrease the period for which the 12.5% rate applies with potentially little notice, leading to a lack of certainty and further potential practical issues.
- We think that clause 93 should be amended to remove the ability for the Treasury to reduce the period for which the 12.5% rate applies.
We would also like to see:
- A commitment to communicate as soon as possible any change to the period for which the 12.5% reduced rate will apply.
- A wider review of the VAT treatment of food and drink.
Public Bill Committee – Thursday 22 April and Tuesday 27 April
Briefings applying to these clauses
Clause 15 - ATT Briefing - Annual Investment Allowance
Clauses 18-20 - CIOT Briefing - Reliefs for Business
Clauses 21-29 - CIOT Briefing - Employment Income (single briefing covers Committee of Whole House and Public Bill Committee clauses)
Clauses 42-85 - CIOT Briefing - Plastic Packaging Tax
Clause 112 - ATT Briefing - Penalties for failures to make returns, etc
Clauses 112-113 - LITRG Briefing - Penalties
Clause 113 - ATT Briefing - Penalties for failure to pay tax
Clause 122 - LITRG Briefing - Financial Institution Notices
Clauses 122-124 - CIOT Briefing - Financial Institution Notices, etc
In summary
Clause 15 - ATT Briefing - Annual Investment Allowance
Clause 15 extends the availability of the temporarily increased level of annual investment allowance (“AIA”) by a further year to 31 December 2021.
While the maintenance of a high AIA will be broadly welcomed by eligible businesses the wider picture is that the chopping and changing of AIA levels is unhelpful as it adds complexity to the system and creates traps that can disadvantage some businesses.
Specifically, the transitional rules which apply when the AIA limit reverts to £200,000 on 1 January 2022 can result in a business having its effective AIA limit restricted to significantly less than £200,000 for a period. The businesses most likely to be hit by this are those businesses least likely to be able to benefit from the temporary increase in the AIA limit.
There is an opportunity to amend the transitional provisions in order to ensure that smaller businesses with lower levels of qualifying capital expenditure are not actually disadvantaged by a temporary increase which cannot benefit them.
Clauses 18-20 - CIOT Briefing - Reliefs for Business
Clause 18: Temporary extension of periods to which trade losses may be carried back. We welcome this measure which will give businesses with a track record of making profits and paying tax, but which have suffered during the pandemic, a much-needed cash injection. There is a case for extending the measure to property businesses as well as trading businesses. We have a concern relating to the potential interaction of any tax refund with Universal Credit.
Clause 19: R&D tax credits for SMEs. We support the government’s work to counter fraudulent attempts to claim the SME R&D scheme payable tax credit and consider that the proposed cap will assist in deterring abuse. We welcome the aspects of the measure that have been incorporated as a result of consultations.
Clause 20: Social Investment Tax Relief. We support the decision to extend the life of this relief, but believe that the government needs to do more to increase its take-up. Although some obstacles to using social investment tax relief to invest in social enterprises have been removed (albeit that effect has yet to bed in), significant barriers to take up remain. Principally it is an over complex relief for the smaller organisations it is designed to support. A two year period to address the current barriers is unlikely to be sufficient and may put off some long-term investors.
Clauses 21-29 - CIOT Briefing - Employment Income
(single briefing covers Committee of Whole House and Public Bill Committee clauses)
Clause 21 – The amendment to exclude from the Off-Payroll Working rules payments that are already taxed as employment income is welcome, but in our view the scope of the exclusion is not as wide as it should be.
Clause 22 – An unobjectionable tweak to the rules on taxation of termination payments.
Clause 23 – This measure to stop treating use of an employer-provided van (so long as it emits no CO2) as a taxable benefit for the employee appears to achieve its objective.
Clause 27 – The alignment of the treatment of payment of statutory parental bereavement pay with that of other statutory payments is unobjectionable.
Clause 29 and Schedule 5 – Aligns the tax treatment of collective money purchase pension schemes with other UK pension schemes.
Clauses 42-85 - CIOT Briefing - Plastic Packaging Tax
Our two main points are –
- Clause 69 introduces a requirement for non-resident taxpayers to appoint a UK resident tax representative. We would like exceptions to be considered in the regulations implementing this requirement.
- Clause 71 introduces rules for groups if they are bodies corporate. We would like the rules to be similar to VAT groups, where membership extends beyond merely bodies corporate.
Clause 112 - ATT Briefing - Penalties for failures to make returns, etc
Clause 112 together with Schedule 23 (“the Schedule”) introduces the concept of a points-based penalty system for the failure to make, or late submission of, various returns.
Our main concern relates to the time limits in this legislation. Given that the stated purpose of the points regime is to encourage an early return to compliance by taxpayers, allowing HMRC up to 48 weeks (in some circumstances) to notify a person of the award of a penalty point, and – even more significantly - up to two years to assess a penalty liability, is excessive. These periods should be reduced and/or assurances given by ministers that the full extent of these time periods will only be used in exceptional circumstances.
Clauses 112-113 - LITRG Briefing - Penalties
While HMRC have taken on board comments on the structure of a new penalty regime throughout a period of consultation, the legislation in the Finance Bill is far more complex than originally envisaged. We highlight points in this briefing where we suggest the Bill should be amended.
Although the new rules largely adhere to HMRC’s five design principles for penalties, we are concerned that HMRC face a significant challenge to explain the rules clearly to the unrepresented taxpayer. We suggest delaying their introduction by at least 12 months for certain taxpayers.
For penalties for late submission of tax returns:
- Giving HMRC two years to levy a £200 late submission penalty once the requisite number of penalty points has been reached is too long.
- The legislation should oblige HMRC to keep the taxpayer informed of their penalty point total(s).
- Appeals to a tribunal against late submission penalties should always involve an affirmation or cancellation of the penalty points which have led to the imposition of the financial penalty, to give the taxpayer greater certainty.
- The de minimis penalties for deliberately withholding information should treat ‘deliberate with concealment’ as more serious than ‘deliberate without concealment’ (currently they do not differentiate).
For penalties for late payment of tax:
- The periods of time at the end of which penalties are calculated for non-payment of tax are too short.
- The penalties for a delayed or insufficient payment of tax due as part of a Time-to-pay (TTP) agreement are too severe and amount to retrospectively charging penalties for correctly paid tax instalments on the basis of a default in a TTP arrangement at a later date. The interaction of TTP arrangements with the late-payment penalty regime should be reconsidered.
- The legislation should be tighter such that penalties under Schedules 23 and 24 are definitively cancelled in cases where the associated notice to file is withdrawn.
Clause 113 - ATT Briefing - Penalties for failure to pay tax
Clause 113 together with Schedule 25 (“the Schedule”) introduces new penalty provisions which will replace those which currently apply where a person fails to make payment of tax by its due date.
We focus our comments on the provisions concerning the breach by a person of a time to pay (“TTP”) agreement (paragraphs 7 and 9 of the Schedule) and matters requiring clarification.
We are concerned that where a person pays one instalment late under a TTP agreement they are treated as if the TTP agreement had never existed. This produces disproportionately high penalties and undermines the central principle of the new penalty regime which is to “encourage customers to pay their tax on time or make contact to discuss solutions to resolve the situation”.
The areas requiring clarification include whether HMRC have discretion on notifying a penalty where a breach of a TTP agreement is slight or a taxpayer has a reasonable excuse, and the need for clear and easily accessible guidance on TTP agreements so that taxpayers can understand their potential relevance to particular situations.
Clause 122 - LITRG Briefing - Financial Institution Notices
This measure introduces new powers for HMRC to request information about known taxpayers from financial institutions such as banks, without needing to seek the prior approval of either the taxpayer or a tribunal (as is currently required). It also removes the right of appeal by the financial institution and extends the scope for which the notice may be issued.
The introduction of these powers lacks justification. The evidence shows that the tribunal process is not a significant cause of delays in obtaining information from financial institutions. Accordingly, we think that Clause 122 should be dropped from the Bill. Rather than removing important taxpayer safeguards, HMRC should consider other ways of streamlining the relevant processes so that they can meet their international obligations.
Clauses 122-124 - CIOT Briefing - Financial Institution Notices, etc
Clause 122 introduces a new HMRC information notice power which does not have the usual safeguards associated with such a power, such as appeal rights and independent oversight by the tax tribunal. This raises serious questions about the erosion of taxpayer protections in the face of new powers taken by HMRC.
We recognise the importance of the UK meeting international standards in information exchange, which the measure is being introduced to address, but we are concerned that the new financial information notice may not necessarily help with this whilst at the same time the measure is not confined to international cases but can be used in domestic cases as well.
We seek reassurance from the Minister that the notice will be used only in accordance with the original policy intent, that is to speed up the time HMRC takes to deal with international exchange of information requests from overseas jurisdictions, rather than as an additional compliance tool for enquiring into UK taxpayers’ affairs.