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 begins on Monday 19 April.
This page currently includes briefings and representations for Committee of the Whole House debate. They are grouped into the six groupings of clauses which will be debated at this stage.
Briefings and representations for Public Bill Committee will be added ahead of the start of that stage.
MPs and their staff with any questions on these representations briefings should contact the CIOT/ATT Head of External Relations, George Crozier (email@example.com 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
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.
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.
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.
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.
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
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
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
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.
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.
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.
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.
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
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
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.