LIVEBLOG: Finance Bill 2021-22 Committee of Whole House

A guide and liveblog to Committee of Whole House debate on Finance Bill 2021-22 (also known as Finance (No. 2) Bill as it is the second Finance Bill in the current parliamentary session.

You can find a full preview of that day's debates here. This includes links to briefings produced for MPs by the CIOT, our Low Incomes Tax Reform Group (LITRG) and our sister body, the Association of Taxation Technicians (ATT). Shorter commentaries appear in each section below.

Timetable

The timetable for the debate was:

c2-2.30pm Group One – income tax and corporation tax
(Clause 4 (dividend income rate); clause 6 (banking surcharge); clauses 7 and 8 and Schedule 1 (attribution of trade and property business profits etc for a tax year); clause 12 (annual investment allowance))
(Concludes no later than 2 hours from start of proceedings on the Bill, followed by any votes on these clauses)

Probably c4.30-5pm Group Two – avoidance, profit shifting and economic crime
(Clauses 27 and 28 (diverted profits tax); clauses 53 to 66 (economic crime (anti-money laundering) levy); clauses 84 to 92 and schedules 12 and 13 (avoidance and evasion))
(Concludes no later than 4 hours from start of proceedings on the Bill, followed by any votes on these clauses)

Probably c6.30-7pm Group Three - VAT
(Clauses 68 to 71 (value added tax); clause 93 and Schedule 14 (free zones))
(Concludes no later than 6 hours from start of proceedings on the Bill, followed by any votes on these clauses)

Background

Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.

Proceedings can be watched here.

You can read our report on the second reading debate on Tuesday 16 November 2021 here.

The live blog below is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.

Group One: Income tax and corporation tax

Clause 4 (dividend income rate); clause 6 (banking surcharge); clauses 7 and 8 and Schedule 1 (attribution of trade and property business profits etc for a tax year); clause 12 (annual investment allowance

Amendments and clauses in this group:  Clause 4 stand part + Clause 6 stand part + Clause 7 stand part + Clause 8 stand part + Schedule 1 stand part + 5 [SNP] + 6 [SNP] + 4 [PC] + 7 [SNP] + Clause 12 stand part + NC1 [Opp] + NC2 [Opp] + NC3 [Opp] + NC8 [Trickett] + NC10 [SNP] + NC11 [SNP] + NC16 [Burgon] + NC17 [Lib Dem]

You can read the full text of amendments, and brief explanatory notes, here.

Commentary on clauses and proposed amendments

Clause 4 increases the income tax rates charged on dividend income, raising all three rates by 1.25%, in line with the increase in tax on earnings being made through national insurance / the health and social care levy. AGREED

Three new clauses have so far been tabled relating to this. New clause 1 (Labour frontbench) would require an assessment of what extra revenue would be derived by increasing the rates of tax on dividend income by different amounts (1.25%, 2.5% and 3.75%). New clause 8 (Labour MP Jon Trickett) would require the Government to (among other things) assess the effects of (a) removing the personal dividend taxation allowance, and (b) amending the dividend income rates of taxation to match the existing rates of taxation of earnings. New clause 16 (Labour MP Richard Burgon) would similarly require an assessment of the effects on tax revenues of increasing the dividend tax rates to the rates of income tax.

Clause 6 of the Bill cuts the corporation tax surcharge on banks from 8% to 3% from 1 April 2023. The effect of this is that while corporation tax for non-banks will rise from 19% to 25% on this date, corporation tax for banks (including the surcharge) will rise from 27% to 28%. At the same time the surcharge allowance, above which the surcharge is charged, will be increased from £25 million to £100 million to help smaller challenger banks. AGREED (301-206 VOTES)

Labour, the SNP and the Liberal Democrats are opposed to the cut in the surcharge – it was one of just two Budget resolutions they voted against (the other was on basis periods). New clause 2, tabled by the Labour frontbench, would require an assessment of the banking surcharge in the context of the cost of public support to banks since the financial crisis and an assessment of the risk of the need for further public support in future. 

‘Basis period’ rules determine how trading income for unincorporated businesses (self-employed sole traders and partnerships) is allocated to tax years. Clause 7 and schedule 1 would change the allocation so that it will be based on the profits or losses arising in the actual tax year, rather than (as now) in accordance with the accounting period ending in the tax year. (Briefings on this measure have been produced for MPs by CIOT, ATT and LITRG.)

The only new clause or amendment relating to basis periods comes from the Lib Dems. New clause 17 would require a report on the effects of the abolition of basis periods on particular sectors, including farming and other seasonal businesses, sole traders and partnerships.

As mentioned above, Labour and the other main opposition parties voted against the resolution covering this part of the Bill, so it seems likely they will oppose the clauses too. 

Clause 12 extends the £1 million higher limit of annual investment allowance (AIA) for a further 15 months to 31/3/23. ATT has produced a briefing on this clause. It notes that the extension is good news for the businesses able to take advantage of it, but traps in the transitional provisions may result in a business having its effective AIA limit restricted for a time to significantly less than either of the limits being transitioned between. ATT suggests an amendment to rectify this, which has been tabled by the SNP as amendment 7. CLAUSE 12 AGREED

The SNP have also tabled amendments 5 and 6 which would restrict access to the extended temporary increase in AIA to businesses that support transition to “net-zero” (amendment 5) and that do not have a history of tax avoidance (amendment 6). New clause 10 (also SNP) would require an assessment of the effects of the extension on GDP in different Brexit scenarios [DEFEATED 307-52 VOTES], while new clause 11 (another one from the SNP) would require an assessment of the take-up and impact of the temporary increase in the AIA, including the size and location of companies claiming the allowance.

Labour’s new clause 3 would require a review of which companies are benefiting from the AIA, broken down by size, sector, and country of ownership, and an assessment of the merits of the super deduction in light of the AIA. Plaid Cymru’s amendment 4 would require the government to analyse the impact of this measure on the economy, its geographical reach and impact on efforts to mitigate climate change.

Liveblog

Financial Secretary to the Treasury Lucy Frazer said the Government wants a fair, simple and modern tax system - and measures in this Bill will achieve that. She cited the basis period reform, a more competitive bank levy and AIA changes will help firms to invest more and earlier.

On dividend income proposals will mean affected people will help support health and social care and put-off people from incorporating for tax advantages. She said the measure is fair and progressive.

On the new clauses proposed by Opposition, Frazer said government has already published fiscal impacts and on TIINs.

On clause 6, she explained that without action increases to corporation tax would have led banks to be put in a uncompetitive situation internationally. The banking sector accounts for half a million jobs in the country, she reminded MPs, and vital revenue to support public services. Banks will still 'pa their faire share' after this proposal. No global competitors charge a levy on banks like the UK does.

On New Clause 2, she said there is no need for it because the Government already publishes such statistics in the Red Book at each Budget. Today's banking system is much stronger than at the time of the financial crisis (c 2008/9). New Clause 2 will not lead to more information than today.

On basis period reform, Frazer said it removes complexity and people pay tax closer to when money is made to reduce administration complexities. It should make businesses' lives easier.

On New Clause 17, she said the Government has already published a detailed impact assessment.

On Clause 12, she said AIA changes will tackle under investment by UK businesses - a long term problem in this country. The continued extension reflects the need to help them and the economy, and makes tax simpler and mean 99 per cent of businesses will have their plant and machinery expenditure covered. She does not understand why Opposition is against this?

On Opposition amendments, she said the Treasury carefully considers the impact of investment on the whole country. The Government is already reviewing the value of its tax reliefs and will publish this in due course.

Tackling tax avoidance and evasion is a priority for the Government, saying the Government's many measures on this will bring in £2.3 billion over next five years. But let's not have any more compliance measures on stressed businesses, she charged.

Amendment 7 and super deduction will help an investment-led recovery. She cites CIOT concerns that businesses must be given time to plan to take advantage of maximum entitlement of AIA.

Lucy Frazer said: "Amendment 7 would make changes to the AIA’s transitional rules for firms whose accounting periods straddle the AIA’s £1 million limit. The limit and the super deduction are specifically aimed at helping the investment-led recovery, and giving businesses the confidence to bring forward their investment by March 2023. We are alive to the points raised by the Chartered Institute of Taxation, but we believe that businesses should have sufficient time to plan to take advantage of the maximum entitlement for the AIA for any investment."

Labour's Shadow Financial Secretary to the Treasury James Murray said we need an economy that provides fo the whole country. He reiterated Labour's concern that economic growth has been poor for man years under Conservative governments. Low growth means the Tories have to put up tax. The tax burden falling on the backs of working people at the same time as tax cuts for banks, he complained. Clause 6 is a mistake because it will cost the public finances a billion pounds a year. We want a review to consider the total revenue raised by the bank levy compared to the total public finance support to banks. Tax Justice UK suggest that total money raised by bank levy will not cover public money used to bail them out in the financial crisis.

On dividend income proposal, Murray said it will raise just five per cent of total revenue needed by the health and social care levy - the 95 per cent will land on working people and their jobs, he said.

These two tax changes are not fair and equal - and shown that it will have a material impact on people.

On Clause 12, it raises questions about whether the Government can spend money wisely. The super deduction does not seem to be focussed on helping SMEs. It must be time to revisit and review the super deduction considering the changes to AIA may help SMEs.

On Opposition amendments and clauses, he cites CIOT as saying that 75,000 unrepresented sole traders do not have a 31 March or 5 April accounting end and thereby affected by the proposals. He wants to know what HMRC support will be available to help these businesses.

He said: "Clauses 7 and 8 and schedule 1 relate to the abolition of basis periods. In broad terms, we welcome steps that remove complexities and make it easier for taxpayers to understand their tax position. However, we are conscious of points raised by the Chartered Institute of Taxation, including the fact that HMRC estimates that 75,000 unrepresented sole traders do not have a 31 March or 5 April accounting year end. As the CIOT makes clear, these people will be affected by the proposed changes and will have to decide whether to change their accounting period end in 2023-24. To make such a decision, it is important that they have the right level of support from HMRC at the right time. I would therefore welcome the Minister’s explanation of what support will be in place specifically to help people with their response to these proposed changes. We want to be reassured that support will be in place, that the traders who need that support most can get it and that the changes are fair."

The Government's tax rises are hitting working people rather than those with the broadest shoulders. This is not what our country needs, he said. The Government is responsible for low growth, high taxes and wrong decisions.

SNP's Richard Thompson said, on amendment 5, making decisions contingent on 'net zero' is progressive.  On amendment 6 is needed because it is extraordinary that Frazer thinks asking companies to demonstrate good tax practice is onerous. People want to see businesses succeed but also that they play by the rules. Let's face it that businesses need good public services to thrive. He wants fair play on AIA, too.

On New clause 10 and 11, he said we need to avoid adverse consequences to the Government's measures. Let's see the impact on levels of investments and whether it it driving investment and growth in the economy. On New Clause 10, he added that Brexit continues to be a millstone on businesses.

On Clause 6, he said people are still bearing the scars of the 2008/9 financial crisis and the public wonder if banks are fulfilling their role in society (such as by closing branches). Let's make sure banks are making the maximum financial contribution they can to compensate for this.

On dividends, he said the tax burden is still falling disproportionately on the lowest-income people and youngest people.

Lib Dem Spokesperson for the Treasury Christine Jardine said the party will not support the Finance Bill (along with Labour and SNP). The reduction on bank levy looks wrong and objectional to the public.

On basis period reform, she said this will make life harder for businesses and farmers, especially. Farmers are worried about costs and burdens associated with these reforms. Estimated tax returns does not work for farmers, she insists. Will Minister put these proposals on hold and discuss with farmers. It is unfair and counterproductive.   

Labour's Richard Burgon spoke for New Clause 16 and  New Clause 8, which are needed by the growing unequal impact of the pandemic. The dividend change was just a pr-stunt to distract the public from recognising the impact of tax rises on working people. The dividend tax change is woefully inadequate, he said. Our economy is rigged in favour of the 'one per cent' (including billionaires). Those with wealth get special discounts on their tax rate compared to people who work. People who live off annual share dividends pay a lower rate of tax than people who have to work 'day in-day out'. My amendment would raise tens of billions of pounds, which could create a national care service, perhaps? The Government gives the impression we live in a shareholder society but that is untrue; TUC research shows that UK taxpayers earning over £150,000 captured 22 per cent of all direct income from  UK dividends.

Financial Secretary to the Treasury Lucy Frazer closed this section by saying the Budget document shows there will be growth year-on-year. The tax banks are paying is not reducing - it is increasing, she said. Additional high rate taxpayers will contribute three quarters of revenue raised by the dividend tax measures. More than 80 per cent of businesses are represented by tax agents, she was keen to say. She then reeled off what the Government is doing to achieve 'net zero' in Scotland. The Government has introduced 150 new measures since 2010 and invested £2 billion to tackle fraud, she said. On basis period reform, Frazer said the period has been extended to ensure everyone is ready and it has considerable support among stakeholder; she cites LITRG as saying it supports the measure as a simplifying tax for people on low-incomes.

Her full comment was: "The hon. Lady also mentioned the abolition of basis periods, and our basis period reform, and one of the first decisions I made as Financial Secretary to the Treasury was to extend the period before we bring in that measure, to ensure that everybody is ready for it. The measure has considerable support among stakeholders. Indeed, the Low Incomes Tax Reform Group, which does a lot of work to help those on low incomes, said: “We support the general principle of these new proposals as they mean complicated rules around basis periods become obsolete…This is a simpler concept to understand for unrepresented taxpayers.”

Clause 6 was pushed to a vote but the Government won (301-206).
New Clause 10 was pushed to a vote but failed (307-52)

Group Two: Avoidance, profit shifting and economic crime

Clauses 27 and 28 (diverted profits tax); clauses 53 to 66 (economic crime (anti-money laundering) levy); clauses 84 to 92 and schedules 12 and 13 (avoidance and evasion)

Amendments and clauses in this group: Clause 27 stand part + Govt 2 + Govt 3 + Clause 28 stand part + Clauses 53 to 66 stand part + Clauses 84 to 89 stand part + Clause 90 stand part + Schedule 12 stand part + Clause 91 stand part + Schedule 13 stand part + Clause 92 stand part + NC5 [Opp] + NC7 [Opp] + NC12 [SNP] + NC13 [SNP] + NC14 [SNP] + NC15 [Hodge]

You can read the full text of amendments, and brief explanatory notes, here.

Commentary on clauses and proposed amendments

This group brings together a number of measures around the compliance area, ranging from a tidying up of legislation to tackle profit-shifting to new measures to combat promoters of tax avoidance schemes to a new levy on financial and professional services firms (among others) to fund anti-money laundering work. Labour want to use this group to debate a global minimum rate of corporation tax, a register of beneficial owners of overseas entities that own UK property and the loan charge.

Clauses 27 and 28 make changes to the rules on Diverted Profits Tax (DPT), both in relation to relief that may be available under double tax treaties and correcting aspects of its interaction with corporation tax. (CIOT has produced a briefing on these clauses.)  AGREED

The Government has itself tabled two amendments (amendments 2 and 3) to amend clause 28 to prevent the issuance of a closure notice during a DPT review in certain circumstances. AGREED

Labour’s new clause 4 would require an assessment of the income forecast to be raised by the DPT in each of the next three financial years; and the assessment must consider what the impact would be of the OECD-G20 Inclusive Framework package of reforms being implemented, including a global minimum rate of corporation tax being introduced at either 15 or 21 per cent.

Clauses 53-66 put in place an Economic Crime (Anti-Money Laundering) Levy which will be paid by firms regulated for anti-money laundering purposes, including accountancy and law firms, financial institutions, estate agents and casinos; the levy will be a fixed amount based on the firm’s size, ranging from £10,000 to £250,000, with firms whose UK revenue is less than £10.2 million a year exempt. (A joint ATT/CIOT briefing has been produced on this measure.) AGREED

Labour’s new clause 5 would require an assessment of the levy every year until a register of beneficial owners of overseas entities that own UK property is in place, as well as an assessment of what impact such a register would have on the effectiveness of the levy. The SNP’s new clause 12 would require an assessment of the impact of the levy on the tax gap and on opportunities for tax avoidance, evasion and other economic crimes. DEFEATED (306-212 VOTES)

New clause 15 is tabled by a cross-party group of MPs, many of them associated with the All Party Parliamentary Group on Anti-Corruption and Responsible Tax (the lead sponsors are Dame Margaret Hodge (Labour) and Andrew Mitchell (Conservative), chair and co-chair of the group respectively). The new clause would require the Government to assess the effectiveness of the proposed levy rates and of levy rates twice and three times as high.

Clauses 84 to 90 contain measures to tackle promoters of tax avoidance. Clause 84 lets HMRC petition the courts to wind-up businesses promoting and facilitating tax avoidance. Clause 85 will enable HMRC to publish information about schemes and promoters earlier on, helping taxpayers identify and steer clear of schemes. Clauses 86 to 89 allow HMRC to seek a court order freezing the assets of a person are starting proceedings against to charge an ‘avoidance’ penalty. Clause 90 and Schedule 12 introduce a new penalty on UK based entities who facilitate tax avoidance schemes involving non-resident promoters. (CIOT has produced a briefing on these clauses for MPs.) ALL AGREED

Labour’s new clause 7 would require the Government to review the impact of measures contained in clause, and as part of that to commission an independent review of the information published by HMRC about disguised remuneration loan schemes. This independent assessment must consider HMRC’s approach to the loan charge scheme and consider recommendations for altering that approach. DEFEATED (299 - 215 VOTES)

The SNP’s new clause 14 would require an assessment of the impact of the provisions of clause 85, and consideration of the impact of publishing a register of overseas property ownership.

Clause 91 and schedule 13 are an anti-tax evasion measure relating to electronic sales suppression penalties. Clause 92 is aimed at tackling evasion of tobacco duty. AGREED

The SNP’s new clause 13 would require an assessment of the impact of the provisions in clauses 84 to 92 on the tax gap.

Liveblog

Lucy Frazer said the government was committed to making the UK a ‘hostile place’ for economic crime. She said that further efforts would require the input of the public and private sector and that the levy – as proposed – would help to achieve these by raising £100 million a year, money that would be used to help tackle money laundering.

Dame Margaret Hodge suggested that the UK remained ‘at the heart’ of money laundering activities, as evidenced by the Pandora and FinCEN papers. Frazer said the government had a robust record in cracking down on avoidance and evasion and that the measures proposed in the Finance Bill would tackle the most persistent offenders.

The FST said the Economic Crime Levy will help to tackle illicit finance and improve enforcement across the UK. HMRC, the FCA and Gambling Commission will have responsibility for collecting it.

Frazer said that the proposals contained in New Clauses 5, 12 and 15 were not required as the government has already committed to publishing an annual report and ‘wide ranging’ review of the levy by 2027. She added that the government routinely published information on avoidance and evasion and urged that these be rejected.

The FST said that Clause 84 would hamper the ability of dubious promoters to market avoidance schemes and provide security for taxpayers and the wider tax system. She said this was a ‘firm and proportionate approach’. 

She added that HMRC will  have the ability to share information on the promoters of avoidance schemes via Gov.uk and other appropriate media. Frazer added that legitimate businesses ‘have nothing to fear’ from these measures, which have been ‘carefully designed with safeguards in mind’. A 30-day grace period will give ‘named’ businesses the opportunity to appeal against HMRC’s proposed actions.

Dame Margaret Hodge asked whether HMRC should ‘bear down’ on abuses of Personal Service Companies, citing in particular the recent publication by the press of MPs use of PSCs for outside income. The FST replied that one of the reasons for the proposed higher rate of dividend tax announced as part of the Health and Social Care Levy was “to ensure that people didn’t take advantage of being paid through a company with dividends rather than being paid through income tax”.

Frazer rejected the proposals contained in New Clause 7 and New Clause 14, saying that the government already had processes in place to tackle disguised remuneration schemes. She described a further review of the Loan Charge as ‘unnecessary’, saying the government had accepted ‘all but one’ of the recommendations of the Morse Review when it was published two years ago.

Frazer also said that the government was already undertaking work to establish a publish register of beneficial ownership for overseas properties. She said that the government was ‘committed’ to these reforms and that this made proposed New Clause 14 unnecessary.

The FST described the Diverted Profits Tax as ‘hugely successful’, saying it had helped to generate £6 billion for the exchequer. The government’s amendments will ensure that the legislation works as it is intended to.

Frazer said that the measures in Clauses 91 and 92 would help level the playing field for compliant businesses, help to raise £85 million over the next three years and address tobacco smuggling and evasion. She again rejected proposals for further evaluation and review, arguing that the government already had processes in place.

Frazer concluded that, taken together, these measures would ensure that the government could continue to effectively crack down on economic crime.

James Murray argued that the government’s needed to take further action against economic crime beyond the measures contained in the bill. He said this was why the opposition had proposed further reviews on the impact of the levy.

Murray accused ministers of dragging their feet since first setting out proposals in 2015 and that they needed to introduce a public register of beneficial owners in order to being ‘much needed transparency’ and prevent the use of UK property for money laundering. He even suggested that ministers were ‘deliberately abandoning’ their commitment to introduce it that they had incrementally watered down their commitment over time.

Turning to the Loan Charge, Murray said that the government was ‘sorely failing’ in its approach, saying that it had caused ‘untold distress and personal harm’ to many ordinary taxpayers unwittingly caught up in these schemes. He said a new approach was ‘urgently needed’ and required an independent review of HMRC’s approach to the scheme. He said he had been 'saddened' by the impact of the charge on many ordinary taxpayers, a point that was later alluded to by David Linden (SNP).

Alison Thewliss (SNP) began her remarks by arguing that the UK was not a ‘wholly transparent’ country when it comes to tax. She welcomed the efforts to tackle economic crime but said ministers could go much further than the measures contained in the Bill.

Thewliss said her party was concerned that the measures proposed by the government’s Economic Crime Levy were poorly targeted and may place significant burdens on legitimate businesses. She cited evidence from the CIOT that “smaller tax adviser firms may be driven from the market because of the increasing costs, reducing choice for consumers”.

She said CIOT had also warned that the measure could “increase the tax gap by incentivising de-professionalisation, because it becomes too costly for firms to meet compliance, they may choose to de-register from these professional bodies altogether”. She worried that this could lead to higher enforcement costs for HMRC.

She said: "Clauses 53 to 66 provide for the Economic Crime (Anti-Money Laundering) Levy, which the Government estimate will raise approximately £100 million per year to help to fund anti-money laundering and economic crime reforms. SNP Members are concerned that this part of the Bill is not well targeted and could potentially act as an additional tax on businesses that are not breaking the rules. For example, the Association of British Insurers is concerned that insurers will be disproportionately hit, because they present very little risk to the Treasury of tax avoidance and money laundering. The Chartered Institute of Taxation has expressed concern that smaller tax adviser firms may be driven from the market because of the increasing costs and reducing choices for consumers. It has also said that the measure could increase the tax gap by incentivising de-professionalisation. If it becomes too costly for firms to meet compliance, they may just choose to de-register from professional bodies altogether. De-professionalisation can result in less ethical behaviour and increased costs of supervision by HMRC, neither of which is particularly in keeping with the aims of this legislation. I understand that more than 32,000 firms are already supervised directly by HMRC, and the staffing to cover that does not nearly match the size of the job."

Thewliss said that the SNP’s proposed New Clause 12 would help to ensure that the government’s policy was working as intended. She added that she was fearful the measures as proposed would not go far enough and be the silver bullet she believed Ministers hoped it would be.

Thewliss then spoke more generally about the ‘unwieldy’ nature of the tax system, saying that it helped to exacerbate economic crime and tax evasion. She said reform of Companies House would help to tackle ‘highly suspicious’ activities and expressed concern with the criteria for naming and shaming businesses accused of flouting anti-money laundering rules, calling for a system of ‘checks and balances’ to protect the reputations of businesses.

She also expressed concern with the costs associated with enforcement and the challenges that HMRC are already facing with pandemic-related enforcement work. Citing more CIOT evidence, Thewliss noted that “the general feeling among tax professionals is that HMRC frequently ask for new powers while not making full use of those that they already have”. She was concerned that HMRC was being handed new powers "without any real idea of how the tax gap will be narrowed in return".

Her full comment was: "I also asked for some assurances on how the scheme would be resourced. TaxWatch has expressed its concern that HMRC simply does not have the capacity to take on the job of more enforcement. As I understand from reports in the press, it already faces a considerable backlog of cases built up during the last 18 months, together with an eye-watering caseload of potential furlough fraud to investigate. To adequately enforce the rules on tax crime, it will need significant extra resources. I am sure that many hon. Members would want me to mention that the closing down of local tax offices across the UK means that some of that local knowledge, where somebody could detect tax fraud because they knew the area and who they were dealing with, has gone, which makes it more difficult for enforcement to be carried out locally. CIOT has said that the general feeling among tax professionals is that, “HMRC frequently ask for new powers while not making full use of those they already have.” The Bill threatens to increase the burden without any real guarantee of how the tax gap will be narrowed in return.

Turning to the Loan Charge, Thewliss said her party wanted to see “much more of those promoters of the loan charge being brought to book”. She said that the party’s proposal for an assessment of tax gap was a reasonable proposition for the government to consider. And she said a public register of overseas owners of UK property was long overdue.

Dame Margaret Hodge began by suggesting Ministers may be deliberately downplaying the scale of economic crime in the UK and that it was “simply choosing not to” implement “oven ready” legislation. She warned of the threats this posed to the UK and to British political life.

Dame Margaret said that there was a need to toughen up the “toothlessness and timidity” of the country’s enforcement organisations, which she said were “pathetic” and hindered by a lack of resource and political will.

After giving an extensive overview of the impact of economic crime, Dame Margaret called on Ministers to "listen to the strength of the argument" and accept the "cross-party" proposals contained in her proposed New Clause 15. 

Lucy Frazer held firm in the government’s view that further reviews, as proposed by opposition MPs, were unnecessary. While accepting the concerns of MPs around the Loan Charge, Frazer reiterated that the government had already commissioned and accepted the vast majority of recommendations of Sir Amyas Morse's Loan Charge review.

Turning to remarks made by Alison Thewliss, the FST said that the Treasury had committed £63 million to reviewing the operation of Companies House. Frazer commended the work of Dame Margaret Hodge's APPG. However she objected to the suggestion that the government was not committed to tackling economic crime, noting that the Economic Crime Plan had set out a range of enforcement actions, and described as 'inappropriate', the implication that government policy had been influenced by political contributions.

The FST concluded by saying that the government's measures would "enforce and protect" the economy and called on MPs for their support.

Group Three: VAT

Clauses 68 to 71 (value added tax); clause 93 and Schedule 14 (free zones)

Amendments and clauses in this group: Clause 68 stand part + Clause 69 to 71 stand part + Clause 93 stand part + Schedule 14 stand part

You can read the full text of amendments, and brief explanatory notes, here.

Commentary on clauses and proposed amendments

The ‘VAT margin scheme’ for second-hand goods lets a business pay VAT at 1/6 of the difference between the price they pay for an item and what they sell that item for. After the UK left the EU, due to the Northern Ireland Protocol, motor vehicle dealers in Northern Ireland became technically unable to use the margin scheme for purchases from Great Britain (though a concession has been granted). Clauses 68 to 70 seek to rectify the position, including the introduction of an interim scheme that permits second-hand car dealers in Northern Ireland to sell certain motor vehicles sourced in GB under the margin scheme. AGREED

Clause 71 says false teeth can be imported from GB to Northern Ireland VAT free. AGREED

Regulations introduced in October 2021 provide for the zero-rating for VAT of certain supplies of goods and services in free zones (secure customs sites within a Freeport). Clause 93 and schedule 14 put in place an ‘exit charge’ to ensure businesses don’t gain an unintended advantage from the zero rate. AGREED

No amendments or new clauses have been tabled to this group of clauses.

Liveblog

Lucy Frazer introduced this set of clauses, saying that now the UK has left the EU we are free to make our own VAT rules. This government is focused on using our new freedoms to create a VAT system that is ready for the future.

The UK has implemented the Northern Ireland protocol in a way that seeks to protect the UK internal market. 

Today’s clauses pay a part in achieving this objective, said Frazer. Clause 68-70 will together ensure the 500 second hand car dealers in Northern Ireland can continue to sell cars and other motor vehicles sourced in GB and the Isle of Man on an equal footing with their counterparts in the rest of the UK, she explained.

The UK government is actively discussing arrangements with the EU to let the VAT margin scheme continue in N Ireland for cars sourced from GB.

Clause 71 would extend UK VAT exemption to include dental prostheses imported into the UK including those moving between GB and NI, she said.

Freeports will help regenerate areas across the country, said Frazer. Clause 93 would ensure VAT is collected on goods that have benefited from zero rate in a freezone to prevent unintended VAT advantages, preventing a tax loss.

James Murray responded for the opposition, urging the government to reconsider its decision not to zero-rate domestic fuel.

Because the measures proposed in the Bill are "limited to the operation of VAT in very specific circumstances" Murray said that the opposition would not oppose them as proposed. On the measures contained in Clauses 68-71 specifically, Murray said the opposition did not want to see businesses and individuals in Northern Ireland penalised compared to other parts of the UK.

Given "the impact of VAT on people's lives", Murray concluded by reiterating his call on Ministers to revisit the issue of VAT on domestic fuel ore widely.

Peter Grant (SNP) said the measures were intended as "a sticking plaster on the botched job of Brexit". He cited the Scottish Government's approach to freeports in Scotland and their emphasis on workers' rights and Net Zero and spoke of his party's frustration over a lack of engagement with UK Ministers on the issue and their refusal to allow Scotland to legislate for these.

Lucy Frazer welcomed the cross-party support for the measures contained in the Bill. She said removing VAT on fuel bills would be untargeted and give "a tax break to those on high incomes". She called for a UK-wide approach to the creation of freeports and expressed confidence that the UK model would embrace workers' rights and environmental commitments.