A live blog of the eighth public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on Tuesday 16 June 2020 from 2.00pm. Clauses 86-98 were passed, covering (among other things) Air Passenger Duty, various environmental taxes, international trade disputes, .HMRC priority on insolvency, phoenixism and the GAAR.
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 listened to here.
Reports on previous debates on this Finance Bill are available:
Second Reading debate - Monday 27 April 2020
Public Bill Committee - 1st sitting (liveblog) - Thursday 4 June 2020 (am)
Public Bill Committee - 2nd sitting (liveblog) - Thursday 4 June 2020 (pm)
Public Bill Committee - 3rd sitting (liveblog) - Tuesday 9 June 2020 (am)
Public Bill Committee - 4th sitting (liveblog) - Tuesday 9 June 2020 (pm)
Public Bill Committee - 5th sitting (liveblog) - Thursday 11 June 2020 (am)
Public Bill Committee - 6th sitting (liveblog) - Thursday 11 June 2020 (pm)
Public Bill Committee - 7th sitting (liveblog) - Tuesday 16 June 2020 (am)
NB. 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.
New clauses debated during proceedings will not be voted on until the end of the committee's proceedings
Committee members are listed here. The main contributors are expected to be:
For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
Kemi Badenoch, Exchequer Secretary to the Treasury (XST)
For the Opposition:
Bridget Phillipson (Labour), Shadow Chief Secretary to the Treasury
Stephen Flynn, SNP Treasury Spokesperson
Wes Streeting (Labour), Shadow Exchequer Secretary
Alison Thewliss (SNP), SNP Treasury Spokesperson
Finance Bill Public Bill Committee - Sitting Seven - Tuesday 16 June 2020, 2.00pm
Clause 86 and Schedule 10: Rebated fuel: private pleasure craft
Provides the means (through regulations) to disallow the use of rebated fuel (red diesel) to propel private pleasure craft. It follows a Court of Justice of the European Union judgment in 2018 that it is contrary to a Directive for the UK to allow red diesel to propel private pleasure craft.
The FST said that the clause and schedule enables changes to be made to the 1979 Hydrocarbon Duties Act to require white diesel to be used for powering private pleasure craft. This helps to fulfil the agreement reached between the UK and the EU on the former's departure from the bloc. The FST added that the measures are the result of a 2019 consultation with the private pleasure craft industry attracting more than 1,600 responses. There is no timetable yet for its introduction. Future secondary legislation will be set out following wider UK Government consultation on the use of red diesel, announced at Budget 2020. Mr Norman said that these changes will not impact the rate of duty they pay. It will only mandate the type of fuel that they can use. HMRC will have powers to enforce legislation and issue penalties.
Wes Streeting asked why the government was implementing a European Court of Justice ruling being implemented given the UK will have left the EU. He said industry representatives had raised serious concerns that the changes would cause significant disruption to the industry and boat users. The FST acknoweldged the concerns of industry but said that the government had a duty to implement the ruling while in the transition period. He said that the government was serious in its intent to implement the legislation and noted that, even when out of the EU, the UK could face significant daily penalties for non-compliance. The FST said that there was no implementation date so that it could consult further with the industry to understand how it will adapt. Only then would the government consider how to implement the legislation.
Clause 86 and Schedule 10 were agreed unaimously.
Clause 87: Rates of air passenger duty from 1 April 2021
From April 2021, APD changes to Band B (long haul) destinations will be as follows: Reduced rates will rise from £80 to £82; standard rates will rise from £176 to £180; higher rates will rise from £528 to £541. The rates of APD for flights to Band A destinations (broadly, Europe and north Africa) are unchanged.
The XST said that the proposed ADT rates ensured the aviation industry would continue to support funding for public services. She said that the government was keen to ensure the continued success of the aviation industry, particularly in light of the Coronavirus pandemic. She noted that as the tax is levied on passengers, there will have a reduction in liabilities in recent months. But as the industry returns to health, the XST said that it was right to continue to raise revenues, which she said was levied in a fair and proprtionate manner. The XST said that the reduction in reduced rates would benefit around 80 per cent of passengers and added that the government was consulting on aviation tax reform, which will look at the tax treatment of domestic flights (which could include reinstating the return leg exemption and increasing the number of long-distance bands).
Wes Streeting pointed out that the aviation industry does not support the proposals, which they have said fail to support the industry or its net zero plans. He said no one would be surprised by this. Streeting then spoke in wider terms about the impact of COVID-19 on the aviation industry and the specific challenges that it is encountering. The XST said that the government had received many representations from the aviation industry and was working hard to find appropriate solutions that deliver value for money for taxpayers. This may include company-specific, as opposed to industry-wide, schemes and should not just involve government support.
Clause 77 was passed unanimously.
Clause 88: Amounts of gross gaming yield charged to gaming duty
Increases gaming duty (levied on premises where gambling takes place) in line with inflation
The XST said these changes were relatively minor, provided for an annual uprating in line with inflation and were expected by the industry.
Wes Streeting said that the opposition had received representations from the Betting and Gaming Council calling for reform of business rates and casino taxation and asked whether the Treasury had plans to consider a wider review of the taxation of the gaming industry and the promotion of public health. The XST said that the government continued to monitor the impact of tax changes and reminded members of the Conservative Party manifesto commitment to consider wider reforms for the gambling industry.
Clause 88 was passed unanimously.
Clause 89: Rates of climate change levy until 1 April 2021
Clause 90: Rates of climate change levy from 1 April 2021
The Climate Change Levy (CCL) is a tax on the non-domestic (i.e. business and public sector) use of energy (gas, electricity, liquefied petroleum gas and solid fuels). In setting the CCL main rates for 2020/21 and 2021/22 the government are beginning to converge the rates for gas and electricity.
The CCL rate on gas will be raised so that it reaches 60% of the electricity main rate by 2021/22, whilst the electricity rate will be lowered in 2020/21 and 2021/22. Intensive energy sectors with climate change agreements (CCAs) with the government, are entitled to a reduction in the rate of CCL they incur on energy used in specific facilities, in return for meeting agreed energy targets. The level of CCL reduction available to CCA members from 2020 will be adjusted to recognise the revised CCL rates.
The XST said the clauses allowed for the CCL to be updated for 2020-21 and 2021-22, reflecting changes announced in the March 2020 Budget and a 2016 announcement to equalise the rates for electricity and gas. Wes Streeting suggested that more needed to be done to ensure that polluting activities were appropriately taxed and when the government would implement the Green Gas Levy. The XST said that she would write to Mr Streeting with the details of both questions.
Clauses 89 and 90 were passed unanimously.
Clause 91: Rates of landfill tax
Landfill Tax is a levy on waste disposal at landfills. There is a lower rate of tax, which applies to less polluting qualifying materials (which is being increased to £3 per tonne this year), and a standard rate which applies to all other taxable material, and all disposals of relevant materials at unauthorised waste sites (which is being increased to £94.15 per tonne this year). Both rates of Landfill tax are rising in line with inflation. This applies to landfill sites in England or Northern Ireland (the tax is devolved in Scotland and Wales).
The XST said the increases in Landfill Tax will help to continue reducing the amount of waste that is sent to landfill and promote more sustainable waste management practices. Wes Streeting paid tribute to the work of councils across England in meeting their obligations to reduce the amount of waste sent to landfill.
Clause 91 was passed unanimously.
Clause 92 and Schedule 11: Carbon emissions tax
In line with the Brexit Withdrawal Agreement, the UK will remain in the EU Emissions Trading System (ETS) until 31 December 2020. The UK has said it will be open to considering a link between any future UK ETS and the EU ETS, if it suits both sides’ interests. If no link is agreed the UK will introduce an alternative carbon pricing policy. The Government is therefore preparing both a standalone emissions trading system and a Carbon Emissions Tax. Legislation establishing such a tax (but not commencing it) was passed in Finance Act 2019. This Schedule amends Finance Act 2019 to ensure that the tax will be ready to be operational from at the end of the Transition Period, if needed. UK permit holders operating stationary installations would be set a tax emission allowance and be taxed on all emissions that exceeded this allowance on a carbon equivalent basis. The first emissions reports would cover 2021 and the tax would be collected by HMRC annually.
The XST said the measures would ensure that the policy remains a viable option for maintaining carbon pricing in the UK after the EU transition period in the event that the trading system is viewed as undesirable. She said this meant that links could remain with the existing EU regime but that it would also allow the UK to go it alone if need be. The measures allow for enforcement and the imposition of civil penalties and will be in a position to be enacted, if required, from January 2021.
Responding for the opposition, Wes Streeting said the proposals made sense in light of the UK's departure from the EU. He asked when the government planned to respond to a consultation on the future of the UK ETS and about the burdens on businesses. The XST said that the government had responded on 1 June and that a consultation on the carbon emmissions tax was due to be published shortly. The XST said that the carbon emmissions tax would impact around 1,000 installations in the United Kingdom that were currently participating in the EU ETS. These are mostly large businesses. The XST said that these businesses would need to familairise themselves with the new rules and their liabilities, but that the administrative burdens were not expected to be any greater than those under the EU scheme.
Clause 92 and Schedule 11 were passed unaimously.
Clause 93: Charge for allocating allowances under emissions reduction trading scheme
Allows HM Treasury to make regulations which provide for the allocation of emissions allowances in return for payment under any future UK Emissions Trading System (see notes on clause 92).
The XST said this scheme could operate independently or be linked to the EU trading system. She added that it would ensure a strong carbon price remained in all scenarios during the negotiation period with the EU and allow for the UK to develop a tailored approach post-Brexit. The XST concluded by saying that, alongside Clause 92, it would ensure that the UK maintains a strong carbon price signal from 1 January 2021 onwards.
Clause 94: International trade disputes (incl. SNP amendments 14, 15 & 16)
This clause amends the Taxation (Cross-border Trade) Act 2018 to make it easier for the Secretary of State to vary the rate of import duty when a dispute or other issue has arisen between the UK Government and the government of another country. It replaces the requirement for “authorisation” with a requirement to have regard to international obligations.
SNP amendment 14 would require the Government to state the conditions under which it would consider it appropriate to vary rates of import duty in an international trade dispute. Amendment 15 would require the Government to seek the approval of the House before making regulations varying rates of import duty in an international trade dispute. Amendment 16 would require a review of the economic and fiscal impact of the use of the powers in section 94 including comparing those effects with EU Customs Union membership
Alison Theliwss moved amendment 14 from the SNP. She said the SNP was concerned that the clause would provide the government with signifcant new powers with minimal opportunites for public scrutiny. She asked the government to explain why it needed this power and what safeguards would be put in place. Thewliss pointed out that trade wars were destructive and greater wider economic impacts, citing the 25 per cent tarriff on Scotch Whisky imports to the USA that had arisen as a result of disputes between the aviation industry (Airbus and Boeing). Amendement 16 would provide for an economic analysis of the impact of the policy.
Bridget Philipson expressed sympathy with the amendments brought forward by the SNP. She said the opposition had 'considerable concerns' with the significant changes that the legislation is proposing. She said the government already had considerable flexibility to consider appropriate action in light of international law and suggested that the role of the Secretary of State was being weakened by this rule change. Ms Philipson called on the government to explain the reasoning for the change, the disputes it would cover and the involvement of the Trade Disputes Authority.
Responding, the FST said that the rise of trade protectionism across the globe had weakened the role of the World Trade Organisation and meant that the government needed to ensure that it had appropriate powers at its disposal to protect trade interests. He said that the EU was also seeking similar powers. The FST said amendment 14 would limit the government's ability to respond effectively in trade disputes. Amendement 15 was unecessary because the clause provides for secondary legislation that will be the subject of public scrutiny. He added that it would not be appropriate to provide detailed economic impact assessments, as proposed by amendment 16, as this would also limit the government's negotiating powers. He also said that it would not be appropriate for it to be the chancellor providing such reports to parliament.
Amendments 14 and 15 were defeated by 6 votes to 10. Amendment 16 was withdrawn.
Clause 94 was passed unanimously.
Clause 95: HMRC debts: priority on insolvency
Clause 96: HMRC debts: regulations
Part 3 of the Bill concluded, the committee moved on to debate part 4 - 'Miscellaneous and Final' provisions, which mostly relate to tax administration and compliance.
With clauses 95-96 the government will change the rules so that when a business enters insolvency, more of the taxes temporarily held by the business go to the Exchequer rather than being distributed to other creditors. This reform will only apply to taxes collected and held by businesses in relation to other taxpayers (for example, VAT, PAYE Income Tax, employee National Insurance contributions, Construction Industry Scheme deductions and student loan deductions). Specifically it amends insolvency legislation to make HMRC a secondary preferential (or preferred) creditor in respect of these debts. HMRC will remain an unsecured non-preferential creditor for taxes levied directly on businesses, such as Corporation Tax and Employer NICs.
Seven amendments (amendments 17-23) tabled by the SNP were debated with these clauses. Together these sought to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Alison Thewliss spoke first, moving the amendments. She said that in the context we are in just now, with firms running risk of insolvency, it is unfair to give HMRC a ‘queue jump’. She said the SNP feel strongly that the policy to grant HMRC preferential status should be withdrawn in its entirety.
She called on the Treasury to turn its ‘bounceback loans’ into grants. For many businesses it is not income deferred, it is income being lost at the moment, she said.
On phoenixism (clause 97) Thewliss said R3 have suggested this could lead to blameless shareholders, lenders, businesses and rescue profession also being held responsible for tax avoidance activities of rogue directors. She argued it could damage confidence in the UK’s corporate framework.
Wes Streeting, for Labour, said there was no doubt that in the current climate the risk of insolvency to business is that much higher. He asked why HMRC is only a secondary preferential creditor. “We’ve had strong representations for HMRC to be a preferred creditor across the board to ensure certainty and recognise the fact that HMRC contributes through tax collection and maintenance of general rules to the operating environment from which all businesses benefit… Although businesses may lose out as a result of giving HMRC greater preferential statement in the process of recovering money. It doesn’t necessarily follow that those businesses that would be losing out are particularly the businesses that most of us would have in mind as being of greatest concern – particularly small to medium sized enterprises.” He noted that bank loans were higher up the priority list than unpaid bills to SMEs.
Anthony Browne (Conservative), who used to run the British Bankers Association, said he did not believe this measure would have any impact on business lending. (Streeting has commented that the banking industry had lobbied heavily that it would.)
The FST responded to the debate, saying that he had enjoyed the moment of having an opposition MP saying he was resistant to lobbying, and someone who headed up the lobbying organisation on the other side saying from an inside standpoint it was irrelevant anyway.
The FST explained that there were estimated tax losses of £4.5 billion in 2018-19 where a taxpayer and HMRC have agreed the amount of tax due but that tax is never paid. These clauses deal wuith a situation where tax has become due but a company goes bankrupt before the tax has been paid. He explained the order of priority in relation to claims on a company's finances and assets when it goes bankrupt. He explained that this clause did not put HMRC at the top of the hierarchy. This only related to tax which customers and employees would assume to have been paid successfully already. Taxes levied directly on business such as corporation tax would remain unsecured. The impact on the economy overall of this measure is expected to be negligible, he said.
On the SNP's amendments he said the timing of when business has accumulated debt should not be a consideration. He said the reforms being made by these clauses had a strong and principled rationale - to ensure more of the taxes paid in good faith by employees and customers go to fund public services. These are not income for business, merely taxes those businesses hold temporarily. Responding to Alison Thewliss's point (on clause 97) that blameless shareholders may be affected, he said the government do not expect this to happen. "No one can be issued with a notice unless the connection to the company they have is a significant one... HMRC will not issue a notice if they are satisifed that a person acted in good faith and had no material impact on the company's affairs."
Alison Thewliss withdrew her amendments. Clauses 95 and 96 were agreed without a vote.
Clause 97 and Schedule 12: Joint and several liability of company directors etc
This clause and schedule are aimed at tackling tax abuse using insolvencies (so called Phoenixing). Gives HMRC a power to issue notices to make directors of companies, together with shadow directors and certain others connected to a company, jointly and severally liable for the company’s tax liabilities. HMRC can issue such notices only when the liability arises or is expected to arise from tax avoidance, tax evasion, repeated insolvency or a penalty for facilitating avoidance or evasion; and where the company begins insolvency proceedings, or is expected to do so, so that some or all of the tax liability will be lost to HMRC.
The FST explained that this clause and schedule tackle the small minority of people who use insolvency intentionally to sidestep tax liabilities. He said it was not linked to clauses 95-96. He explained the conditions in which the legislation would apply.
Wes Streeting, for Labour, said it was a reflection on the failure of HMT to effectively clamp down on abuse of the system that this had not been done before now. There are still too many holes in the system, he said. He asked the minister what the threshold of responsibility for the conduct covered by the legislation would be. He also asked whether HMT might go further: "for example by asking HMRC to report on how much money is lost by companies participating in or promoting tax avoidance schemes and then becoming insolvent before HMRC can counter the scheme and collect the money owed. And in following that, how much money would be collected if those companies' directors, participators and associated persons were made jointly and severally liable?"
Alison Thewliss commented on the 'huge gap' within Companies House in relation to this process. Why is there no link to the Government's Verify scheme, she asked.
The FST responded to the debate, saying he drew from their comments strong support for this measure. On the question 'why not do this earlier?' he said there was a longstanding principle in corporate law not to pierce the corporate veil. His impression is that phoenixism is a better recognised phenomenon now than previously.
Responding to Alison Thewliss's points about Companies House he said that: "The promoters strategy that we published at the time of the Budget - one of the things that that has very much looked to has been a more integrated approach to trying to crack down on abusive avoidance and evasion, precisely in order to knit together entities - and the promotion of abusive avoidance and evasion - and it has been in part about pulling together different entities, one of which might be Companies House, another of which might be the Advertising Standards Authority, that hitherto had been outside the purview of a more traditional approach."
Clause 97 was agreed without opposition.
Clause 98 and Schedule 13: Amendments relating to the operation of the GAAR
Makes procedural changes to the General Anti Abuse Rule (GAAR). These include replacing provisional counteraction notices with a procedurally simpler protective GAAR notice. Other amendments remove ambiguity and aim to ensure that where HMRC decides not to pursue the GAAR, enquiries can still be pursued using technical non-GAAR arguments.
With this clause and schedule was debated new clause 12. This SNP new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Clause 98 and Schedule 13, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
The FST introduced this clause and schedule. He said the GAAR was an important part of the Government's strategy to clamp down on tax avoidance. He briefly explained the 'double reasonableness' test and the role of the GAAR advisory panel.
He said that the change in relation to counteraction notices was designed to tackle customers who 'seek to run down the clock' on HMRC action. At the moment HMRC has no recourse against such taxpayers once the window closes. He said the changes made by this clause and schedule would only affect the small minority who go to extreme lengths to sidestep the rules.
On the SNP's new clause he highlighted that the changes to the GAAR were minor procedural changes and their effect would not be visible within six months. HMRC already publish Measuring the Tax Gap and annaul report and accounts which include specific information on the GAAR.
Wes Streeting, for Labour, agreed the clause was designed to 'tweak' the syetem - that was a matter of concern to him. He noted that on the loan charge, even where government has clamped down on avoidance, there continue to be promoters out there who continue to put out schemes against the spirit and the letter of law - 'and they're still at it'. The most recent example he had seen was umbrella companies targeting workers in the NHS.
He said rather then just tweaking ministers should give the GAAR more bite. "For example they could extend the GAAR penalty rules to apply a 100% penalty for any tax avoidance scheme which fails the GAAR, or more likely fails for some other reason, but would have failed the GAAR as well. They could prevent operators of avoidance schemes simply running away from their liabilities and victims, making directors, shareholders and other associated persons jointly liable for the new GAAR penalty, as I alluded to in the previous discussion. Umbrella companies create a unique opportunity to flog tax avoidance schemes to low paid workers. We see this exploitation taking place. We could counter this by making umbrella company directors and associated persons jointly liable for unpaid PAYE, national insurance, VAT. We should make promoters - the scheme designers and independent financial advisers - jointly liable for unpaid tax and penalties from a failed scheme, with a 'safe harbour' designed to protect people acting in good faith, for example where a promoter follows specific tax advice from a regulated adviser, where factual assumptions and advice were reasonable, where advice was shared with scheme participants... The list goes on."
He continued: "There are reasonable exemptions, or reasonable assessments that could be made where people are acting in good faith, but we still see far too many examples where people who design these schemes, people who promote these schemes, know that they are doing so in full knowledge that they will make a quick buck, but they won't pay the consequences. And as we see, the Government is trying to clamp down, HMRC is trying to clamp down, and when they catch up with people who followed advice, often in ignorance of tax rules themselves, but in the belief that they are following good, independent financial advice, the bite really hurts. So I do wonder why why we are not going after the scheme promoters much more aggressively than we are, especially when, despite all the controversy, all of the headlines that have been generated off the back of the loan charge, debates in Parliament, inquiries and grillings before the Treasury Committee, we still haven't got to the heart of this issue, of those people who design these schemes, who contrive these schemes, and who promote these schemes, that in my opinion, and in the opinion of many people out there who have been following our proceedings, still aren't paying the price for giving bad advice to customers who believe they are following good advice, following the law."
Alison Thewliss spoke to her party's new clause. She identified Scottish Limited Partnerships as having been used in various ways to move money and goods around the world - they have been used in war crimes, all kinds of things. They are causing harm to individuals and causing reputational damage to Scotland, she said.
Thewliss expressed concern at the level of the tax gap, and argued more action was needed against 'international tax abuse'. She noted that in July 2017 HMRC said it had issued over 75,000 follower notices worth in excess of £7 billion and had collected £4 billion. That still left a £3 billion gap.
Replying to the debate, the FST remarked on the 'delicacy and agility' of Wes Streeting's switch from detailed scrutiny to a 'swingeing extension of tax powers' was interesting to watch. He said he would read his suggestions 'in the record' with some care.
He continued: "The ugly truth of the matter is that tax avoidance - the promotion of it in particular - is an amoebic activity, which tends to flow into empty spaces, and to be parasitic - if amoebas can be parasitic, I'm not sure they can - on good activity. So you see good activity, you see lawful, legal activity, then right next to that you can see some very, very unpleasant, nasty and abusive tax avoidance. But of course he is absolutely right to focus on the way in which we see those new forms emerging. And it means that the battle against tax evasion and avoidance is never fully won. I hope he will take some comfort from all the work we are doing on the promoter strategy, which is designed to give not merely new powers, but a different way of thinking about disrupting the economics of the tax promoter supply chain."
Responding to Alison Thewliss on SLPs he acknowledged there was public concern on the issue. He said legislation had been passed in 2017 and new registrations had fallen sharply.
The clause was agreed without opposition.
The committee adjourned at 3.59pm, to resume on Thursday morning at 11.30am.