Finance Bill 2020 Committee – 9th sitting (live blog)

A live blog of the ninth public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on 18 June from 11.30am. MPs approved clauses 99-105, including HMRC use of automated processes, and also passed a new clause on extending off-payroll working rules to the private sector.

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.

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)
Public Bill Committee - 8tth sitting (liveblog) - Tuesday 16 June 2020 (pm)

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
Committee members are listed here. The main contributors were:

For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)

For the Opposition:
Wes Streeting (Labour), Shadow Exchequer Secretary
Alison Thewliss (SNP), SNP Treasury Spokesperson
Stephen Flynn, SNP Treasury Spokesperson

Clause 99 and Schedule 14: Tax exemptions for Windrush Compensation Scheme payments etc  

Exemption for income tax and capital gains tax and a relief from inheritance tax for payments made under or in connection to the Windrush Compensation Scheme and payments made under the Troubles Permanent Disablement Payment Scheme. The Schedule also introduces a power, having retrospective effect, for the Treasury to provide similar exemptions and reliefs for payments made under other compensation schemes and qualifying scheme payments, administered by or on behalf of the Government or other foreign governments.

Jesse Norman, Financial Secretary to the Treasury (FST), said the Government deeply regrets what happened to some of the Windrush generations and the compensation scheme is an attempt to rectify matters. It is normal for such payments to be tax-free, but this is not always the case, hence the need for this clause. He noted that CIOT had welcomed the measure describing it as a 'sensible move'.

Wes Streeting, Labour, Shadow Exchequer Secretary, said this is likely to be the final day of debate about the Finance Bill.  Streeting said the Windrush scandal was the result of aggressive and deeply hostile environment in governments over the past ten years. Only one in 20 people who have made claims under the Windrush compensation scheme have got money so far, he complained. It is appalling to add insult to injury to move so slowly on compensation, he added. 

Alison Thewliss, SNP Treasury Spokesperson, said the clause is important to correct wrongs done to people quicker than at present.

Jesse Norman said the delays in paying compensation is because of due process but does concern government ministers.

The clause was approved without division.

Schedule 14 was approved without division.

Clause 100: HMRC: exercise of officer functions

Puts beyond doubt that functions given in legislation to an officer may be carried out by HMRC using automated processes or other means. It applies to such processes as issuing taxpayers with notices to file tax returns and penalty notices. It affirms long standing and widely accepted operational practice.

Jesse Norman, Financial Secretary to the Treasury (FST), said it is a very technical measure.  No new charges or obligations for taxpayers will result. Current processes are 50 years old when administration with paper was the main way.

An MP intervened to say the COVID-19 crisis and response to it shows the value of projects such as Making Tax Digital.

Norman said there it is widely-though there is a case for taking Making Tax Digital further than VAT. Taxpayers expect nothing else but to have a digital tax system.  The legislations acts as if the matters covered in the clause were always the case.

Wes Streeting, Labour, Shadow Exchequer Secretary, said it is absurd to be in a position where HMRC risk being dragged through legal processess because Section 8 notices were made using automated processes. There is obviously a good case to be made to include ever changing technology within HMRC systems. HMRC’s current systems can be good and awful, he said. We must redeploy people who lose jobs because of automated processes. He talked of the need for safeguards checks and balances – and  taxpayers should be able to appeal to human beings. He spoke of his wider concerns about decisions being made by automated systems as opposed to humans.

Alison Thewliss, SNP Treasury Spokesperson, is concerned about the discretionary point; we cannot be in a situation where a computer says ‘that is the end of the story’. It is difficult to unwind a computer’s decision, after all. Humans in HMRC must have discretion. Like Streeting, she wants safeguards.

Jesse Norman said within HMRC there must be baked in a culture of accountability for decisions. He said safeguards and the balance of power between taxpayers and HMRC is taken seriously. HMRC does rely on computer systems that have helped deal with issues raised by the COVID-19 crisis; many things would have been inconceivable without HMRC’s computer systems.

The clause was approved without division.

Clause 101: Returns relating to LLP not carrying on business etc with view to profit

Designed to tackle a small minority of limited liability partnership (LLPs) that are used as tax avoidance vehicles (sharing losses among the members who seek to offset them against their personal income in their own tax returns). This measure makes provision with immediate effect (both prospectively and retrospectively) about tax returns in relation to LLPs that are not carrying on a trade, profession or business with a view to profit. Although not mentioned in the impact note we believe that this provision has been enacted following the decision of the First-tier Tribunal in 2019 in the case of Inverclyde Property Renovation LLP and Clackmannanshire Regeneration LLP v HMRC.

Jesse Norman, Financial Secretary to the Treasury (FST), said this clause gives LLP taxpayers, and bemoans people who seeks to take legal action to avoid their tax responsibilities. There are no new obligations for taxpayers in the new clause. This clause has retrospective effect. The clause provides clarity for taxpayers and a level playing field in this area.

Wes Streeting, Labour, Shadow Exchequer Secretary, said LLP are a perfectly decent way to structure a business but there have been too many experiences of LLP used for minimising people’s tax liabilities.

The clause was approved without division.

Clause 102: Preparing for a new tax in respect of certain plastic packaging

At Budget 2018, the Government announced the introduction of a new tax on plastic packaging which has less than 30% recycled plastic. This clause enables HMRC to prepare for the introduction of this tax on plastic packaging before it is formally provided for in Finance Bill 2020-21.

Jesse Norman, Financial Secretary to the Treasury (FST), said plastic waste is a serious global issue. Over 2.2m tonnes of plastic packaging are produced in UK every year – most of which is new plastic rather than recycling because the latter is more expensive to use. The CIOT welcomed the government’s measured approach to the implementation of the tax, he said. The Government is holding a separate consultation on the design of this new tax, to be published in draft alter this year.

Wes Streeting, Labour, Shadow Exchequer Secretary, said the tax system should be used in this matter to incentivise good behaviour. He welcomes that the Government has acted on feedback from consultations of wanting the tax to be extended to imported plastic packaging.

The clause was approved without division.

Clause 103: Limits on local loans

Increases the amount the Public Work Loans Board can loan out. Applies to England, Scotland and Wales (not N Ireland).

Jesse Norman, Financial Secretary to the Treasury (FST), said this is a small and technical measure. The Treasury says this clause is a high priority because of the central role that PWL plays in the capital finance system supporting local authorities that support communities, even more so because of COVID-19.

Wes Streeting, Labour, Shadow Exchequer Secretary, said local authorities have done well to mange their finances given the squeeze on their funding in the past decade. Governments like to delegate blame to local authorities despite not funding them properly, he complained. When local authorities have pulled on PWL, it has been done sensibly. He urges the Treasury to recognise the awful impact that COVID-19 has had on local authorities.

The clause was approved without division.

Clause 104: Interpretation

The clause was approved without debate or a division.

Clause 105: Short title

The clause was approved without debate or a division.

New clauses and schedules

The committee then moved on to debate new clauses (NCs) and schedules (NS’s) which have not already been debated. They are grouped loosely by topic for debate purposes but will be agreed / voted on in clause number order, including those already debated (ie NC1, NC2, NC3, etc)

Govt NC1 + Govt NS1: Workers' services provided through intermediaries

New Clause 1 and New Schedule 1 will extend the reform of the off-payroll working rules to medium and large businesses in all sectors outside the public sector from April 2021. The reform has been in place in the public sector since April 2017. This measure was originally going to be introduced in April 2020 but was delayed as part of the Government’s COVID-19 economic response package. 

The off-payroll working rules have been in place since 2000 and aim to ensure that individuals who are working like employees, but through their own personal service company, pay broadly the same income tax and National Insurance contributions as individuals who are employed directly. 

The reform shifts responsibility for determining whether the off-payroll working rules apply from the contractor’s Personal Service Company to the client engaging them. It also requires the client or fee-payer to account for and deduct employment taxes where they are due, rather than the contractor’s Personal Service Company. 

Jesse Norman, Financial Secretary to the Treasury (FST), stressed that this was not a new tax, rather it was about increasing compliance with off-payroll working rules. Personal service companies (PSCs) have traditionally had to self-assess to ensure rules apply but non-compliance has been widespread.

He said the aim is to make people pay broadly the same tax, whether they are employed by an engager or work through a PSC. There have been several attempts to tackle non-compliance with the rules, and the Government has carried out three consultations recently on changing the rules. The Government did consider alternative proposals, but in general the approaches suggested would create groups exempt from the employment status test and subject to ‘a separate and advantageous tax regime’. The government did not consider this to be fair to the majority of taxpayers, he said.

The tax minister said the reforms in this clause were successful in the public sector and the extension to the private sector is informed by that experience. The public sector roll-out had raised £250m in additional revenue in last 12 months. Independent research showed it did not damage the flexibility of the labour market.

The FST said not acting in this way would ‘perpetuate an unfairness between individuals who may work in the same way but pay different levels of tax’. This is not financially sustainable, he said. Small businesses are exempt from the changes, he added.

He said HMRC would take a supportive approach to compliance in the first year of the reform, with penalties only be applied in cases of deliberate non-compliance.

Wes Streeting, Labour, Shadow Exchequer Secretary, said self-employment is a vital part of the UK economy. Historically tax arrangements for self-employed people have differed from those on payroll, recognising that self-employed have lower levels of protection in areas like holiday pay and sick pay, he said. Clearly the system has been subject to abuse and it is right that we tackle that abuse.

Streeting warned of the assumption that the self-employed are either wealthy or the very low paid: “There is sometimes a tendency to think of the self-employed as if they only fell into two categories of people: The very wealthy who are using self-employed status to avoid paying their fair share of tax, which should obviously be clamped down upon; and the very low paid working in parts of the economy which are deemed unproductive”. But, he continued, the true picture of self-employment in our country is a lot more complicated than that.

He welcomes the delay to the rollout of the reforms because of the COVID-19 pandemic. He encouraged the government to use the additional time to conduct an additional review to address anxieties that remain, of the kind raised in a recent House of Lords committee report. He called for a joined-up approach bringing tax and employment status together. He said it is crucial that the Government use the time wisely to make sure the reforms are successful.

Stephen Flynn, SNP Treasury spokesperson, said it was not acceptable that such a contentious tax matter was first introduced through a 45 minute money resolution debate in the House rather than the full scrutiny and process of the Budget process.

“What IR35 is creating is a new group of zero hours employees paying full taxation but without the associated employment rights. What is just and fair about that?” He said his contractor constituents in the oil and gas sector were outraged about the government’s decisions. Adding a further level of complexity into their employment status was ‘unforgiveable’ he said, at a time when companies were shedding staff on a daily basis. He urged the government to reconsider what they were putting forward.

Flynn said the government should take the advice of the House of Lords, pause this policy and go back to the drawing board.

Conservative backbencher Andrew Jones noted the issue had attracted a great deal of attention and presented issues that were not easy to resolve. Those affected are in a range of situations – some may have had pressure on them to become self-employed; but vast legions choose the self-employed routes, enjoying the challenging, wanting to be in control of their own destiny. That is to be encouraged, he said. A balance needs to be struck between protecting some employees while recognising the vast majority have chosen self-employment and are adding real value.

Another Conservative backbencher, Miriam Cates, said this is clearly a very contentious issue, but a majority of employers and contractors that I have spoken to agree that there must be some kind of reform. Tax system should not offer particular advantages to those who are using personal service companies (PSCs) to create wealth only for themselves. Not fair that two people do the same job in broadly similar conditions but pay different rates of tax.

From personal experience running a small business in the tech sector she thought current practices discourage people from becoming employees in some sectors. For example people with certain programming skills can command such high day rates as contractors that there is very little incentive to become an employee in a small company. These reforms will make employment and the benefit it brings more attractive, she said.

The FST replied to the debate. He said Stephen Flynn had made comments that were ‘simply not true’. The measure was introduced via a separate resolution but details of the change were tabled but not moved during the Budget debates so it was totally open to the House to discuss them. If the resolution had been moved it would not have been possible to legislate for the move to an April 2021 deadline with the same straightforwardness. That resolution was then given a separate debate. There had been no ‘short circuiting’ of the process.

He said the Government had engaged very closely with the Lords Economic Affairs Committee and he had volunteered to appear in front of the committee. He emphasised that ‘the genuinely self-employed’ are not taxed by this reform, it is designed to catch those not genuinely self-employed.

Alison Thewliss intervened to say this measure was already having a ‘chilling effect’ with contracts not being renewed. What monitoring is being done, she asked.

The FST responded that the public sector reform had not had any great chilling effect. “On this reform it is undoubtedly true that this measure is nudging some companies to consider whether people they had thought of as contractors are not in fact employees, and they in some cases are having to review the structure of their workforces. But I don’t think that is a matter of a chilling effect on the status of those contactors themselves, because those people were always latently employed and it’s then for the contractor and the company to work out what future arrangement they wish to have.”

He said the government has put into the Queen’s Speech a substantial commitment to bring forward a bill in this area following the Taylor review.

New clause 1 and new schedule 1 were passed without opposition.

NC2: Reliefs for Business

This new clause, proposed by the SNP and Plaid Cymru, would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.

Proposing it, SNP spokesperson Alison Thewliss said that MPs have very few mechanisms to explore how effective Finance Bill measures are in reality. She and her colleagues had supported work on a Budget committee, which which had been looked at by the Procedure Committee. "We really don't understand, underneath all of the policies and the ideas the government has, the effectiveness of them, so we end up with things proposed in bills which turn out to be completely ineffective, or we find out they have differential effects than the government expects and the government then has to come back later on and amend things and change things and try to fix the mistakes they have made." Thus she felt feel that this requiring of the government to consider the geographical effects of the changes to reliefs for business would be helpful. This was of particular importance to Scotland and Wales because devolved administrations do not have powers in this area.

Wes Streeting, for Labour, said Thewliss had made a perfectly reasonable case. He agreed it was important to review the geographical effects of measures in the Finance Bill.

The FST responded to the debate. He noted it specifically applied to RDEC, SBAs and treatment of intangible fixed assets. HMRC does not routinely require businesses to provide geographical information about where expenditure is being incurred in these areas. It would require changes to the CT600 form which would create additional burdens for businesses. Even with this it would not be possible to do it within the next 12 months. He said HMRC did provide a lot of information by geographical area and sector including R&D tax relief, however this is based on a company's registered office not necessarily where expenditure is incurred. 

Alison Thewliss said she thought the geographical data collected by government was insufficient in a lot of areas. She pressed new clause 2 to a vote but it was defeated 10-7.

The committee adjourned, to resume at 2pm for the final new clauses. 

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