A live blog of the fourth public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on Tuesday 9 June 2020 from 2pm. Clauses passed covered increases in the rate of the Research and Development Expenditure Credit (RDEC), and of Structures and Buildings Allowances; changes to the tax treatment of some intangible fixed assets; the Enterprise Investment Scheme (EIS) and 'top slicing relief'.
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 and other relevant reports are available:
Second Reading debate - Monday 27 April 2020
House of Lords report on off-payroll proposals - Monday 27 April 2020
Resolution approving changes on off-payroll working - Tuesday 19 May 2020
Public Bill Committee - 1st sitting (liveblog) - Thursday 4 June 2020 (am)
Public Bill Committee - 2nd sitting (liveblog) - Thursday 4 June 2020 (pm)
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 ex[pected 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
Wes Streeting (Labour), Shadow Exchequer Secretary to the Treasury
Alison Thewliss (SNP), Lead SNP Treasury Spokesperson
Stephen Flynn (SNP), SNP Treasury Spokesperson
Finance Bill Public Bill Committee - Sitting Four - Tuesday 9 June 2020, 2pm
Clause 27: Research and development expenditure credit
This increases the rate of the Research and Development Expenditure Credit (RDEC) from 12% to 13%. For profit making companies this will reduce their corporation tax. Companies with no corporation tax liability will benefit either through a cash payment or a reduction of tax or other duties due.
Financial Secretary (FST) Jesse Norman briefly introduced this clause, describing it as a well targeted and much valued incentive.
For Labour, Wes Streeting supported the clause but posed a number of questions to the minister. He said it was disappointing that the while the rate of RDEC was being increased there was no increase in the generosity of the separate SME R&D regime. He encouraged the Government to do more to help UK universities capitalise on their research.
Responding, the FST said the SME regime is 'extremely generous as it presently stands' with a 230% corporation tax deduction on R&D spend (2.3 times CT reduction) and a 14.5% payable credit where there are losses made. He also noted that some SMEs claim RDEC.
The clause was agreed without a division.
Clause 28: Structures and buildings allowances: rate of relief
Clause 29 and Schedule 4: Structures and buildings allowances: miscellaneous amendments
These clauses were grouped together for debate.
Structures and Buildings Allowances are a capital allowance available for the cost of constructing, renovating or converting structures or buildings for non-residential use. Clause 28 increases the rate of allowances from 2% to 3% per year from April 2020. The Government believe this will encourage business investment.
Clause 29 and schedule 4 contain various amendments to SBA to make sure the allowance works as intended, eg preventing double relief with R&D allowances. (NB. SBA was only introduced in October 2018.)
With clauses 28 and 29 was debated the SNP's new clause 10, which would require a review of the impact on investment of the changes made to structures and buildings allowances in Schedule 4.
Tax Minister Jesse Norman said the Government is committed to giving business incentives for expenditure. He boasts about the low rate of corporation tax, saying these two clauses make Britain a better place to do business. On Clause 28, he said is all helping businesses to upgrade and about improving cash flow for business. On Clause 29 and amendments, he said this is about simplifying the tax system. On New Clause 10, Norman sought to reaassure the SNP that HMRC monitors tax reliefs.It is not appropriate to draw conclusions in a review so soon after the tax change (and he urges MPs to reject it).
Wes Streeting, Labour, refered to CIOT positively saying taxpayers welcome increases in rate of reliefs but not constant tinkering, which knocks taxpayer confidence. SBA advantage is cash flow but not necessarily an incentive to invest. He said: "Most businesses cite certainty as one of the most important part of their business planning. As the Chartered Institute [of Taxation] says [it is] more important than the precise amount of relief available.” On New Clause 10, he said successive governments have not enabled a more wide-ranging debate on tax reliefs - even when they have a majority. He complained about the amendment to the law resolution in relation to Finance Bill, which means Oppositon cannot table or promote alternatives to measures in the Finance Bill and have to talk instead on dry matters.
Stephen Flynn, SNP, said supporting capital investment is something all MPs should want but there is a need for good governance, particularly when dealing with business productivity and efficiency. He talked about the benefits of green energy and energy efficiency, lamenting that the Scottish Government cannot legislate for the kinds of changes they want because of the need for UK government approval. A review as called by SNP would determine what more can be done for green energy in the UK.
Norman recognises concerns of tinkering but spent time criticising the last Labour government for doing that the most. He said these clauses do not deal with trivial amounts and therefore a bit above complaints about tinkering. The amendments are minor but necessary to ensure the SBA is fair and equitable. In the case of this measure, it is inevitable that when there is change, there are consequences for the legislation. He told the SNP that the Government will come forward with plans for 'Net-zero'.
Clause 28, schedule 4 and clause 29 were agreed without division.
Clause 30: Intangible fixed assets: pre-FA 2002 assets etc
This change will benefit companies that acquire intangible fixed assets (including intellectual property such as trademarks, patents, design rights etc) from related parties. The current distinction between pre-FA 2002 intangible assets and those arising after the date the IFA regime was first introduced is an artificial boundary. Removing it will simplify the tax code, results in the taxation of more intangible assets being aligned with the accounts, and makes the UK a more attractive place to do business.
The minister, Jesse Norman, said this is about improving the attractiveness of the UK and helping businesses to manage and exploit IP in the UK. The most immediate impact is on international businesses importing valuable intangible assets to the UK from overseas. This clause enhances availability of UK tax relief for cost of aquiring intangible asets, bringing them into a single tax regime. It brings those aquired asets into a single tax code and reduces arbitary distinction between older and newer intangible assets - attarcting innvoative and IP intense businesses.
Wes Streeting said a compulsory change to the system is more disruptive than running two systems side by side, in the opinion of many businesses.
Jesse Norman said the Government does not believe companies will be worse off because of the changes.
Clause 30 was agreed without division.
Clause 31 and Schedule 5: Non-UK resident companies carrying on UK property businesses etc
Finance Act 2019 changed the law so non-UK resident companies that carry on a UK property business, or have other UK property income, pay Corporation Tax on their property income from April 2020 rather than Income Tax. This clause and schedule amend that legislation to ensure the 2019 rules ‘work as intended’. Basically they broaden the scope of the income being taxed so that, eg, income from non-trading loan relationships held in respect of a UK permanent establishment of a non-UK resident company is taxed.
Jesse Norman said these changes ensure a smooth transition for non-UK resident companies landlords from income tax regime to corporation tax regime.
Clause 31 and schedule 5 were approved without division.
Clause 32: Surcharge on banking companies: transferred-in losses
Finance (No. 2) Act 2015 brought in a surcharge of 8% on the taxable profits of banking companies. This clause denies relief against the surcharge for losses transferred to a banking company from a non-banking company in the same group.
Jesse Norman explained why the bank surcharge was brought in and explained about disallowed adjustments, such as capital losses. There is a risk without this clause that banks could use losses from non-banking companies withint their group to reduce their surcharge profits. The changes will ensure it operates as intended and ensures banks pay this additional tax on all banking profits.
Wes Streeting welcomes the clause. Streeting emphasised, that a decade on from the financial crisis, the UK remains a global financial centre and is an asset to the country. It is also important that banks reflect on the financial crisis came about as a result of reckless action and greed has put a significant price on the heads of taxpayers and citizens who has no part in the making of that crisis. The decisions facing governments have been made harder because of financial speculators who caused the crash. The surcharge is about them paying back their debts to society.
FST Jesse Norman agreed that the financial sector makes a big contribution to the UK but accepted that they should pay the full burden of taxation - helped by removing this loophole. Norman claimed that the law, incentives and culture were out of control before the 2008 crash.
Wes Streeting claimed that no Tory Treasury minister that was calling for greater regulation under the last Labour government.
The FST replied to the discussion. He said it was of enormous value to the UK that it is a global financial centre. However it is also very important that banks pay their fair share. He described the measure as removal of a ‘potential loophole’. He said the surcharge was a response to a problem that should not have been so big and should have been foreseen.
Clause 32 was approved without a division.
Clause 33 and Schedule 6: CT payment plans for tax on certain transactions with EEA residents
This will allow companies to defer payment of corporation tax that arises on certain transactions with a member of the same group of companies resident in another EEA state. A company can apply to defer payment of that tax over a period of up to five years. This is intended to provide certainty for UK business following a recent First-tier Tax Tribunal decision.
The FST set out the purpose of this clause, describing it as a ‘small and technical’ matter. This clause would remove uncertainty for business and protect Exchequer revenue.
He explained that a risk to the Exchequer arose from the fact that the FTT decided the rules in this area “could only be justified if transfers to group companies in the EU did not give rise to an immediate tax charge. In the absence of any mechanism for deferral the tribunal decided that tax-neutral treatment must be applied to such transfers. Effectively that would mean that the UK would lose its right to tax any profits on such assets completely.” He said the case was under appeal but resolution could be some years away.
Wes Streeting, for Labour, described the clause and schedule as welcome and sensible. He noted that the power of repeal of this clause is intended to be used if the government determines that CT payment plans are no longer required. He asked the FST in what circumstances government might determine that CT payment plans were no longer required.
The FST said that this might be if we obtained certainty such that the provision was no longer required. This could be a successful conclusion of litigation in favour of the UK government, or it could be a situation where EU treaty freedom of establishment rules no longer apply to the UK.
Clause 33 and Schedule 6 were approved without a division.
Clause 34: Changes to accounting standards affecting leases
Minor amendments to clarify the scope of legislation on changes to lease accounting standards (specifically, the applicability of ‘spreading rules’) introduced in Finance Act 2019.
The FST said this was another minor, technical amendment, removing a potential ambiguity.
Bridget Phillipson, for Labour, said the opposition did not object to the principle behind this clause. She just wondered why this had not been done sooner. She also raised the question of tax transparency and the tax gap. ‘Income must be more tightly tied to tax treatment,’ she said. She urged the government to make sure everyone pays their fair share.
Responding, the FST said her points were ‘well taken’ and that the government takes the wider question of tax fairness seriously. “In an environment where the vast majority of taxpayers pay tax… in good time… it is vital all the more to maintain that consent and recognition of the public fairness of the system,” he said. He highlighted the government’s consultation on a ‘much more vigorous approach’ to tackling promoters and enablers of tax avoidance.
The minister also drew attention to the new ‘customer experience committee’ in HMRC. “They have brought in a series of experts who understand what you might call effective and successful customer and taxpayer treatment, bringing in from other sources across the private sector; just in order to make sure that people do feel well treated, well handled, it’s not a bruising process to have interaction with HMRC. So that sense of the importance of maintain consent, of the Revenue and Customs not being oppressive, while at the same time remaining highly effective in ensuring that people pay the right tax due, is a balance that they and we in government are constantly seeking to strike.”
Clause 34 was approved without a division.
Clause 35: Enterprise investment scheme: approved investment fund as nominee
This measure relates to changes which came out of the Government’s Patient Capital Review. EIS encourages investment in smaller, higher risk trading companies by offering tax reliefs to individual investors who subscribe for new shares in qualifying companies. Companies deemed as ‘knowledge-intensive companies’ already get additional benefits, such as a higher limit on the amount of funding they can receive each year under EIS. This clause introduces a new ‘knowledge-intensive fund’ structure. Funds which fit this criteria will have to focus on approved knowledge-intensive investments, but will have increased flexibility to make subscriptions in shares and for investors over the years in which relief is given.
With this clause was debated amendment 4, tabled by Plaid Cymru and SNP MPs, which would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 35 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.
SNP spokesperson Stephen Flynn opened this discussion, proposing amendment 4. He expressed concern about the concentration of investment in one corner of the UK. between 2016 and 2018 73% of all venture capital invested in the UK went to the 'golden triangle' in the south east and east of England. Between 2015 and 2018 only 1.3% of EIS investment in the UK went into Wales while 67% went to the 'golden triangle'.
Bridget Phillipson, for Labour, said the government had listened by not offering further tax relief, but instead providing additional flexibility for fund managers to make subscriptions in shares and for investors over the years in which the relief is given. However, she said, it is not clear what the difference is between adding further tax relief and additional flexibility in this policy. On the SNP/Plaid amendment she said Labour was sympathetic and recognised the imbalance between the nations and the regions of the UK. She looked forward to the days when the government will provide [additional] imvestment in parts of the country such as the north east of England". (Phillipson represents a constituency in the north east.) SHe also worried the clause might be open to exploitation and asked the minister to respond to this concern.
The FST replied to the debate for the government. He said he understood the intention of the amendment, to use the EIS more strategically to tackle climate change and to ensure the benefits of the EIS are spread more widely across the country, but he thought the amendment was nevertheless unnecessary. He said the EIS was a response to the struggle of younger, innovative companies to access patient and long-term equity finance; it was not merely to help particular types of companies or particular sectors.He also observed that a registered office in the south east does not necessarily mean that investment is only going in to the south east.
He said the government would conduct a full review of EIS. He said it was a state aid whose current status expires in 2024. That gives the government a specific cause and purpose to review the EIS to decide whether or not to renew it.
Stephen Flynn said 2024 was a long way away. The FST argued this clause could not be changed without distorting its essential character.
The committee divided on amendment 4. It was defeated 9-6.
Clause 35 was then agreed without division.
Clause 36: Gains from contracts for life insurance etc: top slicing relief
Top Slicing Relief (TSR) provides relief to taxpayers who have become subject to a higher rate of income tax due to a life insurance policy gain being included in their income. (Life insurance policy gains accrue over a number of years but are taxed in one year. This can result in gains being taxed at a higher rate. TSR was designed to mitigate the impact of this higher tax charge.)
This clause follows a First Tier Tax Tribunal decision (Silver v HMRC). It provides for the personal allowance to be reinstated within the calculation for TSR in accordance with the decision in favour of the taxpayer in that case. The measure also clarifies the order of the treatment of allowances and reliefs within the TSR calculation. The amendments are estimated to affect about 2,000 taxpayers.
The FST spoke first. He said the principle behind TSR is that a taxpayer should not pay a higher rate of tax on their life insurance gain just because all of that gain falls to be taxed in a single year. Changes to the personal allowance since 2010 have led to unintended complexity in the calculation of this relief, he said.
Bridget Phillipson responded for Labour. She supported the government's aims with the clause but said there were still some issues that remained around the language of the clause, regarding the treatment of gains before 11 March 2020.
"In response to this clause the Chartered Institute of Taxation have noted the following: that "the amendments made by clause 36 have effect, with some restrictions from the tax year 2019/20, and it is not clear why the amendments, which are clarificatory in nature and in accordance with the original policy intent, should not be extended to years prior to 19/20 to provide the same clarity for taxpayers in respect of earlier gains."
"They also comment that, "as clause 36 is not retrospective, an individual who is liable to tax in respect of gains from chargeable events before 19/20 and who wishes to reinstate the personal allowance within the calculation for TSR will instead need to rely on the basis agreed in Silver v HMRC. Decisions of the First-tier Tribunal do not create a legally binding precedent." They argue that "It is not clear whether or not HMRC will accept claims for repayment from taxpayers with gains in years prior to 19/20.""
She asked the minister to clarify whether HMRC would accept such claims.
Phillipson continued: "The Chartered Institute of Taxation also notes that the approach is different to the approach used in clauses 100 and 101, which we will come to later, in putting "beyond doubt that the relevant rules work as designed and intended but apply both prospectively and retrospectively." What assessment would the minister make of this?
"They also draw attention to the fact that "clause 36 specifies how ‘reliefs and allowances’ are set against life assurance policy gains. The personal savings allowance does not operate as a typical allowance. It is a nil rate band of tax that does not extend the basic or higher rate bands. The legislation should specify that the personal savings allowance is not an allowance for this or any other purpose." They regard the use of the term ‘allowance’ as an unhelpful misnomer. I'd be grateful if the minister might be able to address that point."
The FST replied to Phillipson's comments. He said the measure was desigend to restore fairness in the spreading of the gain but also to ensure there can be no 'funny business' in the way the gain can be treated in relation to the personal allowance that will allow it to be manipulated to the detriment of the taxpayer or the system.
On timing, he said HMRC would "calculate the relief for affected taxpayers and advise them of changes in the relief calculation. For SA returns submitted for the 19-20 tax year that calculation would be performed manually; for all subsequent tax years the calculation will perform part of the automatic SA process and there has been detailed guidance put on gov.uk which sets out these changes in full."
Clause 36 was agreed without division.
Clause 37: Losses on disposal of shares: abolition of requirement to be UK business
Share loss relief is an income tax relief for individuals and a corporation tax relief for investment companies. This clause extends the scope of the relief, so that it applies to shares in companies carrying on a business anywhere in the world, and not just the UK. This is being introduced to comply with EU freedom of movement of capital rules.
The FST introduced this, describing it as a 'small and technical' clause. He said the UK had now left the EU but had agreed to follow its rules for the duration of the transition period.
Bridget Phillipson welcomed the intention behind the clause. She expressed disappointment at the absence of updates from the Government on its negotiations with the EU. She pressed the minister on whether the relief was open to exploitation.
The FST responded that he could not provide a guarantee - "there are no limits to human ingenuity in exploiting aspects of the tax code contrary to expectation" - but the government would have the ability, post-transition period, to make changes to legislation to respond to any exploitation.
Clause 36 was agreed without division.
The committee then adjourned, to resume at 11.30 on Thursday morning, when the committee will consider the clauses introducing the Digital Services Tax.