MPs resumed debate and passed clauses 7 on Optional remuneration arrangements, 11 about beneficiaries of tax-exempt employer-provided pension benefits, 12 which related to employment and social security income and clauses 13 which dealt with tax treatment of sales of UK land by non-UK residents. All Opposition amendments were defeated. There were regular mentions of the CIOT/IfG Better Budgets report which Labour used to criticise the Government's approach to this Finance Bill. The Public Bill Committee will begin the next session on Thursday on clause 14, which covers disposals of UK land and payments on account of capital gains tax.
Tuesday 27 November 2018, 2pm
Finance (No.3) Bill Public Bill Committee 2nd sitting
You can read the amendments tabled for debate here in the Notice of Amendments. Not all of these were selected for debate. The groupings for those that were, and reasons why some were rejected, are set out in the Selection of Amendments here.
You can listen to the debate here.
[NB. These notes are based on a single hearing of the committee's deliberations and we cannot guarantee they are free of errors]
Clause 5 and 6 were debated and agreed in Committee of the Whole House last week
Clause 7 - Optional remuneration arrangements: arrangements for cars and vans (and amendments)
Amends optional remuneration arrangements (OpRA) legislation introduced in s7 & sch2 to FA2017. The changes ensure that when a taxable car or van is provided through OpRA, the amount foregone includes costs connected with the car or van which are regarded as part of the benefit in kind under normal rules. In addition, the changes adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the year.
Amendment 17 (Labour) would require the Chancellor of the Exchequer to review the impact of clause 7 on the automotive industry, broken down by nations and regions - FAILED
Amendment 18 (Labour) would require the Chancellor of the Exchequer to review the impact of Clause 7 on the uptake of optional remuneration schemes relating to cars and vans - FAILED
Amendment 19 (Labour) would require the Chancellor of the Exchequer to review the revenue effects of Clause 7 - FAILED
Amendment 22 (Labour) would require the Chancellor of the Exchequer to review the impact of clause 7 on the UK vehicle rental sector - FAILED
[Amendments 20 and 21 were rejected by the Public Bill Office for being outside the scope of the Finance Bill resolutions.]
Shadow Chief Secretary to the Treasury Peter Dowd moved amendments 17, 18, 19 and 22. These changes may further complicate optional renumeration arrangements - some companies may feel there is too much red tape to bother offering a company car, for example. The Opposition does not think it is in the country's benefit, considering how important the automotive sector is for the UK, for this clause to go ahead unchallenged. Dowd said the UK has some of the world's most skilled automotive engineers, also going on to state how many thousands of people are employed in the sector directly - manufacture and design - and in related 'local' businesses. In West Midlands, 54,000 employees work in the automotive industry. A total of 24,000 are employed in automotives in the North West - another reason to worry about a slowdown in car sales such as through a reduction in company cars, he said. Labour wants to 'tease' all the issue out with a review. Shadow Treasury Minister Anneliese Dodds spoke to support Dowd's call for a review. In 2016/17, Dowd said HMRC figures show 940,000 people pay BiK tax on a company car, a two per cent fall on the previous financial year; the number of company cars have been falling for a while, he added. The UK has some of the highest tax on company cars we have ever seen, he said. The use of company cars and vans also hit by government crackdown on diesel cars; unintended consequences of this should not fall on the users of these vehicles. It is time for the Government to stop making changes to the tax of company cars, such as OpRA. Small and medium companies are unware of tax changes, which is deeply troubling - with a knock on people's resultant Net pay. Asked by an MP if this is a stealth tax, Dowd said this is more down to incompetence. Amendment 18 is the result of Labour concerns that employee - employer relationship may be harmed and result in the employer/employee leaving the scheme altogether. The constant tinkering of the Government is detering people from taking up such schemes. He cited the CIOT's complaints about the Treasury constantly reworking and reforming tax measures, especially to clear up measures introduced in past Finance Bills. Dowd said the measure will disproportionately impact on men. On Amendment 22, he wants to look at the provision's impact on rental sector. The rental sector contributes £40 billion per year to UK economy, he said, employing 52,700 people. He also made an argument to say rental cars are less polluting than privately owned cars. Tax experts have already said additional corrections will be needed to address shortcomings in this Finance Bill legislation.
Kirsty Blackman, SNP economy spokesperson, spoke of a 7.2 per cent fall year to date in new car registrations, which is significant because, in part, employees may be driving cars that are not the latest, less polluting models. She is also concerned that the Government may have to amend these measures, citing iCAEW worries, to make them work; she has sat on four Finance Bills and there seems to be changes every year to this - making it difficult for people to comply with legislation. Although this was consulted on it must have been deficient because it did not lead the Government to spot the problems.
Financial Secretary to the Treasury Mel Stride said the legislation addresses an anomaly and to bring the original interntion of it forward. Despite the extensive 10-week consultation, neither of the issues that have emerged since were spotted. The new measure ensures fairness. Blackman intervened to say the Government should not be making oversights, which Stride agreed with but defended by talking of the extensive consultation. The average cost to those affected is between £120 - £240 a year in extra tax, he said. While the gain to the Treasury is negligible today, the changes wll lead to future savings that are significant by closing schemes, he said. Dowd intervened to say 10,000 peple affected by this is no 'small whack'. Stride said this is not tax avoidance but more about deficiency in how the tax was introduced.
Clauses 8-10 were debated and agreed in Committee of the Whole House last week
Clause 11 - Beneficiaries of tax-exempt employer-provided pension benefits (and amendments)
Employers often provide death and retirement benefits to employees. This clause will amend the tax exemption which provides for employer paid premiums into life assurance products and employer contributions to certain overseas pension schemes to be paid free of tax. Currently, premiums and contributions are only exempt from tax if the beneficiary is the employee or a member of the employee's family or household. This clause will allow the beneficiary to be any individual or registered charity.
Amendment 14 (Labour) would require a review of the revenue implications of the provisions of this clause to be reported to the House of Commons before this section can have effect - WITHDRAWN
Amendment 15 (Labour) would require a review of the effect on pension benefits of the provisions of this clause to be reported to the House of Commons before this section can have effect - WITHDRAWN
Amendment 16 (Labour) would require a statement to the House of Commons on discussions between the Government and the Charity Commission on this clause - WITHDRAWN
Dowd said these amendments address unexpected consequences. He complained about the lack of a simple statement of the costs of any measures to be introduced. He mentioned IFG/CIOT's Better Budgets Report's concerns about the Treasury's secrecy which, in part, leads to failed introduction of some measures. The report sets out ten steps to better tax policy making - step nine of the report talked about enhancing Parliament and public ability to scrutinise tax proposals, particularly on Finance Bills, he said. The Government may be trying to help charities but we need to consider the wider aims of charity; original intention of the Big Society was to slash formal public expenditure as part of that proposal but there is a question of how the Government intends to pay for the measure. On amendment 15, Dowd said about the impact on overall pension benefits if tax is not being paid because of exemptions in this clause - has the Treasury looked into this matter? What schemes will this affect? The current system of pensions has some unfairness as it benefits the wealthiest. On amendment 16, Dowd said the Treasury and Charity Commission should enter into talks to ensure risks are not created, not by design but by omission. Dowd said a review could look at a public register of charities that beneift from this tax exemption, suggested by another MP. He asked Stride what procedures do HMRC have in place already when a nominated beneficiary ends up not being a registered charity as the nominated person assumed it was? This presents ethical issues. Does HMRC plan to tax on such cases? This could be another injection to private schools, he speculated. Charities must be charities, he charged.
The SNP support Labour's amendments, said Blackman. She said if the amendment 16 is not accepted by the Government, would the Minister write to the Committee about the natute of the discussions between the Charity Commision and the Government about the potential impact of this and what protections from fraud have been built in. Conservative Sir Robert Syms said these days many people are in pension schemes and there is some money they may wish go to charity - 'Big Society' like - to leave some of their resources to a good cause. The simplest solution is to widen the exemptions a little, he said, which makes sense in reducing 'red tape' and this is a reasonable clause rather than a secret plot to subsidise public schools.
Tax Minister Stride said this is about modernisation. A TIN has already been published in regards to this, he added, and the change only affects a niche group, it is a niche matter. Stride was unable to give examples of the types of cases, saying it depends on the terms of each scheme. On amendment 16, Stride will reply to a letter from Blackman, as she suggested.
Clause 12 - Tax treatment of social security income (and amendment)
This clause confirms the tax treatment of four existing and five new social security benefits. The Scottish government is introducing five new social security payments: young carer grant; best start grant; funeral expense assistance; discretionary housing payments; and carer’s allowance supplement. The UK government is also confirming the tax treatment of another four social security benefits: the council tax reduction scheme, discretionary housing payments and the flexible support fund, overseen by the UK Government ; the discretionary support scheme, overseen by the Northern Ireland Executive.
Amendment 2 (Labour) would require the Chancellor of the Exchequer to review the revenue effects of Clause 12 - WITHDRAWN
Dowd moved amendment 2. Labour query the need for carers allowance supplement to be taxable. The majority of carers alllowance recipients are women and, therefore, the only additional social security payment exempted is one primarily affecting women. Why is this the case? Some 86 per cent of austerity is being borne by women and here we are with another measure that goes against women. IFG/CIOT Better Budgets report said the Treasury and HMRC should publish the evidence base behind measures and assumptions on which costing are based and ensure these are appropriately detailed - not done on this case, he charged. SNP Blackman supports the Labour amendments. Labour's Dodds wanted clarification on the treatment of council tax reduction schemes. The relevant legislation in this bill (page eight) refers to council tax reduction scheme but the explanatory note refers to THE council tax reduction scheme - but there is no longer just one scheme. There are in fact only a few councils that provide full council tax relief, she said. The Government has refused to disclose figures on the use of the council tax reduction scheme. Is the exemption to apply to ALL schemes rather than a particular version of those schemes that the Government want to focus on? She is worried about a rumour that the Government is considering arguing that funds spent on tax relief for families by local authorities should not be counted within the central governrment assessment of local govenrment expenditure because they are discretionary.
Stride replied to Dodds, saying he will look into the specific question she asked. Stride told Dowd that the supplement is given to people who generally earn below the tax threshold.
Clause 13 and Schedule 1 - Disposals by non-UK residents etc (and amendments)
In Nov 2017, the government consulted on proposals to extend the UK’s tax base to gains arising to all non-UK residents on direct and indirect disposals of all forms of UK land, and to harmonise the rules relating to ATED-related CGT. A response document and draft legislation were published in July 2018. This clause and Schedule 1 give effect to these proposals, bring gains from disposals of interests in UK land by non-UK residents into charge, charging non-UK resident companies to corporation tax (CT) on their gains from disposals of interests in UK land, and abolishing the charge to tax on ATED-related gains.
Amendment 23 (Labour) would require a public register of those subject to capital gains tax as a result of the provisions in Part 1 of Schedule 1 - WITHDRAWN
Amendment 24 (Labour) would require the Chancellor of the Exchequer to review the revenue effects of the changes to capital gains tax as a result of the provisions in Part 1 of Schedule 1 - WITHDRAWN
Amendment 34 (SNP) would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 1 - FAILED
Government amendment 1 omits subsection 2(2A) of the Corporation Tax Act (CTA) 2009, which as a consequence of Clause 13 and Schedule 1 is superfluous (more here) - PASSED
Amendment 29 (Labour) would require the Chancellor of the Exchequer to review the effects of the changes in Schedule 1 on residential property prices and foreign ownership of residential property - WITHDRAWN
[Amendments 26 and 27 were rejected by the Public Bill Office because they would create a tax charge, and only ministers can bring forward measures which do this. Amendment 25 was rejected by the Public Bill Office because it was inconsistent with the context of the provision. Amendment 28 was rejected by the Public Bill Office because it was outside the scope of the resolution.]
Stride said this implements rules that minimises disruption and unintended consequences. It simplifies taxpayers' understanding of the law. On the amendments tabled by opposition parties, Stride said, on a public register, the Government consider it inappropriate to identify specific individuals and companies brought within scope. On amendments 24 and 34, the OBR certified the Treasury impact for this measure, was updated and published and any impact will be measured by the Treasury. HMRC already pubish annual Tax Gap figures, he added.
Dodds said the trading exemption threatens to emasculate this measure. Almost all the yield from this measure is expected to come from non-resident companies when they dispose of a range of UK property. Unlike residential property, all major UK commercial property is held by large corporates/investors ('property envelopes'), typically when selling the property the real owner sells it as an envelope disposal, this is tantamount to a conveyance of property to new ownership. There are tax reasons, as transfer of shares does not attract SDLT. The consultation proposes charging non-UK residents CGT on disposal of their interest in property envelope as if they sold the land. This is critical for the measure getting sufficient yield - but why is there an exception if the property owned in that envelope is used in an onging trade: in effect non-resident making a disposal of shares in a property envelope will not be subjected to any charge if there is an ongoing trade - e.g. property used as an office or warehouse or shop or hotel or leisure facility among others. It is an exception that is contrary to the rationale of this measure, which is to level the playing field. The main target of the legislation is supposed to be envelope disposal of commercial property by non-residents, after all. The response document grants blanket exemption only available to non-residents wider than SSE. UK residents could even be tempted to make their commercial proerty owneed by an envelope offshore.
On amendment 23, Dodds said it is disappointing that this measure has been pushed back despite having no opposition from Labour. While we wait, we need some transparency, she said. On amendment 24, she asked which TIN relates to this matter. The TINS on the list under Finance Bill 2018-19 on Gov.uk are not mapped on to different clauses, she complained. Amendment 29, we need to understand far better how particular investments have impacted on house prices and ownership, she sauid -.we need a wide sweep of evidence, she said.
On SNP's amendment, Dodds spoke in support, saying that the Government clause is not sufficiently watertight - we need more information on this. If someone makes a major financial investment in an entity, they will also surely do so only in the knowledge of those assets, even if that investment means they have less than 25 per cent ownership of that entity, she pondered.
The SNP said it is interested in Labour's idea of a register. They are frustrated at what they say is a lack of action on SLPs and continued failure to do so will harm MPs' trust in the Tax Minister.
Stride came back at Dodds to say the measure seeks to avoid, for example, a supermarket that is sitting on valuable land but trading on the principle of selling goods, being caught by the new measures - it is an ongoing trade, for example, after all. He went on to say the Government should not be in the businesses of holding up individuals to the public as falling due to particular types of tax - that is disproportionate. On tax treaties and Luxembourg, he said the Government is actively working with that country to help facilitate measures in the Bill. Dodds replied that the trading exemption would exempt businesses that are trading before and after disposal and introduces a new concept that is not applied to UK resident investors. On the 25 per cent point she made, her contention was that the proportion of the gain should not be what the Government focuses on, rather it should be the value of that gain. Perhaps a double threshold could of been considered, she said.
ADJOURNED TO 11am THURSDAY (29)