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Mr. Timms: We will keep these matters under review, as we do all parts of the tax system.
Question put and agreed to.
Schedule 12 agreed to.
Clause 58
Mileage allowances: nil liability notices
Question proposed, That the clause stand part of the Bill.
Mr. Clappison: The clause deals with dispensations granted by Inland Revenue. At present, employers may have dispensations for business travel and expenses. These are rulings by Inland Revenue that certain travel cost reimbursements are not taxable benefits. Employers then know exactly what tax position applies.
The clause will terminate all dispensations in force with effect from the next tax year, coinciding with the introduction of new mileage allowances. Will the Financial Secretary explain the position regarding reimbursements previously covered by dispensations? Will they become taxable benefits in the next financial year?
Mr. Timms: At present, as the hon. Gentleman said, employers can seek a dispensation or a nil liability notice from their inspector on payments made for expenses such as business mileage in an employee's own car. The employer will no longer have to report every payment. A dispensation will be agreed when the inspector is content that there is no tax liability—usually when the rates paid do not exceed the Revenue's authorised mileage rates.
With the introduction of the new statutory tax exemption for approved mileage allowance payments—rather than the old administrative practice—the employer can make such payments up to the rates set down in schedule 12 without the need for a dispensation. Dispensations for approved mileage allowance payments will no longer be necessary, which will save both the Revenue's and employers' time. Payments above the approved rate will be taxable because they cannot be dispensed, so we need to remove them from existing dispensations. It will then be unnecessary for every dispensation to be reconsidered individually.
On the hon. Gentleman's specific point, I can reassure the Committee that existing dispensations covering other claims for other types of expenses such as subsistence allowances will not be affected by the change. Employers can rest assured that they will continue to enjoy the benefit of existing dispensations. They will not need to approach their inspector in those cases. The clause simply removes from existing dispensations those elements that refer specifically to mileage payments.
Mr. Clappison: It is helpful to know that other forms of dispensation for other types of payment will not be affected. However, that was not quite my point. I asked about dispensation for mileage payments. The Financial Secretary says that dispensations cannot cover payments above the approved rate, but that is the current position. Payments above the approved rate cannot be covered by dispensation in any case. Our concern is that there should be no additional compliance costs for employers who now have to report payments that were previously covered by dispensations. Employers will reflect carefully on the Financial Secretary's words and try to establish for sure that they will not face additional compliance costs as a result of the change.
Mr. Timms: There may be some misunderstanding here. Employers no longer need to report payments made under the statutory arrangements in the clause. There is no longer any need for dispensation because the position is set out clearly in statute. The only possible uncertainty would relate to other elements of the dispensations dealing with subsistence payments, as I said. I hope that I have provided full reassurance to the Committee. In future, the arrangements will be statutory, so there is no longer any need for dispensations.
Question put and agreed to.
Clause 58 ordered to stand part of the Bill.
Clause 59
Employees' vehicles: withdrawal of capital allowances
Question proposed, That the clause stand part of the Bill.
Mr. Clappison: I shall be brief, because I have already dealt with the principle of capital allowances. The clause withdraws the ability of employees to claim capital allowances for vehicles used in business travel. If the vehicle that was the subject of capital allowances in the past has retained its value over the period of ownership, so that its market value exceeds its written down value at the beginning of the next financial year, when the new provisions come into force, will an income tax charge be levied on the employee as a result of the difference? Accountants often describe it as a balancing adjustment. The Financial Secretary will want to deal with this question because the consequences could be harsh.
Mr. Timms: As one element in ending the current arrangements that allow employees to claim for their actual motoring costs—no longer necessary because of the new statutory provision—the clause terminates the option of claiming capital allowances, by treating the employee as ceasing to own the car immediately before 6 April 2001. The consequence of the rule is that capital allowances for 2001-02 are computed as if the car had been sold at open market value. That could provide a balancing allowance or a balancing charge.
In practice, it is unlikely that a balancing charge will arise. There has been substantial depreciation in the second-hand car market of late, and the rates of commercial depreciation on cars are similar to, or exceed, the rate at which capital allowances are provided. It is not inconceivable that the problem mentioned by the hon. Gentleman might arise, so to minimise any burden on taxpayers, and to ensure that they do not suffer a tax charge as a consequence of the change to the new system, Inland Revenue officials will accept claims for capital allowances that treat the written down value at the end of 2001-02 as open market value. I hope that I have reassured him and the Committee that no charge will arise in those circumstances.
Mr. Clappison: Those who are more expert than me in these matters will no doubt cast their eyes over what the Financial Secretary said. He has reassured the Committee that in the circumstances described in my opening comments no charges will be applied, so I shall not take the matter any further.
Question put and agreed to.
Clause 59 ordered to stand part of the Bill.
Clause 60
Exemption for works bus services: extension to minibuses
Question proposed, That the clause stand part of the Bill.
Mr. Clappison: We have made good progress this morning. Clause 60 brings us to a slightly different subject. It deals with the use of buses by employers to transport employees to work, and with whether, as far as the employee is concerned, that use is a taxable benefit.
Currently, there is a tax exemption for employees travelling from home to work on an employer-provided works bus with a minimum of 12 seats. The clause reduces the minimum from 12 to nine, but we wonder why it has been fixed at that number. The Minister will no doubt say that that will help small employers, but I invite him to consider whether the limit will help all small employers and whether we cannot go further and do so. I am mindful of the fact that there are many people carriers on the road these days. Indeed, Committee members may drive them. I certainly drive one, although I hasten to add that it is not used to transport employees. Will the Minister give a nudge in the direction of employers who want to use people carriers with seating capacity for, say, eight people, to transport employees to work?
11.15 am
Mr. Timms: The Finance Act 1999 introduced measures to encourage employers to develop travel plans that would reduce employees' use of cars to travel to work. One measure was the removal of the tax charge to employees and the national insurance charge to employers where the employer provided a bus service specifically for employees' commuting journeys. Currently, such buses must have a minimum of 12 passenger seats, but the clause extends the tax exemption to employer-provided minibuses with nine, 10 or 11.
Some Committee members will recall the lively debate about the right number that took place in the 1999 Finance Bill Committee. I think that the initial proposal was that the number should be 17. The Minister who dealt with the matter agreed, I think on Report, that the number should be reduced to 12. I think that, in Committee at that time, the right hon. Member for Fylde (Mr. Jack) proposed reductions to 10 or eight passengers, so I hope that he will particularly welcome the change. We aim to make it easier for employers of smaller work forces to include the provision of a works bus as part of a travel plan. It is already possible for small employers to join together to provide a works bus service, but we recognise that it is not always feasible to do so.
Amendment No. 13, which has not been moved, suggests that we consider vehicles with fewer seats. The tax exemption is aimed at removing the tax charge where an employer provides a works bus service. The intention is for many employees to transfer out of their own vehicles and on to a works bus for their commuting journeys.
Mr. Jack: The Financial Secretary is talking about the behavioural changes that he hopes that major employers will make to take advantage of the proposal that he has outlined. Will he give one or two examples of what the Government have done to take advantage of it?
Mr. Timms: I am afraid that I cannot give examples, although Departments have certainly drawn up green travel plans in respect of their employees. I cannot give details of their content, but if the right hon. Gentleman tables parliamentary questions on the subject, I am sure that the information will be provided. We have paid a good deal of attention to the issue in respect of our own employees as well as making helpful changes to allow other employers to do the same.
To ensure the safety of employees travelling in such vehicles, the minibuses should conform to the requirements set out in the Road Vehicles (Construction and Use) Regulations 1986. Those regulations limit the class of minibuses to vehicles that were designed to contain at least nine passenger seats. Therefore, there is logic in taking the number of seats down to nine and no further. It is right that we should take careful account of the safety issues that arise from schemes of this kind.
We have carried out research on the subject and plan further research to learn more about employers' use of existing vehicles. We are open to the possibility of making further tax changes in respect of buses, but the change in the Bill will be widely welcomed as an important step in the right direction.
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