Dawn Primarolo: I shall ask the Committee to reject the new clause, which causes further complexity and confusion in the current arrangements for instalments of companies tax and could lead to a loss of cash flow to the Inland Revenue. The clause provides an election for a previous year or current year basis of assessment, but applies only to companies that are within group payment arrangements. Outside group payment arrangements, the method of calculating the quarterly instalments is flawed because it locks companies into paying instalments of a fixed amount by reference to the previous year, even where it may be clear that the current year liability will be much lower than that for the previous year. It would be a distinct disadvantage to the company. Although that is not the intention of the new clause, that is what would happen.
Complex provisions would be required to deal with accounting periods of differing lengths and the new clause does not provide special rules that would be required to establish payments due on the commencement of activity. The new clause would also increase complexity in the interest regime. It is unlikely that the previous year's liability would have been established with any certainty when payments for the current year became due, and it is not uncommon for a company's liability for one year to be settled before that of the previous year.
The other effect of the new clause is to provide some group companies within the instalments regime with a right to elect for either a previous year or a current year basis of quarterly instalment payments. It is not clear why the new clause allows that choice only to companies within group payment arrangements. The effect of offering such a choice would be that companies would opt to pay the lower of the previous and current year, which would have a significant cash-flow effect on Exchequer receipts. More fundamentally, the Government believe that it is right for large companies to pay tax on a current year basis as profits are made. I assume that the new clause was drafted because of companies' concerns about estimating their current year profits accurately. We recognise those concerns, and have already taken steps to help companies, to which the hon. Gentleman referred. Two years ago, we reduced the interest rate on underpaid instalments by 1 per cent. More recently, the Inland Revenue has worked with industry, representative bodies and advisers to produce guidance on the practical application of the instalment system. The guidance clarifies the underlying principles of the regime through detailed
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examples, and aims to spell out more clearly what can and cannot be reasonably expected of companies. To date, the feedback from those consultations has been positive.
The Inland Revenue intends to publish the guidance at the end of July in time for the July payment. The hon. Member for Arundel and South Downs (Mr. Flight) is welcome, as always, to receive the draft guidance and to consider and comment on it before its publication at the end of June, if he so wishes. However, I impress on him that his new clause would make the instalment payments far more complex and difficult for companies. After thorough consultation with those who expressed an interest in this matter, we believe that the guidance has now dealt with the small problem that he seeks to address. I therefore hope that, on this occasion, he will agree to withdraw his new clause. If he is not satisfied, I am sure that he will refer to the matter again when we consider the Finance Bill next year.
Mr. Flight: I look forward to receiving the guidance notes, which perhaps represents half a cake. I said that this was a probing amendment. The Paymaster General overstated its complexity as, in essence, it proposes that companies should have the option of incurring the effort of calculating current year, or to use prior year. For medium-sized companies, it is a relatively greater effort to deal with current year. We are pleased that the Treasury realises that current-year calculations are an imposition. Indeed, the imposition of advance payments was one of the many stealth taxes of the past four years. However, half a cake is better than no cake, so I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
New clause 17
Stamp duty and OFEX
'.—In each of the following provisions—
(a) subsections (1)(a), (2)(a) and (3)(a) of section 80A Finance Act 1986 (changes in financial institutions),
(b) subsection (3)(a of section 80C Finance Act 1986 (repurchases and stock lending),
(c) subsections (1)(a), (2)(a) and (3)(a) of section 88A Finance Act 1986 (exceptions for intermediaries), and
(d) subsection (3)(a) of section 89AA Finance Act 1986 (exceptions for repurchases and stock lending)
after the words ''an EEA exchange,'' insert ''OFEX (UK)''.'—[Mr. Flight.]
Brought up, and read the First time.
Mr. Flight: I beg to move, That the clause be read a Second time.
The new clause is designed to exempt from stamp duty the market-making activities of OFEX in line with the market-making activities of the main official list stocks, alternative investment market stocks of the rest of the London market, and any OFEX stocks in Europe. It was an accidental anomaly that OFEX was excluded from the stamp duty exemption regime on market making. Before the Finance Act 1986, market makers on the London exchange benefited from stamp
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duty exemption and stamp duty reserve tax. For the Finance Act 1997, section 80A was inserted into the Finance Act 1986 to provide an exemption from stamp duty to persons recognised as intermediaries and members of a European economic area exchange where a sale was effected on the exchange. The exemption recognised the important role of intermediaries in providing liquidity to the markets.
OFEX was not a significant force when that amendment was made to the Finance Act 1986. However, since that time, the OFEX market has become more important and established as the junior equity market in the UK. It has been authorised by the Financial Services Authority, and has become established as a prescribed market under the Financial Services and Markets Act 2000 and a regulated market under the Criminal Justice Act 1993. It is also anticipated that an order including OFEX may be relevant. The other day, OFEX was a relevant EEA market for the purposes of a Financial Services and Markets Act promotion order. In becoming a prescribed market, OFEX needs to satisfy three tests, including the economic importance of the market test. Currently, OFEX has some 200 companies trading on the market and more than 400 companies have used OFEX. To date, companies on OFEX have raised £1 billion. Of these, 71 transferred from OFEX to AIM or directly on to the official list. Clearly, OFEX is a firmly established regulated market and a junior equity market of increasing importance to the UK.
The amount of stamp duty that OFEX currently pays is not great: it paid £260,000 last year. OFEX is concerned that the absence of an exemption will hamper its efforts to develop and grow. It currently has 106 broker dealer members and one specialist as well as 70 corporate advisers. It wants to expand by admitting further specialists. The lack of stamp duty exemption, particularly in comparison with AIM, with which it overlaps and to some extent competes for intermediaries, will be a deterrent to new specialists because of the direct costs of stamp duty on market making. As I said, the specialists are exempt when they trade on AIM.
I understand that the leaders of OFEX have had discussions with the Treasury and I look forward to the Minister telling us, as tacitly agreed the other day, that this unfairness will be addressed, if not specifically by our new clause, in one way or another.
The Financial Secretary to the Treasury (Ruth Kelly): I find the hon. Gentleman's arguments persuasive and I shall not repeat them today. I have reflected on the matter and, as he said, the possibility of an exemption has been a subject of correspondence between my officials and OFEX. As he observed, OFEX is established in the marketplace and is regulated as a service company by the Financial Services Authority and under the Financial Service and Markets Act 2000.
However, we are not convinced that the new clause will achieve the desired result in the most effective way. I am sympathetic to the hon. Gentleman's arguments,
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but I would recommend that Committee members do not accept the new clause. I intend to table a suitable Government new clause on Report.
Mr. Flight: What can I say? I am delighted to hear that. This important issue will be resolved, so I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
New Clause 24
Living accommodation provided for employee
'.—(1) Section 145 of the Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
(2) In subsection (4) insert—
''(d) where employees working in a designated public service industry receive accommodation provided by their employers and can demonstrate that they have a permanent address elsewhere within the United Kingdom;''.
(3) In subsection (8) at end add—
''(c) the expression 'designated public service industry' includes the provision of public transport and other public carriage services, the provision of healthcare, the provision of education, and any other activity which the Secretary of State may by regulations made by statutory instrument so designate.''.'.—[Chris Grayling.]
Brought up, and read the First time.
Chris Grayling: I beg to move, That the clause be read a Second time.
The new clause is a probing one. It arises from a concern of a constituent who is involved in the public carriage business, and highlights an issue that will become an increasing problem for a variety of companies, particularly around London and the south-east, where the cost of living makes it difficult to attract workers in many key industries. My constituent recruited from some distance away a bus driver who came to work in my constituency during the week but returned to his home at weekends. The company provided a room for him during the week and the Inland Revenue assessed him for a substantial benefit in kind. He incurred a substantial tax bill.
If companies of essential public importance find it difficult to attract workers from within their own areas, they will be tempted to look further afield for workers. The new clause would modify the rules so that where it was clear that a worker had a proper address somewhere else in the country or could demonstrate title to a property or a substantial lease of a property not to or from a relative, they would be entitled to receive temporary accommodation during part of the working week in a different part of the country without incurring a tax liability. Regulations would have to establish clear guidelines for that to happen, but it would work in much the same way as Members of Parliament receive the additional cost allowance. It would recognise that such people incur additional costs when working away from home.
Given the mounting skills and labour shortages in key industries such as health care, education and transport in London and the south-east, I hope that the Government will consider the new clause favourably.
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