Finance Bill

[back to previous text]

Dawn Primarolo: I understand that the amendments are intended to clarify the amount that qualifies for deduction when a business contributes in kind to an urban regeneration company. It may help if I briefly explain the purpose of the clause and the way in which it interacts with section 74 of the Taxes Act, which contains the general rule on deductions.

A business can deduct expenditure if it is revenue in nature and incurred wholly and exclusively for business purposes. Expenditure that falls within the general rule may still be excluded from the deduction by specific rules such as those for business entertainment and gifts. Expenditure by a business on a contribution to an urban regeneration company that is wholly or partly motivated by altruistic or public-spirited purposes would usually be excluded from deduction by the general rule, and the purpose of the clause is to ensure that such expenditure is not excluded. A contribution can be in cash or in kind. If it is in kind, the clause will allow the business a deduction on the expenditure incurred on making the contribution.

It may be helpful to provide some examples of what that expenditure includes. If the business seconds an employee, its deductible expenses will include the employee's wages. If it provides rent-free accommodation, its deductible expenses will include the rent actually paid, including the heating, lighting and so on, of that property. If the business donates a computer, the normal rules will generally allow a deduction equivalent to the market value at the time of the donation. That will all be made clear in Inland Revenue guidance.

Amendment No. 315 would allow a deduction on the amount or value of the contribution rather than on actual expenditure. In some cases, that would allow a deduction greater than would be allowable under the normal rules, which I assume is an unintended effect of the amendment. For example, the notional rental value of accommodation provided rent-free may be greater than the actual costs incurred by the donor. That would be too generous, as I hope that the hon. Gentleman would agree.

Amendment No. 305 would apply the same unacceptably generous rule to contributions by investment companies. In fact, the wording appears to go further than that and to allow a deduction in circumstances in which a deduction would have been denied under one of the specific rules. I hope that, considering the examples that I have given and the fact that the conditions will be spelled out in Inland Revenue guidance, the hon. Gentleman will accept that, while they are well intentioned, his amendments go further than intended and are unnecessary.

Mr. Flight: It seems to me that the wording of proposed new section 79B(1) is wrong in referring to

    ''any expenditure incurred . . . in making the contribution''

rather than its value. If items in kind are contributed, there will not be any value, and only minimal expenditure will be associated with them. I cannot see how the Government square their stated intent to include items in kind with not treating them at a fair market value.

Column Number: 606

This is the Government's initiative; if they want it to work and get the best out of it, I cannot see why they would want to exclude investment companies or limit the parties to

    ''a person carrying on a trade, profession or vocation''.

Presumably, the objective is to achieve success by urban regeneration companies. The danger is that the provision will be used much less than hoped or intended if it includes those complexities and exclusions.

4 pm

Mr. Burnett: The hon. Gentleman will recall that on previous Finance Bills we discussed the philosophical problem of investment bad, trade good. He may also recall, as I do, the Paymaster General or another Minister saying that the whole tax philosophy is in the course of being changed. Surely, this Finance Bill provides the opportunity to get things right.

Mr. Flight: I thank the hon. Gentleman for his comment. I also recollect that that principle was addressed in the review of corporation tax which the Treasury undertook last summer, albeit that some of its other conclusions seem to have gone a little off the rails.

The measure is not a major one, but I would have thought that it is silly, if the Government want regeneration companies to be successful, for the arrangements not to be straightforward. If people donate money or goods they should receive a fair tax deduction, and it does not matter what sort of business or party they are. However, I shall not press the amendment to a vote. If the Government want to damage their own initiative, that is their business. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 313, in

    clause 179, page 114, line 21, after 'benefit', insert '(other than publicity)'.

The Chairman: With this it will be convenient to discuss the following:

Amendment No. 314, in

    clause 179, page 114, line 23, at end insert

    '; and for the purposes of this subsection a person shall not be regarded as having received, or being entitled to receive, a benefit if it is a benefit provided by an urban regeneration company in the normal course of, or incidental to, discharging the criteria mentioned in subsection (7) below.'.

Amendment No. 312, in

    clause 179, page 114, line 27, after 'benefit', insert '(other than publicity)'.

Mr. Flight: Amendments Nos. 313 and 312 are designed to allow relief when a contribution is made as part of a sponsorship agreement or in return for publicity. The Minister will be aware that the matter was raised by the Law Society. The clause seems to rule out the possibility of a contributor entering into a sponsorship agreement with an urban regeneration company or making a contribution for part of which it receives publicity. What is the logic of that? If that is not the intention, perhaps the Minister could explain the position for the record.

Column Number: 607

Amendment No. 314 focuses on similar ground. What happens if the donor is a local business within the urban area that is being regenerated? As we understand it, it would receive tax relief on the donation only if the urban regeneration company was incompetent and provided no benefit to the locality. It would be strange to prevent local shopkeepers, for example, from clubbing together to sort out their neighbourhood.

Dawn Primarolo: My earlier comments on the purpose and operation of the clause apply equally to the amendments. They are intended to ensure that a business will be entitled to a deduction on its expenditure on contributions to an urban regeneration company if the only benefit it receives in return from the company is publicity or the general benefit that it and others would derive from the normal activities of an urban regeneration company. There is no need for any such clarification.

Clause 179, with section 74 of the Taxes Act 1988, provides a business with a deduction in circumstances described in the amendments The anti-avoidance provision in subsection (3) of the clause prevents a deduction only in circumstances in which there is a clear, tangible, private or other non-business quid pro quo for the provision of the benefit. Inland Revenue guidance will make that clear. The same anti-avoidance rule is contained in sections 79 and 79A of the Taxes Act 1988 for contributions to bodies such as business links and has not caused any difficulties, so I see no reason why it should do so here. I hope, with that clarification, that the hon. Gentleman will agree that the amendment is not necessary and therefore withdraw it. If not, I shall ask my hon. Friends to oppose it.

Mr. Flight: I think that what the Paymaster General said means that amendment No. 314 is not necessary. Could she make clear in simple language whether or not sponsorship arrangements with an urban regeneration company will qualify?

Dawn Primarolo: The clause and the new section will provide a business with a deduction in the circumstances described in the amendments.

Mr. Flight: I thank the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 179 ordered to stand part of the Bill.

Clause 180 ordered to stand part of the Bill.

Schedule 38

Sale and repurchase of securities etc

Dawn Primarolo: I beg to move amendment No. 300, in

    schedule 38, page 419, line 42, at end insert—

    9A In section 730A of the Taxes Act 1988 (treatment of price differential on sale and repurchase of securities), after subsection (8) insert—

    ''(8A) In this section references to the sale price are to be construed—

    (a) in a case where the securities are bought back by the transferor or a person connected with him in compliance with a requirement imposed in consequence of the exercise of an

Column Number: 608

    option acquired under the agreement to sell the securities or any related agreement, as references to what would otherwise be the sale price plus the amount of any consideration given for the option, and

    (b) in a case where the securities are so bought back in the exercise of an option so acquired, as references to what would otherwise be the sale price less the amount of any consideration so given,

    unless the consideration is brought into account under Schedule 26 to the Finance Act 2002 (derivative contracts).''.'.

The Chairman: With this it will be convenient to discuss the following:

Government amendments Nos. 301 and 302.

Amendment No. 308, in

    schedule 38, page 422, leave out lines 29 to 39 and insert—

    '(2A) Where—

    (a) a company has a relationship to which section 730BB of the Taxes Act 1988 applies (exchange gains and losses on sale and repurchase of securities), and

    (b) the circumstances mentioned in subsection (1)(a) of that section are such that a money debt arises from the obligation mentioned in section 730A(1)(b)(i) of that Act or from the exercise of an option mentioned in section 730A(1)(b)(i) or (ii) of that Act,

    the company shall not be regarded for the purposes of the Corporation Tax Acts as having, by reason of that money debt, a relationship to which this section applies, so far as relating to exchange gains and losses.'.

Government amendment No. 303.

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2003
Prepared 17 June 2003