Session 2013-14
Publications on the internet
Finance Bill
FINANCE BILL
The Committee consisted of the following Members:
Chairs: Mr David Amess , †Mr David Crausby
† Ashworth, Jonathan (Leicester South) (Lab)
† Baker, Steve (Wycombe) (Con)
† Cryer, John (Leyton and Wanstead) (Lab)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Duddridge, James (Rochford and Southend East) (Con)
† Evans, Chris (Islwyn) (Lab/Co-op)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Gilmore, Sheila (Edinburgh East) (Lab)
† Hands, Greg (Chelsea and Fulham) (Con)
† Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op)
Javid, Sajid (Economic Secretary to the Treasury)
† Jones, Mr Marcus (Nuneaton) (Con)
† Kwarteng, Kwasi (Spelthorne) (Con)
† Leslie, Chris (Nottingham East) (Lab/Co-op)
† McKinnell, Catherine (Newcastle upon Tyne North) (Lab)
† McDonald, Andy (Middlesbrough) (Lab)
† Mearns, Ian (Gateshead) (Lab)
† Mills, Nigel (Amber Valley) (Con)
† Mowat, David (Warrington South) (Con)
† Murray, Sheryll (South East Cornwall) (Con)
† Nash, Pamela (Airdrie and Shotts) (Lab)
† Newmark, Mr Brooks (Braintree) (Con)
† O'Donnell, Fiona (East Lothian) (Lab)
† Offord, Dr Matthew (Hendon) (Con)
† Pearce, Teresa (Erith and Thamesmead) (Lab)
† Qureshi, Yasmin (Bolton South East) (Lab)
Shannon, Jim (Strangford) (DUP)
† Stephenson, Andrew (Pendle) (Con)
Stewart, Rory (Penrith and The Border) (Con)
† Thornton, Mike (Eastleigh) (LD)
† Uppal, Paul (Wolverhampton South West) (Con)
Williams, Stephen (Bristol West) (LD)
Simon Patrick, Committee Clerk
† attended the Committee
Public Bill Committee
Tuesday 21 May 2013
(Afternoon)
[Mr David Crausby in the Chair]
Finance Bill
(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)
Clause 21
Payments on account
Question proposed, That the clause stand part of the Bill.
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Catherine McKinnell (Newcastle upon Tyne North) (Lab): It is a pleasure to be back, Mr Crausby.
Clause 21, like the previous two clauses that we discussed, would tidy up existing legislation in section 47 and schedule 12 of the Finance Act 2012 on taxation of remittances to the UK. Again, the clause deals with inadvertent remittances in certain circumstances. Long-term UK non-domiciled residents who elect to be taxed on the remittance basis are subject to an annual charge of £30,000 or £50,000, depending on whether the individual meets the seven-year residence test, if UK resident for at least seven of the nine tax years preceding that year, or the 12-year residence test, if UK resident in at least 12 of the 14 tax years immediately prior to that tax year. Under section 809V of the Income Tax Act 2007, the payments of this annual charge made in respect of foreign income and gains do not constitute a taxable remittance. However, if for whatever reason the charge is repaid in part or in full by HMRC, this repayment is currently not exempted from being regarded as a taxable remittance.
Let me put a little bit of colour on what may seem a rather dry clause. Individuals who elect to be taxed on the remittance basis and make payments for a non-domiciled charge on account to HMRC and then, in a later year, decide no longer to be taxed on the remittance basis, could find that the repayment of the annual charge by HMRC would constitute a taxable remittance. The clause would amend that situation, provided that any repayment made in the circumstances described is taken offshore by 15 March in the end of the tax year in which that amount is repaid.
The tax information and impact note provided on non-domiciled taxation does not mention the minor change made by the clause, so it would help if the Minister clarified exactly how many people will feel the impact of the clause, or have been affected by this situation, and for whom the change is being made.
The clause raises the same issues as clause 20, in relation to whether the Minister is confident about how the 2012 changes to the remittance basis of taxation are
working and whether he envisages that any further changes are required to legislation, in addition to the clause and the change that we are considering.The Exchequer Secretary to the Treasury (Mr David Gauke): I welcome you back to the Chair, Mr Crausby.
Before speaking about the clause, it might help if I provided some further information to the Committee on a couple of points raised this morning about related issues to do with remittances, particularly the requirements that an establishment must meet to secure status as an approved establishment for the purposes of the viewing public. As I said this morning, the rules relating to exempt property require that the property in question is placed on public display in an approved establishment in order to be treated as exempt.
I assure the Committee that there is a long-standing and well-understood process by which HMRC grants approved establishment status. This process pre-dates the introduction of the current remittance basis rules. It was set up to allow museums and galleries to import items from countries outside the EU customs union, for exhibition in the UK, without incurring the VAT and customs duties that would otherwise arise. To take advantage of this concession, the museum or gallery must seek HMRC’s approval to be an approved establishment. Approved establishment status is given by HMRC’s national import reliefs unit according to a range of criteria, which will depend upon the facts in each case.
The hon. Member for Newcastle upon Tyne North also asked about how HMRC polices the process for granting approved establishment status. Again, I can assure the Committee that HMRC has a comprehensive compliance regime for this process, informed by a national risk assessment, as it does for other rules for which it is responsible. I should also add that, in order to ensure that the rules for approved establishment status are not abused, an establishment generally needs to have its approval renewed on an annual basis. If the hon. Lady wants further information on this matter, I direct her to public notice 361, which is published on HMRC’s website.
The hon. Lady also asked this morning what was meant by public access for the purposes of the exempt property rules. I direct her to the legislation introduced by the previous Government in Finance Act 2008, which makes it clear that the property in question, throughout the period in which the property is held by the approved establishment, needs to be on display to the general public; available for viewing on request by the public; held for educational purposes; or on public exhibition in connection with the sale of that property. I think the hon. Lady was concerned that these rules could be open to abuse and used as a means of tax avoidance. I can inform the Committee that since they were introduced in 2008, HMRC has not seen any evidence that the exempt property rules have been used for the purposes of tax avoidance, and we do not anticipate that the changes made by schedule 7 will alter that position. I hope that is helpful to the hon. Lady and I thank you, Mr Crausby, for allowing me just a moment’s digression before turning to clause 21.
Clause 21 makes a minor change to the remittance basis rules in response to concerns expressed during consultation, in the same way as clause 20 and schedule 7, which we have just discussed. Specifically, it prevents a
taxable remittance from occurring when an individual is liable to pay the annual remittance basis and is required to make payments on account, under the self-assessment system.As you will be aware, Mr Crausby, payments on account are an advance payment of a current year’s income tax liability, based on the individual’s liability in the previous tax year. When an individual has paid the annual charge of either £30,000 or £50,000 in a previous year, their payments will automatically include an amount in respect of the annual charge due in the current year.
However, if an individual decides at the end of the tax year that they do not want to elect to pay tax on a remittance basis, the payments relating to the annual charge will be refunded to them by HMRC. If the initial payment was made using foreign income and gains, the person will be treated as having made a remittance and taxed accordingly. It does not matter that the individual had the intention to bring money to the UK in the first place. Under current rules, they do not have the option to take the money back offshore. That is clearly unreasonable.
The clause prevents that inadvertent remittance from arising where an overpayment of the annual remittance basis charge is refunded by HMRC. However, to take advantage of this new rule, the individual will be required to take the amount repaid back offshore, in order to avoid being taxed. I am sure that hon. Members will agree that this is a far more reasonable position.
I was asked how many people will be affected by the clause. In all honesty, it is not always possible to say how many people will be affected. Theoretically, however, everyone paying the remittance basis charge could be affected. In 2010-11, that was 5,600 people. However, in practice we expect there to be a much smaller number.
Will further changes to the rules be needed? We are confident that no further changes to the remittance basis rules will be needed. The clause corrects a very minor anomaly in the remittance basis rules and it does not represent a fundamental flaw being corrected. As I said this morning, the Chancellor made the point in Budget 2011 that we have no intention of making any further substantive changes to the remittance basis rules for the remainder of this Parliament, and I am happy to reiterate that. We believe that a stable set of rules for non-domiciled individuals will provide certainty and increase the international attractiveness of the UK as a place to live and work. I hope that that is helpful to the Committee and that the clause can stand part of the Bill.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Arrangements made by intermediaries
Question p roposed , That the clause stand part of the Bill.
Catherine McKinnell: Clause 22 amends chapter 8 of part 2 of the Income Tax (Earnings and Pensions) Act 2003, or the intermediaries legislation commonly known as IR35. I would like to state for the record, in the event that it is relevant, that I am a member of the all-party group on the freelance sector.
At present, as office holders are not considered to be employees, any office holders engaged via intermediaries would not fall within the IR35 legislation for tax purposes. Clause 22 seeks to amend that so that the application of IR35 extends to office holders with effect from this tax year. Members of the Committee will probably know that IR35 was introduced by the previous Government in April 2000 after being announced in the 1999 Budget and subsequently being consulted on. The IR35 legislation was then updated by the Income Tax (Earnings and Pensions) Act 2003. The aim of the legislation was to eliminate the avoidance of tax and national insurance contributions through the use of intermediaries such as personal service companies or partnerships in circumstances in which an individual worker would, for tax purposes, otherwise be regarded as an employee of the client, and for national insurance purposes be regarded as in employed earner’s employment by the client.
Prior to the legislation taking effect, an individual could use this disguised employment to avoid being taxed as an employee on payments for services, and to avoid paying class 1 national insurance contributions by providing those services through an intermediary. The worker could take money out of the intermediary, normally a personal service company, in the form of dividends instead of a salary. As dividends are not liable for national insurance contributions, that would result in the worker paying less in such contributions than either a conventional employee or a self-employed person. Of course, PAYE taxation would also not apply to the dividends.
IR35 sought to consider the underlying nature of the relationship between the worker and the engager such that if the relationship would be considered to be employment were it not for the interposition of the intermediary, the IR35 legislation would apply. Where it applies, the income received by the intermediary is deemed to be employment earnings of the worker and the worker is liable to pay income tax on it, in accordance with chapter 8 of the Income Tax (Earnings and Pensions) Act 2003.
Currently, office holders engaged via intermediaries fall under the relevant national insurance legislation so that they are in the same national insurance contributions position as those who fall within the IR35 legislation. Clause 22 seeks to equalise the tax treatment of office holders engaged through intermediaries in the same way, but what is an office holder? The explanatory notes to the clause suggest that it is impossible to provide an exhaustive list or definition of the term. However, the notes suggest that the term “office” includes
“in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.”
“is a separate and independent position to which duties are attached; and office does not owe its existence to the incumbent or the discretion of an organisation”.
Therefore, an office holder might include, for example, a non-executive director, but according to the explanatory notes, but according to the explanatory notes, it would not include the post of manager or head of division, as such roles will only exist as long as the organisation wishes them to.
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However, the attempt to define “office holder”, which is clearly critical if the legislation is to function, has already been criticised for its lack of clarity. For example, Qdos Consulting stated:
“The lack of clear and concise guidance as to what an office-holder looks like is disappointing and will only add another layer of doubt to the IR35 legislation, something that HMRC were at pains to avoid when they overhauled the administration of IR35 last May.”
I would be grateful if the Minister could address some of those clearly critical concerns, when he responds on clause 22.
The overhaul of the administration of IR35 in May 2012 took place after the coalition agreement stated, back in May 2010, that it would
“review IR 35, as part of a wholesale review of all small business taxation”.
The Chancellor’s first Budget in June 2010 stated:
“The Government remains committed to a review of IR35 and small business tax”.
In July 2010, it was announced that the review would be undertaken by the recently established Office of Tax Simplification.
The OTS’s review, published just ahead of Budget 2011, made a number of recommendations, including that the Government should look at the wholesale integration of income tax and national insurance contributions, or that IR35 should be abolished. However, Budget 2011 announced that IR35 would be retained
“as abolition would put substantial revenue at risk”,
but the Government were committed to
“making clear improvements in the way IR35 is administered”.
Shortly after the Budget announced that IR35 would be retained, the Exchequer Secretary asked HMRC
“to undertake a thorough overhaul of the administration of this area of the tax system”.
That would include HMRC providing pre-transaction clarity and certainty and restoring trust, and the changes would
“include setting up a dedicated helpline…publishing…guidance on those types of cases HMRC view as outside the scope of IR35, targeting compliance activity by restricting reviews to high risk cases and setting up an IR35 Forum which will monitor HMRC’s new approach.”
Almost 50 pages of new IR35 guidance were subsequently published by HMRC in May 2012, which outlined the new, risk-based approach, monitoring IR35 compliance through a set of 12 business entity tests to help individuals work out the risk of HMRC checking whether IR35 applies to them.
As we know, the use of personal service companies by individuals became a particularly hot potato for the coalition when details of the pay arrangements for the chief executive of the Student Loans Company emerged at the beginning of last year. Mr Lester took up his position permanently in February 2011 and it was discovered that he was being paid off-payroll—that is, via a personal service company. That revelation led the Chief Secretary to the Treasury to announce, in February 2012, an internal audit of such appointments across all Government Departments to ensure “good value for money” and the unwinding of arrangements where necessary and “as quickly as possible”.
In May 2012, the Chief Secretary reported the findings of the review, which uncovered more than 2,400 such appointments. He declared that
“That lack of transparency cannot continue”
“new tighter rules on off-payroll appointments.”—[Official Report, 23 May 2012; Vol. 545, c. 1159-60.],
which would be implemented by September 2012.
On the same day, the Chief Secretary also announced plans to change the application of IR35 to individuals given a controlling function in a client’s organisation. The Government proposed to change the law so that controlling persons would be required to be on the payroll of that organisation and not engaged by an intermediary. However, this proposal was dropped in the autumn statement 2012 with the Government apparently concluding that their changes to the administration of IR35, along with changes to public sector recruitment practices, would be sufficient to prevent tax avoidance through disguised employment.
This fairly minor change to clause 22 is designed to ensure that office holders engaged via intermediaries will fall into IR35 in terms of their tax treatment as well as for national insurance contributions. That is part of the Government’s limited attempts to reform this thorny area. I would be grateful if, as well as addressing the concerns about the definition of the term “office holder”, the Minister could outline how many people the clause is likely to affect. In light of recent media reports, could he provide the Committee with an update on the employment of people off payroll in Government Departments and how the Chief Secretary’s plans to ensure greater transparency and tighter rules have been implemented to date?
The Minister might wish to comment on the Department for Education’s apparent continued employment of 24 academy brokers, whose role is to convince head teachers to join the academies programme, through personal service companies, reportedly on contracts of up to £1,080 a day, with some of these contracts running for up to 10 years. Is that what the Chief Secretary meant by
“new, tighter rules for off-payroll appointments”?
John Cryer (Leyton and Wanstead) (Lab): I am interested in the definition of personal services. It could have numerous connotations. Could my hon. Friend be more specific about that?
Catherine McKinnell: It is obviously a complex and thorny area of the law. I, too, would be interested to hear the Minister give a clearer definition of personal services.
There is another important area of false self-employment which the Bill and, disappointingly, the clause do little to address. According to the Union of Construction, Allied Trades and Technicians and its excellent report, “The Great Payroll Scandal”, bogus self-employment in the construction industry, from misuse of the construction industry scheme to enforced use of payroll companies, has been described as the biggest employment rights challenge in the industry. UCATT estimates that over 50% of those working in the construction sector are falsely designated as self-employed subcontractors, even
though many are permanently employed by a single firm. Those “employed” in this way are, of course, missing out on rights such as paid sick leave; holiday pay; overtime rates; redundancy pay; travel allowances; pension contributions; and employment protections. Many are forced to sign a contract stating that they are self-employed. Many are also expected to shell out £15 to £25 a week, which is deducted from their wages, to pay for these payroll services.It should be of particular concern to the Minister that the problem is estimated to cost the Exchequer £1.9 billion a year. It is disappointing, when considering clause 22 and the Government’s actions in making a small change in this particularity difficult area, that there does not appear to be a commitment to tackle that scandal in the Finance Bill or in other legislation. I would be grateful if the Minister would comment on that matter and reassure the Committee that the Government are considering these issues, in particular, from their perspective, the loss to the Exchequer that results from it.
As I am sure the Minister is aware, the Labour party is currently undertaking a policy review on this issue, led by my hon. Friend the Member for Leeds West (Rachel Reeves). We are speaking to employers, employees, trade unions and other organisations about what action we can take to stamp out false self-employment for good without stifling genuine self-employment, which is vital to our growing economy. I would be grateful if the Minister could comment on all the issues that have been raised. Clearly it is an issue of workers’ rights and fairness in the system, but it is also about protecting revenue to the Exchequer, which is clearly vital at this time.
Mr Gauke: I am grateful to the hon. Member for Newcastle upon Tyne North for setting out very thoroughly the background to the clause and IR35 more generally. As she said, the clause is a relatively minor matter. It aligns the tax and national insurance treatment of office holders under the intermediaries legislation more commonly known as IR35. Historically, IR35 has applied to office holders for national insurance purposes but not for tax. That means that office holders engaged via intermediaries currently pay national insurance contributions on the same basis as office holders who are engaged directly, but they are taxed differently. This small change rectifies the situation and creates parity between the tax and national insurance treatment.
Where an office holder is engaged directly by an organisation, income tax and national insurance have to be deducted at source by the engaging organisation, in the same way as they do for an employee. We expect this to be the case for the vast majority of office holders. Indeed, HMRC may still argue in the first instance that the office holder should have income tax and national insurance deducted at source by the engager, notwithstanding the terms of the clause. This small change to IR35 ensures that, where an office holder is personally required to provide the service of that office but is working through a limited company or other intermediary, HMRC is able to collect the tax that is due. The Government welcome the contribution that personal service companies make to the economy, and realise that in the vast majority of cases they are there for legitimate commercial reasons. This change creates
a level playing field for office holders, and ensures that tax cannot be avoided by putting in place contrived arrangements.Concern has been raised that this change will be used to apply IR35 to all those working through an intermediary. I would like to assure the Committee that that is not the case. This change does not extend the definition of an office holder. The term “office holder” is not defined in statute; it relies on case law. It is worth pointing out that HMRC publishes guidance on what constitutes an office holder, and it is used widely to determine who is an office holder for PAYE purposes. It does not apply solely to IR35 matters.
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An office is a separate and independent position to which duties are attached. It does not owe its existence to the incumbent or the discretion of an organisation. Examples of office holders include returning officers and clergymen. Case law recognises that a succession of individuals to a post or job title is not enough to establish an office. If, for example, the role and responsibilities can change or the engager can decide that the post is no longer needed, the individual is not an office holder. HMRC has published guidance on what constitutes an office holder; it has also published guidance on how the change applies.
I come now to definitions, and personal service companies. Personal services are provided by an individual when they must undertake the work rather than be able to provide a substitute. As for how many people will be affected by the clause, I cannot provide that information today, but I shall write to the hon. Member for Newcastle upon Tyne North about it. She asked about false self-employment in the construction industry. Several issues relate to that, including the loss of revenue. As announced at the Budget, HMRC is continuing to examine issues arising in the intermediaries market as part of wider avoidance work. That includes false self-employment in the construction industry, and it is a matter on which we continue to focus. The hon. Lady will be aware of our announcement in the Budget about offshore intermediaries. It demonstrates a willingness by the Government to act in related areas where we believe that there is a strong case.
Catherine McKinnell: Will the Minister comment further on the steps being taken by Departments engaged in off-payroll personal service company contractual arrangements because, clearly, that goes to the very heart of the public’s concern and to the very heart of the Government in many respects? I should be grateful if the hon. Gentleman would put on record what steps are being taken to deal with such worries.
Mr Gauke: The hon. Lady raises a significant issue, albeit one that is much broader than the clause. She will be aware that the process of providing services to Government public sector workers being paid through intermediaries was not new, and one that emerged from the case involving Mr Lester. The system was used widely, particularly under the previous Government. My right hon. Friend the Chief Secretary made several announcements about such matters, and we believe that there is a need for much greater transparency.
I cannot specifically answer the hon. Lady’s question about the Department for Education and academy brokers but, in short, I say that, as a Government, we have been much more willing to deal with the matter than was the case in the past. The Departments are reviewing their work force and reporting the results to the Treasury, as part of the review of the way in which public bodies are working on such issues. I think that the Government will be saying more on that matter in due course.
The clause involves a relatively small change; none the less it will ensure that people pay the correct amount of tax. It will also ensure that there is a level playing field for office holders, and that working through contrived arrangements does not result in a tax advantage. I hope that it will stand part of the Bill.
John Cryer: I want to speak at slightly greater length on one point that was raised by my hon. Friend the Member for Newcastle upon Tyne North and answered by the Minister—bogus self-employment, especially in the construction industry. The construction industry has been highlighted, but bogus self-employment now seems to be creeping into other industries such as hotel and catering. We are essentially talking about the distinction between employed and self-employed. Traditionally, that was a hard and fast distinction, but it has become blurred over the past 20 or 30 years. To some extent, that is due to change in work practices. Many on the Committee have probably been self-employed freelance in the past, and that is completely legitimate.
However, ruses and scams—some legal and some floating on the edge of illegality—are used by unscrupulous employers. I use the term “unscrupulous employers” advisedly because respectable, law-abiding employers would not get up to that sort of thing. Unscrupulous employers use certain ruses to transfer people who are clearly employees to self-employed status on a bogus basis. If employers transfer employees to self-employment, they avoid a number of obligations, including sick pay, holiday pay, overtime rates, redundancy pay, travel allowances, pension contributions and certain employment protections, as well as employer’s national insurance.
Catherine McKinnell: I am grateful to my hon. Friend for highlighting a major concern, in terms of not just Exchequer return but employment rights. Does he share my concern at discovering that many teachers are paid through off-shore payroll service companies? Some of the teachers engaged were not even aware that they did not have those employment rights until they found themselves in the position, for example, of having to take maternity leave and realising at that stage that they were not entitled to it.
John Cryer: My hon. Friend is right. There is a notorious example; I was going to refer to it later but will do so now. International Subcontracting Solutions Ltd employs 24,000 supply teachers across the UK. Because the company is based in the Channel Islands and is a payroll company, it is not liable to pay employer’s NI, although technically it does employ the teachers. That is a strange anomaly which in the past Ministers would not have had to grapple with. However, with the changing nature of the economy, it is a problem that has become apparent in the past couple of years.
Returning to the practices prevalent in the construction industry, we have seen the advent of payroll companies, of which I expect the Minister is aware. Payroll companies say to employers, “Give us the contract and responsibility for your payroll duties, and we will get HMRC off your back.” They will get rid of all the duties and obligations that I previously mentioned. In addition to promising to get HMRC off the backs of employers, in the worst cases they can use tax relief claimed against workers’ expenses to fund employer’s NI. That seems to be flirting on the edges of legality.
My hon. Friend referred to a report produced by UCATT, written by freelance journalist Jamie Elliott. He invented a company called Fairbrother Builders and asked payroll companies how they could help him out with HMRC and divest him of his obligations and responsibilities. I should point out that some of the payroll companies said that that was not appropriate, that he was employing people and should continue to employ them and that they were not in the business of helping him transfer people to bogus self-employment to avoid responsibilities. However, the majority of payroll companies said, “That’s fine. We will help you out.” When Mr Elliott approached Hudson Contract, the biggest payroll company, it responded by writing a letter, which stated:
“We can save you money, 20% of your labour costs, by reclassifying PAYE staff, paying them through CIS.”
That seems to me to be, at the very least, a questionable sort of practice. The letter went on:
“Self Employed operatives, paid under CIS deduction through Hudson are not entitled to holiday pay, redundancy or notice. We are helping companies to move their PAYE labour over to CIS…Last year this saved our clients over £25M in Employers NIC, placing tax and employment law liabilities with us.”
That seems pretty disreputable to me. It also diverts a lot of money that should go to the Treasury into the pockets of the employers who engage in such practices deliberately to avoid obligations.
Ian Mearns (Gateshead) (Lab): My hon. Friend is making important points indeed. There are vital facets to this discussion. The employment rights aspect is of great importance. Government Members should be concerned about employment rights as well as the cost to the Exchequer. Such practices must be costing the Exchequer hundreds of millions of pounds annually. If the profits that were not being paid in taxes were being spent on something useful, such as training the future work force, we could make an argument for those practices, but I am afraid to say that the construction industry is notorious for not doing so.
John Cryer: I agree with my hon. Friend.
Catherine McKinnell: Both my hon. Friends have raised very important issues. Another facet that is often overlooked is the fact that such practices not only cause a loss to the Exchequer but are unfair on and exploit workers. It also creates an unlevel playing field for the many businesses that do the right thing. We have an obligation to speak up on behalf of those businesses. They pay a price by not winning contracts, because they cannot compete with such exploitative practices.
John Cryer: That is absolutely right. Winston Churchill laid the path for the Agricultural Wages Board when he became Home Secretary in 1910. He said that the best employers would be undercut by bad employers, or something along those lines. I cannot remember the quote, but I think the Committee gets the gist. We are seeing perfectly reputable employers who want to do their duty, pay decent wages and make their contributions being undercut by the worst.
When people are transferred to what I would regard as bogus self-employment, they are often given a sweetener—a slight increase in pay—but very often that comes nowhere near compensating them for what they lose in sick pay, holiday pay and so on. I will quote the standard sort of contract used by Hudson. It sounds as though I am picking on Hudson Contract. The reason why Hudson is used so extensively in the report is simply that it is the largest of the payroll firms, not because it is particularly untypical. The contract used by Hudson states that the worker
“has no contract of any type whatsoever with the client”,
“he neither has nor shall make any contractual claim of any type against the client”.
In the vast majority of cases that I know about, the employees carry on doing exactly the same job. They are instructed by the same foreman and the same manager, and yet they are suddenly self-employed and supposedly have no relationship with their former employer. That is fantasy. It is fantasy economics and it is a con.
“Say goodbye to HMRC status issues and employment tribunal challenges.”
That is a bold statement, but, to a large extent, Hudson is justified in making that claim. HMRC challenged Hudson in 2007 on the basis that Hudson was transferring people to bogus self-employment. Strangely, HMRC lost the case in the High Court. HMRC argued that there was an implied relationship between the construction company and the freelance operative due to the reality of the relationship between them. That would make sense to most people, I would have thought, but the High Court, bizarrely—I do not know what planet the High Court was on that day, but it is not unusual for it to make bizarre decisions—said, “No, there is no such relationship”, despite the fact that there was one. HMRC lost, and since then, there has been a rapid expansion in the activities at the dodgy end of the market. In the past three years, the number of employer compliance reviews conducted by HMRC has fallen substantially.
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Perhaps when the Minister responds he will tell us that the number of compliance reviews of companies is starting to rise. I hope that he will be able to say that, because that would go some way to addressing the problem, which is increasingly prominent in construction and other industries.
In the three years up to the UCATT report, published a few months ago, the number of compliance reviews and inspections had been falling consistently. That of course says to employers who want to engage in bogus self-employment, “You are going to get away with it, because HMRC is not going to come round to talk to you, look at your books or check that you are following
the letter of the law.” They will have more confidence in trying to keep cash away from the Treasury, where it should be going.As I said at the beginning, my worry is that, while at the moment the practice is prominent in construction, it is spreading, particularly to the hotel industry; I say that from some experience in that industry. We are starting to see such bogus self-employment creep into hotels and catering. After that, it will spread to other industries. At some point, the Treasury and HMRC will have to take the issue seriously, because it clearly will have an effect on the flow of cash coming into the Treasury, which will of course have all sorts of implications.
Mr Gauke: I am grateful for the opportunity to return to the subject. Although the debate has broadened out from clause 22, the area is an important one.
To respond to the points raised by the hon. Member for Leyton and Wanstead, I reiterate that the Government announced in the last Budget their proposals to deal with offshore employment through intermediaries. The consultation document on that will be issued this summer. It will look to address all the abuses referred to and ensure that offshore employers pay the full amount of tax and national insurance contributions.
Catherine McKinnell: The Minister mentioned the consultation. My understanding was that it would be published in May 2013—this month. He now says that it will be published in the summer. Will he clarify when precisely the consultation will be published?
Mr Gauke: At this point, I am not going to be more precise than to say this summer. Obviously, I will let the hon. Lady know if I can be more precise.
Regarding compliance, I assure the Committee that HMRC has increased the number of compliance teams dealing with employment avoidance. A number of further teams are due to come online soon, in a directed compliance programme in this area. I am sure that hon. Members will be aware of the Government’s efforts to support HMRC so that compliance activity can be stepped up across the board.
It is also worth saying that the offshore employment through intermediaries consultation document is the first part of an HMRC project into the avoidance of tax and national insurance contributions through intermediaries. HMRC will continue to gather evidence about the other forms of employment tax avoidance referred to today.
In a spirit of generosity to the hon. Member for Newcastle upon Tyne North, I will now be more precise on when the consultation document will be published: I can reveal for the first time that it is due to be published on 30 May.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Taxable benefit of cars: the appropriate percentage
Question proposed, That the clause stand part of the Bill.
Catherine McKinnell: The clause relates to the taxable benefits on company cars that are made available for private use, known as company car tax. The company car tax calculation, which previously had been calculated purely on the basis of business mileage, was rightly reformed in 2002 by the previous Government to be based on CO
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emissions.Sections 121 to 148 of the Income Tax (Earnings and Pensions) Act 2003 provide for calculating the cash equivalent of the benefit of a company car that is made available for private use. In broad terms, the calculation depends on the list price of the car multiplied by the level of carbon dioxide emissions that that car produces. The outcome of the calculation is expressed as the appropriate percentage, which means that the lower the cars emissions are, the lower the percentage.
The appropriate percentage for such cars was an area on which we had a lengthy discussion during last year’s Finance Bill Committee. We do not want to replay that unnecessarily this year, but many concerns were raised by Opposition Members about the impact that increasing by 1 percentage point the tax rate on company cars emitting carbon in excess of 75g per kilometre would have on people’s pockets—particularly those on modest incomes, such as district nurses, midwives and carers, who often have little choice about whether they use a company car. [Interruption.] I hear reassuring noises from my hon. Friend the Member for Gateshead, who contributed passionately to last year’s debate.
This year’s clause on the appropriate percentage for such cars deals specifically with ultra-low-emission vehicles. That is, in the words of the tax information and impact note, part of the Government’s package
“to incentivise the purchase and manufacture of ultra low emission vehicles in the UK.”
I am keen to return to that wider issue when we consider clause 67, which looks at the capital allowances for cars with low carbon dioxide emissions, as supporting the growth of this industry is of particular interest to me and a number of my colleagues as north-east MPs.
As members of the Committee may know, the 2002 reforms to the company car tax regime mean that changes to rates are announced at least two Budgets in advance; that practice is intended to provide a level of stability and certainty in the company car market. Indeed, it is particularly helpful for fleet operators when making vehicle purchasing decisions, as the average length of company car ownership is between three and four years. The clause therefore legislates for changes that will not be made until April 2015, and relates to the decision, confirmed in Budget 2013, that the five-year company car tax exemption for zero and low-carbon vehicles will come to an end in April 2015, as originally legislated for in the Finance Act 2010.
I do not wish to confuse members of the Committee about the various dates involved, but they are key to discussions on this provision. The Minister will no doubt be aware of the impending ending of the exemption and the significant concern that that has caused to all involved in the burgeoning zero and low-carbon-emission vehicle industry. Consumer choice is absolutely critical to that industry, not least because fleet purchases—that is, company cars—accounted for the vast majority of the UK’s first 1,000 electric car and van sales.
Indeed, the proposed ending of the exemption led John Lewis—not the department store, but the chief executive of the British Vehicle Rental and Leasing Association—to express this concern just last year:
“By eliminating their company car tax exemption from April 2015, the Chancellor is getting rid of one of the main incentives for fleets to operate”
electric vehicles. He concluded:
“This measure could kill the electric car market stone dead.”
Dr Ben Lane, the managing editor of Next Green Car—I am sure we all read that publication—suggested that the changes presented
“a serious challenge to the UK electric vehicle market”.
“At a stroke, this will remove one of the key fiscal drivers of the new market for plug-in electric vehicles.”
“While fiscal incentives should be time-limited, 2015 is far too early to expect electric vehicles to compete with much lower priced petrol-hybrids and clean diesels. With battery and plug-in hybrid development still ongoing, and sales volumes still low, the playing field isn’t yet level enough for a fair fight. If this goes ahead, the electric vehicle market will be killed off before it’s even started.”
The measures in the clause to mitigate the ending of that exemption from company car tax are therefore a hugely welcome improvement. Also announced in Budget 2013, they mean that from April 2015 there will be two new company car tax bands for ultra-low-emission vehicles, a 5% band for cars with emissions of 0g to 50g of CO
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per km, which will rise to 7% by 2016-17, and a 9% band for cars with emissions of 51g to 75g of CO2
per km, which will rise to 11% in 2016-17.Those rates are, for the record, lower than the 13% rate suggested by Budget 2012 for all zero-emission and low-carbon cars emitting less than 95g of CO
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per km in 2015-16, which was to rise to 15% by 2016-17. According to HMRC’s tax information and impact note, the clause will see a basic rate taxpayer who drives a zero-emission car with a list price of approximately £28,500 paying £450 less company car tax in 2015-16 than they would have done at the 13% rate.A rate of 5%, however, is clearly higher than paying nothing at all. Will the Minister outline exactly what company car taxation the aforementioned basic rate taxpayer will be paying in 2015-16 compared with what they pay at present—which is, as far as I understand it, nothing? I would also like to hear what specific assessment has been made of the impact of these changes on the growth of the ultra-low-emission vehicle industry, particularly given the importance of company car purchases in supporting growth in that industry, and the critical role the industry plays in supporting apprenticeships and high-skilled jobs in regions such as mine, through the excellent Gateshead college, which is in the constituency of my hon. Friend the Member for Gateshead, and also through Nissan, with its significant local supply chain.
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It is a positive development that after 2013 company car tax rates will be announced three years in advance to give the automotive and company car sector a level of certainty that will boost confidence and, hopefully, stimulate greater demand. It is also welcome that Budget 2013 stated that the Government will review these incentives
for ultra-low-emission vehicles in the light of market developments at Budget 2016 to inform decisions on company car tax from 2020-21 onwards. However, I urge the Minister to make a commitment that this matter will be kept under constant review, and that the Government take steps to act accordingly for the reasons I have outlined. My hon. Friends may also put forward similar arguments, given that it such a crucial sector to support in these early days of its development.Ian Mearns: I echo my hon. Friend’s concerns, particularly about the future of the developing electric vehicle market. As my hon. Friend pointed out, Nissan is producing the Leaf at its Washington plant, and I am very glad that on a recent visit I had the opportunity to buy one—[ Interruption. ] Not to buy one, to drive one; I could not afford one. I have to declare an interest. I do not own a car, and I occasionally hire vehicles when I have to use one. I am greenish, because I do a lot of walking in my constituency. It is neat and tidy, my constituency, in terms of overall size.
The problem with developing the electric car market is first and foremost that the vehicles are, on the face of it, quite expensive. There is a high capital outlay at the beginning, but there is an immense saving on fuel as the vehicle is used. We therefore need to incentivise the market to get more of these types of cars on the road. If the Government are to be the greenest Government ever, one would think that incentives for electric vehicles such as the ones being produced by Nissan are crucial in terms of making sure we all collectively reduce our CO
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emissions.In my area, the 6,000 jobs at the Nissan plant do not automatically rely on the production of the Leaf, but the growth of the Leaf product is crucial to the plant’s place in the European market in particular. An awful lot of vehicles from the Washington plant, as I mentioned last week, are exported directly to Europe via the dock at Jarrow. But in addition to the 6,000 jobs at the Nissan plant, something like 25,000 to 30,000 jobs in the supply chain industries working directly for Nissan are affected by what we do.
In developing the electric car market, we have to remember that we do not yet have an adequate network of charging points around the country. On top of that, it is a developing technology, in which we are hoping to see some breakthroughs in battery life and the mileage that cars can achieve in a day without recharging. One of the developments that has taken place is the updating of charging points. A rapid charging point can give a vehicle something like an 80% charge in the space of 20 to 30 minutes, which is vital for making sure people can carry on using their vehicles.
If incentives are withdrawn in the way that has been outlined, and company fleets shy away from purchasing electric vehicles because of the erosion of the tax relief, that will be a matter of grave concern. I am reflecting the opinions of people in the market itself. We could see something that is vital for our green investment future being strangled at birth, particularly through the fleet markets being eroded.
We need to get more of these vehicles on to our roads so that people can see what their performance is. Their performance is high but the capital outlay often makes buying an electric vehicle seem prohibitive. We need to demonstrate that they are the technology for the future.
Catherine McKinnell: My hon. Friend makes a powerful case for electric vehicles. I visited Nissan with him and drove one of the new Leaf vehicles. I would love to be able to purchase one. One of the issues in a region such as ours that hampers the development and roll-out of electric vehicles is confidence. It boils down to confidence in the market, confidence in Government support for these new technologies and, as my hon. Friend eloquently puts it, confidence that they will not be strangled at birth. They will obviously multiply immediately once we start seeing more electric vehicles on the road; there will be that confidence for more people to buy into the technology.
Ian Mearns: My hon. Friend makes a powerful point. I will listen with interest to the Minister’s response. Nissan is a fundamental industry for the north-east of England but it is also a fundamental industry for our future in terms of how it develops this technology to try to reduce our overall CO
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emissions from vehicular traffic. If we are not careful, a lot of our collective aims and objectives could be thwarted by something that might be regarded as a tad careless.Mr Gauke: Clause 23 makes changes that affect the level of tax payable on the private use of a company car. Company car tax was reformed in 2002 to reduce the carbon dioxide emission levels of cars. The amount of tax paid on a company car is now based primarily on the amount of carbon dioxide it emits. The changes made by the clause develop that reform and are in line with a wider £100 million package to support the purchase and manufacture of ultra-low-emission vehicles, also known as ULEVs, in the UK. At Budget 2013, we guaranteed reduced rates of company car tax for ULEVs until at least 2020. We announced a three-year extension of the 100% first-year allowance for ULEVs from 2015-16 and committed to reviewing both the company car tax and capital allowance incentives for ULEVs in light of market developments at Budget 2016.
We also said when we would announce company car tax rates. As we have heard, since 2002 they have been announced at least two years in advance. In future, company car tax changes will be announced three years ahead and I welcome the support for that policy. This will continue to provide stability and certainty in the company car market. It will allow employers and company car drivers to plan changes to their fleets well ahead of any tax changes.
The clause introduces two new company car tax bands for ULEVs which are effective from 2015-16. The detail of the bands is set out in the legislation but they effectively ensure that ULEVs will be taxed at a lower rate than conventionally fuelled cars. In 2015, ULEVs will also be taxed less than planned by the previous Government.
Let me provide an example. In 2015-16, a basic rate taxpayer driving a zero-emission car with a list price of £28,500 will pay £470 less company car tax than on a typical conventionally fuelled car. A higher rate taxpayer will pay £940 less. Those new bands support the purchase and development of ULEVs in the United Kingdom.
The clause also sets out the 2015-16 company car tax rates for non-ULEVs. The appropriate percentage of the list price subject to tax for the cars will increase by two percentage points, with effect from 6 April 2015.
That ensures that company car tax continues to reflect changes in fuel efficiency and supports the sustainability of public finances. A basic rate taxpayer with a popular conventionally fuelled car with a list price of £18,000 will pay approximately £72 more in 2015-16. The higher rate taxpayer will pay £144 more.Employees can pay less by choosing a less polluting company car. The increase should be seen in the context of the larger extent of tax increase of £1,335 in the first allowance, which took place last month. Budget 2013 also announced a further increase of £560, which means that the personal allowance will increase to £10,000 in 2014-15 and, from April 2014, the cumulative effect of the Government’s personal allowance increases will have taken 2.7 million people out of income tax. A typical basic rate taxpayer will see a cash gain of £705 per year.
I was asked specifically about the impact of the CCT measures on ULEV sales.
Catherine McKinnell: Will the Minister give way?
Mr Gauke: Shall I just continue responding to the question?
Catherine McKinnell: I was going back to a previous point.
Mr Gauke: I give way to the hon. Lady.
Catherine McKinnell: I could not let this opportunity pass. While the personal allowance will decrease the tax burden on certain taxpayers, the increase in VAT to 20% and other changes to the tax and benefit system have been shown clearly to increase the tax burden on the very families that the Minister claimed in his statement the Government want to support. Ultimately, families will be worse off in 2015 than they would otherwise have been.
Mr Gauke: I am tempted to broaden out my remarks and argue about the fact that we inherited such a large deficit and to say that, had we not taken the steps that we had, we would not have reduced the deficit by a third, while the Opposition favour increasing borrowing. But I will not make those points. I shall turn instead to the questions asked about the clause.
Given that the market is at an early stage of development, it is not possible to estimate precisely the impact on ULEV sales. It is fair to take into account the wider support that the Government provide to ULEVs. We are taking steps to encourage their purchase and, hence, contribute to our objectives to reduce greenhouse gas emissions from road transport, while supporting the manufacture of ULEVs in the United Kingdom. It is worth pointing out, in that context, that we have listened to the views of car manufacturers, and that we have announced a £100 million package to support the purchase and manufacture of ULEVs. It is also worth saying that some of our improvements to R and D tax credits are helpful. In its response to the Budget on 20 March, the Society of Motor Manufacturers and Traders stated:
“The Chancellor’s actions to improve R&D tax credits will help trigger extra business investment, and the change to the Company Car Tax rules for ultra-low emission vehicles will be welcomed by many in the UK automotive sector”.
“SMMT is ‘delighted’ with the introduction, from April 2015, of two new bands at 0-50 g/km of carbon dioxide…and 51-75 g/km CO2”.
Of course, we will continue to monitor the ULEV market.
Perhaps I should also turn to the point made by the hon. Member for Gateshead about recharging infrastructure. The Government have committed £74 million to recharging infrastructure. In February 2013, the Department for Transport announced a £37 million package to pay 75% of the cost of installing charge points in houses, on streets and at railway stations, and 2,800 charge points have been installed via the plugged-in places scheme since 2010.
Concerns have been raised about why we did not keep the zero rate for the lowest emission cars. I reiterate that the previous Government legislated that the rate for zero-emission cars would end in 2015. It is also worth pointing out that, under our plans, electric cars will be taxed at 5% in 2015 and 7% in 2016; the previous Government would have taxed electric cars at 9%, which is obviously more. I hope that that is helpful to the Committee.
Ian Mearns: Will the Minister give way?
Mr Gauke: I give way on the controversial point that 9% is more than 5%.
Ian Mearns: Does the Minister accept that in the three years since the 2010 election, a notional Labour Government might actually have changed their mind?
Mr Gauke: I certainly do accept that. In fact, I notice that there is a tendency by the Labour party to place great weight on its own plans to reduce the deficit, and yet on any specific element of such plans—most notably on the fuel duty escalator—when pressed, it makes clear, as it did this morning, that it would not have stuck to the plans anyway. So I certainly do accept that any efforts to reduce the deficit would probably have been abandoned by the Labour party.
Chris Leslie (Nottingham East) (Lab/Co-op): You are not reducing it.
Mr Brooks Newmark (Braintree) (Con): Will my hon. Friend the Minister give way?
Mr Gauke: Before I get drawn into debates about how this Government have reduced the deficit by a third, I will give way to my hon. Friend.
Mr Newmark: I want to help my hon. Friend the Minister. I appreciate that maths is not the greatest strength of the Opposition Front-Bench spokesman, as he once again demonstrates, but £120 billion is a lesser number than £180 billion, is it not? There has been a decline in the deficit from £180 billion to £120 billion, so the deficit has fallen by a third. It may help the Front-Bench spokesman if my hon. Friend reiterates that point.
The Chair: Order. Minister, I think we should get back to clause 23.
Mr Gauke: I will, in moving seamlessly towards clause 23, say that my hon. Friend is right that the deficit has indeed been reduced.
Clause 23 strikes a balance between supporting the UK’s ULEV market and ensuring that all company cars are subject to a fair level of tax. Together with the wider support that the Government are providing to ULEVs, particularly on recharging infrastructure, the measure will encourage the purchase and manufacture of ULEVs in the UK. Indeed, Nissan recently launched its zero-emission car, the Leaf, in Sunderland, as we have heard.
Mike Thornton (Eastleigh) (LD): I have a technical question. I understand from people who are knowledgeable about electricity generation in this country that a significant take-up of electric cars—for example, to 20% to 25% of motor vehicles—would severely affect our ability to produce enough electricity. Has that been taken into account?
Mr Gauke: Just as I was concluding my remarks I was thinking, “Should I give way to my hon. Friend?” I am pleased I did, because he raises an interesting query that I am sure all members of the Committee would like to mull over. I am not going to prevent members of the Committee considering that point but, if he will forgive me, I am not able to provide an answer straight away.
This is a sensible approach; we are striking the right balance; this is a more supportive approach to ultra-low emission vehicles than the one we inherited. I am pleased that we have cross-party support and hope that the clause will stand part of the Bill.
Clause 23 accordingly ordered to stand part of the Bill .
Clause 24
Gains from contracts for life insurance etc
Question proposed, That the clause stand part of the Bill.
The Chair: With this it will be convenient to discuss that schedule 8 be the Eighth schedule to the Bill.
Catherine McKinnell: Clause 24 introduces schedule 8, which amends the rules for time-apportioned reductions from gains made on life insurance policies for periods where the policyholder is resident outside the UK. The rules are known as the chargeable event gain regime.
Under chapter 9 of part 4 of the Income Tax (Trading and Other Income) Act 2005, time-apportioned reductions are provided only for life insurance policies issued by a foreign insurer. Clause 24 and schedule 8 would change that so that time-apportioned reductions were extended to life insurance policies issued by UK insurers.
Chargeable event gains arise if a policyholder makes withdrawals or receives cash or other benefits on a full surrender, part surrender, maturity or death, from a life insurance policy, life annuity or capital redemption policy; or if he sells or assigns the whole or part of a life
insurance policy, life annuity or capital redemption policy, including as part of arrangements on divorce or separation; or if the ownership of a policy or part of a policy changes hands for money or money’s worth; or if the policyholder holds a Personal Portfolio Bond with an insurer in the year; or if any of the other things have been done by a trustee of a trust that the policyholder created or contributed to, the trustees of a bare trust of which the policyholder is a beneficiary, anybody holding a policy in their own name as the policyholder’s nominee or a lender to whom the policyholder’s policy was previously assigned as security for a debt.Those gains are taxable as income and included in income for all purposes, including entitlement to personal allowances and tax credits. Provision is made within the chargeable event gain regime to ensure that chargeable event gains arising on policies issued by foreign insurers are reduced in proportion to the policyholder’s period of residence outside the UK at any time during the life of the policy. These are known as time-apportioned reductions and broadly mean that gains accruing during an individual’s period of residence outside the UK are excluded from the charge to UK tax.
Time-apportioned reductions are currently not available to policies issued by UK insurers, even though individuals with such policies may also have periods of residence outside the UK. The tax information and impact note states that the change is expected
“to impact on a relatively small number of individuals who have periods of residence outside the UK during their ownership of a life insurance policy”.
Obviously, schedule 8 relates to taxable gains arising on the life insurance policies held by individuals who are non-UK resident for some of the time during the prescribed period. Currently, certain life insurance policies or capital redemption policies issued by a UK non-resident company or forming part of an overseas life insurance business of a UK insurer, are defined as foreign policies and some aspects of the tax treatment are therefore different from policies issued by UK insurers.
One example of different treatment is that the gain on a foreign policy would be reduced if the policyholder was not UK-resident throughout the entire prescribed period. As I understand it, and as I am sure the Minister will confirm, the clause is intended to apply to new UK policies or variations of existing UK policies where the owner of the policy is resident outside the UK during the policy ownership period.
I would be grateful if the Minister would confirm my understanding of the change that is being introduced. Would it have been desirable for the change to have applied to all existing UK policies? How many policyholders who reside abroad are likely to be impacted by the change? What is the typical period for relevant policyholders who are affected by the change? What will be the cost or yield to the Exchequer of schedule 8? The Exchequer impact is assessed as being negligible, but it would be useful if the Minister could confirm that there would be no additional yield to the Exchequer.
Mr Gauke: Clause 24 introduces schedule 8, which makes changes to ensure that there is greater alignment between the treatment of policies issued by insurers inside and outside the UK, and that the rules on time-apportioned reductions provide a more appropriate reduction to chargeable event gains.
It might be helpful if I set out a little bit of background to the measure, which was announced at Budget 2012. Special rules, which are referred to as the chargeable event gain regime, apply income tax to investment profits that individuals realise from life insurance policies. Under the current regime, chargeable event gains arising on policies issued by foreign insurers are reduced in proportion to a policyholder’s period of residence outside the UK at any time during the life of the policy, a process known as a time-apportioned reduction. Broadly, that means that gains accruing during an individual’s period of residence outside the UK are excluded from the charge to UK tax. Time-apportioned reductions are currently not available to policies issued by UK, as opposed to foreign, insurers, even though individuals with such policies may also have periods of residence outside the United Kingdom. In addition, the amount of the reduction under the current rules may be inappropriate in some circumstances. For example, relief is given by reference to the residence history of the legal owner of the policy rather than to that of the person liable to income tax on the gains, who is generally the beneficial owner.
Clause 24 and schedule 8 extend time-apportioned reductions to life insurance policies issued by UK insurers. The clause and schedule provide that time-apportioned reductions will be calculated by reference to the residence history of the person liable to income tax on the gains, not by reference to the residence history of the legal owner of the policy.
A formal consultation was launched in the summer of 2012, and the possibility of amending the simple formula currently used to calculate the allowable reductions for periods of non-residence was discussed. The aim of those discussions was to tie the calculation more closely to the dates of premium payments and the values of sums invested at particular dates. A number of different methodologies were considered, but the improved accuracy was far outweighed by the complexity of the calculation that the taxpayer would be required to carry out, so the existing simple formula remains in place.
The hon. Member for Newcastle upon Tyne North asked about the impact. As she correctly said, the tax information impact note states that there is a negligible impact on the Exchequer, which means that the measure will result in neither a significant cost nor a significant yield. She also asked about the number of people who are likely to be affected. She will be aware that the proposed changes are expected to impact on a relatively small number of individuals who have periods of residence outside the UK during their ownership of a life insurance policy. It is difficult to be specific about that and go beyond what the TIIN states, but we are probably talking about a few thousand.
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The hon. Lady also made the point that it is desirable for the change to apply to all UK policyholders. I would agree with that; the measure supports the Government’s objective of ensuring that our tax system is fair by aligning the treatment of policies issued by UK and non-UK insurers. I hope that that is helpful to her.
This measure is about promoting fairness in the tax system by levelling the playing field so that UK insurers and those insurers outside the UK are treated in the same way. It provides a more appropriate calculation methodology, based on the residence history of the person paying tax on the life insurance policy gain. I hope that the clause will have the support of the Committee and may stand part of the Bill.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Qualifying insurance policies
Question proposed, That the clause stand part of the Bill.
The Chair: With this it will be convenient to discuss that schedule 9 be the Ninth schedule to the Bill.
Catherine McKinnell: As far as I understand it, the clause introduces schedule 9, which provides for the implementation of a new annual premium limit on qualifying life insurance policies, which I shall refer to as QPs—I am sure that the Minister will be grateful for that abbreviation. The QP regime was introduced in 1968 to preserve pre-existing tax treatment for traditional moderate-value, long-term, regular premium savings policies that contain a significant element of life insurance. No upper limit was set for the investment premiums that could be paid into a QP, which allowed individuals to obtain unlimited relief from higher rates of income tax.
QPs are essentially regular premium life policies that run for 10 years or more and have an investment, such as endowments or whole life with profits. Term policies that pay a fixed sum if a person dies within a fixed period of years, but have no investment value, also usually qualify.
In Budget 2012, the Government announced their intention to restrict the tax relief available for QPs from 6 April 2013, limiting to £3,600 the premium for new QPs taken out by any individual if the maturity proceeds are to qualify for tax-free status. Policies taken out before 21 March 2012 are not affected, but some transitional arrangements have been put in place for policies taken out from that date to forestall people who might have tried to take advantage of the old rules before the new rules became clear.
The measure was consulted on in June 2012 and the summary of the responses published suggested that the following key concerns had been raised:
“There are likely to be significant implementation costs to industry from a reporting system both for policies taken out before 21 March 2012 and those taken out on or after that date, disproportionate to the protection of Exchequer receipts being sought by the Government. There are concerns about the extent to which policies taken out before 21 March 2012 are brought into the new annual premium limit regime”
“The proposed changes add complexity to an already complicated area of tax law.”
Further concerns about the impact of the changes on inheritance tax planning have been raised:
“Since the special tax regime for qualifying policies was introduced in 1968, it has given them important advantages for tax planning, and IHT in particular when written in Trust. This may have a significant effect on some traditional IHT planning arrangements. For example many policies were taken out in the 1970s -1990s and placed in Trust to build up a fund to meet IHT on the death of the survivor of a married couple. Back to back annuities were another example. These may be less popular nowadays as investment returns on traditional policies have declined with interest rates, but they still have a place in tax planning.”
The tax information and impact note states that the measure is expected to have a negligible impact on the Exchequer, and will
“impact a relatively small number of individuals and households who would have used such arrangements for higher value investment. It is expected that there will be no impact on individuals making regular moderate value investments for which premiums payable will not exceed the limit.”
In 2010, 30 life insurers and 12 friendly societies were known to sell QPs.
I have a general point to make. That reference to a relatively small number of individuals is relative to what? Some clarification would be helpful. I also have a few queries that arise not only from the concerns raised in the consultation but from some of the statements in the impact note. It would be helpful if the Minister could explain in layman’s terms how the annual premium limit will work in practice and which life insurance policies will be deemed qualifying life insurance policies. It was helpful that the Minister sought to quantify the relatively small number of households that will be affected in his comments on the previous clause. If he could do the same here, it would provide some reassurance.
Does the Minister think these changes will have an impact on the propensity of individuals to save in their policies on a regular basis? Are life insurance policies becoming a less fashionable form of savings these days? Could he also explain the rationale for the difference between the ISA tax-free allowance, which is around £5,800, and the tax relief on premium limits set in this schedule, which is £3,600? I have one final comment on the impact on business, including civil society organisations, which are mentioned in the impact note. The measure is expected to have an impact on those 30 life insurers and 12 friendly societies which the Government were aware of in 2010. It says that the final number of businesses affected and the impact of this change on them cannot be quantified at this stage and that it is expected that there will be an increase in administrative burdens and a one-off cost to businesses as they familiarise themselves with this policy change. Greater clarity on those impacts and associated costs would be helpful.
Mr Gauke: The clause introduces schedule 9, which makes changes to introduce an annual premium limit of £3,600 for qualifying insurance policies from 6 April 2013. That will improve fairness in the tax system by ending unlimited relief from higher and additional rates of tax being granted on premiums to life insurance policies.
The qualifying policy regime was introduced in 1968 to preserve pre-existing tax treatment for traditional, moderate-value, long-term, regular premium savings policies that contain a significant element of life insurance. No upper limit was set for the investment premiums
that could be paid into a QP, which allowed individuals to obtain unlimited relief from higher rates of income tax. The Government announced in Budget 2012 a restriction to the tax relief available for QPs, which supports our objective of promoting fairness in the tax system by ensuring that tax reliefs for QPs are correctly targeted.The clause and schedule provide for the implementation of a new annual premium limit on QPs. For policies issued on or after 6 April 2013, the amount of premiums payable into QPs for an individual will be limited to no more than £3,600 in any 12-month period. For policies issued on or after 21 March 2012, but before 6 April 2013, transitional rules will apply. Relief for policies issued in that period will be restricted. Full relief is available in relation to premiums payable or treated as payable in the transitional period; however, for those policies the £3,600 annual limit will apply to premiums payable on or after 6 April 2013.
Mike Thornton: Will the Minister give way?
Mr Gauke: I will, but with some trepidation.
Mike Thornton: This is a purely technical question—[Hon. Members: “So was the last one.”] I am a Lib Dem—what can I say?
Do these measures apply to single premium policies, commonly called bonds? A lot of those policies are used to supply money for people for their old-age care, an issue that we are all concerned about on both sides of the House, and to fund care home fees later in life. I have no objection to any of these measures for most policies, but for those particular policies it might restrict people’s ability to save money for care home fees.
Mr Gauke: I am always nervous when someone stands up and says that they will make a purely technical point, but the point is perfectly fair. It is worth mentioning that there are some exclusions to the rules: for example, pure protection policies are excluded, unless they are varied so that they are no longer pure protection policies; that covers those policies that have no surrender value or are not capable of acquiring a surrender value, or under which the benefits payable cannot exceed the amount of premiums payable except on death or disability. I will come back to the specific cases that the hon. Gentleman raised later in my remarks.
Policies issued before the transitional rules came into effect will be affected by the new rules only where on or after 21 March 2012 there is a substitution of a new policy for an existing policy or a variation of an existing policy, or the exercise of an option within an existing policy, that results in a major change—such as, for example, the extension of the premium-paying term or an increase in premiums payable. The tax treatment of policies issued before 21 March 2012 that are not altered on or after 21 March will remain unchanged.
A formal consultation was launched in summer 2012, to which 19 responses were received, including from representative bodies for insurance companies, friendly societies and mutual societies; HMRC also held a number of meetings with businesses, representative bodies and professional firms.
During the consultation, industry suggested that existing policies issued before 21 March 2012, often referred to as the back book, should be excluded from the new rules. The Government have listened to those representations and agreed that back book policies will be brought within the new annual premium limit only if they are altered in a substantial way. Additionally, to lessen any administrative burden on the industry arising from the introduction of the annual premium limit, insurers will not be required to provide reports on back book or transitional period policies to HMRC.
Industry also suggested a number of different types of policy that should be excluded from the new annual premium limit. The Government have excluded pure protection policies, and I have run through that issue. We have excluded mortgage endowment policies issued before 21 March 2012, when the alterations to the policy are made only to ensure that the policy enables repayment of the relevant mortgage capital. Exempting those policies will avoid unduly harsh repercussions for policy holders whose investments had not performed as expected and who will either have to increase premiums above the cap to meet the target of repaying their mortgage or run the risk of losing their property.
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The schedule grants powers to HMRC to make regulations providing for statements from individuals to support qualifying policy status for new or continuing policies issued or amended on or after 6 April 2013, and reporting requirements for insurance providers in respect of qualifying policies issued on or after 6 April 2013. Draft regulations were published for consultation on 31 January 2013, and the consultation closed on 28 February 2013. The detail of the regulations is still under discussion with the working group drawn from the industry and the accountancy profession, the aims for the regulations to be made when Royal Assent is given to the Finance (No. 2) Bill 2013.
Let me deal with some of the issues raised in the debate. The QP relief applies to all individuals, in addition to existing savings vehicles. The majority of policyholders will be unaffected by the £3,600 premium limit. I was asked how many will be affected. The impact assessment says that relatively few will be affected, and the hon. Member for Newcastle upon Tyne North asked “relative to what?” I could say that it was relative to the 2.7 million people who have been taken out of income tax by the Government or the 25 million people who have seen a reduction in their basic rate of income tax but, to be more precise and using FSA statistics, in 2010, of the 420,922 QPs that were issued, only 7,907 policies will be affected by the limit.
Concern was expressed about whether there would be an increased administrative burden for industry. The Government acknowledge that there is an increased administrative burden, but we believe that it is commensurate with the overall aim of the measure, which is to increase fairness in the tax system. We have done our utmost to limit the impact of the burden. For example, there has been wide consultation with the industry.
As for friendly societies, again we have consulted closely.
Catherine McKinnell: Will the Minister give way?
Mr Gauke: Let me finish my point about friendly societies. The measure does include additional information obligations for providers when policies are first issued. Broadly, discussions with the industry suggest that the additional requirements are unlikely to be burdensome, although we acknowledge that they might have a greater impact on a small number of friendly societies that do not routinely provide information to HMRC on life policies.
Catherine McKinnell: My question relates to an earlier point that the Minister made. Unfortunately, I do not have my Red Book immediately to hand. However, bearing in mind the doubts expressed in the consultation about whether the proposed change would bring in sufficient revenue to justify the complexity of the change, can the hon. Gentleman clarify what the yield is expected to be from the change, which obviously needs to be offset against the cost of implementing it and the allegation of its being disproportionate, one of the issues raised in the consultation?
Mr Gauke: The hon. Lady will be aware that the tax information impact note again says that the Exchequer impact is negligible None the less, we think that the measure supports our objective of promoting fairness in the tax system by ensuring that the reliefs are correctly targeted. The current regime has no upper limit on the investment premiums payable into a QP, allowing individuals to obtain unlimited relief from higher and additional rates of income tax. The measure will restrict the amount of premiums that can be paid into a QP.
Catherine McKinnell: I apologise if I am not following the argument fully. If there is no impact—no cost and no yield—can the Minister explain how that will work in practice and whether any actual change in behaviour will result from the measure being put in place? In terms of economic impact, I cannot see how it can possibly be measured.
Mr Gauke: If the hon. Lady is making the point that she would not support a tax measure that did not bring any yield in, I welcome her presumed support for reducing the 50p rate of income tax to 45p, so that is an interesting principle.
Catherine McKinnell: Will the Minister give way?
Mr Gauke: In a moment. It is an interesting principle for her to have accepted.
Catherine McKinnell: That is not what I was saying. If he gives way, I will clarify.
Mr Gauke: That is why I am not giving way. We believe that the measure is a matter of fairness. Although we cannot identify an immediate yield as a consequence of the measure, it does protect revenue. It prevents the QP system from being abused in a way that may have an
implication for lost revenue, and we think it is a matter of fairness that a £3,600 limit in the circumstances is the right thing to do.Catherine McKinnell: I thank the Minister for giving way and for giving me the opportunity to clarify my point. If there is no economic benefit or detriment that is recognisable in behavioural change as a result of the policy, I would question whether the Government’s aims are being fulfilled in terms of ensuring fairness, as the policy and the figures that have been laid before the Committee today do not appear to have any economic impact on the individuals affected.
Mr Gauke: All I can say is that we have worked closely with the industry to ensure that burdens are minimised. There are no reporting requirements in respect of policies issued before 6 April 2013. The form of statement from customers is not prescriptive and industry can modify existing statements that are completed in this area. The burdens will not prove substantial in the vast majority of cases. Without the measure, there is the opportunity for it to be used in a way that does not target the tax relief.
On the issue raised by my hon. Friend the Member for Eastleigh about how QPs can be used to supply money to pay care home fees, it is worth pointing out that policies existing on 5 April 2013 will not come into the new regime unless the amounts saved are increased above the limit, so they can continue to save provided they do not go over that limit. As I said, the limit is there to ensure fairness in the tax system.
A point was raised about the comparison with the ISA. The ISA is the primary savings product available to individuals. The limit on QPs is designed to reflect the fact that it is a supplementary savings product, and it is consequently set at a lower level. A question was asked about how the premium limit will work in practice. The annual premium limit of £3,600 applies from 6 April 2013 for premiums payable under QPs in a 12-month period. As I said earlier, prior to 21 March 2012, policies are unaffected unless amended on or after 6 April 2013.
With those points of clarification, I want to reiterate that this measure supports the Government’s objective of promoting fairness in the tax system by ensuring that tax reliefs for QPs are correctly targeted. It will restrict the amount of premiums that can be paid into a QP, thereby ending unlimited relief in higher and additional rates of income tax. It is one of a number of measures in the Bill to ensure that wealthy individuals pay their fair share of tax, and I hope the clause will stand part of the Bill.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Transfer of assets abroad
Question proposed, That the clause stand part of the Bill.
The Chair: With this it will be convenient to discuss the following:
Government amendments 21 and 22.
That schedule 10 be the Tenth schedule to the Bill.
Mr Gauke: Schedule 10 makes changes to the transfer of assets abroad provisions. The provisions are designed to prevent UK resident individuals from avoiding tax by transferring assets of any kind, so that income arises to a person abroad while the UK individual is still able to enjoy the benefit of the income, directly or as a capital sum. The legislation may also apply where the arrangements result in someone in the UK other than the actual transferor being able to benefit as a result of the transfer.
This is essentially anti-avoidance legislation which will deter people from sheltering income from UK tax by artificially arranging for it to arise to a person offshore. However, there are, quite rightly, exemptions from the rules. These are where tax avoidance is not a main purpose, and also where it is no more than an incidental purpose and the arrangements are commercial. Both of the existing exemptions depend on an element of tax avoidance purpose being identified.
The Government consider that the way in which the existing exemptions are applied in practice is consistent with EU law. But in order to be more clearly compatible with EU law, the legislation introduces a new and alternative objective exemption. Rather than looking at the purpose of the arrangements and whether they were put in place to avoid tax, as the existing exemptions do, the additional exemption focuses, in accordance with EU law, on objective features of the transactions. It will ensure that income attributable to transactions that are genuine and serve the single market—for instance, by contributing to real economic activity in another member state—are not subject to a transfer of assets charge.
The legislation gives particular illustrations of what is accepted as genuine, based on past cases in the European courts. A genuine transaction is one that is on arm’s-length terms, or forms part of the activities of a foreign business establishment which meets specified commercial pointers aimed at excluding artificial, so-called brass plate, arrangements.
The new exemption excludes gifts made for personal reasons which are inherently not at arm’s length but which are only of personal benefit to the recipient. In order to ensure that the legislation is proportionate, and does no more than exclude the artificial aspects of the arrangements, there is provision to apportion income between the part of a transaction that is genuine and the part of the transaction that is artificial. Similarly, the legislation allows that where an asset is used for genuine commercial purposes the transaction may fall within the exemption.
The Government do not consider that the exemption’s introduction will reduce the effectiveness of the legislation, given the way it is already applied in practice. The new exemption is more objective, as EU law requires. It remains targeted at artificial arrangements that avoid tax. The cost of introducing the new exemption is estimated at £10 million per annum, compared with the £340 million per annum that we believe the legislation protects from Exchequer loss due to abusive arrangements.
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The measure was formally consulted on between 30 July and 22 October 2012. A further version of the draft legislation was published in December for consultation. In response to suggestions from stakeholders on the existing legislation, further amendments were proposed as part of the consultation, with the aim of clarifying rather than changing the way in which certain aspects of the provisions operate. In the light of the responses, the schedule introduces additional rules to provide greater clarity about the prevention of double charging, which may arise as a result of income being subject to income tax under both the transfer of asset rules and another part of the Taxes Acts. A further change will clear up any misunderstanding over the interaction of the transfer of asset rules with double taxation agreements and thus stop claims for what is tantamount to double non-taxation.
A third change proposed in the consultation, to recast the matching rules, has been deferred until the Finance Bill 2014. The matching rules are used to calculate the amount of income that is chargeable where someone other than the transferor receives a benefit caught by the transfer of assets rules. The postponement of that change is to allow for further consultation over the summer in order to ensure that the amended rules are clear, workable and fair.
Amendments 21 and 22 to the schedule are minor and technical. One of the changes introduced by the schedule is that companies incorporated outside the United Kingdom but nevertheless resident in the United Kingdom for tax purposes will no longer be automatically treated as a “person abroad” for transfer of asset purposes. The amendments will ensure that schedule 10 fully delivers that outcome. Currently, the legislation specifically provides that companies incorporated abroad but UK resident are persons abroad, and the schedule omits that specific provision with effect from 6 April 2012. However, for this change to be effective, the legislation also needs to be clear that a company’s domicile is not relevant in deciding whether the company is a person abroad. The amendments are to achieve that result and ensure that the announced policy change, which was welcomed by stakeholders, is delivered. A company will be a person abroad only when it is resident outside the United Kingdom.
Schedule 10 introduces changes that are aimed at improving the operation of the existing anti-avoidance provision, either by adding clarity for interested parties or maintaining their compatibility with EU law.
Nigel Mills (Amber Valley) (Con): At the risk of inviting the Minister to come over all swivel-eyed, does the Minister agree that the provisions have always been perfectly sensible anti-avoidance rules, and that the European Court’s decision that they somehow contravene the treaties is utterly ridiculous and trespasses into areas of tax policy that were never meant to be in the EU’s sphere of influence? It has forced us to give away £10 million a year to tax avoiders who have no commercial purpose for what they are doing.
Mr Gauke: My hon. Friend makes his point forcefully. Were he to look back at one or two Finance Bill debates in previous years, he may find that I have made similar points. I note his objections, which he put across well.
From the position that we are in, it is worth pointing out that the vast bulk of the revenue that we are protecting continues to be protected—our intention to prevent avoidance in this area has not been undermined, and the legislation is an attempt to meet the concerns raised by the EU in a measured and proportionate way.The regime remains robust against abuse, and schedule 10 is one of a number of measures in the Bill designed to ensure that individuals cannot exploit loopholes in tax legislation to avoid paying their fair share of tax. With those comments, and in anticipation of any queries that Members may want to raise, I commend the clause and the schedule to the Committee.
Catherine McKinnell: I wish to comment on clause 26 in its entirety, and briefly on the Government amendments tabled by the Minister at a late stage, despite being warned about the issue to which the amendments relate by the Chartered Institute of Taxation as early as 1 May. I will return to that later in my remarks.
Amid the Government’s current swivel-eyed difficulties on Europe, and as the Minister alluded to, clause 26 has been introduced in an attempt to satisfy the European Commission. That is probably vexing many Government Members in the Committee, and perhaps some in the Opposition.
As the Minister explained, the clause introduces schedule 10 to make changes to the transfer of assets anti-avoidance legislation in chapter 2, part 13 of the Income Tax Act 2007. As the explanatory notes make clear, the legislation applies to UK-resident individuals who have transferred assets so that income has become payable to an overseas person, while the UK-resident individual continues to be able to enjoy the income of the person abroad, or receive a capital sum directly or indirectly from that income.
The legislation also applies to UK-resident individuals who have not made the transfer that results in the income arising to the person abroad, but who can benefit directly or indirectly from the income arising. Generally, the transfer of assets rules impose a charge to income tax on individuals who find themselves in such circumstances.
However, on 16 February 2011, the European Commission formally requested the UK Government to amend the anti-abuse legislation on the grounds that it was discriminatory, stating:
“Under this legislation, if a UK resident individual invests in a company by transferring assets to it, and if this company is incorporated and managed in another Member State, then the investor is subject to tax on the income generated by the company to which he/she contributed the assets. However, if the same individual invested the same assets in a UK company, only the company itself would be liable for tax…the Commission considers there to be discrimination, seeing as investments outside the UK are taxed more heavily than domestic investments. The difference in tax treatment between domestic and cross-border transactions restricts two fundamental principles of the EU’s Single Market, namely of the freedom of establishment and the free movement of capital”.
The formal request by the Commission took the form of a reasoned opinion—the second step of the infringement procedure—and incorporated similar concerns about the compliance of the legislation on the regime on the attribution of gains to members of non-UK-resident companies, which we will deal with under clause 61.
Clause 26 aims to reform the transfer of assets legislation to ensure compatibility with the Commission’s request.The Government responded to the situation by announcing in December 2011, through a written ministerial statement, that there would be a consultation on the proposed amendments to the provisions, and the position was confirmed at Budget 2012. The consultation was published in July 2012, and the response to it was published alongside draft legislation in December 2012.
Exemptions to the transfer of assets rules already exist where there is no tax avoidance purpose or where the transactions are genuine commercial transactions and any tax avoidance purpose was incidental. That is defined by the Government as meaning that business transactions are not regarded as genuine unless they are on arm’s-length terms and, in the case of transactions for the purposes of a business establishment, give rise to income attributable to economically significant activity that takes place overseas.
The Government’s remedy to the European Commission’s request is to add a new exemption to the legislation through clause 26 and schedule 10, which operate where the EU treaty freedoms are engaged. It focuses on whether the nature of the transactions is genuine and whether they serve the purpose of the freedoms. An exemption will provide for genuine commercial business activities overseas, and also for transactions that do not involve commercial activities but that are, nevertheless, genuine transactions protected by the single market.
As I have said, the Government have consulted widely on the matter, but several serious concerns remain about their attempts to make the transfer of asset rules EU-compliant. On 1 May, the Chartered Institute of Taxation wrote to HMRC to express three main concerns about clause 26 and schedule 10. Two of those concerns were technical; the CIT believed that a flaw in the drafting of the Bill—specifically, confusion about the definition of the term “person abroad”—meant that it would not deliver the Government’s stated purpose. Government amendments 21 and 22 are designed to resolve that uncertainty, although they have been introduced rather late in the day, given the importance of that definition to the outcome of clause 26.
I understand, however, that the CIT also seeks further clarity on the phrase
“provision…of goods or services”
in proposed new section 742A(8) of the Income Tax Act 2007, because it is not clear whether goods and services are meant in the VAT sense or in the everyday sense. If the Minister is aware of those concerns, will he provide additional clarity in his concluding remarks?
During the consultation, the CIT voiced the more general concern that
“these provisions do not achieve the objective of ensuring that UK law complies with EU law...the changes to the transfer of asset abroad provisions are strange because they purport to create a welcome exception when a transfer contravenes EU law, but then seek to impose additional conditions before reliance can be placed on this exception.”
The Institute of Chartered Accountants agreed:
“It is our view that the amendments made to the draft legislation as published on 11 December 2012 do not increase the likelihood of the UK law being EU compliant; if anything the position is worse than previously...EU law makes no distinction between trading and investment activities. It is the actual substance of an
activity that is relevant and should determine whether s13 and/or the transfer of assets abroad (TOAA) provisions apply. There is concern that active investment companies may not fall within the definition of economically significant activities; the definition should expressly include the letting of property and dealing in property and dealing in shares and other investments...There is no de minimis for the TOAA provisions. In theory, the transfer of only £1 could result in a potential charge on the transferor on income of an offshore structure.”KPMG has highlighted the complexity of the issue:
“The new exemption relies upon knowledge of provisions of the Treaty on the Functioning of the European Union. By making reference to EU law, which itself is subject to decisions in the European Court of Justice, it will be difficult for taxpayers or their advisers to ascertain with certainty whether or not they fall within the new exemption.”
Many organisations have expressed their disappointment that the Government appear to have ignored the concerns expressed in consultation about the proposed change, and I would be grateful if the Minister could address those concerns. It is vital that the Government get the proposals right, or further legislation will be required. The CIT has asked on what basis the Government
“rejects our EU law analysis of the provisions. Is it willing to share its analysis/legal advice on which it is basing the contention that the amended rules will ensure compliance with EU law?”
An answer from him on that would be helpful.
Finally, the tax information and impact note indicates that this move will cost the Exchequer £10 million a year from 2015-16 to 2017-18 and it would be useful to understand the basis on which those figures were reached. Does the Minister expect avoidance activity to increase as a result of the changes, or does this measure simply incorporate tax charges that should not have been made in the spirit of the single market? I would be grateful if he would respond to those concerns.
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Nigel Mills: I do not want to speak for long. I have great sympathy for the Government, who have ended up in the ludicrous situation of having some perfectly reasonable anti-avoidance provisions being threatened by a rather perverse EU judgment that says that they have gone too far. The crime that the Government allegedly committed is that if someone, in an attempt to avoid tax, transfers assets overseas from which they still get some benefit in the UK, such as use of income, we subject them to income tax on that benefit, whereas if they had just transferred those assets within the UK we would not have done that because we would have been taxing them where they were transferred to. What are the Government expected to do in that situation? Are they expected not to do anything?
We have ended up in a perverse situation and we have had a few of these over the years. We now have the ridiculous situation that if a UK company’s subsidiary makes a trading loss in another EU jurisdiction, it can have that loss set against its UK profits. I thought that we all agreed now that multinationals should be taxed on the profits that they make in the UK, so it seems bizarre that we have been forced into that situation as well.
It is worth stressing that within the provisions we already have exemptions for where tax avoidance was not the main purpose; where, viewed objectively, the transaction can be considered to be genuine. We also had a provision for where the transaction was not more
than incidentally designed for purposes of avoiding liability for taxation. Therefore, we already had the exemptions for purely commercial transactions; it is not as though we had a general blanket rule that provided a disadvantage to people transferring things around the EU with us taxing them regardless. Those measures only kicked in if transactions were not commercial.We have been forced to add another exemption, in bafflingly complex language, which effectively says, “This does not apply if it would contravene EU law.” We have ended up with an EU Court telling us that we cannot take this action because it contravenes EU law, and now we are saying, “Okay, we will not do it if it contravenes EU law.” For anyone conducting a transaction, it will be interesting to try to work their way through that, because rather than it being clear where our domestic law applies with various fundamental freedoms of the EU that might disapply those UK rules, we now have a UK rule that brings in those EU rules—whatever they are, and whatever they might become in the future—and overrides UK legislation without us actually knowing exactly what they are or how they are to be applied.
We have ended up in a perverse situation with an exemption that I cannot imagine any taxpayer will be able to rely on with any kind of certainty. That may well be the idea: we can go back to the European Court and say, “Look, we have made our rules comply with what you wanted.” What we have done is probably utterly pointless, but it complies with the letter of what the EU is stupidly saying to us. If that is the case, I wholeheartedly congratulate the Government on doing that. I would not recommend that they admitted that, as it probably would not help their case, but, as a principle, we should set out that taxation is a matter for member states, not the EU, and unless we are doing something that is wholly unreasonable or wholly uncommercial, or that clearly infringes on sensible things that people do, we should be saying, to put it into layman’s language, “This is not for you to be getting involved in. There is no risk here to an ordinary commercial transaction. This is for us to decide. Keep your nose out.”
Our tax system will end up in an unfortunate situation if we let the EU keep creeping into these matters. EU directives were not meant to encourage tax abuse and the Government are allowed to impinge on freedoms if they are trying to tackle that. Somehow, the system has gone wrong. I have no objection to what the Government have to do here as this measure is probably to fix rules that protect a valuable amount of income and stop some heinous tax avoidance. I will support the measure, but we have been forced into a wholly unnecessary situation.
Mr Gauke: Let me see whether I can deal with the various points raised in the debate. First, let me deal with why the amendment was tabled when it was. It would be fair to say that the issue that the amendment deals with came to light relatively recently, and it required technical analysis. It was necessary for Her Majesty’s Revenue and Customs and the Treasury to ensure that the points that had been raised were technically correct and delivered the intended policy, and that is why the amendment was tabled when it was.
Those of us who served on Finance Bill Committees during the previous Parliament—I look at my hon. Friends the Members for Braintree and for Chelsea and Fulham—will be aware that in the past it was customary for the Government to come forward with lots of amendments as a consequence of points that had been raised by the likes of the Chartered Institute of Taxation. The fact that we publish legislation first in draft form means that many such points can be addressed, but from time to time it is necessary to respond to submissions, fully investigate and analyse concerns, and amend legislation where necessary.
Regarding whether the amended legislation will be wholly compliant with EU rules, we believe that we fully address the European Commission’s concern that the legislation as it stands might not comply fully with EU law. Nevertheless, EU law on that matter is not well defined and is still developing. The European Commission might wish to test the application of EU law and decide to take forward proceedings in the European Court of Justice with that aim in mind. The Government, however, believe that we are complying.
I was asked whether the Government would share the legal advice they have received on the matter, and I will give the customary response that Ministers have given through the ages, which is that legal advice will not be published. It is worth pointing out that we have consulted widely, met with interested parties and listened to concerns in the evolution of the legislation. Our position is that the provisions comply with our European obligations, even though that might be subsequently tested.
I shall deal with some of the technical points that were raised by the hon. Member for Newcastle upon Tyne North, many of which were brought to her attention by the Chartered Institute of Taxation. Regarding the concern that the definition of “goods and services” might be unclear, the term will have its everyday usage applied in the circumstances, but HMRC will also publish guidance for consultation, which I hope will provide greater clarity.
I was asked why the legislation makes a distinction between trading and investment activities when the EU does not. The legislation does not distinguish between trading and investment activities as such. It specifies that if there is an overseas business establishment the activities must consist of the provisions of goods or services on a commercial basis. The threshold for commercial activity can be met by an investment or holding company that provides services, as well as a trading entity. If unusually an investment or holding company does not carry out its activities though an overseas business establishment, a transaction may still be genuine, and the activities will not be subject to the test in subsections (7) and (8) of proposed new section 742A, but will be subject to the rest of the proposed new section and will be exempted if genuine. That means that it will always be possible for an investment or holding company to be exempt in accordance with EU law, if the overall arrangements are genuine and serve EU treaty aims.
I was asked why we do not introduce a de minimis exemption. We do not believe that one is needed. This is anti-avoidance legislation and genuine transactions are not subject to a tax charge. I was also asked why there is a £10 million cost each year as a consequence of the changes. The estimated £10 million reduction in tax
receipts does not represent the tax loss from tax avoidance schemes, but the tax on income attributable to transactions with genuine economic substance that have been structured so as to result in a lower tax bill. The legislation will help to ensure that the rules operate as has always been intended by the exemption of genuine business transactions.It is not necessary for the legislation to specify that property letting and active investment transactions may be genuine. It has been drafted so that it is entirely open to a taxpayer to show that any transaction is genuine in relation to treaty freedoms. As is reflected in the legislation, all relevant circumstances and objective features of the arrangements will be taken into account in deciding whether a transaction is genuine.
Finally, my hon. Friend the Member for Amber Valley, who expresses his views firmly, made an interesting point about where the jurisdiction of European institutions should lie in direct tax matters, and has opened up a much larger debate. I shall attempt to resist entering it, but I am sure that we will return to it. I hope that clause 26 can stand part of the Bill.
Clause 26 ordered to stand part of the Bill.
Schedule 10
Transfer of assets abroad
Amendments made: 21, in schedule 10, page 221, line 9, leave out paragraph 2 and insert—
2 (1) Section 718 (meaning of “person abroad” etc) is amended as follows.
(2) For subsection (1) substitute—
(1) In this Chapter “person abroad” means—
(a) a person who is resident outside the United Kingdom, or
(b) an individual who is domiciled outside the United Kingdom.”
(3) Omit subsection (2)(a).’.
Amendment 22, in schedule 10, page 224, line 1, leave out
‘amendment made by paragraph 2 above has’
‘amendments made by paragraph 2 above have’.—(Mr Gauke.)
Schedule 10, as amended, agreed to.
Clause 27
Payments of interest
Question proposed, That the clause stand part of the Bill.
The Chair: With this it will be convenient to discuss that schedule 11 be the Eleventh schedule to the Bill.
Catherine McKinnell: Clause 27 introduces schedule 11, which will make changes to the rules on deduction of income tax from yearly interest relating to compensation payments, specialty debt and interest in kind. The changes were announced at Budget 2012, and were consulted on in March 2012 as part of a wider consultation on possible changes to income tax rules on interest. The provision amends section 874 of the Income Tax Act 2007, so that interest in respect of compensation payments is subject to the deduction of income tax at source.
As outlined in the Government’s December 2012 response to the consultation, they intend to make it clear that the requirement in chapter 3 of part 15 of the 2007 Act to deduct income tax from interest applies to compensation payments made to individuals, including payments made by banks in the ordinary course of their business. The provision will apply regardless of whether the interest is paid yearly. The explanatory notes explain:
“The application of the current rules on deducting income tax from interest can be unclear and inconsistent in certain situations. For example, tax is required to be deducted from interest on compensation payments if it is ‘yearly interest’, but not if it is ‘short interest’; and, even if it is yearly interest, no tax is required to be deducted if the institution paying it is a building society or a bank paying it in the ordinary course of its business. A common example of interest paid on such compensation is that paid by financial institutions in cases of financial mis-selling.”
It is obviously a hot issue, given the number of claims that members of the public are currently pursuing, particularly in relation to payment protection insurance. The explanatory notes continue:
“The changes clarify the application of the legislation and ensure that the rules on deduction of income tax operate in a consistent manner.”
However, HMRC’s tax information and impact note makes a rather curious reference to “a secondary legislative power” that
“will allow this requirement to be disapplied where necessary.”
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The Low Incomes Tax Reform Group raised a number concerns about this proposal. It stated:
“Without a wider review of the basic principles, we are disappointed”—
“treat ‘interest’ which is received as part of a one-off payment of compensation as ‘yearly interest’; and for this ‘interest’ element to be consequently taxed at source...We believe many payments of compensation wrongly have elements of them categorised as ‘interest’ and that the rules (as set out in HMRC guidance rather than legislation, with that guidance not being consistent with case law) are not clear. Compensation payments might be calculated using an assumed rate of ‘interest’ as a proxy to recompense the claimant for their loss. Under the proposed legislation, this ‘interest’ calculation could then be used by HMRC as an actual interest payment which is then taxed at source. We therefore reiterate our concerns from our original consultation response, which used the recent payments of compensation on Payment Protection Insurance policies as an example.”
The group went on to express its concerns about the secondary legislative power, saying:
“The draft legislation gives HMRC the ability to make regulations not to apply tax deduction in prescribed circumstances, but we are not clear what those circumstances are and the Explanatory Note gives no indication of what that regulation-making power might be used for. If the purpose of the new rules is, as stated, to ‘clarify the application of the legislation and ensure that the rules on deduction of income tax operate in a consistent manner’, we query why a regulation-making power to disapply the rules is considered necessary or even desirable.”
Importantly, it raised concerns about how this change will affect non-taxpayers.
“If the assumed ‘interest’ is to be treated as taxable, we would also expect that the individual should have the option to elect for gross payment if they are a non-taxpayer, ie applying the Form R85 procedure to these payments. Our January 2013 report ‘Banks, building societies, HMRC and their non-taxpaying customers: a plea for better service’ highlighted that many people on low incomes overpay tax on their savings as they are not provided
with the correct Form R85 and the relevant guidance. Clear guidance is needed for when the R85 can and cannot be used in relation to payments of interest of whatever kind from financial institutions and we would be willing to engage in discussions with HMRC about what is needed.”On the back of that, I have a few questions for the Minister. I would be grateful if he addressed the concerns of the Low Incomes Tax Reform Group in his reply. Will he confirm that HMRC is already working closely with the Low Incomes Tax Reform Group, and whether it is willing to work with the group to ensure that people on low incomes are provided with the relevant advice and guidance to ensure they are not paying an unnecessary amount of tax?
Will the Minister illustrate for the Committee what impact that change is likely to have on individuals? Do the Government acknowledge its impact on low income groups? If the Minister would respond to the concerns of the Low Incomes Tax Reform Group, that would provide some reassurance to the Committee.
Mr Gauke: Clause 27 and schedule 11, like clause 28 and schedule 12 which follow, arise out of a consultation on aspects of the income tax treatment of interest, which HMRC conducted following last year’s Budget. The consultation brought together in one document a number of features relating to the taxation of interest.
The legislation follows up a number of strands of the consultation relating to deduction of income tax from interest paid. Deduction of income tax from interest payments is a long-standing feature of the income tax system. The schedule makes three changes to the rules to update them in response to developments in recent years to ensure that the deduction of tax rules operate more sensibly for the majority of taxpayers.
The first change is that income tax will henceforth have to be deducted from interest included in compensation payments. Very large sums have been paid out by financial institutions in recent years as compensation for financial mis-selling. Compensation payments often include an element of interest to reflect delay in payment and that is taxable as income like any other receipt of interest. At present the rules on whether tax should be deducted from such interest are confusing and depend on what kind of financial institution makes the payment.
Broadly, banks and building societies pay without deduction of tax. Other companies, such as insurers and credit providers, have to deduct tax. That is confusing for both the institutions and taxpayers—most of whom will be basic rate taxpayers, and therefore find themselves having to declare this income and complete tax returns only because the interest has been paid to them gross.
The change therefore requires all interest included in compensation payments to be paid under deduction of tax. That applies the deduction of tax rules in a consistent manner, in much the same way that they apply to other interest paid—for example, by banks and building societies on deposit accounts. I emphasise that the change does not affect the tax treatment of the compensation itself. Payments that are capital in nature remain capital. It is concerned only with the deduction of income tax from interest on the compensation, which is already taxable.
The second change deals with an aspect of the application of the deduction of tax rules on speciality debt—that is, a contract signed under a seal. It is sometimes argued that interest on such debt does not arise in the UK, and
hence the duty to deduct tax does not arise if the document is signed outside the UK. That is an arcane point based on archaic law, and HMRC has never accepted that interest on speciality debt is exempt from the duty to deduct, but the point continues to be a source of contention. It is long overdue that that anomaly was swept away, and the change puts it beyond doubt that speciality debt is subject to the same deduction of tax rules that apply to any other type of debt.Finally, the schedule deals with so-called interest in kind. Increasingly, retailers and financial institutions have begun to offer customers interest in the form of goods, services or vouchers. Such interest is taxable as interest on first principles, but the tax rules provide no clear principles on how it is to be treated for the purposes of valuing it and deducting tax from it.
Catherine McKinnell: The Minister raised the issue of vouchers. There does not seem to be any information within the explanatory note or the legislation about what happens to existing vouchers and how individuals who are in receipt of them may be impacted. Will the Minister clarify that? Also, will he comment on the practicality of the measure for employers who are equally impacted by the changes?
Mr Gauke: The hon. Lady raises an interesting point. I will turn to that in my remarks later or I will write to her. I will try to address the matter shortly. Before I do so, I will conclude my remarks on the measure.
The change with regard to vouchers provides a clear rule for the first time, ensuring that the recipient of interest in kind will receive a statement from the retailer or the institution showing the value of what they have received, and can therefore complete their own self-assessment returns correctly.
I will try to address the points raised by the hon. Lady. Compensation should not be taxable and there is a concern that we are extending the definition of what constitutes interest for tax purposes. This change does not extend the definition of what constitutes interest for tax purposes in any way; nor does it affect the long-term established manner in which the taxation of compensation operates. Many compensation payments, for example for mis-sold personal pensions, benefit from statutory exemptions, but in other cases compensation includes interest for the period that the investor did not have the use of the funds or where there is a delay in making the payment.
These amounts have always been taxable interest and remain so. This measure ensures that tax is deducted at source from that interest and will be of benefit to the vast majority of taxpayers who will not have to complete self-assessment returns just because they have received a one-off compensation payment that includes some interest.
The Low Incomes Tax Reform Group has expressed concern about a power to disapply the rule on deduction of tax from interest on compensation payments. The calculation of compensation payments and the interest on it in cases involving financial mis-selling can be complicated. The power is there in reserve to enable the rules to be adapted quickly in response to particular situations where it might be appropriate not to tax the payment in question without needing to wait until the next Finance Bill to address the problem.
The LITRG was also concerned that the deduction of tax from interest in compensation was unfair to non-taxpayers. It has raised the point about using the R85 system, which is designed for regular payments of interest by banks and building societies through the tax deduction scheme for interest. Most of the payments to which the rule applies will be one-off payments. Some will be paid by banks and building societies. Some will be paid by other institutions that are not within the TDSI system. The majority of people receiving interest on compensation payments are likely to be basic-rate taxpayers. For such taxpayers, the new arrangements will be a big improvement as they will no longer have to complete tax returns just because they have received a one-off payment of this sort. Non-taxpayers receiving interest as part of compensation payments can reclaim the tax, as they can if they receive any other payment under deduction of tax, but it would be disproportionate to design a system equivalent to the R85 system for these one-off payments. HMRC would be very happy to continue to work with the LITRG on the R85 or other matters in this area.
The position on vouchers, cashback and non-cash incentives is that cashback on purchases is a discount on that purchase, such as a fuel card that earns a rebate in points towards fuel or cash. This is a long-standing position, and nothing in the Bill will change that. In terms of how interest in kind will affect companies, if a company pays interest it must deduct tax now. Nothing has changed as a consequence of these measures. Interest in kind has always been taxable. Now, essentially, we have the same rules to clarify how to value it and to require deduction at source. This measure provides some useful clarification. I hope that those points are helpful to the Committee.
Clause 27 accordingly ordered to stand part of the Bill.
4.45 pm
Clause 28
Disguised interest
Question proposed, That the clause stand part of the Bill.
The Chair: With this it will be convenient to discuss that schedule 12 be the Twelfth schedule to the Bill.
Catherine McKinnell: Finally, in the grouping of clauses headed “Other provisions”, we turn to clause 28, which introduces schedule 12 as an anti-tax avoidance measure. That ensures that a person who receives an amount that is economically equivalent to interest will be charged income tax on that amount, thereby introducing a comprehensive income tax charge on disguised interest. The measure also enables the repeal of anti-avoidance legislation on guaranteed returns from futures and options, which is a form of disguised interest arrangement, and allows for the simplification of income tax rules that treat certain amounts arising on stock lending and repos as payments of interest. Under the measure, a return will be considered economically equivalent to interest if it arises by reference to the time value of money, at a rate comparable to a commercial rate of interest, and is practically certain to be produced.
I shall briefly explain the background to the measure to put my concerns in context. It was first announced at Budget 2012, and was consulted on last year. The tax information and impact note states:
“This measure will support fairness in the tax system by reinforcing the protection already afforded to the Exchequer against potential loss of tax as a result of avoidance arrangements intended to secure that interest-like returns escape income tax.”
The Opposition wholeheartedly back supporting fairness in the tax system and clamping down on avoidance activity, although it is inevitably frustrating that these measures are counterbalanced by the tax cuts being given to those earning the highest incomes. The reason why I raise that is that the concerns raised about this measure have again come from the Low Incomes Tax Reform Group, which has commented:
“We do not think there is a strong case for importing a similar ‘disguised interest’ rule for individuals as has been introduced for Corporate Finance…We note that HMRC current guidance on the legal concept of interest is as follows:
‘In common law the general rule is that interest is not payable on a debt or a loan; except where there is an express agreement to pay interest…an agreement to pay interest can be implied from a course of dealing between the parties, or from the nature of the transaction, or custom or usage of the trade or the profession concerned, or…in certain cases by way of damages for breach of a contract (other than a contract merely to pay money) where the contract, if performed, would to the knowledge of the parties have entitled the parties to receive interest.’
We think that the above, particularly the second bullet, gives HMRC room to contend that individuals have engaged in an arrangement in which interest is effectively changing hands, either in cash or in kind, without adding further anti-avoidance legislation along the lines of that for Corporate Finance…We fear that the above would extend HMRC’s powers too far, if one considers for example loan arrangements between family members which may not pay interest but may not be made on any clear legal footing. The unrepresented could find themselves open to challenge by HMRC officers that interest should be applied on monies lent between family, for example, even if there is no ‘legally enforceable’ arrangement in place or intention that interest should be paid…The idea of introducing such a rule is to counter schemes involving ‘highly structured products involving derivative contacts, warrants and other types of financial arrangement’…We therefore think that a better means of targeting such avoidance could be through the General Anti-Abuse Rule…without the need to add a further layer of specific anti-avoidance legislation here which carries the risk of unintended consequences.”
As ever, I would appreciate hearing the Minister’s comments in response to those concerns, particularly given the decision to legislate for this area separately from the general anti-abuse rule, which the Government seem confident will combat many forms of avoidance—certainly they have given that level of reassurance to members of the public.
Mr Gauke: Clause 28 and schedule 12, like clause 27 and schedule 11, arise out of a consultation on aspects of the income tax treatment of interest, which HMRC conducted following last year’s Budget. The consultation brought together in one document a number of features relating to the taxation of interest. The clause follows from one particular strand of the consultation and establishes a general principle that a return that is economically equivalent to interest, regardless of its legal form, will be taxed as income. Income tax rules have, for many years, ensured that that is the case in
certain instances, for example in the case of the return from deeply discounted securities or the amount of accrued interest included in the sale price of securities.There is also a limited number of now rather dated anti-avoidance rules in the area. They address, for example, schemes under which a number of derivatives are used in a structured and highly artificial way to produce a specific return. The effect is essentially the same as if the investor had put the money on deposit.
In keeping with Government’s overarching approach of simplifying tax rules and adopting a principles-based approach where practicable, the measure introduces for the first time a general rule on disguised interest for income tax purposes. The rule will provide a robust replacement for existing anti-avoidance rules and enable other existing income tax rules on matters such as manufactured interest and price differences on sale and repurchase agreements—known as repos—to be simplified.
The form of the legislation echoes the successful corporation tax legislation on disguised interest introduced in previous Finance Acts. In response to representations made after the publication of the draft legislation last December, the legislation contains an exemption for certain types of share, so that genuine investment returns will be taxed as capital gains.
The introduction of the rule will enable the immediate repeal of 12 pages of statute. Once the new rule has bedded in, HMRC will review other lengthy and complicated tax rules that concern the boundary between interest and capital gains, such as the rules on deeply discounted securities and the accrued income scheme, to determine whether those rules may be simplified.
A move away from prescriptive and mechanistic legislation towards a more principles-based approach necessarily requires more extensive guidance from HMRC, which has recently published draft guidance on the interpretation of the new rules. HMRC will work with interested parties to refine the guidance to ensure that both financial institutions and their customers have as much certainty as possible on how the legislation will apply to the sometimes genuinely difficult distinction between interest-like returns and capital gains in the area of complex financial instruments. At the same time, the legislation will provide robust defences against avoidance that seeks to exploit the boundary, and is a genuine simplification of the statute.
The hon. Member for Newcastle upon Tyne North was concerned that the legislation goes too far in extending what is taxable as interest. I do not accept that. For example, investments that are taxable as capital gains will remain taxed as such. The real issue in disguised interest is, first, the risk of avoidance where arrangements are dressed up to provide an interest-like return in a non-income form and, secondly, normal commercial but complex arrangements such as repair and stock lending arrangements that provide a return that is economically but not legally interest.
The measure provides better safeguards against avoidance and allows for a significant simplification of current legislation. A point was made that that should apply only to avoidance purposes and that the rule is too wide-ranging, but a general avoidance test for all types of disguised interest would limit the application of the legislation only to avoidance cases, so it can never be used to simplify legislation, which currently applies to interest-like returns that are not intrinsically avoidance. That is why we have taken the broader point. I wanted to say that in response to the argument that the issue should be dealt with by the general anti-abuse rule, which will tackle abusive avoidance schemes. Disguised interest arrangements are sometimes, but not necessarily, abusive avoidance. The GAAR will not typically apply to them. The Bill is complementary to the GAAR and the GAAR will ensure that there is no easy way of walking around the disguised interest rule. As the Aaronson report made clear, it will work most effectively where the principle behind the legislation is clearly set out.
Again, there is a similar point in relation to loans between family members. This is not just an anti-avoidance measure, but it will not catch loans between family members unless it is clear from the outset that an interest equivalent return will be paid. With those points, I want to underline the fact that these are sensible changes that will ensure that the income tax rules work more effectively for the majority of taxpayers.
Clause 28 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Greg Hands.)
4.56 pm
Adjourned till Tuesday 4 June at ten minutes past Nine o’clock .