Finance Bill 2021 Public Bill Committee - 1st sitting (liveblog)

22 Apr 2021

A live blog of the first public bill committee sitting of Finance Bill 2021 (also known as Finance (No.2) Bill), which took place on Thursday 22 April 2021 from 11.30am to 1pm. The session covered capital allowances and reliefs for business, and employment income and miscellaneous other income tax and corporation tax measures.

Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.

Proceedings can be listened to here

You can find a preview of the whole of committee stage of the Bill here.

Reports on previous debates on this Finance Bill are available:
Second reading debate - Tuesday 13 April (here)
Day One of Committee of Whole House - Monday 19 April (here)
Day Two of Committee of Whole House - Tuesday 20 April (here)

Public Bill Committee does not debate clauses and schedules debated at Committee of Whole House, that is: Clauses 1 to 14 and Schedule 1, Clauses 24 to 26, Clause 28, Clause 30 and Schedule 6, Clauses 31 to 33, Clause 36 and Schedule 7, Clauses 40 and 41, Clauses 86 to 89 and Schedules 16 and 17, Clauses 90 to 96 and Schedule 18, Clause 97 and Schedule 19, Clauses 109 to 111 and Schedules 21 and 22, Clause 115 and Schedule 27, Clauses 117 to 121 and Schedules 29 to 32, Clauses 128 to 130.

NB. The live blog below is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.

New clauses debated during proceedings will not be voted on until the end of the committee's proceedings

Committee members

Committee members are listed here. The main contributors were expected to be:

For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
Kemi Badenoch, Exchequer Secretary to the Treasury (EST)

For the Opposition:
James Murray (Labour), Shadow Financial Secretary to the Treasury
Abena Oppong-Asare (Labour), Shadow Exchequer Secretary to the Treasury
Alison Thewliss, lead SNP Treasury Spokesperson
Peter Grant, SNP Treasury Spokesperson

Finance Bill Public Bill Committee - Sitting One - Thursday 22 April 2021, 11.30am


Capital allowances: other measures

Clause 15 (Extension of temporary increase in annual investment allowance)
The AIA is a 100% capital allowance available for the cost of most plant and machinery incurred by most businesses up to a specified annual amount. Unlike the super-deduction which can only be used by incorporated businesses to reduce corporation tax, the AIA is available to individuals, companies or partnerships so long as they are carrying on a qualifying activity. From 1/1/16 the annual amount was permanently set at £200,000. It was increased temporarily to £1,000,000 from 1/1/19 for two years to incentivize businesses to increase or bring forward their investment in plant and machinery. This clause implements the Nov 2020 announcement that this temporary increase will be extended for a further year, till the end of 2021.
Amendment 15 [SNP] would amend the transitional provisions for the reversion of the AIA to £200,000 on 1 January 2022, to ensure that smaller businesses with lower levels of qualifying capital expenditure are not disadvantaged by having their effective AIA limit restricted to significantly less than £200,000 for a period. 

MPs approved the programme motion and motion to accept written evidence.

Alison Thewliss (SNP) spoke in support of amendment 15, which came from an ATT representation. She explained it is designed to ensure smaller businesses are not disadvantaged by the transition which contains traps which can restrict the AIA limit to significantly less than £200,000 for a period. She added that chopping and changing AIA levels is unhelpful to business. She moved the amendment.

The Financial Secretary (FST), Jesse Norman, spoke next, explaining that the AIA temporrary increase will encourage business to bring forward investment. On amendment 15, he said it sought to change longstanding arrangements around the transition from one level of AIA to another.  The existing arrangements are familiar and well understood, he said, and anyn changes would bring additional costs for businesses. The change would also give a benefit "to a small subset of firms which have a chargeable period which straddles the date at which the AIA reduces to £200,000, but those firms also receive a benefit at the point of transition to the new £1 million level of the AIA and therefore this amendment would not, in our judgment, be fair. It also risks encouraging some businesses to delay investment which is not something that many would think is in the public interest. We therefore urge the House to reject amendment 15."

Alison Thewliss withdrew the amendment. Clause 15 was approved without a vote.

Clause 16 (Meaning of “general decommissioning expenditure”)
This clause provides that certain expenditure incurred by oil and gas companies on decommissioning plant and machinery prior to the approval of an abandonment programme qualifies for tax relief.

The Exchequer Secretary (XST), Kemi Badenoch, introduced this clause. She said clause 16 does not have any exchequer costs and will provide certainty for the oil and gas sector.

James Murray, for Labour, recognised that the clause makes a largely technical change and said Labour would not be opposing it, but he asked about the clawback mechanism. He asked what HMRC would be doing to ensure the relief was being used legitimately.

The XST said the clause takes account of feedback including on the clawback mechanism, and adjustments have been made to exclude maintenance costs.

Clause 16 was approved without a vote.

Clause 17 (Extensions of plant or machinery leases for reasons related to coronavirus)
This clause introduces an easement for plant or machinery leases caught by anti-avoidance legislation when extended due to coronavirus. The easement has the effect of turning off the anti-avoidance legislation under specific circumstances.

The FST said sectors including services, construction, manufacturing and cultural would benefit from this easement.

Shadow minister James Murray supported the clause, which he understood came from concerns raised by the Finance and Leasing Association.

Clause 17 was approved without a vote.

Reliefs for business

Clause 18 and Schedule 2 (Temporary extension of periods to which trade losses may be carried back)
Temporary extension to carry back of trading losses from one year to three years, for losses up to £2,000,000 per 12-month period for both companies (corporation tax) and unincorporated businesses (income tax). This has effect for companies with accounting periods ending between 1 April 2020 and 31 March 2022 and for the tax years 2020-21 and 2021-22 for unincorporated businesses.
Govt amendment 16 clarifies that relief under Part 1 of Schedule 2 to the Bill is not available to a furnished holiday lettings business that is treated as a trade under section 127 of the Income Tax Act 2007.
Amendment 2 [SNP] would allow for the extend carry back rule to apply to losses incurred in UK furnished holiday letting businesses.
NC10 [Labour] would require the Government to review the impact of the provisions of clause 18 and schedule 2 on tax avoidance and evasion and tax revenues.

The FST moved the government amendment. He said the change would provide previously profitable businesses which had been forced into loss with extra flexibility to carry back up to £2 million of losses against historic profits. He noted that the measure had been welcomed by both the IFS and the Chartered Institute of Taxation. In relation to amendment 2 he said the extension of loss carry back was for businesses which already qualify for loss carry back relief and there is no intention to extend it to other sectors. There is currently an incorrect reference to UK furnished holiday lettings businesses in the Bill. But as these businesses are not entited to existing loss carry back relief they are not entitled to the extended relief. Amendment 16 therefore removes this reference. On new clause 10 he said the government published information on the tax gap every year and he did not believe such a review was necessary.

Alison Thewliss (SNP) said in tabling amendment 2 she had thought the Government had excluded furnished holiday lets by accident when actually they had not excldued them as much as they meant to. Her amendment would help the sector. She also raised a point made by LITRG. "They see the potential interaction of any tax refund with Universal Credit and that may have some unintended consequences and some pitfalls, and I seek to ask the minister what has been considered around this, because they think there has been a significant increase in claims for universal credit during the pandemic, including from self-employed individuals and limited company directors who may have never needed to claim such support before the pandemic. Under universal credit legislation , self-employed income for a universal credit monthly assessment period is calculated by taking the actual receipts in that assessment period and deducting any amounts allowed as expenses, any tax and NI and any relievable pension contributions in that assessment period. They point out that receipts specifically include any refund or any repayment of income tax, VAT or NIC relating to the trade, profession or vocation. Any tax refund made as a result of this provision may therefore fall to be treated as income for universal credit purposes in the assessment period it is received which, in most cases, will lead to a reduction of UC of 63p for each £1 of refund.

"And in addition, furthermore to that, if the refund is large enough, it might trigger the surplus earnings rules meaning that any ‘excess’ income in one assessment period can be carried forward and treated as income in the next assessment period (up to a maximum of 6 months). So it would be really helpful if the Minister could say whether the government are aware of this issue and what plans they have to raise awareness of it with UC claimants so that they can understand that, if the refund is received when they are in receipt of UC, they will need to report it as income for UC purposes and understand fully the implications of that. This really is one of the unintended issues of the pandemic."

She asked what discussions the minister has had with DWP and what information he intends to give out to people because, as LITRG has pointed out, there could be implications form this that have not been considered.

James Murray for Labour spoke next. He noted CIOT's support for this measure, giving a cash injection to businesses with a record of paying tax but which have suffered during the pandemic. "The Chartered Institute point out that in many cases this measure will represent a cash flow rather than an absolute cost to governemnt - the cost will reverse as the business, having used up its losses by carrying them back, makes profits and pays taxes sooner in the future." Labour do not doubt that most businesses taking advantage of this measure will be doing so legitimately but want to make sure any risk is identified and mitigated, hence new clause 10. He also raised the issue identified by LITRG of interaction with universal credit. He invited the minister to say whether he is awre of the issue and what plans he has to raise awareness of this issue with UC claimants to make sure they understand that if the refund is received when they are in receipt of UC, they will need to report it as income for UC purposes.

Responding, the FST said it was not the goverment's intention to change the longstanding tax treatment of furnished holiday lettings. On interaction with UC he said the key point is "this is a change designed to provide businesses with flexibility. Universal credit is a cash flow based benefit and rightly so because it intends to track people's cash flow as it rises and falls in receipt of the benefit... If there are further technical points that the honourable lady or the honourable gentleman would like to put based on the specific feedback of the Low Incomes Tax Reform Group of course we'd be welcome to listen to them and respond accordingly."

Clause 18 was agreed without a vote. Government amendment 16 was agree without a vote. Amendment 2 was withdrawn. Schedule 2 was agreed without a vote.

Clause 19 and Schedules 3-4 (R&D tax credits for SMEs)
To tackle fraud and abuse of SME R&D tax credit, the government are capping the amount of payable tax credit a company may claim. This cap is based on the PAYE income tax and National Insurance Contributions that the company is required to pay for its own employees, as well as some PAYE and NIC of connected companies. Govt say this is in particular to tackle “companies claiming payable tax credit for work carried on by others in circumstances where they have very little substance in the UK.” Sch 4 amends the separate legislation for SME R&D tax credits that would apply if the Northern Ireland Assembly were to vary the CT rate for N Ireland companies.

The FST said the changes are designed to deter abuse and explained how they would work (see above). The measure has been carefully designed to ensure that non-abusive companies are unaffected, he said.

James Murray (Labour) said Labour welcome any efforts to counter fraud. He asked the minister to set out government estimates of the extent of fraud in this area. He asked the minister to set out thoughts on where the review of R&D credits is going.

The FST replied that avoidance and potential avoidance are not possible to estimate accurately. He noted that the measure has a positive revenue effect (£450m). He said it would not be appropriate to prejudge the outcome of a review.

Clause 19 and schedules 3 and 4 were all agreed without a vote. 

Clause 20 (Extension of social investment tax relief for further two years)

SITR was introduced in 2014 to encourage individuals to invest in qualifying social enterprises and trading charities. It does so by offering investors a range of tax reliefs, including income tax relief and CGT hold-over relief on gains reinvested in qualifying enterprises, and originally contained sunset provisions that terminated these reliefs in April 2019. Finance (No. 2) Act 2017 extended the scope of SITR and extended the relief to April 2021. This clause further extends the relief to 6 April 2023, despite govt acknowledging take up has fallen short of what was anticipated when SITR was introduced.
Amendment 23 [Labour] would extend SITR for a further three years until 6 April 2026.

James Murray (Labour) said Labour supported the decision to extend the life of the relief, however the government needs to do more to encourage take up which has been lower than expected. The call for evidence found that three quarters of respondents experienced difficulties with the relief, including a lack of capital supply, lack of clear guidance and complex eligibility requirements. "Concerns around low take-up were shared by the Chartered Institute of Taxation who recognise that although some obstacles to using SITR to invest in social enterprises have been removed, their effect is yet to bed in and significant other barriers to take-up remain. I would therefore be grateful if the minister could set out what the government is doing to improve take-up of SITR and whether government would consider consulting more widely on how investment in social enterprises can be facililtaed.

"Alongside their concerns that the relief is overly complex for the smaller organisations it is designed to support, analysis by the Chartered Institute of Taxation also raises concern that this relief is less well-suited to investments made by way of loans, even though anecdotally loans to social enterprises are more common than equity investment. To understand the situation in relation to loans better, I would be grateful if the minister could therefore inform us in his response what proportion of the total £11.2 million in funds raised since 2014 through SITR, have been in the form of loans. More widely the Chartered Institute raise concerns that a two year period to address current barriers is unlikely to be sufficient and may put off some long-term investors. We have therefore tabled amendment 23 to encourage the government to consider and set out their view on amending the Bill to include a longer extension to the relief."

The FST replied, setting out the aims of SITR. He acknowledged that there had been a much lower level of engagement with the relief than hoped for. It is important for those who asked for it to be extended to address the question of why it has not been taken up, he said. Many people support social enterprises through charitable giving rather than investment and therefore use of a deduction does not appear particularly attractive to them. On amendment 23 he said HMT believes all reliefs must achieve their objectives and that is what the government's extension is intended to do. On improving take-up, he said governemnt is engaging very closely with stakeholders, holding awareness campaigns, continuing to work with Big Society Capital. He said he would welcome a more fundamental reconsideration. On the question about loans versus equity he is not sure the numbers exist but he will ask officials and provide the figures if they are available. 

Amendment 23 was withdrawn. Clause 20 was agreed without a vote.

Employment income

Clause 21 (Workers’ services provided through intermediaries)
From 6 April 2021, following legislation in Finance Act 2020, responsibility for determining whether an engagement falls within the off-payroll rules (sometimes known as IR35) will move from an intermediary (such as the worker’s personal service company) to the private sector client (the business which requires the worker’s services). The party which pays the intermediary - which may be the client, or an agency depending on the commercial arrangements - will then be required to operate PAYE and NICs as appropriate. (This rule has been in place for the public sector since 2017.)
This clause amends the 2020 legislation to address an unintended widening of the conditions which determine when a company is an intermediary. It also introduces a Targeted Anti-Avoidance Rule to prevent avoidance arrangements seeking to circumvent the conditions for a company or partnership to be an intermediary. Plus two further minor changes related to provision of information.

The FST explained that the clause makes technical changes to off-payroll working legislation, as outlined above, to ensure that the legislation works as intended.

James Murray (Labour) said the opposition supported the measures as proposed by government. He cited the work of the Loan Charge APPG and its request to government at committee of whole house stage to amend Clause 21 to ensure that only compliant umbrella companies to exist.

The FST welcomed the work of the APPG but said the debate in committee of the whole house had been ‘slightly misinformed’. One point debate was the impact of the clause on worker’s rights. The FST said that the clause did not have any bearing on worker’s rights agencies and that the amendment proposed by the APPG would have had ‘gut the legislation’. He said that this why the government had opposed it.

The clause was agreed without a vote.

Clause 22 (Payments on termination of employment)
Changes were made to the taxation of termination payments (redundancy payments) in April 2018, including the introduction of Post-Employment Notice Pay (PENP) to ensure that all contractual, customary and non-contractual payments in lieu of notice (PILONs) are subject to income tax and NICs as earnings consistently. This clause is intended to improve the fairness and clarity of the PENP legislation by removing two known inconsistencies in the tax treatment of PENP. (1) It provides a new calculation for PENP for employees paid by equal monthly instalments whose post-employment notice period is not a whole number of months. (2) It brings PENP within the charge to UK tax for individuals who are non-resident in the year of termination of their UK employment.
Amendment 1 [SNP] would ensure that, in new subsection 402D(6A) ITEPA03 to be inserted by FB clause 22(7), the method of calculating post-employment notice pay (PENP) for certain employees paid by equal monthly instalments whose post-employment notice period is not a whole number of months continues to be an alternative method that can be used if it benefits the employee, rather than being compulsory.

Alison Thewliss (SNP) moved amendment 1 which she described as a technical amendment to calculate post-employment pay. She said that ICAEW had recommended changes to the legislation to clarify its intention and, while technical and detailed, urged the government to either accept the amendment or bring it back at a later stage of the Bill’s consideration. James Murray (Labour) welcomed the proposals contained in the clause.

The FST welcomed the opposition’s support for the measure. On the SNP amendment, he described the bill as providing a more accurate and straightforward method of calculating liabilities. He urged that the amendment not be put to a vote.

The SNP withdrew the amendment and the clause passed without a vote.

Clause 23 (Cash equivalent benefit of a zero-emissions van)
When a van is made available to an employee by reason of their employment and is also available for their private use then unless certain conditions are met the benefit of the van is treated as earnings from the employment, on which income tax (by the employee) and class 1A NICs (by the employer) must be paid. From 2010 to 2015 zero emissions vans were exempt from these payments but Finance Act 2015 introduced a charge (a percentage of the standard charge for conventionally-fuelled vans – 80% for 2020-21). This change returns the van benefit charge to zero, with effect from 6 April 2021.

The XST outlined the provisions in the clause as outlined above, which were supported by the opposition and agreed without a vote.

Clause 27 (Optional remuneration arrangements: statutory parental bereavement pay)
Statutory Parental Bereavement Pay (SPBP) was introduced in April 2020. This measure has been introduced to ensure that the payment will not be treated as a variation in contract for certain long-term salary sacrifice arrangements, in line with other Statutory Payments so that recipients of these payments are not disadvantaged. The relevant long-term arrangements include: certain employer provided vehicles, employer provided living accommodation and relevant school fees arrangements.
NC2 [SNP] would require the Secretary of State to publish a report about the impact of the measures in section 27, including take-up of statutory parental bereavement pay

The FST said the measures would support employees in receipt of taxable benefits who receive statutory parental bereavement pay, a new benefit introduced from April 2020. This did not exist at the time the existing regulations were first introduced. This ensures that the payment will be disregarded from the 2017 optional remuneration arrangements and makes sure recipients don’t lose any income tax or national insurance advantages.

The FST added that new clause 2 was unnecessary and said that the Treasury already kept a record of the impact of its measures.

Alison Thewliss (SNP) welcomed the government’s move to support bereaved parents and said it was important to ensure parents received the help they are entitled to at ‘unimaginable times of tragedy’. She said that the aim of the amendment was to improve public knowledge and uptake of the benefit and used her contribution to outline the steps being taken by the Scottish Government to provide further support to bereaved families.

James Murray, for the opposition, offered support for the measures contained in the clause. The clause was agreed without a vote.

Clause 29 and Schedule 5 (Collective money purchase benefits)
Sets out the tax treatment of collective money purchase arrangements and benefits, a new type of pension provision introduced by the Pension Schemes Act 2021. Collective money purchase arrangements are defined as money purchase arrangements but work in a different way to other benefits. As a result, they do not replicate any of the existing types of benefits precisely.
Govt amendment 17 ensures that the new paragraph 2(9) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.
Govt amendment 18 ensures that the new paragraph 2(10) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.
NC9 [Labour] would require the government to carry out and publish a review of the impact of section 29 and schedule 5 on the distribution of benefits within collective money purchase schemes according to the age of the members of the scheme.

The FST said the measures in the clause would ensure that the measures operate on the same basis as other pension schemes. He said the ‘minor’ amendments would ensure there was no detriment to pensions in Northern Ireland. He said that opposition new clause 9 was unnecessary, as tax law operates regardless of age and that the proposals were therefore outside the scope of the legislation.

James Murray (Labour) noted that his party had worked with Royal Mail and the Communication Workers’ Union to ensure the introduction of such as pension scheme within the postal service. He added that the amendment would help to ensure inter-generational fairness.

The clause and schedule were agreed without a vote.

Exemptions from income tax

Clause 34 (Repeal of provisions relating to the Interest and Royalties Directive)
The effect of repealing these provisions will be to reinstate an obligation on UK companies to withhold income tax on certain payments of interest and royalties made to connected companies in EU states. As a result, EU companies will no longer receive more favourable treatment than companies based elsewhere in the world, and the UK’s ability to withhold tax on cross-border payments of annual interest and royalties will be governed solely by the reciprocal obligations in double taxation agreements.

The FST described the amendment as ‘small and technical’ to ensure alignments in tax treatments (see above). James Murray said the opposition would not oppose the measures as proposed by the government.

The clause was agreed without a vote.

Clause 35 (Payments made to victims of modern slavery etc)
Income tax exemption for payments to victims of modern slavery and human trafficking. Payments must be made by or on behalf of a public authority and must be to provide support and assistance in accordance with Article 12 of the Council of Europe Convention on Action against Trafficking in Human Beings.

The FST said that this was a ‘very important’ clause in the bill that would support victims of modern slavery and trafficking. This will ensure payments to victims are made free of income tax. James Murray welcomed the measures for the opposition, which will be retrospective to April 2009. The measures were also welcomed by the SNP, with Alison Thewliss asking if the government could provide information on the number of people who have benefitted from the measure since 2009. The FST said he was unaware whether HMRC holds this information but that he would provide this if available.

The clause was agreed unanimously.

Miscellaneous corporation tax measures

Clause 37 and Schedule 8 (Relief for losses etc)
Reforms were introduced in 2017 to (a) increase the company’s flexibility to set off carried-forward losses, either against the company’s own total profits in later periods, or in the form of group relief in a later period; and (b) to limit the amount of profit against which carried-forward losses can be set (extended to include corporate capital losses from April 2020). This schedule aims to ensure the legislation works as intended and to reduce administrative burdens. Part 1 allows certain groups access to an allowance to which they are entitled following an acquisition or demerger. Part 2 makes a number of other changes in this area.

The FST said that these were technical amendments to ensure that the legislation works as intended and prevents businesses from claiming excessive reliefs for certain carried forward losses.

The clause and schedule were agreed without a vote.

Clause 38 (Corporate interest restriction: minor amendments)
Introduced in 2017, the corporate interest restriction (CIR) rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest and similar expenses, in line with the OECD BEPS recommendations. This clause makes two minor amendments to the legislation – one concerns the interaction of the CIR with rules for UK Real Estate Investment Trusts (REITs); the other addresses the unintended omission of ‘reasonable excuse’ as a ground for late submission of an interest restriction return without penalty.

The FST said that this was also a technical amendment to ensure that the legislation works as intended. James Murray said that the opposition would not oppose these measures as these were 'necessary' changes.

Clause 39 (Northern Ireland Housing Executive)
New CT exemption for the Northern Ireland Housing Executive. The equivalent providers of state funded housing in England, Wales and Scotland are exempt from CT (as they are local authorities for CT purposes). The NI Housing Executive was established in such a way that it did not meet the definition of ‘local authority’ for CT purposes.

The FST said the measure would bring the corporation tax treatment of the Northern Ireland Housing Executive into line with other state funded housing providers and local authorities in the UK. This, he said, would save the executive 'millions' of pounds.

The clause was agreed without division.

The meeting adjourned at 1.05pm. It will resume at 2.00pm.