LIVEBLOG: Finance Bill 2021 Committee of Whole House: Day Two
MPs have concluded debate on the committee stage of Finance Bill 2021, with debate on tax evasion and avoidance, property taxation and support to business.
A guide and liveblog to the second day of Committee of Whole House debate on Finance Bill 2021 (also known as Finance (No. 2) Bill as it is the second Finance Bill in the current parliamentary session).
You can find a preview of the whole of committee stage of the Bill here.
You can find links to briefings produced for MPs by the CIOT, our Low Incomes Tax Reform Group (LITRG) and our sister body, the Association of Taxation Technicians (ATT) here.
The timetable for today's debates was as follows:
2.50pm Committee of Whole House Debate commences
Group One: Tax evasion and avoidance (including CIS changes and promoters legislation) (followed by vote(s))
4.40pm Group Two: Property taxation (including Stamp Duty Land Tax) (followed by vote(s))
5.25pm Group Three: Support to business (including VAT reduced rate) (followed by vote(s))
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 watched here.
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.
Committee of Whole House Debate Day Two
Group One: Tax evasion and avoidance (including CIS changes and promoters legislation)
Clause 30 and Schedule 6; Clause 36 and Schedule 7; Clause 41; Clause 115 and Schedule 27; Clauses 117 to 121 and Schedules 29 to 32; any new Clauses or new Schedules relating to tax avoidance or evasion
Amendments and clauses in this group: Clause 30 stand part + 70 [SNP] + 71 [SNP] + 72 [SNP] + 84 [SNP] + 85 [SNP] + 73 [SNP] + 74 [SNP] + 75 [SNP] + 76 [SNP] + Schedule 6 stand part + Clause 36 stand part + Govt 17 to 42 + Schedule 7 stand part + Clause 41 stand part + Clause 115 stand part + Schedule 27 stand part + Clauses 117 to 121 stand part + 77 [Hodge] + Schedule 29 stand part + Schedules 30 to 32 stand part + NC14 [SNP] + NC15 [SNP] + NC 29 [Opposition]
You can read the full text of amendments, and brief explanatory notes, here (pages 1-13).
Clauses and amendments
Clause 30 and Schedule 6: Construction industry scheme (CIS) - PASSED
Under the CIS, contractors deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s income tax and NICs. These changes are designed to tackle abuse of the CIS rules by (1) simplifying the deemed contractor rules; (2) clarifying the rules on deductions for materials purchased by a sub-contractor to fulfil a construction contract; (3) providing new powers for HMRC to restrict CIS set-off claims; (4) expanding the scope of current penalties for providing false information for registration to persons facilitating the application.
Amendments 70-72 and 84-85 (SNP Treasury Team) would allow that a de minimis amount of minor works can be disregarded (NOT MOVED)
Amendment 73 (SNP Treasury Team) would remove the provision making businesses who fall within the current definition, but who would not fall under the new definition of “deemed contractor”, to be drawn into the new regime for CIS from 6 April 2021. (NOT MOVED)
Amendment 74 (SNP Treasury Team) would remove the provision requiring that, when a contractor is deducting the relevant percentage from a contract payment made to a sub-contractor, they should first deduct only the cost of material purchased by the sub-contractor from the figure to which the relevant percentage deduction is applied. (NOT MOVED)
Amendments 75-76 (SNP Treasury Team) would delay commencement until April 2022. (NOT MOVED)
Clause 36 and Schedule 7: Hybrid and other mismatches - PASSED
The hybrids and other mismatches regime (introduced 2017) addresses arrangements that give rise to hybrid mismatch outcomes and generate a tax mismatch, and in doing so implements OECD BEPS Action 2 recommendations. Mismatches can involve either double deductions for the same expense, or deductions for an expense without any corresponding receipt being taxable.
These changes consist of a series of reforms to the legislation to ensure that it operates as intended. They include amendments that allow certain amounts of taxable income received to be treated as dual inclusion income for the purposes of those rules, and ones that provide for the allocation of deemed dual inclusion income within a group, if certain conditions are met. Some have retrospective effect.
Government amendment 17 removes amendments to Part 6A of the Taxation (International and Other Provisions) Act 2010 relating to the definitions of “hybrid entity” and “investor”. (MOVED and PASSED without a vote)
Government amendment 18 makes a minor clarification of what is meant by the “corporate rescue conditions” in connection with the treatment of deductions for the release of a debt. (MOVED and PASSED without a vote)
Government amendments 19, 20, 29 and 30 are part of a series of minor amendments to Schedule 7 (Hybrid and other mismatches) that move text for readability (MOVED and PASSED without a vote)
Government amendments 21-26, 28, 31-36 and 38 are to ensure consistency with the existing provisions of Part 6A of the Taxation (International and Other Provisions) Act 2010 (where reference to a person includes reference to a body). (MOVED and PASSED without a vote)
Government amendments 27 and 37 deals with the possibility that a zero-tax territory may not recognise the concept of residence for tax purposes. (MOVED and PASSED without a vote)
Government amendment 39 provides that where a mismatch is capable of being dealt with in a country that has implemented rules in accordance with the OECD’s Hybrid Mismatch Arrangements report, it will not be dealt with by the United Kingdom. (MOVED and PASSED without a vote)
Government amendments 40-41 correct minor errors. (MOVED and PASSED without a vote)
Government amendment 42 is designed to allow the provision amended to work where other entities are between the hybrid entity and the transparent fund by reference to which the provision operates. (MOVED and PASSED without a vote)
Clause 41: Capital gains tax hold-over relief for foreign-controlled companies - PASSED
Clarifies an existing anti-avoidance rule regarding the circumstances in which relief can be given when a non-UK resident person gifts assets to a company controlled by a person who is not UK resident.
Clause 115 and Schedule 27: Follower notice penalties - PASSED
Subject to various conditions, HMRC may issue a Follower Notice to anyone who has used tax arrangements to gain a tax advantage and HMRC believe those arrangements have been shown to fail by the tribunal or courts in another party’s litigation. Anyone who receives a Follower Notice must decide whether to give up the tax advantage they have asserted, or continue their dispute with HMRC and risk a penalty of 50% if they are ultimately unsuccessful. This measure reduces the rate of penalty from 50% to 30% of the denied advantage but introduces a new additional penalty of 20% when those in receipt of Follower Notices are found by a Tribunal to have acted unreasonably in pursuing their litigation. The measure provides a right of appeal against the additional penalty.
Clause 117 and Schedule 29: Promoters of tax avoidance schemes - PASSED
Amends the Promoters of Tax Avoidance Schemes (POTAS) regime, which applies a series of sanctions to a person carrying on a business as a promoter of tax avoidance. These amendments give HMRC the power to issue ‘stop notices’ to promoters at an earlier stage, to stop the sale of schemes before the scheme has been defeated. HMRC will be able to publish details of the promoters and scheme when a stop notice has been issued. The scope of the existing legislation will be widened to include individuals who control, or significantly influence, entities that carry on promotion activities, as well as the people they work through in the UK and other entities that have been set up in a fragmented way, to make it harder for HMRC to tackle them.
Amendment 77 (lead signatory Dame Margaret Hodge) would cause promoters of tax avoidance schemes which are abusive (defined in existing legislation to mean schemes where it is not reasonable to regard the scheme as areasonable course of action) to be treated as acting dishonestly for the purposes of criminal prosecution of tax offences, without dishonesty having to be separately proved by the prosecution. (NOT MOVED)
Clause 118 and Schedule 30: Disclosure of tax avoidance schemes - PASSED
The Disclosure of Tax Avoidance Schemes (DOTAS) regime was introduced in 2004 and that for the Disclosure of Tax Avoidance Schemes for VAT and Other Indirect Taxes (DASVOIT) in 2017. These regimes provide HMRC with early information about new tax avoidance schemes. This measure aims to ensure that HMRC can act quickly where promoters fail to provide information about their avoidance. It provides that when HMRC suspect that a person has failed to disclose arrangements or proposed arrangements which should have been notified to them, HMRC may issue a notice to anyone they suspect of being a promoter or other supplier involved in the supply of the arrangements. This notice explains that if the person is unable to satisfy HMRC that the arrangements are not disclosable, HMRC may allocate a Scheme Reference Number (SRN) to the arrangements.
Clause 119: Penalties for enablers of defeated tax avoidance - PASSED
Finance (No.2) Act 2017 introduced penalties for enablers of defeated tax avoidance whereby anyone who has enabled abusive tax avoidance arrangements that are later defeated by HMRC will be subject to a penalty of 100% of the fee earned. This measure makes a number of changes to help HMRC obtain information about the enabling of abusive schemes as soon as they are identified with the aim of ensuring that enabler penalties are felt without delay. These include letting HMRC check a person’s position regarding potential liability for a penalty before the arrangements are defeated, and to request information from one enabler about other persons who may also have enabled the same arrangements.
Clause 120 and Schedule 31: The GAAR and partnerships - PASSED
The General Anti-Abuse Rule (GAAR) was introduced in 2013. It provides HMRC with the ability to challenge “abusive” tax arrangements where those arrangements are designed to achieve a tax outcome clearly outside the intention of the relevant legislation. This measure will ensure the GAAR applies equally to partnerships as it does to other entities and individual taxpayers.
Clause 121 and Schedule 32: Licensing authorities: requirements to give or obtain tax information - PASSED
Aimed at tackling the ‘hidden economy’. When renewing licences to drive taxis and private hire vehicles (PHVs), to operate a PHV business or deal in scrap metal in England and Wales, the licensing body will have to obtain confirmation from HMRC that the applicant has completed a tax check before being able to consider their application. Licensing bodies will have to signpost first-time applicants to HMRC guidance about their potential tax obligations.
New clauses in this group:
NC14 (SNP Treasury Team) would require a report on the construction industry scheme provisions on various economic indicators. (NOT MOVED)
NC15 (SNP Treasury Team) would require a report on the impact of certain provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships. (NOT MOVED)
NC29 (SNP Treasury Team) would require the Government to review the impact of the provisions relating to tax avoidance and publish regular reports setting out their findings. (MOVED and DEFEATED by 366 votes to 261)
Financial Secretary (FST) Jesse Norman opened the debate, stressing the Government's commitment to tackling non-compliance. He ran through the main measures in this group (see above). He explained that the licensing provisions would bring parts of the hidden economy out of the shadows.
Clause 30 and schedule 6 tackle abuse of the construction industry scheme. He said the scheme protects £7.1 billion of tax every year. Opposition amendment 74 would remove the proposed changes to rules for deduction of materials, but there is a clear need for this, he argued. He urged the House to reject that amendment, and also 73, which relates to transition arrangements for deemed contractor rules, and would be disruptive if passed. Delaying the commencement of the measure would not be appropriate he argued.
The hybrid mismatch changes amend the rules in several areas so it remains proportionate and does not lead to double taxation, said the FST. Amendments 17-42 have been tabled to ensure that the changes work and reflect the underlying policy intent They reflect representations made by by external commentators following publication of the legislation.
Clause 117 makes changes to the POTAS regime to allow HMRC to (among other things) issue stop notices to prevent the operation of schemes they suspect do not work.
Describing amendment 77 (the Hodge amendment) as the most substantive to this area of the Bill he said it seeks to amend schedule 27 so anyone subject to POTAS should be deemed to have been acting dishonestly unless they can show they acted in good faith and believed the arrangements to be reasonable. "This would mean in respect of the criminal offence of cheating the public revenue that a person would automatically be treated as dishonest where it had been demonstrated that they had promoted abusive tax arrangements as defined in the general anti-abuse rule. As such there would be no requirement or any prosecution to prove dishonest conduct." Promoters who break the law should face the consquences of their actions, said the minister, but the offence of cheating the public revenue is the most serious tax offence and can carry a life sentence. So it is right that the prosecution should have to prove its case beyond reasonable doubt and prove that the person has been dishonest. Shifting the burden of proof for such a serious crime onto the defendant to prove they are innocent is at odds with the principles of our criminal justice system, said the minister. The burden should be on the prosecution to prove dishonesty.
The Shadow Financial Secretary, James Murray, spoke next. He said Labour would not be opposing the clauses in this group but had concerns about what the Bill fails to do. He described the measures as 'relatively minor and technical' and accused the Government of failing to deliver their promises of tackling tax avoidance. Labour's new clause would bring transparency and prevent the Government 'hiding behind warm words' on this issue. On the Hodge amendment he said "this kind of change is crucial if we are to shift toward more criminal prosecutions of the promoters of tax avoidance schemes". Labour welcome any measure to strengthen penalties for promoters of avoidance schemes. He said that in a letter to him in January the FST had said that since 2016 only 20 individuals have been convicted in relation to offences relating to arrangements which have been promoted as tax avoidance. An average of four convictions a year does not seem like a concerted effort, he said. Greater use of criminal prosecutions would send a strong deterrent message, he argued. He speculated about the impact of HMRC resourcing on these matters.
Murray asked the minister to explain whether the promised deadline of introducing the legislation to set up a register of overseas entities by 2021 will be missed. And he asked the FST whether the Government backed the proposal for a global minimum tax rate. He accused the Government of favouring 'minor, technical amendments' rather than 'upping their game' and truly calling time on practices the public clearly want to see ended.
Andrew Mitchell (Conservative) defended the Government's record on tackling tax avoidance domestically and in terms of bringing pressure to bear on the crown dependencies and overseas territories. The minister had made good points on amendment 77, he said, but 'eternal vigilance is required' - advisers who set up these schemes often have an aura of authority and I want to see more done that where these bad schemes are put together by professional advisers that they don't get off scot free.
Dame Margaret Hodge (Labour) spoke in support of amendment 77 in her name, noting the cross-party support for it. "The minister may have reservations about the technicalities of our proposal but he should at the very least accept the principle that underpins our proposal and say so today. Big corporations and high net worth individuals who engage in tax avoidance schemes and financial crime don't dream up these schemes on their own. They are invented and developed by the huge army of tax professionals - accountants, lawyers, banks and advisers - who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help, but they actively encourage people not to pay their rightful contribution through tax to the common purse for the common good."
What we want with our amendment is to hold these enablers to proper account, said Hodge. She accused major global banks of continuing to be complicit in facilitating and enabling financial crime. But, she said, it is ordinary people who suffer. She cited film tax relief and the loan charge scheme as examples. She said the APPG on Anti-Corruption and Responsible Tax would be preparing a response to the Government's consultation on promoters of tax avoidance.
Why don't rogue advisers get prosecuted? HMRC has to demonstrate dishonesty, and it is virtually impossible to do so, said Hodge. That is why she wants a new test to make criminal prosecutions feasible and practical. She is suggesting the test that is currently in place for the GAAR.
Peter Grant, for the SNP. said the SNP's amendments on the CIS were in spirit with the existing operation of the scheme, for example with a de minimis level so minor works could be disregarded. Another amendment would removes paragraph 3 and 4 of the CIS measure. Para 4 relates to the way costs of materials are accounted for. The SNP are not convinced of the need for the changes at this time, he said.
He criticised the Government for not going back and assessing the effect of legislative changes to see how successful they have been often enough. SNP new clause 15 would require the Chancellor to report back on the effectiveness of various tax avoidance measures. He accused the Government of continuing to tolerate a 'scandalous' level of tax avoidance. He repeated his party's criticism of the lack of controls on establishment of Scottish Limited Partnerships. He said the Scottish Government were seeking a further transfer of powers to tackle tax avoidance from Westminster, and are investigating whether existing powers allow them to levy a higher business rate poundage of premises whose owners are based in a tax haven.
Kevin Hollinrake (Conservative) said when he ran a business he turned down a suggestion from his accountant that he should consider using a tax avoidance scheme to shelter company profits. If that accountant had thought he could end up in jail I don't think he'd have promoted that scheme, said Hollinrake. 99 per cent of tax avoidance schemes in the UK are disguised remuneration, he said. He thought MPs should look 'very carefully' at amendment 77. He thought personal liability rather than fines was the key to better behaviour from those promoting schemes.
Christine Jardine, Lib Dem Treasury spokesperson, welcomed the action being taken against promoters of tax avoidance schemes. Lib Dems will be supporting new clause 29 requiring the Government to produce regular reports, and also amendment 77 (the Hodge amendment). These actions come too late for many victims of these schemes, such as those affected by the loan charge, she said. She accused the Government of going after nurses and teachers with the loan charge while failing to clamp down on large tech firms not paying their fair share. The Chancellor should end the retrospective application of loan charge rules so nobody who fell victim to these schemes before 2017 is unfairly penalised, she said.
Antony Higginbotham (Conservative) defended the Government's actions to get tax from large tech firms. He supported all the measures in the Bill. He noted that the past 12 months had shown the link between tax paid into the system and the support the state would provide when you need it.
Catherine West (Labour) said we need to prioritise criminal prosecutions in tackling tax compliance. "There is much more money to be found on illicit finance and tax avoiders than on those eking out a living on universal credit or personal independence payments," she observed. Citing descriptions of the City of London as a 'laundromat' for dodgy foreign money, especially from Russia, she called for action from the Government. She backed amendment 77.
Ruth Cadbury (Labour) spoke in support of Labour's new clause 29 and the cross-party amendment 77. But she warned Government must deal with unintended consequences of its measures too. A growing number of people need to work on a contractor basis either for personal reasons or because it is the only way of getting work in their sector, she said. Increasingly the alternative to being a contractor is being a PAYE freelancer - pay tax in full but without any of the rights of being an employee and with all the costs of being self-employed. She characterised this as 'zero right employment'. On the loan charge she said the Government had done too little, too late to go after those who promoted the schemes. People went into schemes not to avoid tax, but to comply with IR35. Roll out of off-payroll changes is leading to greater use of umbrella companies. There is a lack of transparency over fees. The clauses in the Bill don't address the problem of non-compliant umbrella companies.
Clause 21 deals with workers' services provided through intermediaries. She explained: "The legislation as originally drafted would have meant that recruitment agencies had to put workers on their own payroll, where they would also have enjoyed the protections offered by existing agency legislation. That would also have meant closing the door on many tax avoidance schemes. The Government could simply strike out clause 21 and doing so would ensure that workers got the agency rights they should be getting. Agencies can run their own payroll anyway for their own staff so they could do it for the workers they take on as contractors. Alternatively the Government could insert into the Bill an amendment that would allow only compliant umbrella companies to exist, and there are a number of compliant umbrella companies. Doing this would allow an umbrella to still operate but would no longer be able to wrongly skim off money from contractors' pay and would have to pay holiday pay, and kick backs between recruitment agencies and umbrella companies would be outlawed. This would stop all dodgy umbrella companies and provide much needed transparency."
The FST, Jesse Norman, responded to the debate. Kevin Hollinrake challenged him over the digital services tax and the fact it is paid by vendors on Amazon marketplace but not by Amazon on its own brand sales. The minister noted that the Government is consulting on a digital sales tax. Responding to the Labour spokesperson on a beneficial register of ownership he said the Government is planning to introduce the Bil in due course. On minimum corporate taxation he said the Government had been in the vanguard of action on base erosion and profit shifting, so the Government welcome the renewed commitment the US government has made in this area. On amendment 77 he said no-one doubts the importance of addressing this issue but no responsible government would go down this route.
The House divided on one question at the end of this group -
NC29 - MPs voted this down by 366 votes to 261.
Group Two: Property taxation (including Stamp Duty Land Tax)
Clauses 87 to 89 and Schedules 16 and 17; Clauses 90 and 91; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules
Amendments and clauses in this group: 81 [Opposition] + Clause 87 stand part + Clause 88 stand part + Clause 89 stand part + Schedule 16 stand part + Schedule 17 stand part + Clause 90 stand part + Clause 91 stand part + NC26 [Opposition] + NC27 [Opposition]
You can read the full text of amendments, and brief explanatory notes, here (pages 13-15).
Clauses and amendments
Stamp duty land tax (SDLT)
Clause 87: Temporary period for reduced rates on residential property - PASSED
Extends the temporary COVID-prompted increase to the SDLT nil rate band for residential property in England and Northern Ireland. The nil rate band will continue to be £500,000 until 30 June 2021 and will then be £250,000 from 1 July 2021 to 30 September 2021. The nil rate band will return to the standard amount of £125,000 from 1 October 2021. (NB. This tax is devolved in Scotland and Wales.)
Amendment 81 (Labour Treasury Team) would mean that the Stamp Duty Land Tax (Temporary Relief) Act 2020 no longer applies to additional dwellings.
Clause 88 and Schedule 16: Increased rates for non-resident transactions - PASSED
Imposes 2% SDLT surcharge on purchases of dwellings made by purchasers not resident in the UK, including certain UK-resident companies controlled by non-residents. The govt says this is intended to ‘help make house prices more affordable, helping people get onto and move up the housing ladder in line with wider objectives on homeownership’ and that the revenue raised will be used to tackle rough sleeping. (Eng & N Ireland only.)
Clause 89 and Schedule 17: Relief from higher rate charge for certain housing co-operatives etc - PASSED
Introduces a new relief from the 15% higher rate of SDLT where the purchase of a residential property valued in excess of £500,000 is by a company which is a housing co-operative that has no transferable share capital. Housing co-operatives are voluntary associations of members who use a corporate structure (a company) to provide housing to their members.
The 15% flat rate of SDLT is charged where a company, a partnership with at least one company member, or a collective investment scheme purchases UK residential property (a single-dwelling interest) valued in excess of £500,000. The 15% rates of SDLT and ATED (see below) were introduced to deter the practice of buying and owning residential property within a corporate wrapper ('enveloping'). Enveloping creates a situation in which effective ownership of a property can continually change hands, not via the sale of the property itself, which would give rise to SDLT, but instead via the sale/transfer of the shares in the company. No SDLT is payable on share transactions.
Annual tax on enveloped dwellings (ATED)
Clause 90: Relief for certain housing co-operatives - PASSED
Companion measure to clause 89 - introduces a new relief from ATED to apply where an interest valued in excess of £500,000 is held in UK residential property exclusively by non-publicly funded, non-social housing co-operatives which has no transferable share capital.
ATED is charged annually where a company, a partnership with at least one company member, or a collective investment scheme owns UK residential property (a single-dwelling interest) valued at more than more than £500,000. The rules for both ATED and 15% rate of SDLT largely mirror one another, except to the extent that the SDLT is a one-off transaction tax, while ATED is an ongoing annual charge.
Clause 91: Repayment to certain housing co-operatives: 2020-21 chargeable period - PASSED
Enables housing co-operatives which now qualify for relief for 2020-21 and who have already paid ATED for that period, to claim a repayment by amending their 2020/21 ATED return.
New clauses in this group:
NC26 (Labour Treasury Team) requires the Chancellor of the Exchequer to carry out and publish a review of the effects of sections 87 to 89 and schedules 16 and 17 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a geographical basis. - NOT MOVED
NC27 (Labour Treasury Team) would require the Government to report on the effect of the 2% stamp duty land tax non-resident surcharge on tax revenues and on the price and affordability of property. - NOT MOVED
Abena Oppong-Asare (Labour) moved amendment 81, to prevent the extension of the stamp duty holiday to being used for buy-to-lets, second properties and investment properties.
The New Clause 26 will encourage the Government to review as an opportunity in an attempt by her to get greater honesty about the property market from the Government. On Clause 87 (extension of stamp duty holiday) she said it will cost £1.5 billion by end of 2021/22, which is on top of the £3.2 billion cost of the initial stamp duty holiday announced in July 2020. The extension will be welcomed by buyers worried about a cliff edge, she accepts. But she has broader concerns about the policy. Think tank the Resolution Foundation said the lower stamp duty liabilites have contributed to higher price increases in the past eight months. The rise in house prices will have cancelled the benefit of the stamp duty holiday for buyers. The Government is on track to miss its own housebuilding targets, home ownership down sharply for first time buyers and we are still pricing first time buyers out of the market. The housing crisis in the UK is worsening meanwhile the Government has given a tax break to second home owners and buy to let landlords -- not what should be done in the midst of an economic crisis. The Government is also forcing council's to raise council tax. On the increased rates for non-resident transactions, she said there is no explanation why the Government has watered down the original plan for a three per cent charge to just two per cent. This means the Goverment will miss out on £52 million a year in revenue that could tackle homelessness and rough sleeping - the Government must review this and publish the results, which is the thrust of New Clause 27. The Government has failed to meets its own commitments on non-residential surcharge; Labour's amendments will rectify this, she charged. She welcome clauses 89 to 91.
FST Jesse Norman said the boost to the housing market from the stamp duty holiday/relief has succeeded. It has given hundreds of thousands of families the opportunity to move home despite the pandemic. The changes to the surcharge on non-residents will ease house price inflation, he claimed. On this, he said a Spring 2019 review by HMRC (following on from a Budget 2018 annoucement) found that a one per cent rate was not enough, that is should be two per cent. Norman defends the Government's record on prioritising the ease of buying property for UK residents versus non-residents and first time buyersversus general second home buyers.
Richard Thompson (SNP) encouraged Ministers to look positively on reforms of property taxes made in Scotland. He said the Scottish approach to property tax is progressive. New Clauses 26 and 27 are welcome in this spirit, he said.
Gareth Bacon (Conservative) said the economy and society are opening up. The Chancellor had to maintain high levels of public support and lay the groundwork to repair public finances in the Budget. On extension of extending stamp duty holiday, he said a sharp drop in housing transactions generally leads to lower numbers of the building of new homes he said, which is why the Government had to act as soon as this appeared on the cards. Transactions are at their highest levels since 2007 which gives confidence to the construction industry. A tapering of relief avoided a cliff edge and succeeded in preventing an unsustainable boom in house prices. In the long term, government must look at stamp duty because it has become a barrier to people buying a home. A review of wider stamp duty regime is needed, especially looking at the link between stamp duty and housebuilding, he said.
Geraint Davies (Labour) questioned the Government's priority of giving a stamp duty holiding when millions in the UK are badly hit economically from the pandemic, children in poverty and many rough sleepers. The holiday has spent five billion pounds over two years on second homes, he claimed,, addign that this could of paid for a five per cent increase in nurses' salary over five years. It is not clear the stamp duty holiday was necessary, especially as the Bank of England reduced interest rates at the start of the pandemic. Propery prices have gone up, he complained, leaving people to save up a greater deposit. This Budget should have invested in raising productivity and increasing the number of jobs but instead it will widened inequality.
Felicity Buchan (Conservative) said the stamp duty holiday has been an unequivocal success in stimulating the market and welcomes its extension. The surcharge for non-resident is also something she supports, to prevent empty homes which among other things hollows out communities. Last year, 243,000 houses were build by this Government, she praised. We need to carry on building affordable housing, espeically in London. Forty-four per cent of her Kensington constitutents are renters because they cannot get on to the housing ladder. She encouraged the Government to be more radical on stamp duty and make fundamental reforms because it prevents people from moving closer to work, growing families to upgrade to a bigger home and older people from downsizing. Stamp duty creates perverse behaviour of people extending homes because they cannot buy a bigger home; this causes undue distress to her constituents. We have to make it easier for people to move, she said. Stamp duty is unaffordable at the highest rates, she added. If we see less acitivity in top end of the market, it is bad for the Exchequer, she argued. This tax is the wrong side of the Laffer Curve, she said.
Christine Jardine (Lib Dem) believes the stamp duty holiday is not effective at helping first time buyers on to the property ladder. Extending the stamp duty holiday will only serve to avoid a cliff-edge, depriving the Exchequer of money at a vital time. Along with the separate new mortgage five per cent policy, its only effect is to increase demand for housing without increasing supply of homes. We need to increase the supply of homes. Lib Dems want a rent to buy scheme where people can build up shares in housing association homes in rent - can the Government look at this?
Anthony Browne (Conservative) said stamp duty is one of the most successful stimulus by any government. The taper will also avoid a cliff edge, he said. It should not matter if a house is being bought for second property or investment even because the aim of the holiday was to stimulate the economy, he said. He has long called for an increase in stamp duty on second home purchases and non-residential buys, so is happy with Bill. It is right that the non-resident rate starts low at two per cent but this could be increased soon to free up homes for people who want to live in it. He wants to use this revenue to reduce stamp duty which is a burden on buyers.
Ben Everitt (Conservative) thanked the Treasury for listening to MPs and industry organisation to deliver the stamp duty extension. Ths stamp duty holiday cannot go on forever, though, not least because it is a negative for the Exchequer, he said. Let's take the opportunity for radical reform on stamp duty; let's put the freeport ideas on steriods to deliver green homes in areas close to jobs. We cannot do levelling up without fixing the housing market, after all, he said.
Oppong-Asare closed this section by saying that Labour does not believe the Government should be handing a half a billion pound tax break to buy-to-let investors and second home buyers. This government is letting people down on housing. She moved the amendment 81.
Amendment 81 failed (364-214).
Group Three: Support to business (including VAT reduced rate)
Clauses 92 to 96 and Schedule 18; Clause 97 and Schedule 19; Clauses 128 to 130; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules
Amendments and clauses in this group: Clause 92 stand part + 64 [SNP] + Clauses 93 to 96 stand part + Schedule 18 stand part + Clause 97 stand part + Schedule 19 stand part + Clauses 128 to 130 stand part + NC16 [SNP] + NC30 [Opposition]
You can read the full text of amendments, and brief explanatory notes, here (pages 15-17).
Clauses and amendments
Value added tax (VAT)
Clause 92: Extension of temporary 5% reduced rate for hospitality and tourism sectors - PASSED
Extends the temporary reduced rate of 5% for supplies of hospitality and tourism until 30 September 2021
Clause 93: Temporary 12.5% reduced rate for hospitality and tourism sectors - PASSED
Introduces a temporary 12.5% reduced rate of VAT for supplies of hospitality and tourism. It will be effective from 1 October 2021 through to 31 March 2022.
Amendment 64 (SNP Treasury Team) would ensure that the Treasury can only increase, and not decrease, the period for which the temporary 12.5% reduced rate of VAT for the hospitality and tourism sectors applies.
Clause 94: Extending digital record-keeping for VAT purposes to all businesses - PASSED
Allows the scope of Making Tax Digital (MTD) to be extended in regulations to all VAT registered businesses with effect from 1 April 2022 by repealing previously enacted legislation.
Clause 95 and Schedule 18: Deferring VAT payment by reason of the coronavirus emergency - PASSED
On 20 March 2020 the Chancellor announced that businesses could defer until 31 March 2021 the VAT that would become payable between 20 March and 30 June 2020. On 24 September 2020, the Chancellor announced an option for businesses to spread that VAT bill over 11 smaller repayments with no interest to pay. So, when deciding how to pay the deferred VAT, businesses have the option to (a) pay it in full by 31 March 2021; (b) opt into the instalment arrangement (the New Payment Scheme) starting March 2021; (c) seek individual help from HMRC, which will normally be tailored to the specific needs of a business and its inability to pay the taxes due.
Clause 96: Refunds to S4C - PASSED
Amends the VAT refund scheme to include S4C (the Welsh language broadcaster) as an eligible body. This will allow S4C to recover the VAT paid on purchases used to support its non-business activity of free to air public service broadcasting.
Clause 97 and Schedule 19: Steel removed to Northern Ireland - PASSED
This clause and schedule will enable businesses who move steel originating from countries outside the EU and the UK into Northern Ireland to access the UK safeguard quotas or an equivalent in-quota tariff treatment provided there is a relevant EU tariff rate quota and it is open. The changes have effect from 11pm on the 31 December (the end of the Transitional Period). The Schedule also provides that existing powers to make secondary legislation can, with appropriate parliamentary engagement be used to extend the measure retrospectively to other goods. Without these changes, steel imported into N Ireland, or moved into N Ireland from GB would be subject to the EU’s out-of-quota rate of 25%.
Clause 128: Replacement of LIBOR with incremental borrowing rate - PASSED
First of two clauses responding to the reform of LIBOR and other benchmark rates. Government advice is that businesses should continue to transition away from using LIBOR as a reference rate in their financial contracts. This clause substitutes the statutory references to LIBOR in the leasing provisions with ‘incremental borrowing rate’ as defined by generally accepted accounting practice.
Clause 129: Tax consequences of reform etc of LIBOR and other reference rates - PASSED
Provides a time limited power for the Treasury to make regulations by statutory instrument to address any unintended taxation issues that arise from the transition away from LIBOR and other benchmark rates by businesses and individuals.
Clause 130: Powers of the Treasury to amend legislation relating to banks - PASSED
Amends the banking tax rules legislation to update the powers to amend legislation by regulations. Prompted by the introduction of a new UK Investment Firm Prudential Regime from 1 Jan 2022, meaning existing definitions defining a banking company and banking group will cease to exist from that date.
New clauses in this group:
NC16 (SNP Treasury Team) seeks a review comparing (a) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 30 September 2021, and (b) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 31 December on various economic indicators. (NOT MOVED)
NC30 (Labour Treasury Team) would require a review into the effects of the provisions of the Bill about replacing LIBOR. (NOT MOVED)
Jesse Norman (FST) said that the proposals to ensure tourism and hospitality businesses can continue to benefit from a VAT reduction would help to protect 150,000 businesses and 2.4 million jobs. He argued against the proposals contained in the SNP’s amendment 64, saying that it would remove the government’s flexibility to respond to a ‘rapidly changing’ COVID-19 environment.
He also told MPs that new clause 16 should be rejected, because it was ‘technically impossible’ to provide the required information, which he said does not exist.
The FST said that the Government’s VAT deferral scheme had proved to be an ‘extremely important and effective intervention’, supporting 600,000 businesses that had chosen to defer their payments. Of the £34 billion deferred since last year, Norman said that £24 billion had been secured as paid or scheduled to be paid, and that the measures contained in the Bill would continue to provide taxpayers with flexibility.
The S4C amendment has been designed to ensure that the television company can continue to benefit from VAT refunds on its non-commercial activities.
Turning to steel tariffs, the FST said that without the measures proposed, steel entering Northern Ireland would be subject to ‘prohibitive’ duties, making it more expensive than anywhere in the rest of the UK and EU. He also said that this would be incompatible with the Northern Ireland Protocol.
And the FST also noted that amendments to banking legislation would protect Treasury revenues and ensure that the rules were compatible with changes to FCC definitions due at the start of next year.
Pat McFadden (Shadow Economic Secretary to the Treasury) said it was ‘absolutely right’ that tourism and hospitality businesses should continue to benefit from a lower rate of VAT. He warned of the continued challenges that these industries will face as the UK transitions out of lockdown.
McFadden said that the VAT repayment scheme was ‘realistic’ and would prevent businesses from facing a cliff edge in support.
Discussing steel imports, McFadden expressed hope that the clause and schedule would make it easier to move steel goods between Great Britain and Northern Ireland, but warned of a broader issue around tariffs if quotas on imports are breached in the near future. He said that this posed a continuing threat to the steel industry.
The Shadow Economic Secretary said that the opposition’s proposals for a review of the effects of replacing LIBOR (NC30) on tax revenues of the change on businesses using supply chain finance were necessary to prevent contractual law disputes, which could subsequently impact a range of contracts such as mortgages and leases.
Andrew Jones (Conservative) focused on the extension of the temporary VAT cut for the tourism and hospitality industries and its impact on businesses within his constituency. He said the measures would provide firms with continued support as they emerge from the pandemic and seek to rebuild their businesses.
Peter Grant (SNP) spoke to the SNP's amendment 64 (which was based on information provided by the Association of Taxation Technicians) and new clause 16. Grant said the SNP supported the temporary VAT reduction and said that it was the SNP who could claim credit for the government's decision to extend the scheme. He said it was 'completely irrational' for the Government to set an 'arbitrary' cut-off date for the end of scheme, as a great deal of uncertainty remains for businesses in these industries. He said that New Clause 30 was important as it would allow MPs to understand the impact on the industry of an extension to the end of September (as proposed by the government) and an extension to 31 December (as proposed by the SNP but not tabled as it was deemed outwith the scope of the bill).
Grant said that amendment 64 represented a 'minor, but important' change. He noted that the legislation made it technically possible for the Government to being forward and end to the transitional 12.5 per cent rate ahead of 31 March 2022. He said this was unacceptable and that the proposals in the amendment would help to give businesses more time to benefit from a lower rate of VAT if the tourism and hospitality industry is still struggling to recover. Grant also spoke about the ways that the Scottish Goverment had used its taxation powers to support businesses, largely through the Business Rates regime.
Sarah Olney (Liberal Democrat) spoke to the VAT measures contained in the Finance Bill. She said that the LIb Dems would have preferred the government to retain the temporary five per cent rate for the whole of the financial year, rather than introducing the temporary 12.5 per cent transition rate. She said that all affected businesses would eventually be faced with deferred VAT bills and suggested that the Government should have provided relief to businesses on the deferred VAT so that could use the money to invest in their businesses. She welcomed the installment plan proposed by the Government, but warned again that many of the affected businesses would be left with tax bills but little income with which to pay the money they owe.
Olney then referenced her own experiencing implementing Making Tax Digital from her career as an accountant prior to entering Parliament. While the overall objective of MTD was 'sound', she said that her own personal experiences of the programme suggested that it had been difficult to implement and had left businesses facing additional administrative burdens. She questioned whether this was appropriate in the context of the wider challenges faced by companies in the recovery phase of the pandemic ('the imperative of closing the tax gap surely pales into insignificance when compared with the imperative to support precarious businesses at this time?').
Jamie Stone (Lib Dem) gave credit to the government for the support it has provided to the hospitality industry, but warned of the long-term impact of the pandemic on the industry and the continued threats that it faces. He asked government to consider extending the five per cent rate to the end of the 2021/22 financial year and called on the UK and Scottish Governments to work together on a longer-term strategy to support the hospitality industry.
Jesse Norman (FST) wound up the debate for the government, thanking MPs for their 'often constructive' contributions to the two days of debate. The FST drew on remarks made earlier by Peter Grant (SNP) to say that he found it 'striking how little the Scottish Government has used the tax powers that it actually has'. On MTD for VAT, he said many small businesses had already joined the programme and were benefiting from improved productivity as a result. Norman said that the Government was closely engaged with the EU on matters related to the steel industry and Northern Ireland and hoped it would have minimal impact on people in Northern Ireland and the Republic of Ireland.
The debate concluded at 6.07pm.