Finance Bill 2022-23 – round-up of CIOT, ATT and LITRG input

The Bill, which cleared its House of Commons stages on 19 June, contains a number of measures advocated by the two bodies, including clause 41, which extends the no gain/no loss tax treatment for transfers between separating spouses, and clause 29 and schedule 2, which provides greater simplicity in respect of estates.  But also measures the bodies are unhappy about, most notably the scrapping of the OTS.

CIOT, ATT and LITRG together provided 11 briefings and representations to the MPs considering the bill, to support the scrutiny process and highlight possible flaws and areas of uncertainty. During debate on the Bill the three bodies were mentioned a collective total of 43 times, with our evidence cited on eight different aspects of the Bill as well as in the debate on the Programme Motion, where SNP spokesperson Kirsty Blackman once again made a call for tax experts to be invited to give oral as well as written evidence to the committee.

Clause 25 of the Bill introduces pension top-up payments for low earners in net pay pension schemes. Shadow Financial Secretary James Murray commended the efforts of LITRG and others in campaigning for this measure. He also put forward a number of amendments suggested by LITRG aimed at improving the legislation. In reply, Economic Secretary Andrew Griffith was able to provide reassurance that HMRC would provide people with details of how their payment was calculated, as LITRG had asked. LITRG got less satisfaction on a bid to permit challenges to HMRC’s determinations, though the minister told Murray that those who feel a payment is incorrect will be able to contact HMRC who will be able to ‘correct the situation’ if necessary.

Another measure in the Bill which can be attributed in part to work by LITRG is clause 332, which prevents taxpayers from reassigning their right to an income tax repayment to a third party repayment agent. Murray said that while LITRG broadly welcomed the clause the group had highlighted that issues remain around the nomination process— the alternative way of enabling an agent to receive a payment.

While supportive of the relaxation in clause 41, CIOT pointed out to officials when the Bill was published that the clause was flawed as the period during which separating spouses and civil partners would be able to transfer assets between themselves on a no gain/no loss basis would end, illogically and possibly catching people out, a day before the end of the tax year. The government passed an amendment to remedy this.

ATT and CIOT both made submissions to the committee opposing the abolition of the OTS. These were drawn on heavily by Labour and SNP spokespeople. James Murray (Lab) observed that CIOT had pointed out that almost every Finance Act of the last decade has included measures that owe their genesis to the OTS.  Douglas Chapman (SNP) highlighted the ATT’s belief “that there are many benefits to maintaining independent advice to the government on tax simplification” and called on the minister to “at least give the OTS a stay of execution until further evaluation is carried out”. The minister gave no ground.

Lead SNP Treasury spokesperson Stewart Hosie echoed his colleague’s remarks at report stage, noting that Chapman had “also quoted George Crozier of the Chartered Institute of Taxation, as many have done over many years, who said that there had been “useful reforms to employee expenses and inheritance tax reporting,” and that “every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”

During the first day of Committee of Whole House James Murray highlighted CIOT concerns that the wording of a new power for HMRC to remove a claim for R&D relief from a tax return could be wider in scope than suggested, enabling HMRC to reject claims without taxpayers having any of the normal rights of appeal. Murray said that his amendment 26 had been drafted by CIOT and would provide a 'clear and technical' change that he encouraged the minister to accept. Disappointingly in her wind-up speech the Financial Secretary did not comment on the amendment.

The same debate also saw former Home Secretary Priti Patel cite CIOT comments that it is doubtful whether the global minimum corporate tax rate will raise the £2 billion annually in the UK that the government are predicting.

The first session of public bill committee included discussion of clause 29 which provides that (a) estates of people who have died and (b) trusts, with annual income not exceeding £500, will not be subject to income tax on that income. James Murray made a number of points from a briefing provided by CIOT, which highlighted that for some beneficiaries of small trusts the measure will increase their administrative burden.

Responding for the government, the Financial Secretary defended the measures as helping to simplify the tax system and noted that the CIOT and ATT had welcomed some of the measures during consultation (which was indeed the case). James Murray intervened, seeking clarity on CIOT’s point that “in the case where trustees have no liability to report or pay, the beneficiaries, the basic rate taxpayer may still have basic rate income tax due on their income from the trust”. The Financial Secretary reiterated that the measure does not affect the need for trust beneficiaries to consider their tax liability on trust income they receive.

The government tabled (and passed) an amendment to ensure that, where a settlor has created a number of trusts and the £500 exemption is divided between them, any pension trusts are ignored. This followed CIOT representations.

During discussion on clause 36 (share exchanges involving non-UK incorporated close companies) James Murray highlighted concerns raised by CIOT over "gaps that could be exploited" in the new policy, including an avoidance opportunity where shares are held by trustees. The CIOT suggested trustees should be included within the scope of the policy. The CIOT also called for clarification over the definition of beneficial rather than legal ownership to prevent a possible route to avoidance, he explained.

Responding on this point, the minister said that the legislation prevents a relatively simple way for shareholders to avoid tax. If individuals use artificial arrangements to prevent the legislation from applying, they will need to consider whether other anti-avoidance provisions apply, she said.

James Murray used his brief remarks at third reading debate to thank those who had supported him through the consideration of the Bill, thanking “third parties, including the Chartered Institute of Taxation, which always provides invaluable support and evidence for us and all Members of the House.” This echoed earlier thanks to CIOT at the end of committee stage.

Summaries of, and links to, our reports on Finance Bill 2023 debates

Finance Bill second reading debate: Conservative MPs voice opposition to corporation tax increase (29 Mar 2023)

The Finance (No.2) Bill comfortably gained its second reading this week, but came in for sustained criticism from MPs on both sides of the House. Conservatives questioned the government’s decision to go ahead with increases to corporation tax, and to sign up to the OECD Pillar Two proposals. Labour disagreed with the abolition of the pensions lifetime allowance. MPs on both sides probed the thinking behind the abolition of the OTS.

Finance Bill (No.2) 2023 Committee of Whole House preview (published 14 Apr 2023)

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MPs began committee stage consideration of the Finance Bill on Tuesday 18 April with the first of two days of Committee of Whole House debate, passing corporate tax changes including capital allowances full expensing, the Annual Investment Allowance, R&D relief and the implementation of Pillar 2 of the OECD/G20 Inclusive Framework.

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MPs continued committee stage consideration of the Finance Bill on Wednesday 19 April with the second of two days of Committee of Whole House debate, covering taxation of pension contributions, the electricity generator levy, tax treatment of devolved social security benefits and alcohol duty.

Finance Bill (No.2) 2023 Public Bill Committee preview (published 12 May 2023)

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A liveblog on the first two sittings of the Finance (No.2) Bill Public Bill Committee, which took place on the morning (9.25am) and afternoon (2.00pm) of Tuesday 16 May 2023.

In the first session of the public bill committee MPs agreed clauses in Part One of the Bill, including renewing income tax rates and bands and a measure intended to simplify how income tax applies to trusts, estates and their beneficiaries. CIOT concerns were raised on the latter.

In the Tuesday afternoon sitting MPs completed consideration of Part One of the Bill and also passed the remaining clauses in Part Two, which creates a new alcohol duty regime.

LIVEBLOG: Finance (No.2) Bill Public Bill Committee (sittings 3 & 4) (18 May 2023)

A liveblog on the third and fourth sittings of the Finance (No.2) Bill Public Bill Committee, which took place on the morning (11.30am) and afternoon (2.00pm) of Thursday 18 May 2023.

MPs returned on Thursday morning to consider measures in Part 6 of the Bill – Other Taxes. (Parts 3-5 of the Bill had been taken in full in Committee of Whole House.) Measures considered included VAT treatment for deposit return schemes and new powers for ministers on trade rulings.

The final committee sitting saw MPs debate measures including abolition of the Office of Tax Simplification. It also saw the only three divisions of public bill committee.

Finance (No.2) Bill - report stage preview (published 16 Jun 2023)

LIVEBLOG: Finance (No.2) Bill – report stage and third reading (20 Jun 2023)

MPs debated Finance (No.2) Bill at report stage and third reading, with the Financial Secretary promising Parliament an annual report on progress towards tax simplification. This is a liveblog of proceedings.

House of Lords Finance Bill debate (4 Jul 2023)

Finance (No.2) Bill passed through all its House of Lords stages, with debate focusing on R&D credits, non-dom status, lifetime allowance abolition and taxation of multinationals, as well as general discussion of the tax burden and the state of the economy.