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

Amendment papers and other publications relevant to the Bill can be downloaded here.

The CIOT/ATT External Relations Team will be liveblogging on the CIOT website throughout committee stage.

Committee of Whole House outline

First day – Tuesday 18 April

One single debate of up to six hours, beginning any time after 12.30pm, once urgent questions and statements have concluded.

• Corporate taxes – including capital allowances full expensing, Annual Investment Allowance, R&D relief and OECD/G20 Inclusive Framework Pillar 2 implementation (multinational and domestic top-up taxes)

Clauses 5-15, schedule 1, parts 3-4 of the Bill and schedules 14-18
(until 6 hours from commencement of today’s proceedings on the Bill)

CIOT, our Low Incomes Tax Reform Group (LITRG) and our sister body the Association of Taxation Technicians (ATT) have produced the following briefings for this group:
Corporate Taxes (covering all clauses in this group) (CIOT briefing)
Clause 7: Temporary full expensing etc (ATT briefing)
Clause 10 and Schedule 1: Relief for research and development (ATT briefing)

Second day – Wednesday 19 April

Three separate debates of up to two hours each, beginning any time after 12.30pm, once urgent questions and statements have concluded.

• Pensions (including abolition of the lifetime allowance as well as net pay arrangements)

Clauses 18-25
(until 2 hours from commencement of today’s proceedings on the Bill)

CIOT, LITRG and ATT have produced the following briefings for this group:
Clause 25: Relief relating to net pay arrangements (LITRG briefing)

• Electricity Generator Levy

Part 5 of the Bill
(until 4 hours from commencement of today’s proceedings on the Bill)

• Alcohol duty (charge, rates and reliefs) and devolved social security benefits

Clause 27, 47, 48 and 50 to 60 and Schedules 7 to 9
(until 6 hours from commencement of today’s proceedings on the Bill)

The business to be debated in each group also includes any new clauses or schedules related to the subject matter of the existing clauses in that group.

Public Bill Committee

[Updated 19 April]

Given the amount of the Bill selected for debate in Committee of Whole House there are likely to be only 4-6 sittings of the public bill committee. While originally expected to commence Tuesday 25 April this is now expected to take place in May, with dates to be determined. A separate preview will be produced ahead of the start of public bill committee.

Our commentary on each group of clauses, including notes on the amendments and new clauses tabled so far, follows.

Committee of Whole House Day One – Tuesday 18 April

Group One - Corporate taxes

• Clauses 5 and 6 (corporation tax charge and rates)
• Clauses 7 to 9 (capital allowances)
• Clauses 10 to 15 and Schedule 1 (other reliefs relating to businesses)
• Clauses 121 to 264 and Schedules 14 to 17 (multinational top-up tax)
• Clauses 265 to 277 and Schedule 18 (domestic top-up tax)

Commentary

This group covers a range of clauses relating principally to corporation tax, but also introducing two new taxes to implement Pillar 2 of the OECD/G20 Inclusive Framework.

Clause 5 sets the corporation tax charge and main rate for 2024-25 at 25%. It has already been set at 25% for 2023-24 by a previous Finance Act.

Clause 6 keeps the small profits corporation tax (CT) rate at 19%. A company’s profits will be chargeable at a lower rate of CT than the main rate where those profits fall below the lower limit (£50,000). Where a company’s profits are above the upper limit (£250,000), those profits are chargeable at the main rate of CT. Where profits fall between these limits, the profits are chargeable at the main rate of CT and that sum is then reduced by an amount of marginal relief (marginal relief fraction set at 3/200ths). There are additional rules for dealing with ‘associated companies’ and part years. (NB. Does not apply to ‘ring fence profits’ – that is, profits from oil and gas extraction.)

Clause 7 introduces temporary full expensing for expenditure on plant or machinery. From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. Additionally there will be a 50% first-year allowance for qualifying special rate assets. [More]

Clause 8 sets the annual investment allowance (AIA) permanently at £1 million. It was previously set at £1 million on a temporary basis. AIA is available to nearly all incorporated and unincorporated businesses, covering expenditure on most plant and machinery including second-hand assets and those acquired for leasing. [More]

Labour have tabled a new clause – new clause 3 – to require the Chancellor to conduct a review of business taxes before the next Finance Bill is published. The review would make recommendations on how to (a) use business taxes to encourage and increase the investment of profits and revenue; (b) ensure businesses have more certainty about the taxes to which they are subject; and (c) ensure that the system of capital allowances operates effectively to incentivise investment, including for small businesses.

Clause 9 extends the 100% First Year Allowance for electric vehicle charge-points by two years - to 31 March 2025 for CT purposes and 5 April 2025 for Income Tax purposes. [More]

Clause 10 and schedule 1 make changes to relief for research and development (R&D). Specifically they:

• Expand the categories of qualifying expenditure to include data licences and cloud computing
• Require claimants to submit a pre-notification of their claim, if they are new claimants or have not claimed in the previous three accounting periods
• Require the provision of additional information to support claims
• Make changes to address unintended consequences in the existing legislation [More]

The previously announced restriction on some overseas expenditure will be delayed by a year and will not be legislated for in this Bill. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief which has been consulted on recently. The additional R&D tax relief for eligible R&D intensive SMEs announced in the March 2023 Budget will be in the next Finance Bill, despite taking effect from 1 April 2023.

Amendment 26, tabled by Labour, responds to a concern identified by CIOT, 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. The amendment would amend schedule 1 to make clear that the power to remove a claim for R&D relief from a corporation tax return is only available to HMRC where a company has failed to make a claim notification or to submit the additional information. (More explanation here.)

The Government has also tabled an amendment to schedule 1, relating to R&D credits only being available to companies which are a ‘going concern’. Amendment 14 would make an amendment to section 1057 of the Corporation Tax Act 2009 that is equivalent to the amendments being made by the Bill to sections 104T and 1046 of that Act.

Lib Dem Treasury spokesperson Sarah Olney has tabled new clause 7, which would require the Government to produce an impact assessment of the effect of changes to SME R&D tax credits in this Act on tech start-ups and scale-ups. Kirsty Blackman and Douglas Chapman of the SNP have tabled new clause 8 which would require the Chancellor to produce and publish an assessment of (a) the overall costs, (b) the overall benefits, and (c) the net cost or benefit of extending relief of R&D expenditure to profit-making cloud computing services.

Clause 11 contains legislation to ensure that the Patent Box deduction formula refers to ‘applicable rate’ rather than ‘main rate’ of corporation tax so that the correct amount of relief is given under the Patent Box for claimants whose profits are subject to the small profits rate. [More]

Clause 12 provides for relief from the energy (oil and gas) profits levy in respect of capital expenditure incurred by a company on the de-carbonisation of its upstream petroleum production. The investment allowance will be 80%, with effect from 1 January 2023. [More]

Green Party MP Caroline Lucas has tabled an amendment (amendment 31) to remove clause 12 from the Bill entirely. She has also tabled new clause 10 which would require the Government to produce an impact assessment of the de-carbonisation and investment allowances under the Energy Profits Levy, including on tax revenues and the UK’s ability to meet its climate targets.

Also related to clause 12 is Labour’s new clause 6, which would require the Chancellor to review the investment allowances introduced as part of the energy profits levy, and to set out what would happen if the allowance for all expenditure, apart from that spent on de-carbonisation, were removed.

Clause 13 extends museums and galleries exhibition tax relief (MGETR) from 2024 until 31 March 2026 at which point the relief is set to expire. [More]

Clause 14 extends the periods for which temporary increases in a number of creative reliefs have effect, The rates for Theatre Tax Relief and MGETR, which were due to taper to 30% (for non-touring productions) and 35% (for touring productions) on 1 April 2023, will remain at 45% and 50% respectively until 31 March 2025. From 1 April 2025, the rates will be 30% and 35% and rates will return to 20% and 25% on 1 April 2026. The rates for Orchestra Tax Relief will remain at 50% for expenditure taking place from 1 April 2023, reducing to 35% from 1 April 2025 and returning to 25% from 1 April 2026. [More]

Clause 15 increases the limits that apply to company access and use of the seed enterprise investment scheme (SEIS) and the investment amounts on which individuals can claim tax reliefs. The company investment limit will increase from £150,000 to £250,000, the limit at the date of share issue on a company’s “gross assets” will increase from £200,000 to £350,000 and the age limit of a company’s “new qualifying trade” from 2 to 3 years. The annual limits that apply to the investment amount on which individuals can claim income tax and CGT re-investment reliefs will also increase from £100,000 to £200,000. The measure will have effect for shares issued on or after 6 April 2023. [More]

Clauses 121-264 of the Bill (Part 3) and schedules 14-17 contain legislation to implement the globally agreed G20-OECD Pillar 2 framework in the UK. The government will introduce a multinational top-up tax which will require large UK headquartered multinational groups to pay a top-up tax where their operations in a foreign jurisdiction have an effective tax rate of less than 15%. The measure would also apply to non-UK headquartered groups with UK members that are partially owned by third parties or where the headquartered jurisdiction does not implement the Pillar 2 framework.

These changes will apply to large groups with over €750 million global revenues and will take effect in relation to accounting periods beginning on or after 31 Dec 2023. [More]

The government has tabled 8 amendments to these clauses and schedules. Amendment 12 would delete Step 4 in clause 174(1) from the Bill on the basis that the Step is unnecessary as it duplicates the effect of provision in clauses section 175(2)(e) and 176(2)(i). Amendment 13 adds text into clause 223 to prevent adjustments being made to the covered tax balance of an investment entity in relation to amounts of controlled foreign company tax allocated to the entity (to avoid the same adjustments being effectively made twice).

The remaining 6 government amendments are all to schedule 16 (Multinational top-up tax: transitional provisions). Amendments 15-19 provide for the anti-avoidance provisions in relation to intragroup transfers to apply to transfers from a member of a multinational group until that member is fully subject to the Pillar Two regime. Amendment 20 makes it clear that in determining whether the transitional safe harbour provisions apply for the purposes of multinational top-up tax, revenue and profits are to be as stated in a country-by-country report, or adjusted as if they were included in such a report.

Clauses 265-277 (Part 4) and schedules 17-18 are also to implement Pillar 2. The government will introduce a supplementary domestic top-up tax which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.

Labour have proposed two new clauses relating to the Pillar 2 proposals. New clause 1 would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals. New clause 2 would require the Chancellor to make a statement to the House of Commons within three months of this Act being passed setting out the UK Government’s approach to Pillar 1 of the OECD agreement and the digital services tax.

Committee of Whole House Day Two – Wednesday 19 April

Group One - Pensions

• Clauses 18 to 25 (pensions)

Commentary

Clause 18 removes the Lifetime Allowance (LTA) charge from 6 April 2023, ahead of its full abolition in a future Finance Bill.  [More]

Clause 19 ensures that certain lump sum payments made by pension schemes which would have previously been subjected to the lifetime allowance tax charge are not made tax free, given the abolition of the lifetime allowance charge.

Clause 20 increases the Annual Allowance from £40,000 to £60,000 from 6 April 2023.

Clause 21 increases the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000 from 6 April 2023.

Clause 22 increases the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will be increased from £240,000 to £260,000 from 6 April 2023.

Clause 23 sets a Pension Commencement Lump Sum (PCLS) upper monetary cap of £268,275 (25% of current LTA). However, those who already have a protected right to take a higher PCLS will continue to be able to do so.

Labour are opposed to the removal of the lifetime allowance. The party’s amendments 1-6 would remove clauses 18-23 from the Bill in their entirety. Labour’s new clause 4 would require the Chancellor to make a statement setting out the impact of the changes in relation to NHS doctors, and to set out details of how an alternative scheme targeted at NHS doctors could operate. Their new clause 5 would require the Chancellor to review the impact of the tax-free pension allowance changes and to recommend an alternative approach targeted at NHS doctors.

The SNP’s amendments 21-23 to clause 18 a\re an attempt to put into the legislation the limiting of the removal of the lifetime allowance charge to NHS staff.

The Pension Schemes Act 2021 introduced legislation to allow collective money purchase (CMP) pension schemes to operate in the UK. Clause 24 will clarify the tax treatment on transfers, periodic income and the valuation of dependet pension benefits during the wind-up of a CMP scheme, with effect from Royal Assent of the Bill. [More]

Clause 25 is the long-awaited legislation for the government to make top-up payments, in respect of tax year 2024-25 and onwards, to individuals with a total income below the Personal Allowance saving into a pension scheme using a net pay arrangement. These top-ups will better align outcomes with equivalent savers saving into pension schemes using Relief at Source. [More]

Four Labour amendments to clause 25 reflect representations made by the CIOT’s Low Incomes Tax Reform Group. Amendment 27 would require HMRC to provide recipients of the relief with a calculation of the payment so that it can be checked. Amendment 28 would enable a recipient of the relief to challenge the amount determined by HMRC if they think it is incorrect, and would allow someone not identified as eligible for the relief by HMRC to initiate a claim for it. Amendment 29 would enable a recipient of the relief to challenge the amount determined by HMRC if they think it is incorrect, and would allow someone not identified as eligible for the relief by HMRC to initiate a claim for it. Amendment 30 would require HMRC to tell the DWP of payments made under the new section 193A FA2004 where the recipient is a claimant of a means-tested benefit.

Group Two – Electricity Generator Levy

• Clauses 278 to 312 (Part 5) (electricity generator levy)

Commentary

Part 5 of the Bill applies a new 45% charge from 1 Jan 2023 to exceptional electricity generation receipts arising from non-fossil fuel sources to corporate groups with more than 50,000 MWh of in-scope generation per annum. It applies to wholesale receipts for electricity in excess of a benchmark price of £75 per MWh. The benchmark will be adjusted in line with CPI from 1 April 2024. Exceptional receipts are calculated after deducting increases in generation fuel costs, and groups have an annual allowance of £10m. [More]

The Lib Dems have tabled amendments 8-11 to allow generators of renewable energy to offset money re-invested in renewable projects against the levy.

New clause 11, tabled by Green Party MP Caroline Lucas, would require the Government to conduct an assessment of the impact of the Electricity Generator Levy on investment in renewables and the delivery of the UK’s climate targets, including a comparative assessment of the impact of the Energy Profits Levy and the investment allowance, on investment in oil and gas production.

Group Three – Alcohol duty and devolved social security benefits

• Clause 27 (power to clarify tax treatment of devolved social security benefits)
• Clauses 47-48 and schedule 7 (alcohol duty: charge and rates)
• Clauses 50-53 and schedule 8 (alcohol duty: draught relief)
• Clauses 54-60 and schedule 9 (alcohol duty: small producer relief main provisions)

Commentary

This group of clauses have been selected for whole House debate by the SNP.

Clause 27 introduces a new power in relation to new welfare payments or top-up payments introduced by devolved administrations. This will permit the government to confirm by Statutory Instrument when new payments are taxable as social security income within the tax year, rather than requiring primary legislation. [More]

The SNP have tabled amendment 24 which would leave out this clause.

There are 77 clauses and 8 schedules in Part 2 of the Bill, which introduces a new duty structure for alcoholic products, moving from individual product-specific duties and bands to a single duty on all alcoholic products and a standardised series of tax bands based on alcoholic strength. This will take effect on 1 August 2023.

The 13 clauses and 3 schedules selected for whole House debate can broadly be thought of as the ‘headlines’ of the new regime.

Clause 47 provides for duty to be charged on alcoholic products, and clause 48 that it will be at the rates set out in schedule 7, subject to two reliefs.

Clauses 50-53 and schedule 8 legislate for the first of these reliefs: draught relief. This applies to alcoholic products under 8.5% alcohol by volume (ABV) intended to be sold ‘on draught’.

Clauses 54-60 and schedule 9 contain the main provisions introducing a new Small Producer Relief (replacing Small Brewers’ Relief) for those making less than 4,500 hectolitres of alcohol per year, which will again apply only to alcoholic products under 8.5% ABV.

The remaining clauses and schedules of this part of the Bill, which will be debated in public bill committee, set out other reliefs and exemptions such as for production for personal consumption, and transitional arrangements for certain wine products.

Duty rates on all alcoholic products produced in, or imported into, the UK will increase in line with RPI in August. However, to support pubs, Draught Relief will rise from 5% to 9.2% for qualifying beer and cider products, and from 20% to 23% for qualifying wine, spirits based and other fermented products.  [More]

Amendment 25 and new clause 9, tabled by the SNP, would exempt Scotch Whisky from the increase in duty on spirits. Amendment 7, tabled by Lib Dem Alistair Carmichael, would reduce the rate of duty on spirits more generally.