LIVEBLOG: Finance Bill (No.2) 2023 Committee of Whole House Day One

Background

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

You can read our preview of the debate here.

CIOT 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)

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)

All government clauses and schedules were passed at the end of the debate, along with nine government amendments (detailed below).

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.

Liveblog

Prior to the start of debate, it was confirmed that amendment 31 (Lucas) and new clause 2 were not selected for a debate. An additional new clause 32, tabled by Andrea Jenkyns (Con) was tabled but not selected for debate. This clause would have reduced the rate of Corporation Tax to 19 per cent if selected.

Financial Secretary to the Treasury (FST) Victoria Atkins opened the debate for the government with a tribute to the late former chancellor Nigel Lawson and his accomplishments in government, describing him as an 'intellectual and political giant'.

Atkins said that the government's corporate tax policy would support business investment and innovation in the UK and help to protect the tax base from avoidance and evasion. She defended the government's decision to increase the rate of corporation tax to 25 per cent, saying it would raise £85 billion over the next five years,  supporting public finances and helping to reduce government debt.

Kit Malthouse (Con) urged ministers to keep the headline rate and thresholds for of corporation tax under review. The FST reassured him that the Treasury would keep the tax under review and highlighted the government's efforts to protect businesses as they grown and move into profits through the small profits rate.

Even with the rate increase, the FST said that the corporation tax rate would remain the lowest in the G7 and the lowest at any point before the Conservatives first election victory in 2010. She said the full expensing provided by clause 7 would provide a 'substantial financial incentive' to businesses and would help deliver one of the world's most competitive regimes. She cited the Office for Budget Responsibility's assessment that it would increase business investment by 3 per cent per year and reiterated the Chancellor's commitment to make the change permanent when resources allow.

After providing an overview of clauses 5-15, the FST then spent some time focusing on the implementation of Pillar 2 of the OECD's global tax agreement, noting that the measures would help to protect the UK economy and target the profits of multinational businesses in the countries that they operate.

Vicky Ford (Con) expressed hope that other nations would not renege on their commitment to follow the UK's lead in implementing the agreement, for fear that it would impact UK businesses negatively. After setting out how the Finance Bill will implement Pillar 2, Atkins assured Ford that the UK was acting alongside other European nations, the EU and nations in Asia and the Americas to implement their own legislation.

Conservative MPs including Jacob Rees Mogg and Richard Fuller expressed concern about the ability of nations such as the United States of America to introduce the tax, given domestic political disagreements. They were also concerned that their government had committed itself to increasing taxes on business. Atkins emphasised the global commitment to introducing the tax and stressed that the UK should be proud of its efforts in implementing the tax. And she added that the government was pursuing a 'fiscally responsible' budget.

Kit Malthouse warned against a 'game' of 'allowances, derogations and tax breaks' between countries to encourage businesses into their jurisdictions. The FST acknowledged that there may be 'tensions between fairness and simplicity' and that the government would seek to ensure that 'fairness prevails'. 

Shadow FST James Murray responded for the opposition, moving the new clauses and amendments in his name and accusing the government of presiding over 'managed decline'. He argued that businesses required stability and certainty and that the government had failed to provide this, firstly by flip flopping on plans to increase and reverse corporation tax increases in recent years and then, by making full expensing a temporary, rather than permanent measure. This he said, would bring forward, rather than increase, business investment. Murray said new clause 3 would provide a wider plan for business taxes to provide certainty, stability and boost investment.

Murray then raised concerns with the government's proposed clause 10, schedule 1, relating to R&D changes for SME's. The Shadow FST highlighted concerns raised by the Chartered Institute of Taxation about powers that will be given to HMRC to allow them to remove claims for R&D relief from a corporation tax return when they 'reasonably believes that the claimant company failed to comply with the requirement for making the claim' with no right of appeal. He said the wording of the legislation did not make it clear that it is the government's intention to use the power only in relation to the specific measures proposed by the bill. Murray added that the opposition's amendment 26 had been drafted by CIOT and would provide a 'clear and technical' change that the government should 'consider and accept'.

The Shadow FST then referred to the government's proposal to provide relief from the energy profits levy for oil and gas businesses investing in decarbonisation projects (clause 12). He accused the government of giving energy companies ways out of the levy through investment allowances while increasing taxes on the public struggling with the cost of living. He said Labour would scrap such allowances in order to alleviate cost of living pressures.

Focusing on the multinational and top up taxes, Murray welcomed the OECD agreement, accused the government of having previously been 'lukewarm' and noted the scope of scepticism among backbench Conservative MPs reluctant to support the tax. He said that new clause 1 would provide greater transparency and ensure the government is held to  its commitment to implementing the tax and ensure it encourages other nations to implement the levy. While noting that new clause 2 had not been selected for debate, Murray urged the government to set out how it plans to implement Pillar 1 and the Digital Services Tax.

He concluded by reiterating his call for businesses to be provided with stability and certainty and accusing the government of delivering a budget of 'unfair choices' that would set the country on a path of 'managed decline'.

The first backbench speech in the debate came from former Home Secretary Priti Patel (Conservative). She focused her remarks on parts 3 and 4 of the Bill, which implement Pillar 2 of the OECD/G20 Inclusive Framework. She said she would like to see a delay in implementation until we see a ‘critical mass’ of other countries implementing it. She said the new tax risks putting ‘very significant’ compliance costs on British business, These costs would, she said, inevitably feed on to consumers. The insurance sector was one she particularly drew attention to. We risk capital flight and future investment income being put into jeopardy, she said.

Patel said Japan’s legislation delays its implementation until several months after the UK’s while Canada has yet to pass legislation. She quoted from a CIOT briefing paper saying it’s a doubt that Pillar 2 will raise the £2 billion annually that the government is predicting. She said it would be helpful for the committee to get a greater understanding around the figures. She also noted Institute for Fiscal Studies concerns around complexity as well as potential issues around international dispute resolution.

Patel said the issue of tax sovereignty around the proposals had not been unpacked. For a government that believes in ‘free market fundamentals’ and ‘low and simple taxation’ this could be regressive, she said.

SNP spokesperson Kirsty Blackman spoke next. She said the SNP would be supporting opposition new clause 1 and new clause 3, also new clauses 6 and 10. She spoke about the 'incredible importance' of transparency around taxes, but said the UK government was not good at putting in place post-implementation reviews. We don't have enough transparency on whether measures achieve what is intended. The government had been unable to tell her how many post-implementation reviews they had carried out, she added.  Blackman said new clauses 6 and 10 ask for transparency about allowances and the results they achieve. 

New clause 8, she said, was a probing amendment. She has particular concerns that businesses may choose not to apply for the allowance if they find they have it pay it back at a later stage if the allowance does what it is designed to achieve - make them money. She asked the minister to provide clarity on this.

Blackman suggested looking at decision-making through the lens of wellbeing, as is done in Scotland. This is as opposed to having fiscal rules that don't translate into what constituents are seeing in their pockets.

Former cabinet minister Jacob Rees-Mogg was next up. He began by 'declaring an interest' as a taxpayer and noting that today is the feat of St Alfege who was killed for refusing to pay his taxes. He was the first tax martyr, Rees-Mogg suggested. 

Rees-Mogg said this was the worst bit of the Bill - "it fails politically and it fails economically". He said what the government was doing now as 'the precise opposite' of what George Osborne had done with corporation tax which had been declaring Britain was 'open to business'. A raise in the basic rate will hit small businesses and is the government telling businesses it knows how to spend their money better than they do, he suggested.

He observed: "Our economy is primarily a service economy and providing complex write-offs for investment that benefit manufacturing but hit services does not understand how our economy is based." The temporary write-offs are 'in hoc to the OBR which gets all its forecasts wrong', he continued. Our aim should be lower rates and fewer write-offs, he concluded.

The multinational minimum tax is also a mistake, said Rees-Mogg. It is a bad idea because it deprives us of ambition, he suggested. It is about settling for a high tax, inefficient world. Instead of looking at countries such as Ireland which have low tax regimes as pariahs we should look at them as models, he argued. 

Like Patel, Rees-Mogg referred to the issue of 'tax sovereignty'. He recalled the alignment of VAT rates which the UK had signed up to within the EU. Tax competition is a good thing, he emphasised. 

Lib Dem Treasury spokesperson Sarah Olney spoke to new clause 7 which relates to the effect of changes to SME R&D tax credits in this Act on tech start-ups. "If the government wants to boost innovation and drive long-term sustainable growth they need to implement effective, well-designed policy on tax and investment," she argued. The government's decision to 'dramatically slash' R&D credits has come as a blow to thousands of businesses. Targeting tax breaks to 'R&D-intensive' firms benefits life sciences but many other firms fall outside it. We need to incentivise companies across all sectors to innovate, she added.

Lib Dems would introduce tax breaks for training and allowances for digital investment, Olney continued, and would encourage investment in energy efficiency.

Kirsty Blackman intervened to offer the SNP's support for the new clause.

Green MP Caroline Lucas was next, speaking in support of new clause 10.   She said that although a decarbonisation allowance might sound inoccuous, even useful, it is in fact an 'outrageous subsidy'. In the face of worsening climate impacts, paying companies to power oil rigs with wind turbines simply does not cut it, she continued.  She said that paying oil and gas companies to capture their emissions to allow them to continue production is a 'shocking violation' of the 'polluter pays' principle.

Treasury Committee member Emma Hardy (Labour) said businesses were suffering from economic uncertainty, which was affecting investment decision, and called for consistency in policy. Quoting from economists, she said businesses are “voting with their feet” and called for support across the house for Labour’s for new clause 3, in order to support small businesses.

Hardy added that more needs to be done to tackle fraud, including in R&D relief schemes. Intervening, Sarah Olney said scrapping the tax relief entirely would be a “big sledgehammer to crack a relatively small nut”, with Hardy agreeing that doing so would not be the right approach but called for further action to be taken.

Douglas Chapman (SNP) said the Bill does “the square root of nothing” for Scotland, calling for extra support for businesses. He said many businesses were keen to invest in R&D schemes but felt they had “their hands tied behind their back”, with changes to corporation tax contributing to an environment of uncertainty.

He finished by saying that the measures in the Bill and effect north of the border meant it was time for Scotland “to make a swift exit”.

Wrapping up, Financial Secretary to the Treasury (FST) Victoria Atkins said she was “very grateful” for the robust debate in the House and that job of all the MPs was to scrutinise legislation. She said the current tax situation was in part due to the £314 billion borrowed by the Government in 2020/21 and 2021/22 to respond to the Covid-19 pandemic, which will need to be repaid, along with the recent conflict in Ukraine, which has exacerbated the cost of living crisis.

She reiterated that although the Chancellor made some “very difficult decisions” in the Budget, Britain is still an “attractive hub” for businesses. She said despite the increase in corporation tax, she said taxes are still among the "most supportive of business anywhere in the world", including the lowest headline rate of corporation tax in the G7, the joint-most generous capital allowance scheme for plant and machinery in the OECD and the joint-highest uncapped headline rate of R&D tax relief support in the G7for large companies.

Responding to the discussion around Pillar 2, the FST said countries who do not implement the global tax will see their top-ups collected by other countries, meaning there is “no incentive” not to implement the tax. On the CIOT’s comments that the tax take may be lower than expected, she said the figures had been verified by the OBR.

The FST said Labour’s new clause 3 was “business as usual” for the Treasury, with a wealth of action already having taken place, while the full expensing scheme, announced in the Budget to replace the super-deduction capital allowance, was equivalent to a £27 billion tax cut over three years for businesses.

She added that the energy profits levy was expected to raise just under £26 billion between 2022-23 and 2027-28 to help tackle the “unprecedented” cost of living crisis. She said: “We have always been clear we want to see significant from the sector to help protect our energy security,” and that doing so is “not incompatible” with the Government's net zero commitments.

Votes

Moving on to the votes, Labour's new clause 1, relating to the Pillar 2 proposals, was defeated 306-227, while new clause 3, require the Chancellor to conduct a review of business taxes before the next Finance Bill is published, was defeated 302-233. New clause 6, requiring the Chancellor to review the investment allowances introduced as part of the energy profits levy, was defeated 299-232.

The remaining Government amendments, clauses and schedules in this group all passed without division, while the other new clauses, plus amendment 26, tabled by Labour in response to a concern identified by CIOT, were not moved.