Finance Bill: what has been amended, and why

The Public Bill Committee on the Finance Bill will meet again on 7 June, when it is expected to consider clause 46 and Sch 11 (pre-entry losses).

The Committee is set to consider a large number of government amendments. This report summarises the amendments set out and described by HM Treasury, including those already passed by the Committee of the Whole House and the Public Bill Committee.

The government has tabled amendments to:

• Sch 12 (controlled foreign companies) – amendments to Part 3 correct a technical defect to ensure that a temporary exemption for overseas entities brought within the CFC rules, either as part of an acquisition or reorganisation, works as originally intended.
• Sch 13 (profits of foreign permanent establishments) – amendments to the proposed foreign branch exemption make minor changes to the anti-diversion rule and rules for intra-group disposals of assets. The rules for intra-group transfers of business are rewritten.
• Sch 17 (annual allowance charge) – amendments to the new rules restricting tax relief for pension savings are intended to make the application of the legislation simpler and reduce administrative burdens on the pensions industry. There are changes to the way in which an individual’s pension savings are valued, and to make the value used in the year of retirement easier to understand for those taking pension benefits.
• Sch 19 (the bank levy) – amendments are intended to ensure that the netting provisions to be used in determining chargeable equity and liabilities for the bank levy operate as originally intended in certain reverse repo transactions where securities received as collateral are sold. There are amendments to ensure that the netting rules apply correctly to UK permanent establishments of foreign banks, and to ensure that all ‘covered bond’ limited liability partnerships within banking groups are excluded from the bank levy joint and several liability.

Oil and gas: increase in rate of supplementary charge

Clause 7 was amended on 4 May to allow companies to opt for an alternative method of apportioning profits where an accounting period straddles 24 March 2011.

Employment income provided by third parties (‘disguised remuneration’)

Sch 2 was amended on 19 May to ‘extend and clarify’ various exclusions from the new charge for certain arrangements which are not entered into for tax avoidance purposes; and to provide for employment income tax charges to arise when an employer gives an undertaking to pay a contribution to an unregistered pension scheme and subsequently ‘assures that the contribution will be paid by either earmarking property for that purpose or otherwise providing security’.

Philip Fisher, Head of Employment Tax and Rewards at PKF, told Tax Journal that despite these amendments the legislation ‘will still prove to be flawed’ when it is tested in practice – see below. 

Fisher: 'To some extent, it could be argued that the avoidance business has only itself to blame.'

Company ceasing to be member of group: availability of relief

Clause 31 was amended on 19 May to improve the targeting of the anti-avoidance measure by introducing a purpose test to ensure that the new rule has no adverse impact on commercial transactions that do not have a main purpose of avoiding corporation tax.

Investment companies

Sch 7 was amended on 19 May to ensure that new rules providing that UK resident investment companies can elect to change the currency in which they compute their taxable profits apply to controlled foreign companies in the same way that they apply for UK investment companies, and to ensure that the rules operate as intended where a company has a short period of account.

Reduction in childcare relief for higher earners

Sch 8 was amended on 24 May to remove definitions from the schedule and provide for those definitions to be specified in regulations. The amendments are intended to ‘increase clarity for employers through the introduction of regulations which will contain further detail to help them carry out the estimate of relevant earnings required under the legislation’.

Company ceasing to be a member of a group

Sch 10 was amended on 24 May to enable a group to elect to apply the changes that Sch 10 introduces to the degrouping charge from 1 April 2011 rather than from the date on which the Finance Act is passed.

‘Merely torrential rain’

Philip Fisher, Head of Employment Tax and Rewards, PKF

One can’t help feeling that the amendments relaxing some of the worst unintended consequences of the draft legislation are like the transition from a blizzard to merely torrential rain.

While any corrections are welcome, when the legislation is tested in practice it will still prove to be flawed, both in terms of comprehensibility and the abuses that it set out to prevent.

To some extent, it could be argued that the avoidance business has only itself to blame. By pushing its interpretation of the existing legislation to (and some would undoubtedly argue beyond) the limits, it has forced the Treasury’s hand.

However, the ‘disguised remuneration’ provisions will still catch out and heavily penalise the innocent, many of whom may ignore it through ignorance.

In addition, it will need much more fine tuning in ensuing years and that is not to anyone’s benefit.

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