The Finance Bill is expected to complete its remaining stages in the House of Lords today. Peers will debate the House of Lords Economic Affairs Committee’s recent report on the Bill, which called for the effect of corporation tax reforms on small business and manufacturing to be ‘assessed carefully’.
The committee observed that the current package of corporation tax reforms ‘may be unbalanced across business sectors, disadvantaging small and medium-sized businesses and manufacturing; the scope of the relaxations being introduced is very significant, particularly for controlled foreign companies and for intellectual property; and the evidence for the patent box seems largely theoretical’.
Business should be involved in post-implementation reviews assessing the outcome of changes in tax policy, the committee suggested.
It called on the HM Treasury and HMRC extend initiatives aimed at consulting smaller businesses to engage more directly with specific types of enterprise, and expressed concern that ‘consultation [with SMEs] is almost exclusively with representative bodies which, because of the number and diversity of smaller businesses, may not reflect the full range of views’.
The committee also recommended:
that even where the government needs to respond quickly to immediate issues, it should do all it can to consult, ‘albeit on an informal, confidential basis’;
a comprehensive audit of tax skills and experience of HM Treasury and HMRC staff working on developing tax policy and legislation;
that HMRC should carefully research stakeholders’ views on the quality and training of frontline staff on technical issues;
that the Treasury and HMRC develop and publish a comprehensive strategy for consulting non-business stakeholders on tax proposals;
that full consultation with taxpayers affected by measures is undertaken to ensure that Tax Impact and Information Notes provide as accurate and comprehensive a picture as possible;
a formal requirement for all significant tax reforms to be evaluated against the stated objectives once they have ‘bedded in’;
that HMRC carry out a review to establish why avoidance through ‘disguised remuneration’ was not detected sooner, or if it was, why its growth potential was not recognised and action taken at that earlier stage;
that HMRC carry out an in-depth examination of the alternative approaches that would have been open to them in framing the disguised remuneration legislation. The committee described the legislation as ‘extremely complex and beyond the scope of most business people to decide whether or not it applies to them’;
that the status of ‘the Primarolo statement’ should be clarified ‘and, as necessary, further consideration be given to a revised statement to help deter future avoidance in this general area of the tax system’. The committee said: ‘We recognise that in its anti-avoidance strategy, the government stated that it would legislate retrospectively only in the most exceptional circumstances. It seems to us that a tax loss of over £1 billion each year from avoidance involving disguised remuneration is a truly exceptional circumstance’; and
that the government should publish an anti-evasion strategy ‘in the same way as for anti-avoidance’.
The Finance Bill is expected to complete its remaining stages in the House of Lords today. Peers will debate the House of Lords Economic Affairs Committee’s recent report on the Bill, which called for the effect of corporation tax reforms on small business and manufacturing to be ‘assessed carefully’.
The committee observed that the current package of corporation tax reforms ‘may be unbalanced across business sectors, disadvantaging small and medium-sized businesses and manufacturing; the scope of the relaxations being introduced is very significant, particularly for controlled foreign companies and for intellectual property; and the evidence for the patent box seems largely theoretical’.
Business should be involved in post-implementation reviews assessing the outcome of changes in tax policy, the committee suggested.
It called on the HM Treasury and HMRC extend initiatives aimed at consulting smaller businesses to engage more directly with specific types of enterprise, and expressed concern that ‘consultation [with SMEs] is almost exclusively with representative bodies which, because of the number and diversity of smaller businesses, may not reflect the full range of views’.
The committee also recommended:
that even where the government needs to respond quickly to immediate issues, it should do all it can to consult, ‘albeit on an informal, confidential basis’;
a comprehensive audit of tax skills and experience of HM Treasury and HMRC staff working on developing tax policy and legislation;
that HMRC should carefully research stakeholders’ views on the quality and training of frontline staff on technical issues;
that the Treasury and HMRC develop and publish a comprehensive strategy for consulting non-business stakeholders on tax proposals;
that full consultation with taxpayers affected by measures is undertaken to ensure that Tax Impact and Information Notes provide as accurate and comprehensive a picture as possible;
a formal requirement for all significant tax reforms to be evaluated against the stated objectives once they have ‘bedded in’;
that HMRC carry out a review to establish why avoidance through ‘disguised remuneration’ was not detected sooner, or if it was, why its growth potential was not recognised and action taken at that earlier stage;
that HMRC carry out an in-depth examination of the alternative approaches that would have been open to them in framing the disguised remuneration legislation. The committee described the legislation as ‘extremely complex and beyond the scope of most business people to decide whether or not it applies to them’;
that the status of ‘the Primarolo statement’ should be clarified ‘and, as necessary, further consideration be given to a revised statement to help deter future avoidance in this general area of the tax system’. The committee said: ‘We recognise that in its anti-avoidance strategy, the government stated that it would legislate retrospectively only in the most exceptional circumstances. It seems to us that a tax loss of over £1 billion each year from avoidance involving disguised remuneration is a truly exceptional circumstance’; and
that the government should publish an anti-evasion strategy ‘in the same way as for anti-avoidance’.
