The Government will respond formally to that, but I believe that well-designed, well-focused and targeted tax relief, which is what we have, can help the economy grow and help particular sectors. Indeed, I am delighted that two examples have just been provided to us. This Government have successfully lowered rates, including corporation tax, which we have debated this afternoon, and, if particular sectors can be supported by a well-targeted tax relief, we should do that. We believe that, overall, our tax system is working to enhance the UK’s competitiveness. This Government have a good record in the creative sector in particular, and I am delighted that, through new clause 5 and new schedule 4, that will continue.
New clause 6 amends the list of excluded activities in the tax-advantaged venture capital schemes—the seed enterprise investment scheme, the enterprise investment scheme and venture capital trust schemes—so that a company whose trade consists substantially of the generation of electricity or heat that attracts renewable obligation certificates or payments under the renewable heat incentive will no longer qualify for investment under those schemes, with limited exceptions.
As in the case with the feed-in-tariff exclusion, community interest companies, community benefit societies, co-operative societies and Northern Irish industrial and provident societies will not be affected by the restrictions. The exceptions for co-ops will also apply to European co-operative societies, in line with the changes being introduced as part of the “taxation of co-operative societies” amendment, which aims to align and update
all references to industrial and provident societies across the Taxes Acts. The restriction will also not apply where the electricity is generated by anaerobic digestion or by hydropower, nor where heat is generated, or gas or fuel produced, by anaerobic digestion. The measure will apply in respect of both UK ROC and RHI schemes and overseas equivalents. It will make the tax-advantaged venture capital scheme better targeted and effective in supporting small and growing, higher-risk businesses.
Amendments 5 and 6 make technical changes to clause 73, which will restore sense and fairness to air passenger duty by reforming the destination banding and introducing a simple to understand two-band system. As the House will know, we have devolved the power to set rates on direct long-haul flights from Northern Ireland to the Northern Ireland Assembly, which set the rates at £0 in the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. As the structure of the tax, including the number and composition of the destination bands, remains a matter for the UK—the Northern Ireland legislation refers to the UK legislation—the Northern Ireland Executive have asked us to make the consequential amendments needed to their legislation so that it aligns with the UK legislation.
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We had an extensive debate in Committee on clauses 192 to 211, which introduce follower notices designed to tackle would-be tax avoiders who attempt to frustrate efforts to resolve their cases. At the time, I emphasised that taxpayers have full rights of appeal to the tribunal against any penalty charged under the rules, and I mentioned a particular ground for making an appeal. We have continued to receive suggestions for clarifying the legislation, particularly on how it could be improved by more clearly spelling out the grounds for making an appeal against the follower notice penalty.
I am grateful to those who made such points. Having considered them further, I concluded that it would be helpful to table amendments 1 to 3. Amendment 1 specifically sets out the grounds for making an appeal against any penalty charged under the rules. I emphasise that the taxpayer is not obliged to settle their dispute in response to a follower notice. The amendment makes it clear that if the taxpayer has reasonable grounds to continue their dispute, it is open to them to appeal against the penalty and for the tribunal to discharge the penalty on that basis. Amendment 2 makes it clear that that does not mean that the original follower notice and any associated accelerated payment notice were issued incorrectly. Finally, amendment 3 amends schedule 27 to apply those clarifications to partnerships.
I will take the opportunity briefly to clarify some points made when clauses 192 to 211 were debated in Committee. I mentioned then that 22 responses had been received to the January consultation on the draft legislation. Some commentators have subsequently questioned whether the number was not in fact higher. The draft legislation on follower notices was issued in two separate documents in January, one of which was on tackling marketed tax avoidance. Although we received a total of more than 800 responses, the vast majority related to accelerated payments, and only 22 specifically related to the draft legislation on follower notices that was published at the same time. I hope that that provides clarification.
In Committee, I was asked whether the accelerated payments regime would
“reach back to disputed tax liabilities relating to periods prior to the introduction of the DOTAS reporting?”––[Official Report, Finance Public Bill Committee, 17 June 2014; c. 507.]
I said that it would not. I want to clarify that an accelerated payment notice may not be issued to a taxpayer with a pre-DOTAS tax dispute where DOTAS—disclosure of tax avoidance schemes—is the only criterion available. Even though a scheme may have come into DOTAS after its introduction, anyone using it before DOTAS will not be subject to accelerated payment on DOTAS alone. However, accelerated payment based on a follower notice can apply to pre-DOTAS cases because the notice does not depend on the DOTAS disclosure. I am grateful for the opportunity to provide clarification.
The Government have tabled amendment 4 so that clause 291 more clearly reflects the Supreme Court’s decision on the limitation period where direct tax has been charged contrary to EU law. The amendment recognises that the ruling of the Supreme Court in the franked investment income group litigation is not confined to claims based on free movement, but applies to all cases in which tax has been charged contrary to EU law.
Schedule 6, introduced by clause 48, gives effect to recommendations from the Office of Tax Simplification to replace HMRC approval of tax advantaged employee share schemes with a new self-certification arrangement for businesses setting up such schemes. Amendments 11 to 14 make final consequential amendments to remove references to approval of schemes in tax legislation.
Schedule 7, introduced by clause 49, implements several OTS recommendations, including provisions to simplify the tax treatment of employment-related securities awarded to internationally mobile employees. Under the schedule, a small number of internationally mobile employees who receive share awards overseas and later come to the UK could be placed in a worse tax position than their UK resident colleagues, possibly suffering double taxation. Amendment 7 corrects that, and, with amendments 8 to 10, ensures that certain income received overseas is treated in the same way as similar UK income.
Amendments 15 to 41 amend schedules 9 and 10 to extend the new tax relief for social investment, the SITR, to investment in social impact bonds, which are payment-by-results contracts between public sector bodies and service providers, and are an innovative way of financing better delivery of public services. The providers are often charities or social enterprises. The measures will support further increases in the number of social impact bonds by providing incentives to private individuals who invest in them. Tax relief will be available only where a company has been accredited by the Cabinet Office and secondary legislation providing details of the accreditation process will be laid in September.
Amendments 44 to 66 will protect a new capital gains tax relief from abuse. Schedule 33, introduced by clause 283, encourages the creation and maintenance of employee-ownership trusts, under which all employees of a business can have a stake in its value, growth and success. One way it does so is by allowing full relief from capital gains tax to people who transfer their shares in the company carrying on the business to an employee-ownership trust. There are rules to ensure
that the trust is for the benefit of all employees and that control of the business passes to the trustees before the relief is available.
Clearly it would not be an effective use of public money to give the relief if a trust broke the rules soon after it was created, denying the employees, the business and the economy the long-term benefits of employee ownership. Amendments 44 to 66 therefore ensure that if the employee-ownership structure fails or does not abide by the rules for relief at any time during either the tax year in which the shares are disposed of or the following tax year, relief may not be claimed, and any relief which has been given will be withdrawn and the capital gains tax position will be restored to what it would have been if no claim had been made.
I urge the House to support the amendments, new clauses and new schedules.