The House of Lords Economic Affairs committee inquiry into the draft Finance Bill 2023-24 received 19 written responses and has heard from five representative bodies, including ICAEW.
The Finance Bill Sub-Committee is appointed annually by the Economic Affairs Committee to consider the draft Finance Bill from a tax administration, clarification, and simplification perspective.
For the draft Finance Bill 2023-24, the committee is considering three areas: the proposal for a merged R&D tax relief scheme while retaining a higher rate of payable tax credit for loss-making R&D intensive SMEs; two measures to tackle tax avoidance; and the measure requiring certain taxpayers to provide additional data to HMRC.
Proposals for a merged R&D tax relief scheme
Draft clauses have been prepared that, if enacted, would merge the existing SME tax relief scheme and the research and development expenditure credit (RDEC) into a single scheme, based on the current RDEC rules. However, to deliver support to loss-making R&D intensive SMEs, the SME rules are retained to provide these companies with a higher rate of payable tax credit.
Witnesses from professional bodies that gave evidence on 23 October pointed out that the SME scheme being retained for ‘R&D intensive’ companies would not result in a simplification. Indeed, this change could result in companies transitioning from one scheme to the other more often, which could cause additional complexities than at present.
Witnesses also highlighted several unresolved technical details that would need to be ironed out before the required legislation was introduced. This makes the government’s proposed start date for the merged scheme of 1 April 2024 wholly unrealistic.
One of the most significant details is the treatment of subcontracted expenditure, which is currently dealt with differently under the two existing schemes. Richard Jones, representing ICAEW, suggested that an additional two- or three-year period for consultation and time for adjustment would not be unreasonable.
Promoters of tax avoidance schemes
The committee considered two measures designed to clamp down on the remaining players in the tax avoidance scheme market:
- creating a criminal offence for failing to comply with a stop notice; and
- extending the circumstances in which individuals can be prevented from being appointed as directors of UK companies following directorship of tax avoidance scheme promoters.
While witnesses were supportive of measures designed to deter promoters of tax avoidance schemes, concerns were raised over the extent of proposed safeguards. One suggested additional safeguard is that a criminal offence should not apply where a scheme that was subject to a stop notice is subsequently found to be effective by the courts.
Concerns were also raised around the effectiveness of the criminal offence in changing the behaviour of offshore promoters. If the offence could only be applied to UK resident individuals, the measure could have the effect of driving promoters offshore; the opposite of the intended impact.
Provision of additional information by taxpayers
Attention in this area was focused on the proposal for employers to provide details of the number of hours each of their employees had worked in each reporting period to HMRC, through the real-time information (RTI) system.
Witnesses agreed that the cost of employers providing this information had been greatly underestimated by HMRC. It was also considered unclear why HMRC would request this information from employers as the information did not appear to be relevant for the collection or maintenance of tax. If this information would be useful for other purposes, it was noted that might be more appropriate to collect it through other means, such as an extension of the yearly ASHE survey.
ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.