Clause 31 - Arrangements for transfers of companies

Finance Bill – in a Public Bill Committee am 9:30 am ar 4 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Clause 31 is a technical, tidying-up measure that would take effect from 1 April 2013. It makes specific changes to the types of arrangement that are exempt from the anti-avoidance rule affecting the group relief contained in part 5 of the Corporation Tax Act 2010.

As hon. Members will be aware, some statutory public bodies set conditions or requirements for companies operating in specific sectors that are members of wider groups and with whom they have certain commercial agreements. Section 154 of the 2010 Act prevents access to group loss relief where there are arrangements in place, meaning that at some point in the current or a future accounting period a company could cease to be a member of a group. The rule is intended to prevent the use of loss relief where it would amount to loss buying, but it is not intended to prevent access to group loss relief where legitimate commercial arrangements are in place.

However, the anti-avoidance rules in sections 154 to 156 of the 2010 Act have inadvertently restricted access to group loss relief to companies that have commercial arrangements with public bodies. I suppose clause 31 is designed to assist such companies, so that any conditions imposed by or agreed with a statutory public body will not be arrangements that prevent the flow of group relief.

As the tax information and impact note states, the policy objective of the measure is to

“ensure the group loss relief anti-avoidance rules are more effectively targeted for the future. They will continue to restrict access to relief where none is intended while allowing improved access where it is, helping to maintain the fairness and competitiveness of the tax system.”

The Opposition of course support that aim. Companies that enter commercial arrangements with statutory public bodies should not be inadvertently penalised for doing so.

The note also suggests that the measure will have a “negligible” impact on the Exchequer and on business. Will the Minister confirm how many companies are thought to have been inadvertently affected by the existing legislation, and at what cost? The note, published on 11 December 2012, requires greater clarity. It states that such businesses

“will not be able to benefit from the Group Relief scheme. To do so, they will face a negligible one-off cost in familiarising themselves with the appropriate regulations and a negligible increase in ongoing administrative burdens from supplying information to HMRC to claim group loss relief.”

Does that mean that they will not be entitled to benefit from the group relief scheme, or that they will not  derive any benefit because of the cost of doing so? It would be useful to the Committee if the Minister could clarify that.

Photo of David Gauke David Gauke The Exchequer Secretary

As we have heard, clause 31 will change the corporation tax group relief rules to remove an unintended and inappropriate restriction in current anti-avoidance legislation. Corporate tax legislation has long contained rules designed to prevent the abuse of group relief. A part of the rules prevents access to group relief where there are arrangements in place that enable a company at some future point to cease to be a member of a group.

That rule is intended to prevent manipulation of the control, and thus the group status, of a company so as to enable relief for losses to be transferred between unconnected parties. However, we have become aware that the rule is causing an inadvertent restriction in wholly unintended scenarios. In particular, it has been catching corporate groups undertaking legitimate commercial activities where specific conditions are imposed upon them by a statutory body.

An example of that is where a company contracts with a public body to undertake work or to provide services through a company, the ownership of which is specified to revert back to the public body at the contract’s end. Under the arrangements rule, that entirely sensible structure prevents such a company from accessing group relief. To rectify this, the changes made by clause 31 will expand the types of commercial arrangements that are exempt from anti-avoidance rules affecting group relief. Companies inadvertently restricted from the group relief scheme through specific conditions imposed upon them by a statutory body will no longer have their access to group relief restricted. The amended rules will continue to ensure that they prevent manipulation of company control.

The hon. Lady asked how many individuals and companies will be affected by these changes. Currently we are aware of a small number of corporate groups affected by the problem, and no individuals. However, the amendment will ensure that any other similarly affected companies will also benefit from improved access to loss relief.

We believe that the administrative burdens for companies that previously could not benefit from the scheme will be negligible, and companies that are not affected by this clause will not face an additional administrative burden as a consequence of it. It might be helpful to provide a little more detail to explain our estimate of the cost to the Exchequer, which was described as negligible in the tax information and impact note. We anticipate that the Exchequer impact will be about £4 million loss per year over five years. I hope that provides a helpful clarification. I am grateful to the hon. Lady for her support for the intention behind the clause, and I hope that it will stand part of the Bill.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.