New Clause 4 - Contribution allowances: plant and machinery

Finance Bill – in a Public Bill Committee am 3:45 pm ar 20 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

‘(1) Section 538 of CAA 2001 (contribution allowances: plant and machinery) is amended as follows.

(2) In subsection (1), omit the “and” at the end of paragraph (a) and after that paragraph insert—

“(aa) C’s contribution is to expenditure on the provision of plant or machinery, and”.

(3) In subsection (2)—

(a) in paragraph (a), for “asset provided by means of C’s contribution” substitute “plant or machinery”,

(b) in paragraph (b), for “asset” substitute “plant or machinery”, and

(c) in paragraph (c)—

(i) for “asset” substitute “plant or machinery”, and

(ii) after “times” insert “plant or machinery”.

(4) The amendments made by this section have effect in relation to expenditure pooled, and to claims made, on or after 29 May 2013 (“the commencement date”).

(5) In relation to such expenditure and claims, when determining for the purposes of section 536(3)(a) of CAA 2001 whether an allowance can be made under Chapter 2 of Part 11 of that Act, the amendments made by this section are to be treated as always having had effect.

(6) Nothing in this section applies to a claim by a person for a contribution allowance under Part 2 of CAA 2001 in respect of a contribution made before the commencement date.

(7) Subsection (8) applies if—

(a) expenditure which a person has been regarded as having incurred (despite section 532(1) of CAA 2001) by virtue of section 536(1) has been pooled by virtue of section 53—

(i) on or after 1 January 2013 but before the commencement date, or

(ii) before 1 January 2013 in circumstances where no claim was made in respect of the expenditure before that date, and

(b) had the amendments made by this section had effect at the time the expenditure was incurred, that person would not have been regarded as having incurred that expenditure (“the relevant expenditure”).

(8) Part 2 of CAA 2001 has effect as if an event had occurred as a result of which the person is required to bring into account as a disposal receipt under that Part, for the chargeable period in which the commencement date falls, a disposal value of an amount equal to E-A.

(9) For the purposes of subsection (8)—

E is the amount of the relevant expenditure, and

A is the total amount of writing-down allowances made in respect of the relevant expenditure.

(10) For the purpose of calculating A, the total amount of writing-down allowances made in respect of expenditure on an item of plant or machinery is to be determined as if that item were the only item of plant or machinery in relation to which Chapter 5 of Part 2 of CAA 2001 had effect.

(11) The event mentioned in subsection (8) is not to be regarded as a disposal event for the purposes of section 60(3) of CAA 2001.’.—(Mr Gauke.)

Brought up, and read the First time.

Photo of David Gauke David Gauke The Exchequer Secretary

I beg to move, That the clause be read a Second time.

New clause 4 amends the Capital Allowances Act 2001 to put it beyond any doubt that existing rules on the treatment of contributions from another business towards capital expenditure on plant or machinery operate  as intended. The effect of the new clause is to confirm that the rules governing the treatment of expenditure covered by contributions from other businesses operate in the same way as the gas and electricity companies have previously applied them.

Specifically, the measure confirms that contribution allowances under part 2 are available in relation to a contribution of a capital sum to capital expenditure on the provision of plant or machinery in the recipient’s hands. That ensures that where one business makes a contribution to another’s expenditure on plant or machinery, it is the contributor, not the recipient, who can claim capital allowances. The measure stops potential claims covering about £4 billion of historical expenditure by gas and electricity companies for which they did not bear the economic cost and did not expect to obtain allowances. Also, the measure prevents any risk of double claims for allowances: once by the contributor and a second time by the recipient of the contribution.

The Government have a wider commitment to providing business with a high level of certainty on business taxation, so the measure will not apply to capital allowances claims made prior to the announcement of the measure, but HMRC will be challenging robustly those claims already made, as it does not consider that the claims qualify under the existing rules.

The measure is precautionary. It is designed to nip in the bud a new potential risk to the Exchequer by putting the operation of the existing tax rules beyond any doubt. Also, it ensures that the gas and electricity distribution companies pay their fair share of tax. I hope that the new clause will be added to the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 4:00, 20 Mehefin 2013

We understand why the Government are making this change and I do not particularly want to get into challenging that, but I have a specific question about why there was a difference between the explanations of the effect of the new clause. The Treasury’s press release said that the tax loss to the Exchequer would be £900 million if this change was not made. Then, when the tax information and impact note was published, it suggested that there would be a nil impact on the Exchequer as a result of new clause 4. Perhaps I am missing something in the way this has been described, but that is obviously quite a large figure and I would not want the Minister to lose any more millions, given that the deficit has already stalled totally, so could he just explain how the £900 million figure in the press release was reached? Over what period was he talking? How many companies and what sort of potential claims does it relate to? It would be very helpful if he could clarify that anomaly.

Photo of David Gauke David Gauke The Exchequer Secretary

To answer the hon. Gentleman’s question, it might be helpful if I provide a little background. In the second half of March this year, some gas and electricity distribution companies made new capital allowances claims for past expenditure to install gas or electricity supplies for businesses, despite the expenditure being covered by contributions from those business customers. Under practice dating back many decades, the gas and electricity companies have always excluded  such expenditure from their capital allowances claims. About £900 million of current and future tax revenues was potentially at risk from claims for that historical expenditure. To protect the Exchequer, the Government announced on 29 May an intention to introduce legislation effective from that date. The provisions in this new clause give effect to that announcement, which was made under the published protocol on unscheduled announcements.

Let me reconcile the numbers that the hon. Gentleman cites. I have just referred to a figure of £900 million. This is an Exchequer protection measure. As I said, it is protecting nearly £900 million of revenue that was potentially at risk. However, as I also said in my opening remarks, HMRC will challenge robustly the claims that have been made. It is HMRC’s belief that such claims will fail, but we want to put that beyond doubt. Accepting HMRC’s analysis that ultimately it would succeed in litigation, we cannot announce a yield for that. This is about revenue protection. From time to time in our debates, we have to distinguish between revenue protection and yield. This is a revenue protection measure that I am sure the whole Committee will support.

Question put and agreed to.

New clause 4 accordingly read a Second time, and added to the Bill.