Corporation tax charges and rates (Clauses 5 and 6); capital allowances (Clauses 7 to 9); other reliefs relating to businesses (Clause 10 and Schedule 1; Clauses 11 to 15); multinational top-up tax (Clauses 121 to 125 and Schedule 14; Clauses 126 and 127 and Schedule 15; Clauses 128 to 260 and Schedule 16; Clause 261 and Schedule 17; Clauses 262 to 264); domestic top-up tax (Clauses 265 to 275 and Schedule 18; Clauses 276 and 277); any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules
I remind Members that in Committee, Members should not address the Chair as “Deputy Speaker”. Please use our names when addressing the Chair. “Madam Chair”, “Chair”, “Madam Chairman” and “Mr Chairman” are also acceptable.
Clause 5
Charge and main rate for financial year 2024
Question proposed, That the clause stand part of the Bill.
With this it will be convenient to consider the following:
Clauses 6 to 10 stand part.
Amendment 26, in schedule 1, page 280, line 32, leave out
“a requirement relating to the making of the claim”
and insert
“the requirement to make a claim notification pursuant to either section 104AA, section 1045A or 1054A of CTA 2009 (as appropriate) or failed to provide the additional information as required by paragraph 83EA”.
This amendment would make clear that the power to remove a claim for R&D relief from a corporation tax return is only available to HMRC where a company has failed to make a claim notification (required pursuant to Part 1 of this Schedule) or to submit the additional information (required pursuant to paragraph 13 of this Schedule).
Government amendment 14.
That schedule 1 be the First schedule to the Bill.
Clauses 11 to 15 stand part.
Clauses 121 to 125 stand part.
That schedule 14 be the Fourteenth schedule to the Bill.
Clauses 126 and 127 stand part.
That schedule 15 be the Fifteenth schedule to the Bill.
Clauses 128 to 173 stand part.
Government amendment 12.
Clauses 174 to 222 stand part.
Government amendment 13.
Clauses 223 to 260 stand part.
Government amendments 15 to 20.
That schedule 16 be the Sixteenth schedule to the Bill.
It is a pleasure to serve under your chairmanship, Dame Rosie.
Before I start, I would like to pay tribute to a previous Financial Secretary to Treasury, namely the right hon. Lord Lawson of Blaby, who sadly passed away while the House was in recess. After the Conservative party’s historic election win in 1979, he took office as the FST, calling inflation “a disease of money”. To this day, we on the Government Benches recognise that, which is why the Prime Minister is determined to halve inflation as one of his five promises to the public.
Margaret Thatcher recognised Lord Lawson’s talents, his incisive intellect and his single-minded determination to reshape the UK economy, and in due course she appointed him as her Chancellor. He went on to deliver six Budgets, drinking, I am told, a spritzer as he did so, and he set the framework for today’s tax system. He was an intellectual and political giant, and we pay tribute to him in this place.
The measures before the Committee today relate to the Bill’s clauses on corporation tax, investment incentives and the global minimum tax on large multinational businesses. The changes that they make will support business investment and innovation in the UK, while contributing to fiscal sustainability and protecting our tax base against harmful tax planning.
Clause 5 legislates for the right to charge corporation tax and maintain the rate at 25% for the 2024 financial year, in line with the 2021 spring Budget announcement. As hon. Members will know, we legislated in the Finance Act 2021 to increase the main rate of corporation tax to 25% from this month, April 2023. We typically legislate a year in advance to provide certainty to large companies that pay corporation tax in advance on the basis of their estimated tax liabilities. The rate increase, which took effect from this year and which the Bill will maintain for the 2024 financial year, is forecast to raise more than £85 billion in the next five years. It will make a vital contribution to ensuring that our debt continues to fall, as part of the Prime Minister’s five pledges, while allowing us to continue to invest in our much-cherished public services.
I draw attention to my entry in the Register of Members’ Financial Interests. As the Minister says, the Government are legislating in advance of next year. Can she reassure the Committee that as we approach next year, the Government will review not just the headline rate—a juicy and necessary source of income for the Treasury—but the thresholds? The media are full of the fact that at over £250,000 profit, people will be paying the higher rate, but there is also a transitional zone between £50,000 and £250,000 profits, which is exactly the ellipse of small company growth where companies need that money to invest for more growth. If there is a detrimental impact within that transitional zone, will the Minister undertake to review it in advance of next year? Will she perhaps think about shifting the thresholds upwards so that we do not constrain the growth that we so need in the economy?
I acknowledge my right hon. Friend’s experience, not only at the Dispatch Box but, importantly, in the world of accountancy and business. I reassure him that the Treasury keeps all taxes under review. He is right to draw attention to clause 6, which maintains the small profits rate because, precisely as he says, we want to encourage small businesses that are in the first flourishes of profit and help them to build.
There are two measures that I hope will reassure my right hon. Friend. First, the small profits rate means that 70% of businesses will see no increase at all in their corporation tax charges. Because of the threshold that he describes, a further 20% will fall into that spectrum, so only 10% of businesses will face the full 25% rate. If they invest in their businesses and in plant and productivity, as we very much want and encourage them to, they will—depending on their returns—be eligible either for the full expensing capital allowance that the Chancellor announced alongside this measure at the spring Budget or for the annual investment allowance. This Budget was very much about encouraging growth and encouraging the small businesses on which my right hon. Friend the Member for North West Hampshire (Kit Malthouse) so rightly focuses, but we are doing so as part of a responsible fiscal approach and making sure that those with the broadest shoulders bear the greatest burden of tax.
I thank the Minister for outlining the provisions on corporation tax. Obviously corporation tax will be the same everywhere, but in the light of the peculiar circumstances in Northern Ireland—the region is much more under pressure when it comes to jobs—can she reassure me and my constituents back home that small businesses in Northern Ireland will feel the benefits of what she is putting forward?
Very much so. I am conscious that the hon. Gentleman’s constituency and his corner of the United Kingdom are marking the very important anniversary of the Good Friday agreement; we wish everyone who is marking that occasion the very best for the future. I know that there are points of contention with his party, but one reason why we are so very committed to the Windsor framework is that we want to ensure that issues that have arisen through the Northern Ireland protocol are resolved with the EU to enable the economic flourishing that he rightly describes.
I can reassure the hon. Gentleman and my right hon. Friend the Member for North West Hampshire that even with the increase to 25%, we will still have the lowest rate of corporation tax in the G7. What is more, it will be lower than at any point before 2010. I very much hope that the Committee understands why we are taking this approach: because we have to take a fiscally responsible approach to our public finances, but we want to do so while encouraging growth and international competitiveness.
Clause 6 will maintain the small profits rate, as I hope I explained in answer to my right hon. Friend’s intervention. Clause 11 will update the patent box legislation to reflect the introduction of the small profits rate. The patent box incentivises the retention and commercialisation of intellectual property, allowing UK companies to elect to pay a lower rate based on their earnings from patents or similarly robust IP. This is part of our drive to encourage innovation and growth in our economy.
We are not stopping there. A competitive corporate tax system that supports growth, investment and innovation is about so much more than just the headline corporation tax rate; the availability and generosity of reliefs also matter. Clause 7 will therefore introduce new first year capital allowances, including a 100% first year allowance for qualifying new main rate plant and machinery investments, known as full expensing. It will also introduce a 50% first year allowance for new special rate expenditure such as long-life assets. Full expensing offers a substantial financial incentive for companies to increase their investment, improving their cash flow by lowering their corporation tax bill in the year of investment.
Let me again draw attention to my entry in the Register of Members’ Financial Interests.
The SEIS changes are welcome, but, as I am sure the Minister knows, the amount of initial finance raised under the SEIS and, indeed, the enterprise investment scheme has been declining in recent years. That may be a reflection of the wider economic environment, but it nevertheless means that fewer businesses are being started under that scheme. Will the Minister and her Treasury colleagues give some consideration over the next few years to the sheer complexity that is involved in making what is a relatively small investment through the SEIS? The scheme deals with quite small amounts of capital—£25,000 or so—but an accountant and a lawyer are needed, as is pre-authorisation from His Majesty’s Revenue and Customs. An enormous amount of compliance is required even before a company makes its first investment, and a fair amount of the investment that is being made can be absorbed in compliance costs. Complexity is therefore as much of a deterrent as the limits on the scheme, which may be why it is not being taken up with the enthusiasm that I am sure the Minister would like to see.
I genuinely thank my right hon. Friend for that intervention. I am trying to ensure that, not just in the context of this fiscal event but in our work across the Treasury, we focus on the pressure points involved in developing a business—setting it up, employing the first member of staff, and all the other major milestones that constitute a critical part of the journey towards growing a business. Obviously there has to be paperwork, but we want to ensure that it does not get in the way.
I will take away some of the ideas that my right hon. Friend has advanced, but let me also say that I very much understand his concerns. One of the main challenges that I issue to the Treasury during every one of our policy discussions is “Does this proposal make tax fairer, does it make it simpler, and does it support growth?” Those are the three objectives that I will be endeavouring to meet in all my work as Financial Secretary to the Treasury.
Let me now turn to the measures in clauses 121 to 277 and schedules 14 to 18, which constitute a large proportion of the Bill. I know that, rightly, they are meeting the sort of scrutiny that we expect of parliamentary colleagues, because they relate to a very significant international agreement. In 2021, my right hon. Friend the Prime Minister brokered an international deal as part of our G7 presidency to tackle profit shifting by large multinational groups and to level the playing field between countries for tax competition. That will ensure that countries are better able to tax the profits that multinational groups generate from trading in their jurisdictions. More than 135 countries have now signed up to the deal, including all members of the G7.
These changes mean that, regardless of where a multinational group operates, it pays tax of at least 15% on its revenues, or profits. This will protect the UK from multinational tax planning by removing the incentives to shift profits out of the UK for tax purposes, and will help to ensure that profits generated in the UK are taxed in the UK. It will also strengthen the UK’s international competitiveness by raising the floor on the low—or no—tax rates that have been available in some countries, while ensuring that groups are not exposed to top-up taxation in the UK as a result of the UK’s world-leading R&D credit and full expensing regimes. Finally, it will ensure that the top-up tax due from UK groups under pillar two is collected in the UK rather than being collected by other countries, which could be the case if we did not implement these arrangements by 31 December.
As my hon. Friend says, this is a large and significant part of the Bill. It is of course important for multinational companies to pay their fair share of tax, but for too long too many have not done so, and it is good news that action is being taken in that regard. If it is to work, however, we must ensure that other countries not only sign up to the rules but implement them. I am thinking in particular of the possible impact on sectors such as insurance. My constituency contains a great many insurance companies, and many of my constituents work in the sector. It is a global industry, in which we happen to be the world leader.
We need to ensure that other countries implement these rules, as they have promised to do, and do not end up trying to avoid doing so, thus undermining our own competitiveness and potentially forcing businesses that have been paying tax in the UK to go overseas. May I therefore urge my hon. Friend and her excellent team at the Treasury to focus, laser-like, on ensuring that all countries do implement the rules, as they have promised? We have seen, time and again, many EU countries signing up to rules and then not implementing them in accordance with the timescales. Will my hon. Friend also ensure that if other countries try to retaliate against our measures—through sanctions, for example—we will not just rely on the undertaxed profits rule to ensure that we can obtain taxes from them, but will have a plan B up our own sleeve to ensure that our industries and our competitiveness are not threatened?
My right hon. Friend has been very good at representing the interests of her constituents. I certainly acknowledge the significant rule that the insurance sector plays in her constituency, and, indeed, the role that her constituents play in that industry. I want to develop my argument a little, but I hope I will be able to reassure her on the points that she has raised—and I will come to the point about implementation, because I think it is important.
Let me try to help Members navigate this rather large piece of legislation. Part 3 deals with the multinational top-up tax, which is introduced by clauses 121 to 131 and schedule 14 for multinational groups whose global revenues exceed €750 million a year.
Clause 132 determines how multinationals should calculate their effective tax rate for a territory. Clauses 133 to 172 set out how multinational groups should determine their underlying profit and then make adjustments. Clauses 173 to 192 describe how to determine the amount of taxes called covered taxes paid by a multinational that should be included in the effective tax rate calculation. Clauses 193 to 199 set out how multinationals should use the effective tax rate and adjusted profit they have calculated to work out how much top-up tax, if any, is due for each territory in which they operate.
2:30 pm
Clauses 200 and 201 set out how much of the top-up tax in the low-tax jurisdiction should be attributed to the responsible members of the group. Clauses 202 to 219 set out further adjustments to deal with particular circumstances, including losses, and rules that apply an additional top-up amount where the covered taxes are less than expected.
20 of 152 shown
Clause 261 stand part.
That schedule 17 be the Seventeenth schedule to the Bill.
Clauses 262 to 275 stand part.
That schedule 18 be the Eighteenth schedule to the Bill.
Clauses 276 and 277 stand part.
New clause 1—Statement on efforts to support implementation of the Pillar 2 model rules—
‘(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.
(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—
(a) three months;
(b) six months; and
(c) nine months.
(3) The statement, and the updates to it, must include—
(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and
(b) details of any discussions the UK Government has had with other countries about making the rules more effective.’
This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.
New clause 3—Review of business taxes—
‘(1) The Chancellor of the Exchequer must, within six months of this Act being passed—
(a) conduct a review of the business taxes, and
(b) lay before the House of Commons a report setting out recommendations arising from the review.
(2) The review must make recommendations on how to—
(a) use business taxes to encourage and increase the investment of profits and revenue;
(b) ensure businesses have more certainty about the taxes to which they are subject; and
(c) ensure that the system of capital allowances operates effectively to incentivise investment, including for small businesses.
(3) In this section, “the business taxes” includes any tax in respect of which this Act makes provision that is paid by a business, including in particular provisions made under sections 5 to 15 of this Act.’
This new clause would require the Chancellor to conduct a review of business taxes, and to make recommendations on how to increase certainty and investment, before the next Finance Bill is published.
New clause 6—Review of energy (oil and gas) profits levy allowances—
‘(1) The Chancellor of the Exchequer must, within three months of the passing of this Act—
(a) conduct a review of section 2(3) of the Energy (Oil and Gas) Profits Levy Act 2022, as introduced by subsection 12(2) of this Act, and
(b) lay before the House of Commons a report arising from the review.
(2) The review must include consideration of the implications for the public finances of the provisions in section 2(3)—
(a) were all the provisions in section (2)(3) to apply, and
(b) were the provisions in section 2(3)(b) not to apply.’
This new clause requires the Chancellor to review the investment allowances introduced as part of the energy profits levy, and to set out what would happen if the allowance for all expenditure, apart from that spent on de-carbonisation, were removed.
New clause 7—Review of effects of Act on SME R&D tax credit—
‘(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review of the impact of the measures contained in this Act on the rate of inflation and on small businesses.
(2) The review must compare the regime for SME R&D tax credits and associated reliefs before and after 1 April 2023, with regard to the following—
(a) the viability and competitiveness of UK technology startup and scale-up businesses,
(b) the number of jobs created and lost in the UK technology sector, and
(c) long-term UK economic growth.
(3) In this section, “technology startup” means a business trading for no more than three years; with an average headcount of staff of less than 50 during that three-year period; and which spends at least 15% of its costs on research and development activities.
(4) In this section, “technology scale-up” means a business that has achieved growth of 20% or more in either employment or turnover year on year for at least two years and has a minimum employee count of 10 at the start of the observation period; and spends at least 15% of its costs on research and development activities.’
This new clause would require the Government to produce an impact assessment of the effect of changes to SME R&D tax credits in this act on tech start-ups and scale-ups.
New clause 8—Relief for R&D expenditure on data and cloud computing: assessment—
‘Within six months of this Act coming into force, the Chancellor of the Exchequer must publish an assessment of—
(a) the overall costs,
(b) the overall benefits, and
(c) the net cost or benefit
of extending relief of R&D expenditure to profit-making cloud computing services.’
New clause 10—Assessment of the impact of the de-carbonisation allowance—
‘(1) The Chancellor of the Exchequer must, within six months of this Act coming into force, publish an assessment of—
(a) the financial cost of the de-carbonisation allowance to the Treasury,
(b) the impact of the de-carbonisation allowance on overall investment in UK upstream petroleum production, and
(c) the revenue that the energy (oil and gas) profits levy would yield if neither the de-carbonisation allowance nor the investment allowance had effect in respect of investment expenditure.
(2) The assessment must cover the whole period that the allowance is in effect and also assess the revenue in each tax year.
(3) The assessment must include an evaluation of the impact of the de-carbonisation allowance and the investment allowance on the United Kingdom’s ability to meet its climate commitments, including—
(a) the target for 2050 set out in section 1 of the Climate Change Act 2008,
(b) the duty under section 4 of the Climate Change Act 2008 to ensure that the net UK carbon account for a budgetary period does not exceed the carbon budget, and
(c) the commitment given by the government of the United Kingdom in the Glasgow Climate Pact to pursue policies to limit global warming to 1.5 degrees Celsius and phase out inefficient fossil fuel subsidies.’
This new clause would require the Government to produce an impact assessment of the de-carbonisation and investment allowances under the Energy Profits Levy, including on tax revenues and the UK’s ability to meet its climate targets.
These changes will provide a £27 billion tax cut for companies over three years. They will help to boost business investment by ensuring that the UK’s capital allowances regime is among the world’s most competitive: joint first by OECD net present value. The independent Office for Budget Responsibility estimates that full expensing will increase business investment by 3% for each year that it is in place. What is more, the Chancellor has set out his intention to make the measure permanent when fiscal conditions allow.
Clause 8 will set the maximum amount of the annual investment allowance at £1,000,000 indefinitely, providing certainty to the more than 99% of businesses that invest up to that amount.
Clause 9 will make changes to extend the generous 100% first year allowance for electric vehicle charging equipment. This will continue to encourage businesses to invest in the roll-out of charging equipment, which will be a key enabler of the transition to zero-emission vehicles.
Clause 10 and schedule 1 set out changes that will modernise research and development tax reliefs in order to better incentivise R&D methods that rely on vast quantities of data which are analysed and processed via the cloud. These changes will also help reduce error and fraud, requiring claims to include more information—including the name of any agent involved—and to be provided digitally. The Government have tabled amendment 14, which is a technical fix to ensure that companies claiming small and medium-sized enterprise credits will be able to benefit from the change in the going concern rules.
Clause 12 will introduce a new rate of investment allowance in the energy profits levy, set at 80%, for qualifying expenditure on decarbonising upstream oil and gas production. This builds on the existing 29% investment allowance which is designed to encourage the sector to reinvest its profits to support the economy, jobs, and the UK’s energy security. It supports key commitments in the North sea transition deal and the Government’s aims for net zero by 2050. Clauses 13 and 14 will extend the duration of the reliefs available to our important cultural sectors, including orchestras, theatres, museums and galleries, to meet ongoing pressures and to boost investment in those wonderful and important cultural bodies.
The final clause relating to investment incentives is clause 15. As well as making other improvements, it increases the amount of seed enterprise investment scheme funding that companies can raise over their lifetimes from £150,000 to £250,000. This will boost start-ups and young companies by widening access to the SEIS and increasing the funding limits, and we estimate that it will help more than 2,000 very early-stage companies a year to gain access to finance.