 House of Commons |
Session 2005 - 06 Publications on the internet Standing Committee Debates Finance (No. 2) Bill |
Finance (No.2) Bill |
The Committee consisted of the following Members:Frank Cranmer, Emily
Commander, Committee Clerks †
attended the Committee Standing Committee ATuesday 23 May 2006(Morning)[Mr. Edward O’Hara in the Chair]Finance (No.2) Bill(Except clauses 13
to 15, 26, 61, 91 and 106, schedule 14, and new clauses relating to the
effect of provisions of the Bill on section 18 of the Inheritance Tax
Act
1984)
Clause 56Trade
profits 10.30
am Mr.
Paul Goodman (Wycombe) (Con): I beg to move amendment No.
92, in page 43, line 20 [Vol I], leave out ‘shall' and
insert ‘may at the election of the
charity'.
The
Chairman: With this it will be convenient to discuss
amendment No. 93, in page 43, line 26 [Vol I], leave out ‘shall'
and insert ‘may at the election of
the
charity'.
Mr.
Goodman: It is a pleasure to see you in the Chair this
morning, Mr. O’Hara. When we considered clause 54, the Paymaster
General was keen to say that she would be happy to examine any examples
of difficulties caused by these clauses to charities or institutions. I
have been given such an example, upon which amendment No. 92 hangs. I
shall put it to the Paymaster General to hear her
response. The
clause as drafted requires the primary purpose and non-primary purpose
of a charity to be divided into two separate traits. One might
reasonably infer from that division that the expenditure apportioned to
the non-primary purpose would be non-charitable expenditure. However,
the argument has been put to me that such expenditure might be for the
charity’s benefit—not simply for tax
avoidance—without being exclusively for the charity’s
purposes. I
come to the example. Let us suppose that a university college seeks to
mitigate losses on its primary purpose trade—providing services
to students—by undertaking catering and conferencing. Unless the
amendment is accepted, colleges in which catering and conferencing are
small-scale—that is, colleges that do not trade through a
wholly-owned subsidiary—and many smaller and less financially
sophisticated charities might find themselves at risk of challenge by a
tax inspector. I should be interested to hear the Paymaster
General’s response to the
amendment.
The
Paymaster General (Dawn Primarolo): Good morning, Mr.
O’Hara. The amendments would allow a charity to opt for the
rules that it wants to operate within. It was interesting that the hon.
Gentleman picked a university and mentioned the line between being a
business and having a charitable educational objective, because that
area of tax law is quite complex.
Although
I appreciate the hon. Gentleman’s example, I do not know whether
it is a real or theoretical one. As he knows, the boundaries between
charitable and business objectives—particularly in
universities—and the issue of which set of rules therefore
applies are quite an interesting challenge already. I can give the hon.
Gentleman a straight answer on the Government’s view. Allowing
businesses to opt, so that a charity could decide whether it is
charitable or partly charitable, would mean that a small number of
cases could be kept in. I am still not convinced. I think that he needs
to find another example that does not involve universities, because
that is a complex area of tax for lots of
reasons.
Dawn
Primarolo: Just a minute. I will finish the first point
and then the hon. Gentleman can come back. The amendment would create a
hugely complex set of rules about when charities may or may not opt in
or out. It would do so for all charities and so would cause a problem
for all of them. That is what I seek to avoid. In earlier amendments
the hon. Gentleman probed by suggesting that it would be difficult if
there were extra record keeping, yet here he proposes that all
charities should face that. Therefore I am not attracted to the
amendments.
Neither
amendment fits very well with charity law and the definition that it
uses to permit charities to conduct limited non-primary purpose
changes. Not only is the hon. Gentleman adding more complexity in
amendment No. 92, but amendment No. 93 appears to be disadvantageous to
charities. While I appreciate his point about universities and the
complex relationship between their business and charitable status, I am
sure that they are not conducting the type of misuse of charities at
which the clause is targeted. Therefore I am still of the view that the
rules are entirely proportionate. I ask the hon. Gentleman to withdraw
his amendment on that basis.
Mr.
Goodman: We will have to come back to this and I shall
explain why. I understand why the Paymaster General does not like the
amendment. She understands that it is essentially a probing amendment
in relation to the example that I gave. She said that this was a
complex area and that I would have to find another example. But it was
precisely to establish what the clause will mean in relation to complex
areas such as universities that I tabled the amendment.
I note that the Paymaster
General did not address my example directly and say whether a
university in that situation would find itself unexpectedly open to
tax. She asked whether it was a real life example: it was given to me
by a university that was worried that carrying out some catering and
conference trading as a secondary objective would leave it open to tax.
The Paymaster General has not really addressed that point. I shall not
press the amendment to a vote because it was a probing amendment and a
very blunt instrument, but I give her notice that we need to return to
this matter in the light of what she has said and, more significantly,
what she has not said. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
56 ordered to stand part of the Bill.
Clause 57Gift
aid relief for companies wholly owned by one or more
charities
Dawn
Primarolo: May I place on the record my thanks to the Law
Society? Members of the Committee will have noticed in the briefing on
the Bill that it has suggested that the clause would have some
unintended effects. It would prevent a company from benefiting from
gift aid where a charity owned shares in it. That is not the intention
and I am happy to move these amendments to clarify that point. I hope
that the Committee will therefore accept
them. Mr.
David Gauke (South-West Hertfordshire) (Con): I shall make
two brief points. I am grateful to the Paymaster General for her
comments on the Law Society. In the Committee of the whole House on
another topic she was a little dismissive of law firms and professional
advisers and questioned whether such advisers would know more than
Treasury officials. In this case, it has emerged that they
do. I
should declare an interest: the Law Society’s recommendations
and comments were produced by the law firm Travis Smith. The lawyer who
noticed the error in the drafting of the Bill was one Mrs. Rachel
Gauke, who is my wife. I wish to place on the record the fact that
during the Committee stage, one member of the Gauke family has managed
to persuade the Government to change the
Bill.
Dawn
Primarolo: On that point, perhaps there is a lesson for
the Opposition in how to approach debates and be
constructive. Amendment
agreed
to. Clause 57,
as amended, ordered to stand part ofthe
Bill.
Clause 58Extension
of restrictions on gift aid payments by close
companies
‘(3A) After
subsection (3E)
insert— “(3F)
Reliefs under this section shall be as
follows— (a) for
donations not exceeding £100, 25 per cent. of the
gift; (b) for donations
exceedings £100 but not exceeding £1000, £25;
and (c) for donations exceeding
£1000, 2.5 per cent. of the gift up to a maximum of
£2500.”.'. I
am sorry that my attention has been distracted from the amendment for a
moment by the Paymaster General’s remark to my hon. Friend the
Member for South-West Hertfordshire (Mr. Gauke) about the lesson that
the Opposition should learn. I am still mulling over what that lesson
should be, since we cannot all be married to Mrs.
Gauke.
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