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Session 2007 - 08 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks † attended the
Committee Public Bill CommitteeThursday 19 June 2008(Morning)[Sir Nicholas Winterton in the Chair]Finance Bill(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)9
am
The
Chairman: I welcome members to what we expect will be the
last day of sittings of the Finance Bill Committee 2008. I know we are
going to make good progress. That has come down to me through the usual
channels. I feel we have come around Tattenham corner. We have gone up
the rise and we can see the finishing post ahead of us. I remind the
Committee that we are
debating—
Sir
Peter Viggers (Gosport) (Con): I am really shocked that
Tory knights of the shires should not use an Ascot reference on ladies
day.
The
Chairman: Historically, I have been a guest of a
particular company on ladies day, but today I am doing my duty here in
the Palace of Westminster.
Clause 22Periods of
Residence
Amendment
proposed, [17 June]: No. 360, clause 22, page 12, line 40,
at end
add— ‘(9)
The Treasury shall lay before the House of Commons by 31
December 2008 a report setting out the basis of a statutory residence
rule to replace the existing
rules.’—[Mr.
Hoban.] Question
again proposed, That the amendment be
made.
New
clause 5—Definition of
residence ‘(1) An individual is
resident in the United Kingdom for income tax purposes
if—
(a) during the tax year in question the individual
spends (in total) more than 31 days in the United Kingdom;
and (b) during the three-year
period that includes the tax year in question and the two tax years
immediately preceding it the individual has spent (in total) 183 or
more days in the United Kingdom,
including— (i) the total
number of days spent in the United Kingdom in the tax year in
question, (ii) one-third of the
days in the tax year immediately preceding the tax year referred to in
sub-paragraph (i), and (iii)
one-sixth of the days in the tax year immediately preceding the tax
year referred to in sub-paragraph
(ii). (2)
An individual found to be resident under subsection (1) shall be liable
for income tax on both their UK income and capital gains and any
foreign income and capital gains remitted to the United
Kingdom. (3) In determining
whether an individual fulfils the definition of residence under
subsection (1) treat each day the individual is physically present in
the United Kingdom as a day spent by the individual in the United
Kingdom. (4) But in determining
that issue do not treat as a day spent by the individual in the United
Kingdom any day on which the
individual— (a) arrives
in and departs from the United Kingdom on the same
day; (b) is present in the
United Kingdom for less than 24 hours for transit
only; (c) is present in the
United Kingdom by virtue of being employed as a crew member of a
foreign vessel; (d) is unable
to leave the United Kingdom on the same day owing to a medical
condition; (e) is enrolled in
full-time higher education in the United
Kingdom; (f) is an exempt
individual. (5) The Treasury
shall, by regulations, define an exempt
individual. (6) Regulations
under subsection (5) shall be made by statutory
instrument. (7) A statutory
instrument containing regulations under subsection (5) may not be made
unless a draft of it has been laid before and approved by resolution of
the House of Commons. (8) On
the coming into force of this section, Chapter 2 of ITA 2007 shall
cease to have
effect.’. Mr.
Jeremy Browne (Taunton) (LD): Good morning, Sir Nicholas.
I would like to go straight to new clause 5, which is in my name and
that of my hon. Friends. The purpose of the new clause is to introduce
a statutory definition of residence into the Bill and into British law
as a whole. The explanatory notes concede that the concept of
residence, which is central to determining the liability of an
individual to UK tax, is
“only dealt with
in a limited way in statute.”
The approach
of Her Majesty’s Revenue and Customs to residence is a mixture
of legislation, case law and guidance dating back to the 1950s, so it
is drawing on a range of sources to try to establish what constitutes
residence in any given case. A number of professional bodies and
others, including PricewaterhouseCoopers, have drawn attention to that
situation and expressed their concerns that a hotchpotch of
legislation, case law, guidance and established practice, some of which
has a firm legal basis and some of which is for the purposes of
guidance only, constitutes an unsatisfactory basis on which to
determine these matters.
That is the
background, and my understanding is that the Government are sympathetic
to that case, as is the Conservative party and others. Therefore, I
hope that I am introducing a brief conversation which will find a lot
of sympathy in all parts of the Committee. New clause 5 would introduce
the test, and I will briefly take the Committee through it. It is based
on the American residence test. There is also an Irish test that is
regarded by many as a good basis on which to draw up a test for our
country, but the new clause is based on the American test, and the
tests are all variants on a theme in any case.
The test
would establish who is liable for income tax on their UK income and
capital gains, and on any foreign income and capital gains remitted in
the United Kingdom. There is a list in the new clause, which draws up a
basis on which these matters could be measured. I concede that it is a
slightly complicated list, but it is necessary to have a degree of
complication in order to try to make the system as fair as possible.
However, it is not beyond the wit of members of the Committee or, for
that matter, employees of HMRC, to use that as a basis on which to
determine one way or the other whether somebody is a resident for tax
purposes or
otherwise. I
have added to the American test a few other features that are unique to
these proposals. One of those features, which I touched on during our
discussions on Tuesday, is an exemption for those enrolling in
full-time higher education in the UK—students would be a better
way of describing them. I know that the Committee rejected that
proposal on Tuesday, which might be a barrier to some Members
supporting it now, but that was to be consistent with my previous
amendments.
There is also
a provision that would allow the Treasury to define by regulation what
“an exempt individual” means. In the United States,
exempt individuals include foreign Government workers, professional
athletes and students and teachers on certain categories of visas. We
might wish to introduce some exemptions of that sort in the UK to
ensure that no one falls foul of the regulations in a way that would be
difficult for the Committee to envisage. That is the basis of what I am
trying to achieve in the new clause.
I say without
immodesty that there appears to be considerable support for the
proposal outside the House. John Barnett, the chairman of the Chartered
Institute of Taxation’s capital gains tax and investment income
sub-committee,
said: “We
welcome the Liberal Democrats’ contribution to this debate as it
is a very important issue that needs to be discussed. While the
Government has stated that it does not wish to make any more changes to
the non-domicile rules, the CIOT feels that a statutory residence test
would bring certainty to this complex area. If done with sufficient
consultation it need not result in unexpected or adverse consequences.
And it will be popular with the business community because it will
avoid the current ambiguities that are not helpful either to HM Revenue
& Customs or to
taxpayers.” John
Whiting, the distinguished employee at PricewaterhouseCoopers,
said: “Including
a wider statutory framework for deciding residence, in this or a later
Finance Bill would give greater certainty to taxpayers and
employers.” That
is what I am seeking to achieve. I have been told that the professional
bodies believe that the Government are open to creating such a
definition. After other
Members have contributed to the debate, it would be extremely helpful to
hear whether the Financial Secretary might accommodate the new clause
or give an undertaking that the Government will consider bringing
forward a similar clause in a future Finance
Bill.
The
Financial Secretary to the Treasury (Jane Kennedy):
Welcome, Sir Nicholas. I fully appreciate the sacrifice that you have
made to be present. We value your chairmanship and are grateful to see
that you are here, rather than somewhere else that might have appeared
more attractive on the
surface. As
has been explained, the UK does not have a statutory residence test.
Rather, our system operates through a mixture of statute, case law and
guidance. I am aware that a number of representative bodies have argued
the case for a statutory residence test for tax purposes. I have met a
number of those organisations, and having listened to their
representations, it is clear that there is currently no agreement on
what form a statutory residence test should take. I have asked
officials to consider the representations that have been made and to
work with those groups to see whether consensus can be reached on what
the best test would be for the UK environment, bearing in mind that our
circumstances are different from those of other economies in which
those tests already exist. However, I am not prepared to allow the
whole debate about residence, non-domiciles and the remittance basis to
be opened up, because that is not in the UK’s
interests.
One of the
criticisms that I accept as fair is that the current debate has caused
a degree of uncertainty. I have some sympathy for the case that a
statutory residence test would enable taxpayers to decide whether to
use the remittance basis or another basis on which to pay tax. Ours is
a complicated system, so having a simpler rule applied would be a
benefit. However, I would like to see a lot of work done before we
commit to a particular style of test. Therefore, I am encouraging the
very good and productive work that the four main organisations making
the point are undertaking. I am hopeful that that will bear fruit. At
this stage, I cannot set a time for that, but I am sure that, with good
will, those organisations can agree on what might be best, and we can
take that forward to a proper consultation. I am prepared to do that
only if it will not change the policy that we are discussing this
morning fundamentally; it remains the settled view of the Government in
terms of the detail of how the system will
impact.
Mr.
Mark Hoban (Fareham) (Con): The Financial Secretary is
making important points about the debate. I understand that the
representative bodies could work quickly towards reaching a view among
themselves about what an appropriate test might be. If the consultation
were to be part of the 2008 pre-Budget report, by when should the
representative bodies come together and produce a workable definition,
which they could pass to the Treasury and
HMRC?
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