Examination of Witnesses(Questions 120-137)|
MICHAEL CBE, MR
CB, MS JACKIE
TUESDAY 14 JANUARY 2003
120. Yes, of course.
(Mr Knowles) We have looked at this point, thank you.
I think we are satisfied that at least on the approach that we
have been adopting, which is to in effect insert a new paragraph
(a) into subsection (4), the amendment does work so that one would
read "(4) In subsection (3)(a) the reference to an
employment includes employment as a director of a company, and
(b) "earnings" means earnings as defined in Chapter
1 of this Part."
Lord Blackwell: Thank you.
Chairman: If there are no other points, I do
not have to put the amendments individually. Can I put the amendments
collectively and can I take it that the Committee are in favour
of all those amendments, amendments 1, 2, 25, 3, 7, 5, 9, 10,
16, 17, 22, 23, 24, 30, 31, 32?
121. Sorry, Chairman. On 10 I have a question
to invite a little more commentary because anything that starts
off "The current wording of the Bill has given rise to considerable
confusion. . ." invites me to ask for a little more commentary
about the resolution of that confusion. Could you just explain
and take me through this, please?
(Mrs Scott) There is one particular representative
body which had some difficulty in understanding the current rules
for foreign emoluments that are taxed on the remittance basis
and the way in which the deductions dovetail into them and also
had difficulty in looking at the parallel provisions in the Bill.
In the light of the fact that that person had difficulty, who
is representing a number of people within his particular institution,
we thought that there may be wider spread confusion than just
on his part and that it was worth making this amendment to make
it absolutely clear that section 354 does not apply in the case
of earnings which are chargeable both on a receipts and a remittance
basis from the same employment where the reason why there is that
mix in bases is because of the operation of the foreign emoluments
provisions which we have written in clauses 21 and 22. We also
propose, in addition to this amendment, to expand the Explanatory
Notes to make the position crystal clear in the Explanatory Notes
122. Does this mysterious third party accept
and understand what you have now written into the Bill? In doing
this, do you think that they will be satisfied in the light of
the concerns that they originally raised?
(Mrs Scott) It is as clear as we can make it now.
I have not had an opportunity to have further discussion with
the person who raised the point. He only wrote to us last Tuesday.
123. A latecomer. So he is lucky to have caught
(Mrs Scott) Yes. It is better that we can make things
plainer at this stage and remove that scope for confusion than
if he had written to us next week and the scope for confusion
Chairman: The amendment appears clear: if you
accept section 22 you are accepting chargeable overseas earnings
and, therefore, this curious provision does not apply if the source
of one of the two taxable incomes is overseas earnings. I have
not met the mysterious third party so I do not know.
Mr Jack: It sounds to me as if an element of
light has been shone where darkness prevailed for the interlocutor
on this occasion. As it is beyond me to question further on it
I will accept that the clarification by the amendment is correct.
124. I put the amendments. Do I take it that
the Committee is content with those amendments? (Approved)
The amendments are made. The next parcel is "Amendments needed
to rewrite law accurately". This is a further attempt at
drafting and improving the language, I assume. I have not read
these myself and I do not know if anybody else has. Who would
like to introduce these, amendment 4 onwards?
(Mrs Scott) The group of amendments generally are
not focused just on improving language, they are aimed at correcting
actual errors that we have made and if these errors were not corrected
then they would lead to a different result under the Bill compared
with the result that you have in the current ICTA provisions.
We are not just trying to make things more accessible and easier
to understand, we are actually trying to make sure here that we
rewrite law accurately.
125. You are trying to make sure you accurately
express the existing law and do not unintentionally make changes
(Mrs Scott) That is right.
126. The first one is connected with the valuation
of living accommodation and the second one is one that applies
to certain seafarers who work abroad, which we have touched on
at least informally in previous discussions. The second, if we
did not pass this amendment, would give a completely unexpected
windfall to various people who work abroad which neither Government
nor Parliament, as far as we are aware, have ever intended that
they should have. Would the first one have a similar effect?
(Mrs Scott) The first one is a very abstruse and technical
point. It would only arise in the cases where living accommodation
has to be valued for the purposes of charge to tax, or other land
has to be valued for the purposes of charge to tax. A good deal
of provided living accommodation is exempt anyway. In valuing
living accommodation and other land, the normal method is for
the valuer to look at a similar property and see what kind of
rent that property could command if it was on the open market.
In the existing provisions in ICTA there is a cross-reference
to section 23 of the General Rate Act 1967. It is not particularly
helpful since the General Rate Act was repealed in 1988. We decided
that in order to give effect to the content of section 23 of the
General Rate Act 1967 we should reproduce its general effect in
this Bill as if it had not been repealed and that is why we got
into these very abstruse provisions which were originally designed
to assist rating officers and rating valuers in arriving at the
rateable value of a standard hereditament. The effect of borrowing
those General Rate Act provisions is that when there is a comparative
rent of another property that is very similar, another flat in
the same block or whatever, and it is customary for additional
services to be provided in addition to just the basic rent, there
needs to be some safeguard against the payment for the provision
of those other services being used to bump up the landlord's profit
when really it is disguised rent. We got it wrong in clauses 110
and 207 because we treated all of the payments for additional
services where they are separate payments for additional services
in the same manner and when we re-examined the General Rate Act
of 1967 we came to the conclusion on careful analysis that there
was a distinction of treatment for payments in respect of repairs,
insurance and maintenance of other property belonging to or occupied
by the landlord. In that scenario there is not allowed to be any
deduction at all. Where there is a payment for services, such
as the provision of a lift or the provision of a concierge, the
only amount that has to be added back to the rent is any profit
element that the landlord makes on it, so the cost of the concierge
can be deducted from the comparative rent, but there is a different
treatment for the repairs, insurance and maintenance. We are very
sorry but we missed that and this will put it right.
(Mr Michael) Perhaps I should also say, Chairman,
if my recollection is correct, that this particular defect in
the Bill was actually pointed out to us by a representative body.
It was picked up outside.
Chairman: I am grateful to you for going over
that so clearly. Any other comments on these amendments, which
are amendments 4, 6, 8, 11, 12, 13, 14, 15, 18, 19, 20 and 21?
Mr Pond: Can I just ask on 4, are we happy about
the actual meaning of that? I am not sure that the meaning is
absolutely right, whether the wording works leaving out from the
first "to" on line 19 to the end of line 20 and inserting
"be increased under subsection (3A) . . ." etc. I cannot
make it fit but perhaps I am misreading it. We are taking out
virtually all of lines 19 and 20 and inserting "be increased
under subsection (3A)" and then the rest of (3A). I cannot
quite make the wording fit.
127. Two lines remain, lines 19 and 20.
(Mr Knowles) I think, Chairman, the first "to"
would stay in the Bill, so if one begins with the pull-out it
would read ". . . the rent to be established under subsection
(1) in respect of the accommodation is to be increased under subsection
128. So the "to" remains?
(Mr Knowles) Yes.
129. The words "is to" remain in line
19 on page 53?
(Mr Knowles) Yes, indeed.
130. If there are no other points I invite the
Committee to approve amendments 4 to 21I will not read
them all out againon pages five to eight of the memorandum
provided. Let us just deal with 4 and 6. There is a separate heading
for 8, 11, 12, 13, 14 and 15, which are the seafarers' ones, which
I accidentally included. Are they approved by the Committee? (Approved)
"Tax treatment of carer's allowance", which are 18,
19, 20 and 21. That seems to be a straightforward mistake of putting
carer's allowance into non-taxable benefits instead of taxable
benefits, which would be a reversal of policy. Does everyone approve?
(Approved) Then "Consequential amendments to other
legislation as a result of rewriting CSOPs and SAYE". Does
any Member of the Committee have any comment on those? They are
(Mrs Manson) This is to cover the situation in which
the option holder dies before he or she can exercise the option.
What we have tried to do here is to make sure that we have covered
what the source legislation provides for, so that if the option
holder dies and let us say a personal representative or somebody
or other who receives the option then exercises it, the Capital
Gains Tax consequences are exactly the same as if the option holder
had exercised it. We disapply what is known as the market valuation
at the date of exercise and instead look at the actual costs involved.
This is complicated by the fact that there are also death provisions
for capital gain. We are satisfied that we are now reproducing
the legislation as it was, having made the mistake originally
in thinking that "he" and "him"that
is how the source legislation describes the personcould
not cover the personal representative but because of the cross-reference
in the legislation to the treatment of the situation when somebody
dies we realise that this "he" and "him" covers
the situation after death as well. We were too restricted in our
131. Thank you very much. Does the Committee
approve amendments 26 and 27? (Approved) Amendment 28 "Amendments
to preserve transitional provisions". This transitional period
began when the current version of Case III was introduced in the
1989 Finance Act. This looks to be purely technical. Is the Committee
content? (Approved) We have one on a separate sheet. This
is an additional suggested amendment for consideration, amendment
32, which is to leave out a subsection of Schedule 6 on page 479.
(Mrs Scott) If I may, Chairman, this is covered on
page four of the notes on amendments which you have before you.
We discovered that we needed to preserve the definition of "overseas
territory" which is mentioned in section 615(7) and which
is relied upon by clause 412(2) in this Bill. In the set of amendments
that were circulated we only included amendment number 31. What
we forgot, and apologies, was that wherever we make an amendment
we make it once substantively in Schedule 6 and then also insert
it in the Repeals Schedule in Schedule 8 and the two ought to
be paired, or twinned, because they do not do anything different
from one another, they are just one substantive repeal and then
one entry in the list of repeals.
Chairman: Thank you very much. I failed to notice
that this amendment was the same as on page four of this afternoon's
schedule. It is only on a separate sheet because it was not on
this morning's list. I have already put it to the Committee and
the Committee have approved it. Thank you very much, those are
all the amendments. In a moment we will adjourn and go into a
deliberative session but before we do so I think, Lord Brightman,
you have a point that you would like to raise?
132. I would like to invite attention to the
admirable index of defined expressions which will be found on
pages 344 to 358, I think it is. There are something like 270
specially defined expressions and I find the very great use of
a Schedule of this sort is one can tell instantly whether a particular
word or expression has a dictionary meaning or a special statutory
meaning, you do not have to grope around the Act to try to find
an interpretation. You can also tell immediately where that definition
is to be found. There was a similar index in the Capital Allowances
Act. What I would like to discuss is whether it might be easier
for the general user of the Act if that Schedule came at the end
of the Bill instead of about halfway through Volume II where it
is not quite so easily turned up. An index normally comes at the
end of the text. I find to have it in the middle of Volume II
is a little difficult. I have had to put a tag on it so that I
can get hold of it. I know perfectly well why it is in the middle
as Schedule 1 of the Act because it is, in fact, introduced by
clause 2 of the Bill. I am wondering whether in a future Bill
of this type it might be easier perhaps for the general user if
the index came right at the end and the equivalent of clause 2
was perhaps the last section of the Bill. Could you comment on
(Mr Knowles) I think that is a very interesting idea.
Certainly we would want to think about it.
(Mr Knowles) We thought clause 2 ought to be up front
so that people could see immediately that all the expressions
that they might want to discover the meaning of where they were
defined generally were housed in a Schedule. The order of Schedules
follows the order of clauses. In fact, we did promote clause 2,
which had the consequence that the index was then in Schedule
1. I would certainly like to think about that for a future occasion.
134. I personally would find it very much easier
and you could turn it up so much more quickly if it were at the
end. Its prominence at the end might perhaps be given more prominence
because you could put the introduction in clause 2. If you could
consider it and perhaps let us know in due course what you think
(Mr Knowles) Yes, I would be very happy to do that.
Lord Brightman: Thank you very much.
Lord Howe of Aberavon: Could I make a mischievous
comment on that. I was rather struck by the value of leaving section
2 where it was in Schedule 1. You could of course leave clause
2 where it is and say Schedule 1, appearing unusually at the end
of the Bill, contains the definitions. In other words, you would
have the best of both worlds. If you were going to think innovatively
might you not do that?
Chairman: You could say for the convenience
of users it is placed at the end of the printed volume and then
you get the best of both worlds. Your earlier reference to it
was a reference which could be explained like that.
Lord Howe of Aberavon: And you could call it
the Brightman Amendment!
135. I think Lord Howe is asking that you consider
something like that for some future legislation rather than this,
unless we do some hasty re-drafting and amendment now, I imagine
you would like some time to consider it before you allow us to
roll over and trundle it through, would you?
(Mr Knowles) Yes indeed.
Chairman: You would. The question is there is
nothing to stop us doing it now if no-one has any substantive
objection to it. How do you feel, Lord Brightman, Lord Howe?
Lord Howe of Aberavon: I think I would be content,
unusually, to abide by the judgment of Parliamentary Counsel!
Chairman: I think you were only hoping to draw
it to their attention for future legislation.
Lord Brightman: Oh yes, I am not suggesting
they do it for this one.
Chairman: You are not suggesting that.
Lord Brightman: It would involve altering the
numbering of about 500 sections.
Baroness Cohen of Pimlico: That is against it.
Chairman: It is probably wise not to do it on
the spur of members' enthusiasm and to ask you to reflect on it
Mr Jack: When the Bill is printed as an Act,
is there any way in which you could draw the reader's attention
to the current layout so that if they were concerned they could
find it straightaway, so you do not have to end up redrafting
the Bill but make it clear to someone who picks up the Act that
that is where it is?
Lord Howe of Aberavon: You could insert "see
136. Something like that, yes.
(Mr Knowles) Perhaps I could consider that.
Chairman: Lord Howe has a general point which
I would like to ask him to make in conclusion of our public proceedings
and if no one else has any point to make.
Lord Howe of Aberavon: With the consent of the
Committee, I would like to take the opportunity of extending our
thanks to all those who have produced this monstrous miracle and
point out the extent to which they have actually striven especially
to meet some of the difficulties we had the last time with the
Capital Allowances Bill. It was certainly embarrassing for the
Law Society to submit proposals so late that the Revenue had finally
to produce the answers in Schedule 21 of the Finance Act 2001.
That improvement in procedures has been achieved not least as
a result of the work that we have just been doing because of the
extended consultation process which you have already commented
on, Chairman, which filled in very constructively the time between
the appearance of the first draft of the Bill and the present
one that is before us. We had two sets of Consultative and Steering
Committee meetings in that equivalent period and we had reports
back to us on the consultation then taking place. A lot of material
has been published on the Internet for consultation on the trot,
as it were, and then we published, as Mr Michael pointed out,
a response document to the comments on the draft Bill and then
published a revised version of the draft Bill on the Internet
as well. There have been a number of meetings and exchanges and,
as you rightly said, there has been more consultation on this
than probably any other episode in the field of human endeavour.
The other point worth noting is that in the course of doing this
work on primary legislation, on PAYE legislation, it was drawn
to our attention that most of it was contained in secondary legislation
and that the PAYE regulations had been born in war time conditions
and had been treated ever since then on that basis and had not
been regarded as models of drafting. The project undertook the
business of rewriting all the PAYE regulations in response to
representations from the employer organisations. That task is
still going on and it means that the team have had to be doing
two drafts at the same time, one for primary and the other one
for secondary. So I think we do owe a very great vote of thanks
to all of them because the sheer scale of the project is daunting.
A Steering Committee sounds like a magnificent organisation in
command of this huge vessel. But I have to say that our interventions
are mere touches on something that could not be called the tiller.
However, we endeavour to make our points known from time to time.
A great deal of what happens comes from the consultative committee
but out there in the sticks there are lots of people reading all
this material, rereading it, rereading it, working on it, so it
is a formidable achievement and we are very grateful to them.
Chairman: I would certainly endorse that and
I think the Committee would generally agree that this whole process
is evolving very satisfactorily and it is proceeding probably
much better than we ever had reason to be totally confident of
it when it started. It has taken longer than anybody thought because
the original timetable set was wildly and ridiculously optimistic
and it is producing some very concrete results and we are very
grateful to everybody who has put their effort into it. We had
this schedule this morning Tax Law Rewrite and that comes from
the Law Society. My understanding is that this is the Law Society's
submission to an earlier draft, it is not the beginning of a fresh
set of submissions from the Law Society on the draft before the
Bill now, so we really at the moment do feel that we have built
on the work done on the first Bill and this Bill is at an even
more developed stage than that. As you touched on, you have covered
some of the most difficult areas of tax law in this country and
everybody is to be congratulated, as Lord Howe has already done.
Dawn Primarolo: Chairman, I would like to add
my thanks to the officials. We have really pushed them hard today
in the speed with which we expect them to do intellectual somersaults
through some of the most controversial and difficult areas of
the Tax Code and, as Lord Howe and you have said, this is an absolutely
brilliant piece of work but also in terms of how everybody has
responded to the wishes of the Committee today, both in the quality
of the memorandum that was provided to us and in the contributions
today in answering our questions, I think it would be remiss not
to mention that we have been greatly assisted by their work and
I think it is an absolutely first-class piece of work.
Lord Howe: For the avoidance of doubt, as is
sometimes said, this vote of thanks comprehensively extends to
the Office of the Parliamentary Counsel as well.
Dawn Primarolo: As always.
Mr Jack: Could I just make one observation because
associating myself with everything that has been said, having
in some small way lived with this project since its inception,
one of the things that I think is going to be fascinating is how
parliamentarians make use of the fact that by the time the next
Finance Bill comes round they will have two pieces of modern,
complete tax legislation all drawing the various strands in this
case of Earnings and Pensions, and in the previous case the Capital
Allowances Bill, together in one volume. One of the problems in
dealing with our Finance Bills up to now is, as one of the annexes
to the paper showed, the difficulty of pulling together lots of
tax law which is scattered here, there and everywhere. Normally
the Finance Bill is a patchwork operation and you can never see
what the effect is upon the whole thing. Perhaps the danger for
ministers now is that parliamentarians at least in two parts of
the Tax Code will be able to see what the effect on the rest is
of the particular amendments that may be to come as a result of
this exercise. I think it will genuinely aid the quality of our
legislative process if it is properly used.
137. On this rare note of Treasury ministers
and ex-Treasury ministers on a cross-party basis heaping superlatives
on the work of the officials in the Inland Revenue, now we will
turn to our private deliberative session in order to conclude
(Mr Michael) Thank you very much, Chairman, and thank
you very much for those very kind comments of the Committee, which
I know will be hugely appreciated by my colleagues who have worked
very hard on this.