House of Commons
|Session 2007 - 08|
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General Committee Debates
The Committee consisted of the following Members:
Alan Sandall, James Davies, Committee Clerks
attended the Committee
Public Bill Committee
Thursday 19 June 2008
[Sir Nicholas Winterton in the Chair]
(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)
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.
Periods 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 5Definition 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 Majestys 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 UKstudents 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 Taxations 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
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 UKs 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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