Today the House of Lords Economic Affairs Finance Bill
Sub-Committee published its report on the Government’s Draft
Finance Bill 2023-24. The draft bill was published on 18 July
2023.
The report covers reforms to Research and Development (R&D)
tax relief, the requirement for businesses to provide additional
information to HMRC, measures dealing with promoters of tax
avoidance, and the doubling of the maximum prison term for tax
fraud.
R&D plays a significant role in driving economic growth and
supporting business productivity and the report welcomes the
Government’s commitment to tax relief for these activities.
However, it is essential that the reforms – the merger of the two
current R&D schemes, and the introduction of a new R&D
tax relief scheme for R&D-intensive SMEs – do not introduce
additional complexity to the tax relief structure, which the
committee believes would disincentivise business investment in
R&D.
The sub-committee was pleased to hear confirmation from the
Government that the R&D tax relief review, which was started
in 2021, was now complete. This will give businesses the time
they need to allow these reforms to bed in. However, to make a
success of the schemes, they need to receive clear guidance on
the implementation of the merged scheme and, particularly, the
R&D intensive relief well in advance of the start of the next
tax year in April.
The report notes a general lack of awareness of these reforms and
recommends that HMRC undertakes an education campaign to set out
the implications of the merged scheme for businesses. If these
steps are not taken, the committee is concerned that the reforms
will struggle to achieve the impact the Government hopes for.
, Chair of the Economic
Affairs Finance Bill Sub-Committee, said:
“Businesses will be pleased that the Government’s review of
R&D tax relief has been completed and that they can now plan
ahead with some much-needed certainty. However, the Government
still has a lot of work to do in terms of the early publication
of the regulations and guidance relevant to changes and a
realistic timetable.”
The sub-committee heard evidence about the level of uncertainty
around the requirement for businesses to provide additional data
to HMRC. The draft legislation states that the collection of this
additional data may only be used for the collection and
management of specified taxes.
HMRC told the sub-committee that data on employee hours will help
to provide them with more intelligence on whether employers are
paying National Minimum Wage and National Living wage, as well as
allowing them to assess National Insurance Contributions. The
sub-committee does not consider these to be relevant to the
stated purposes and it questions whether these provisions would
be enforceable.
The sub-committee was concerned that some of the additional
information required is already collected by Companies House, but
cannot be accessed by HMRC. The Government should improve the
compatibility of its systems to facilitate appropriate data
exchange, thereby avoiding additional burdens on businesses.
, Chair of the Economic
Affairs Finance Bill Sub-Committee, added:
“The sub-committee believes that additional cost and time burdens
should not be placed on businesses unless there is a compelling
reason to do so.”
The draft legislation contains two measures that deal with
promoters of tax avoidance. The first is the creation of a
criminal offence for promoters who fail to comply with a ‘stop
notice’ issued by HMRC, and the second gives HMRC a new power to
apply to the court directly for the disqualification of directors
of a company involved in the promotion of tax avoidance.
The sub-committee welcomes the Government’s commitment to
cracking down on tax fraud, but it questions the efficacy of
these measures in addressing offshore promoters of tax avoidance.
At the same time, the report emphasises the need for better
safeguards in relation to HMRC’s new powers in respect of the
disqualification of directors in tax avoidance cases.
The proposed doubling of the maximum prison term for tax fraud
was a 2019 Conservative Party manifesto commitment. The
sub-committee questioned the need for this policy and its
effectiveness as a deterrent against tax fraud.
The report notes the lack of any analysis of the effectiveness of
the current prosecuting and sentencing regimes in such cases and
recommends that HMRC reviews its prosecuting strategy for tax
fraud, particularly in light of a sharp decline in the number of
prosecutions in recent years.
, Chair of the Economic
Affairs Finance Bill Sub-Committee, said:
“The sub-committee was sceptical about whether increasing the
maximum prison term is the most effective deterrent against tax
fraud. We were also concerned by how the legislation aimed at
dealing with promoters of tax avoidance schemes would be applied
to offshore promoters, which we know deliberately place
themselves in locations that don’t have tax treaties and
extradition agreements with the UK.”
Notes to Editors
- The House of Lords Economic Affairs Committee appoints a
Finance Bill Sub-Committee each year to inquire into the draft
Finance Bill. The Sub-Committee's inquiries focus on technical
issues of tax administration, clarification and simplification
rather than on rates or incidence of tax.
