Clause 179 - Contributions to urban regeneration companies
Finance Bill
3:45 pm

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

I beg to move amendment No. 315, in

clause 179, page 114, line 12, leave out

'any expenditure incurred by him in making'

and insert

'the amount or value of'.

Photo of Mr Nicholas Winterton

Mr Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss the following:

Amendment No. 305, in

clause 179, page 114, leave out lines 16 to 18 and insert—

'(2) Where any such contribution is made by an investment company, the amount or value of the contribution shall for the purpose of section 75 be treated as an expense of management if it would not otherwise be deductible in computing the company's profits.'.

Amendment No. 306, in

clause 179, page 114, line 19, leave out 'Subsection (1) above does' and insert

'Subsections (1) and (2) above do'.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

We welcome the status of urban regeneration companies, but we ask that the criteria for qualifying for that status be a little less restrictive than those that have been provided. They will exclude in many cases smaller organisations whose purpose may be to reduce unemployment in an area, generating training and job opportunities. Many smaller organisations are unlikely to meet the requirement in new section 79B(7)(b) of the Taxes Act 1988. For example, a community company that has the objective of training and employing people, sells what it produces and reinvests any profits for further training will be pretty unlikely to qualify. Many such companies exist, which do not qualify for charitable status, are limited by guarantee and are driven by some form of social ethic. Surely to exclude such organisations by focusing solely on the development of an area, rather than contributing to that development, would be to lose a desirable opportunity. We appreciate that safeguards are needed, but the legislation seems unnecessarily restrictive.

Amendment No. 315 would provide that the tax deduction should equal the amount of the asset. In essence, that is to cover donations in kind. The relevant new section allows a tax deduction for contributions whether they are made in cash or in kind, but the amount of the tax deduction is worded as

''any expenditure incurred by him in making the contribution''.

The Paymaster General will be aware that that point has been raised by the Law Society.

On amendment No. 306, new section 79B(2) gives a tax deduction to an investment company that makes a contribution in cash or kind to an urban regeneration company. As drafted, that applies to

''any expenditure allowable as a deduction under subsection (1) above''.

We question whether that drafting is correct, because subsection (1) gives a deduction only to

''a person carrying on a trade, profession or vocation''.

Amendment No. 305 would substitute for new section 79B(2):

''Where any such contribution is made by an investment company, the amount or value of the contribution shall for the purpose of section 75 be treated as an expense of management if it would not otherwise be deductible in computing the company's profits.''

The final two amendments are essentially Law Society points, and I trust that the Government have had time to focus on them.

Photo of Ms Dawn Primarolo

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

I understand that the amendments are intended to clarify the amount that qualifies for deduction when a business contributes in kind to an urban regeneration company. It may help if I briefly explain the purpose of the clause and the way in which it interacts with section 74 of the Taxes Act, which contains the general rule on deductions.

A business can deduct expenditure if it is revenue in nature and incurred wholly and exclusively for business purposes. Expenditure that falls within the general rule may still be excluded from the deduction by specific rules such as those for business entertainment and gifts. Expenditure by a business on a contribution to an urban regeneration company that is wholly or partly motivated by altruistic or public-spirited purposes would usually be excluded from deduction by the general rule, and the purpose of the clause is to ensure that such expenditure is not excluded. A contribution can be in cash or in kind. If it is in kind, the clause will allow the business a deduction on the expenditure incurred on making the contribution.

It may be helpful to provide some examples of what that expenditure includes. If the business seconds an employee, its deductible expenses will include the employee's wages. If it provides rent-free accommodation, its deductible expenses will include the rent actually paid, including the heating, lighting and so on, of that property. If the business donates a computer, the normal rules will generally allow a deduction equivalent to the market value at the time of the donation. That will all be made clear in Inland Revenue guidance.

Amendment No. 315 would allow a deduction on the amount or value of the contribution rather than on actual expenditure. In some cases, that would allow a deduction greater than would be allowable under the normal rules, which I assume is an unintended effect of the amendment. For example, the notional rental value of accommodation provided rent-free may be greater than the actual costs incurred by the donor. That would be too generous, as I hope that the hon. Gentleman would agree.

Amendment No. 305 would apply the same unacceptably generous rule to contributions by investment companies. In fact, the wording appears to go further than that and to allow a deduction in circumstances in which a deduction would have been denied under one of the specific rules. I hope that, considering the examples that I have given and the fact that the conditions will be spelled out in Inland Revenue guidance, the hon. Gentleman will accept that, while they are well intentioned, his amendments go further than intended and are unnecessary.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

It seems to me that the wording of proposed new section 79B(1) is wrong in referring to

''any expenditure incurred . . . in making the contribution''

rather than its value. If items in kind are contributed, there will not be any value, and only minimal expenditure will be associated with them. I cannot see how the Government square their stated intent to include items in kind with not treating them at a fair market value.

This is the Government's initiative; if they want it to work and get the best out of it, I cannot see why they would want to exclude investment companies or limit the parties to

''a person carrying on a trade, profession or vocation''.

Presumably, the objective is to achieve success by urban regeneration companies. The danger is that the provision will be used much less than hoped or intended if it includes those complexities and exclusions.

4:00 pm
Photo of Mr John Burnett

Mr John Burnett (Torridge and West Devon, Liberal Democrat)

The hon. Gentleman will recall that on previous Finance Bills we discussed the philosophical problem of investment bad, trade good. He may also recall, as I do, the Paymaster General or another Minister saying that the whole tax philosophy is in the course of being changed. Surely, this Finance Bill provides the opportunity to get things right.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

I thank the hon. Gentleman for his comment. I also recollect that that principle was addressed in the review of corporation tax which the Treasury undertook last summer, albeit that some of its other conclusions seem to have gone a little off the rails.

The measure is not a major one, but I would have thought that it is silly, if the Government want regeneration companies to be successful, for the arrangements not to be straightforward. If people donate money or goods they should receive a fair tax deduction, and it does not matter what sort of business or party they are. However, I shall not press the amendment to a vote. If the Government want to damage their own initiative, that is their business. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

I beg to move amendment No. 313, in

clause 179, page 114, line 21, after 'benefit', insert '(other than publicity)'.

Photo of Mr Nicholas Winterton

Mr Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss the following:

Amendment No. 314, in

clause 179, page 114, line 23, at end insert

'; and for the purposes of this subsection a person shall not be regarded as having received, or being entitled to receive, a benefit if it is a benefit provided by an urban regeneration company in the normal course of, or incidental to, discharging the criteria mentioned in subsection (7) below.'.

Amendment No. 312, in

clause 179, page 114, line 27, after 'benefit', insert '(other than publicity)'.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

Amendments Nos. 313 and 312 are designed to allow relief when a contribution is made as part of a sponsorship agreement or in return for publicity. The Minister will be aware that the matter was raised by the Law Society. The clause seems to rule out the possibility of a contributor entering into a sponsorship agreement with an urban regeneration company or making a contribution for part of which it receives publicity. What is the logic of that? If that is not the intention, perhaps the Minister could explain the position for the record.

Amendment No. 314 focuses on similar ground. What happens if the donor is a local business within the urban area that is being regenerated? As we understand it, it would receive tax relief on the donation only if the urban regeneration company was incompetent and provided no benefit to the locality. It would be strange to prevent local shopkeepers, for example, from clubbing together to sort out their neighbourhood.

Photo of Ms Dawn Primarolo

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

My earlier comments on the purpose and operation of the clause apply equally to the amendments. They are intended to ensure that a business will be entitled to a deduction on its expenditure on contributions to an urban regeneration company if the only benefit it receives in return from the company is publicity or the general benefit that it and others would derive from the normal activities of an urban regeneration company. There is no need for any such clarification.

Clause 179, with section 74 of the Taxes Act 1988, provides a business with a deduction in circumstances described in the amendments The anti-avoidance provision in subsection (3) of the clause prevents a deduction only in circumstances in which there is a clear, tangible, private or other non-business quid pro quo for the provision of the benefit. Inland Revenue guidance will make that clear. The same anti-avoidance rule is contained in sections 79 and 79A of the Taxes Act 1988 for contributions to bodies such as business links and has not caused any difficulties, so I see no reason why it should do so here. I hope, with that clarification, that the hon. Gentleman will agree that the amendment is not necessary and therefore withdraw it. If not, I shall ask my hon. Friends to oppose it.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

I think that what the Paymaster General said means that amendment No. 314 is not necessary. Could she make clear in simple language whether or not sponsorship arrangements with an urban regeneration company will qualify?

Photo of Ms Dawn Primarolo

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

The clause and the new section will provide a business with a deduction in the circumstances described in the amendments.

Photo of Mr Howard Flight

Mr Howard Flight (Arundel and South Downs, Conservative)

I thank the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 179 ordered to stand part of the Bill.

Clause 180 ordered to stand part of the Bill.