Schedule 6 - Accounting practice and related matters
Finance Bill
12:00 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
Before referring directly to the amendments, it would be helpful if I set certain matters in context as that would deal with the issues raised by the hon. Gentleman. The schedule will continue the work of adapting tax legislation to take account of the adoption by UK companies of international accounting standards and the new UK standards that follow the IAS closely, a point that will be important to bear in mind when I come to the amendments.
The schedule builds on the legislation that was included under the Finance Acts of 2005 and 2004. The IAS are developing all the time and, as companies are grappling with converting to those standards, it is not surprising that further tax issues keep emerging. To cope with the rapid change and to make sure that tax legislation keeps up with the demands of the growth economy and fast-changing competitiveness, the schedule continues the trend to include regulation-making powers to enable the Government to react quickly to changes and to consult about them outside the usual Finance Bill timetable. I have written to the Committee and have described the way in which we intend to use such powers. Reservations are always expressed about the use of regulations, but I hope that Opposition Members will accept that the use of regulations is necessary in a complex and evolving situation.
The schedule reacts also to representations about a late change made under the Finance Act 2005. The change was made to stop avoidance and to block unintended loopholes. However, some experts who are working closely with Her Majesty’s Revenue and Customs in such areas said that the change may inadvertently have gone too far. That returns to our earlier debate about how the Government try to strike a balance. Because the change may have gone too far, there was a possibility that it would inhibit some types of corporate rescue. The Government acted swiftly to relax the rule without destroying its original aim.
I mentioned the close working between HMRC and the experts. I pay tribute to those from business and the professions who engaged in the consultative groups that HMRC set up precisely to try to curb problems for both business and tax authorities in this rapidly changing environment. In the consultation process, the groups were particularly helpful in contributing to the designing of regulations dealing with the most complex technical parts of the changes. Six regulations were laid in December last year, but they dealt with only part of the story. There has been a continuing process of refining the draft regulations, modifying and extending the December regulations, so that they can deal with a lot of new issues that are coming to light. That process is in hand and there is a very close working relationship.
Having set the scene to show how the Government have put in place a process to deal with changing circumstances, I come to amendments Nos. 114 and 115. I recognise that the intention behind the amendments is to be helpful, but I reassure the hon. Gentleman that they are unnecessary. They seek to ensure that where the legislation being amended under the schedule refers to the “carrying value” of a loan relationship in a company’s accounts, the accounts are those prepared in accordance with generally accepted accounting practice. However, it is highly unlikely that the accounts of a company would not be prepared in that way.
The hon. Gentleman touched on what might be the one exception; a company, based in another country, using that country’s accounting standards. The loan relationships legislation already provides that if a company does not draw up accounts in accordance with UK generally accepted accounting practice, for tax purposes it must be assumed that it has used the UK generally accepted accounting practice. So, the amendments are unnecessary because the Bill already copes through its interaction with loan relationships legislation; that addresses the point that the hon. Gentleman made.
Having put that clearly on the record, I hope that the hon. Gentleman accepts that on this occasion the Government are trying to work closely with business to respond to international accounting standards, the new UK standards, and the transition from one to the other.