Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)

I beg to move amendment No. 117, in schedule 18, page 253, line 39, after ‘above,’ insert

‘or not so exempt by virtue of subsection (3) above,’.

Jimmy Hood (Lanark & Hamilton East, Labour)

With this it will be convenient to discuss Government amendment No. 118.

Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)

Government amendments Nos. 117 and 118 strengthen and revise the regulation-making powers governing the allocation of income gains, losses and expenses between taxable and tax-exempt businesses of friendly societies, so that those powers cover all circumstances in which an apportionment is required. Friendly societies are entitled to exemption from corporation tax on profits arising from life or endowment business and on profits from other business. Those exemptions are subject to statutory limits. Business written outside of those limits is taxable. To compute the taxable profits of a friendly society, it is necessary to apportion income gains, losses and expenses between taxable and tax-exempt business.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

I would be grateful if the Minister clarified for the Committee which products offered by friendly societies are taxable.

Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)

I am coming to that. Under current law, a friendly society may have taxable or tax-exempt other business, but not both. However, schedule 18 allows the transfer of other business between friendly societies without its impacting on the taxable or tax-exempt status of a transferred business. That means that it will become possible for a friendly society to have both taxable or tax-exempt other business.

Currently, there are no rules to divide income gains, losses or expenses between taxable or tax-exempt other business. Schedule 18 includes a regulation-making power to allow those rules to be made. However, the HMRC solicitor drawing up the regulations to do this has advised that the regulation-making power is insufficient to cover all situations. Therefore, Government amendment No. 117 strengthens the regulation-making power included in schedule 18, and Government amendment No. 118 extends the existing regulation-making power in section 463 of the Income and Corporation Taxes Act 1988, so that all situations are now covered.

The hon. Gentleman asked for examples of taxable or tax-exempt business. Sickness policies are an example of taxable business.