Schedule 15
Finance Bill
5:00 pm
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
There has been a great deal of discussion with businesses over the past couple of years about everything that we are considering this afternoon, including how anti-avoidance should be handled. I do not want the Committee to get the impression that this measure has come out of nowhere, hence my statement that there has been a lot of discussion leading up to this point in the process.
The anti-avoidance rules have indeed been designed with a wide scope. That is to ensure that all schemes designed to frustrate the intention of the debt cap rules are caught. I made the point earlier that the alternative would have been to identify specific schemes that would be caught by the rules, but that would have run the risk of not catching schemes that nobody had thought of, or because specified schemes were changed before being used. However, the anti-avoidance rules contain filters that will ensure that they apply only to those schemes that are intended to frustrate the debt cap rules.
The hon. Member for Fareham asked how a company is supposed to establish the most likely outcome if the anti-avoidance rules apply, and what its profits ought to be. In many cases it will be straightforward to work out the most likely outcome. For example, when the avoidance is targeted at increasing the gross consolidated finance expense of the group while leaving the borrowing costs associated with that scheme more or less unchanged, the most likely alternative outcome will be to ignore the increase in those expenses. I do not know whether the hon. Gentleman will find this reassuring, but HMRC will in due course publish guidance to help to explain the factors that need to be taken into account and assessed when establishing the most likely alternative outcome. As it develops the guidance, HMRC will certainly talk to businesses about that, and in cases of real difficulty, which I think will be rare, it will be happy to discuss the most likely outcome with the group.
We cannot allow set-off between group companies because that would not be EU-law compliant. However, putting receipts of interest into the company with expense is not offensive, because the company then does not have so much interest expense to claim as a deduction.
As I said, we will publish detailed draft guidance before the Bill receives Royal Assent, and will discuss it with businesses. That will help us to come up with specific examples that should not be caught, which might be helpful in some of the situations that the hon. Gentleman has in mind.