(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Schedule 27
Finance Bill
1:00 pm
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
I too welcome you back, Mr. Hood, after our lunch break.
I am glad that the hon. Member for Fareham (Mr. Hoban) was able to welcome the changes in the schedule. Perhaps it was a slightly grudging welcome. Nevertheless, it was a welcome and I am glad about that.
Our aim in introducing major changes to the remittance basis last year was to maintain our international competitiveness and to increase the fairness of the tax system. Of course, the UK needs to continue to be attractive to people overseas who have the skills we need for our own economy, but it is also absolutely right that those who have chosen to live and work in the UK should make a fair contribution through the tax system to support public services. That is the balance that the new arrangements were designed to deliver.
However, the Government are certainly prepared to listen to legitimate concerns that taxpayers from abroad and their advisers have raised with us, so my predecessor, my right hon. Friend the Member for Liverpool, Wavertree, who was dealing with the Finance Bill a year ago, gave a commitment that officials from the Treasury and Her Majesty’s Revenue and Customs would meet interested parties to review the rules, to ensure that they operated as intended and imposed no unnecessary administrative obligations on potential users.
Since the autumn, officials from the Treasury and HMRC have talked with a wide range of representatives of external bodies, as the hon. Member for Henley has mentioned—I have met a number of them as well. They have identified issues that they felt should be addressed so that the new regime can be implemented as smoothly and effectively as possible. We have also taken the opportunity to make one or two other small adjustments.
The first change introduced by the schedule relates to gift aid tax relief as it applies to individuals who use the remittance basis. It was always the intention that the annual charge introduced by the remittance rules should be treated as a payment of tax for the purposes of gift aid and available to frank payments to charities. Due to a drafting error, the legislation does not deliver that result, so the amendments made by paragraphs 2 and 5 of the schedule ensure that the rules for gift aid operate as intended.
In the majority of cases, if somebody wishes to be taxed under the remittance basis they are required to make a formal claim to do so through the self-assessment system. An exception is when someone’s unremitted foreign income and gains are less than £2,000 in any tax year, when it is assumed that they will have chosen the remittance basis without any claim being made— the hon. Member for Fareham asked a question about the £2,000 and I will come to that in a moment. A case has been made that the legislation is not sufficiently clear on that point, so paragraph 3 of the schedule seeks to put beyond doubt the fact that a claim will not be required in those circumstances. Its effect will be that people in that position will be taxed on the remittance basis, but they will preserve their right to file a tax return and to be taxed under the arising basis if they wish to do so.
The figure of £2,000 is a general de minimis limit for those who use the remittance basis. The new £10,000 limit, which is introduced in the next clause, is a new tax exemption that applies to individuals from overseas, such as migrant workers who have a job in the UK and also have overseas employment income in the same year. The exemption would simply remove the obligation on people in that position to file a self-assessment return. It is a more generous arrangement for that group of people, and it applies whether or not the individual chooses to use the remittance basis; it does not affect whether they are eligible to pay tax on the remittance basis.