With this it will be convenient to discuss the following:
Government new clause 2—Determination of beneficial entitlement for purposes of group relief.
Government new clause 3—General Block Exemption Regulation.
Government new clause 4—Co-operative societies etc.
Government new clause 5—Tax relief for theatrical production.
Government new clause 6—Exclusion of incentivised electricity or heat generation activities.
Government new schedule 1—Oil contractors: ring-fence trade etc.
Government new schedule 2—General Block Exemption Regulation.
Government new schedule 3—Taxation of co-operative societies etc.
Government new schedule 4—Tax relief for theatrical production.
Government amendments 42, 43, 5, 6, 1, 2, 4, 11 to 14, 7 to 10, 15 to 41, 3 and 44 to 66.
I will attempt to speak briefly to this long list of Government new clauses, new schedules and amendments, although I will respond later in the debate if any questions are raised.
New clause 1 and new schedule 1 make changes to provide a fair amount of taxation for activities carried out on the UK continental shelf in connection with the UK’s oil and gas resources. The Government are committed to maximising the benefits that the North sea can bring to the UK economy while ensuring that all companies benefiting from the UK’s natural resources, either directly or indirectly, pay their fair share of tax.
The UK is not currently receiving a fair amount of tax from companies that provide drilling rigs and accommodation vessels to the oil and gas industry. Many of those companies own their assets in lower tax jurisdictions overseas. Those assets are then leased to associated entities operating on the UK continental shelf through specialised leasing arrangements know as bareboat charters, giving rise to a large deductible leasing expense in the UK. That results in up to 90% of operating profit made in the UK being moved overseas.
This measure will cap the amount the UK base contractor can claim as a deductible expense for those leasing payments. It will ensure that companies pay a fair amount of tax for the activities they carry out in connection with the UK’s valuable natural resources.
New clause 2 makes changes to corporation tax group relief rules to remove an unintended restriction that has been identified in current anti-avoidance legislation. That legislation is well targeted and limits the opportunities for avoidance, for example through artificial groupings.
However, the rules are triggered in limited circumstances where conditions are agreed or imposed on a group by the Government or a statutory body. That is clearly unintended.
The clause proposes a restricted amendment to section 169(2) of the Corporation Tax Act 2010 to exclude from the definition of “arrangements” situations where conditions are agreed or imposed by the Government. That will ensure that the anti-avoidance rules are more effectively targeted for the future and that companies involved in these specific commercial arrangements will have improved access to group relief. The amended rules will continue to ensure that they prevent manipulation of company control and group status and will continue to restrict access to group relief where appropriate. That will maintain the fairness and consistency of the tax system.
Government new clause 3 and amendments 42 and 43 make a number of changes to three capital allowances: enhanced capital allowances for zero-emission goods vehicles; enhanced capital allowances for enterprise zones; and business premises renovation allowances. All are state aids designed to comply with the general block exemption regulation. The existing regulation ended on
In the case of enterprise zone allowances, it also excludes expenditure on energy generation, distribution or infrastructure, and broadband networks; restricts qualifying expenditure incurred by large companies in certain enterprise zones to new economic activities; and requires companies that make a production process more efficient to ensure that the qualifying expenditure exceeds by value at least three years’ depreciation of the machines being replaced.
New clause 4 and new schedule 3 make technical changes to the tax legislation applying to co-operative and community benefit societies, industrial and provident societies, European co-operative societies and credit unions to ensure that the definitions used in the legislation are clear, up to date and work as intended. There has been no policy change on the taxation of the various societies or the reliefs available to them, or indeed their members. There will be no effect on their tax position, but the changes we are making will ensure that the legislation is accurate and fully in accordance with the policy intention.
New clause 5 will introduce an additional corporate tax deduction and payable tax credit for theatre production costs. Production companies will be eligible for a payable tax credit worth up to 25% of qualifying expenditure for touring productions and 20% for all other productions. These provisions will be available from September for producers of a wide range of theatre and performance, supporting plays, musicals, dance, ballet, opera and circus.
I welcome this particular measure, because the very well known Buxton opera house is in my constituency of High Peak and it hosts lots of touring theatrical companies. Offering different types of performances to the area engages people in going to the theatre and promotes the local economy, so the measure’s benefits will be broader than we may have thought at first.
Circus is a performing art invented in the United Kingdom and it provides many children with their introduction to the performing arts and leads them to a love of theatre. May I therefore welcome my hon. Friend’s decision to include circuses in those areas covered by the tax relief in new clause 5? The travelling circus industry welcomes that decision, which is already leading directly to new investment in travelling circuses.
Again, I am delighted to hear that. My hon. Friend lobbied us and made representations on behalf of his constituents for the inclusion of circuses. As a consequence of the consultation process and listening to the points raised by my hon. Friend and others, I am delighted that circuses will benefit from this tax relief.
The Government will respond formally to that, but I believe that well-designed, well-focused and targeted tax relief, which is what we have, can help the economy grow and help particular sectors. Indeed, I am delighted that two examples have just been provided to us. This Government have successfully lowered rates, including corporation tax, which we have debated this afternoon, and, if particular sectors can be supported by a well-targeted tax relief, we should do that. We believe that, overall, our tax system is working to enhance the UK’s competitiveness. This Government have a good record in the creative sector in particular, and I am delighted that, through new clause 5 and new schedule 4, that will continue.
New clause 6 amends the list of excluded activities in the tax-advantaged venture capital schemes—the seed enterprise investment scheme, the enterprise investment scheme and venture capital trust schemes—so that a company whose trade consists substantially of the generation of electricity or heat that attracts renewable obligation certificates or payments under the renewable heat incentive will no longer qualify for investment under those schemes, with limited exceptions.
As in the case with the feed-in-tariff exclusion, community interest companies, community benefit societies, co-operative societies and Northern Irish industrial and provident societies will not be affected by the restrictions. The exceptions for co-ops will also apply to European co-operative societies, in line with the changes being introduced as part of the “taxation of co-operative societies” amendment, which aims to align and update all references to industrial and provident societies across the Taxes Acts. The restriction will also not apply where the electricity is generated by anaerobic digestion or by hydropower, nor where heat is generated, or gas or fuel produced, by anaerobic digestion. The measure will apply in respect of both UK ROC and RHI schemes and overseas equivalents. It will make the tax-advantaged venture capital scheme better targeted and effective in supporting small and growing, higher-risk businesses.
Amendments 5 and 6 make technical changes to clause 73, which will restore sense and fairness to air passenger duty by reforming the destination banding and introducing a simple to understand two-band system. As the House will know, we have devolved the power to set rates on direct long-haul flights from Northern Ireland to the Northern Ireland Assembly, which set the rates at £0 in the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. As the structure of the tax, including the number and composition of the destination bands, remains a matter for the UK—the Northern Ireland legislation refers to the UK legislation—the Northern Ireland Executive have asked us to make the consequential amendments needed to their legislation so that it aligns with the UK legislation.
We had an extensive debate in Committee on clauses 192 to 211, which introduce follower notices designed to tackle would-be tax avoiders who attempt to frustrate efforts to resolve their cases. At the time, I emphasised that taxpayers have full rights of appeal to the tribunal against any penalty charged under the rules, and I mentioned a particular ground for making an appeal. We have continued to receive suggestions for clarifying the legislation, particularly on how it could be improved by more clearly spelling out the grounds for making an appeal against the follower notice penalty.
I am grateful to those who made such points. Having considered them further, I concluded that it would be helpful to table amendments 1 to 3. Amendment 1 specifically sets out the grounds for making an appeal against any penalty charged under the rules. I emphasise that the taxpayer is not obliged to settle their dispute in response to a follower notice. The amendment makes it clear that if the taxpayer has reasonable grounds to continue their dispute, it is open to them to appeal against the penalty and for the tribunal to discharge the penalty on that basis. Amendment 2 makes it clear that that does not mean that the original follower notice and any associated accelerated payment notice were issued incorrectly. Finally, amendment 3 amends schedule 27 to apply those clarifications to partnerships.
I will take the opportunity briefly to clarify some points made when clauses 192 to 211 were debated in Committee. I mentioned then that 22 responses had been received to the January consultation on the draft legislation. Some commentators have subsequently questioned whether the number was not in fact higher. The draft legislation on follower notices was issued in two separate documents in January, one of which was on tackling marketed tax avoidance. Although we received a total of more than 800 responses, the vast majority related to accelerated payments, and only 22 specifically related to the draft legislation on follower notices that was published at the same time. I hope that that provides clarification.
In Committee, I was asked whether the accelerated payments regime would
I said that it would not. I want to clarify that an accelerated payment notice may not be issued to a taxpayer with a pre-DOTAS tax dispute where DOTAS—disclosure of tax avoidance schemes—is the only criterion available. Even though a scheme may have come into DOTAS after its introduction, anyone using it before DOTAS will not be subject to accelerated payment on DOTAS alone. However, accelerated payment based on a follower notice can apply to pre-DOTAS cases because the notice does not depend on the DOTAS disclosure. I am grateful for the opportunity to provide clarification.
The Government have tabled amendment 4 so that clause 291 more clearly reflects the Supreme Court’s decision on the limitation period where direct tax has been charged contrary to EU law. The amendment recognises that the ruling of the Supreme Court in the franked investment income group litigation is not confined to claims based on free movement, but applies to all cases in which tax has been charged contrary to EU law.
Schedule 6, introduced by clause 48, gives effect to recommendations from the Office of Tax Simplification to replace HMRC approval of tax advantaged employee share schemes with a new self-certification arrangement for businesses setting up such schemes. Amendments 11 to 14 make final consequential amendments to remove references to approval of schemes in tax legislation.
Schedule 7, introduced by clause 49, implements several OTS recommendations, including provisions to simplify the tax treatment of employment-related securities awarded to internationally mobile employees. Under the schedule, a small number of internationally mobile employees who receive share awards overseas and later come to the UK could be placed in a worse tax position than their UK resident colleagues, possibly suffering double taxation. Amendment 7 corrects that, and, with amendments 8 to 10, ensures that certain income received overseas is treated in the same way as similar UK income.
Amendments 15 to 41 amend schedules 9 and 10 to extend the new tax relief for social investment, the SITR, to investment in social impact bonds, which are payment-by-results contracts between public sector bodies and service providers, and are an innovative way of financing better delivery of public services. The providers are often charities or social enterprises. The measures will support further increases in the number of social impact bonds by providing incentives to private individuals who invest in them. Tax relief will be available only where a company has been accredited by the Cabinet Office and secondary legislation providing details of the accreditation process will be laid in September.
Amendments 44 to 66 will protect a new capital gains tax relief from abuse. Schedule 33, introduced by clause 283, encourages the creation and maintenance of employee-ownership trusts, under which all employees of a business can have a stake in its value, growth and success. One way it does so is by allowing full relief from capital gains tax to people who transfer their shares in the company carrying on the business to an employee-ownership trust. There are rules to ensure that the trust is for the benefit of all employees and that control of the business passes to the trustees before the relief is available.
Clearly it would not be an effective use of public money to give the relief if a trust broke the rules soon after it was created, denying the employees, the business and the economy the long-term benefits of employee ownership. Amendments 44 to 66 therefore ensure that if the employee-ownership structure fails or does not abide by the rules for relief at any time during either the tax year in which the shares are disposed of or the following tax year, relief may not be claimed, and any relief which has been given will be withdrawn and the capital gains tax position will be restored to what it would have been if no claim had been made.
I urge the House to support the amendments, new clauses and new schedules.
I thank the Minister for introducing the 60 or so proposals that the Government have tabled for consideration at the end of proceedings on the Finance Bill. [Interruption.] I hear some tutting behind me. The House will be relieved to hear that although I have a number of questions they relate mainly to new clauses 1, 5 and 6, new schedule 4 and amendment 2.
I will start with new clause 1. It is important to take the opportunity to scrutinise what are fairly significant changes. They have been introduced by the Government at a fairly late stage in the Bill’s progress. Will the Minister comment on why that is the case? The measures were first announced in the autumn statement but the Government were still consulting on them some five months later while we were scrutinising the Bill clause by clause in Committee.
Perhaps the most controversial of the Government’s announcements on North sea oil and gas over the past year is contained in new clause 1 and new schedule 1, which make changes to the UK continental shelf oil and gas fiscal regime. As the Minister set out, they relate specifically to leasing arrangements between oil and gas contractors and oil and gas licence holders on the UK continental shelf—arrangements that are commonly known as bareboat chartering. Oil and gas service companies often lease drilling rigs, vessels and other equipment from overseas related parties on a bareboat basis—that is, without operating personnel—and the associated rental costs are claimed as a deduction against the UK profits of the service company when it uses the equipment to provide services to oil and gas licence holders on the UK continental shelf.
As the Red Book sets out,
“the government is concerned about the use of” such leasing arrangements
“to move significant taxable profit outside the UK tax net”.
I would be interested to hear from the Minister what estimate his Department has made of the total taxable profit that has been moved outside the UK tax net as a result of these leasing arrangements. More importantly, what evidence does HMRC have that such profit shifting or transfer pricing is avoidance activity, as the Government seem to suggest?
When the Minister is answering those questions, I wonder whether he will also say what impact the measures will have on drilling activity in the UK.
The right hon. Gentleman raises an important question. I hope that the Minister addresses it in his response. I will come on to that issue.
In May, a Reuters report on these measures suggested that HMRC had
“allowed an industry with annual revenues of 2 billion pounds to pay almost no corporation tax for two decades”.
It also suggested that such arrangements have allowed drilling operators in the North sea
“to operate almost tax free for 20 years or more”.
It would be useful to know why the Government are acting now on those arrangements. I hope that the Minister will elaborate on that.
The Chancellor made an announcement in last year’s autumn statement that appears to have come as a surprise to many. He proposed the introduction of a cap on the deduction that is available to UK service companies on bareboat charters from connected companies. He also announced plans to ring-fence profits from other business activities so that the taxable profit could not be reduced by other tax losses. It appears that, because of the considerable lack of consultation before those announcements were made, the Government have significantly altered the plans to take account of the views of the industry.
The final proposals that are before us today will introduce a cap on the amount that service companies can deduct from their taxable profits through such leasing arrangements. The leasing deduction will be limited broadly by reference to a cap of 7.5% on the original cost of the asset or equipment. The cap was originally set at 6.5% but has been changed following the extensive consultation with the industry. Again as a result of the consultation, the cap will apply only to drilling rigs and accommodation vessels, which are otherwise known as “flotels”.
I am listening carefully to what the hon. Lady is saying. Does she agree that, although the cap applies only to drilling rigs and accommodation vessels, drilling rigs are the crucial matter? There is a worldwide shortage of drilling rigs, so the cap might mean that they are used elsewhere, rather than in the North sea.
The hon. Gentleman raises an important point. Again, it would be helpful if the Minister addressed that concern in his response. I will come on to that matter a little later.
New schedule 1 introduces a new form of ring fence that is similar to that imposed in respect of ring fence corporation tax for companies that operate on the continental shelf. The ring fence will be applicable to the composite activity that is the subject of this measure. That means that, although profits within the ring fence will only be taxed at the standard corporation tax rates and not the higher rates that apply to oil and gas producers, it will no longer be possible to reduce those profits through other tax reliefs that are derived from activity outside the UK continental shelf.
To summarise, lease rental payments will be capped at 7.5% of the original cost of the asset being rented, and even those capped rental costs may be offset only against profits that arise from activities outside the ring fence. The tax information impact note suggests that those changes will yield £135 million to the Exchequer this financial year, with similar revenue yields—slowly declining—forecast for the next four years.
I understand that the measures have changed substantially from those originally set out in December, following what was—quite rightly—an extensive consultation with the industry. Although the Opposition support any attempt to clamp down on tax avoidance, there still seem to be substantial concerns about those measures from within the industry, particularly regarding how the Government have approached the changes, as well as what impact they will have on an industry that makes a vital contribution to the public purse and, of course, the UK’s energy security.
On the Government’s approach, I remind the House of the last time the Chancellor made significant changes to the UK continental shelf fiscal regime, which was described by the Financial Times as “clumsy”, and
“handled in the least helpful way possible.”
In Budget 2011, the Chancellor announced an increase in the supplementary charge—an additional tax on ring-fenced profits from oil and gas extraction—from 20%, which was the rate set by the last Labour Government, to 32%—a 12% increase. He argued that any tax increase was in the interests of fairness and cited rising oil prices, but in reality the Chancellor needed to raise revenue to pay for the delays in planned fuel duty rises, and scrapping the fuel duty escalator.
In the autumn statement last year, the Chancellor announced major changes to the oil and gas fiscal regime—effectively tax increases on both occasions—without any prior discussion with the industry. As my hon. Friend Kerry McCarthy pointed out at the time, the charge was
“poorly targeted, has potentially serious unintended consequences for the industry, and is certainly not a policy that they got “right first time”, and all because the Government did not consult on their decision.”—[Hansard, 3 May 2011; Vol. 527, c. 600.]
In 2011, HMRC conceded that the increase in the supplementary charge would risk the economic viability of some marginal oil fields. We therefore tabled an amendment to last year’s Finance Bill, calling on the Government to conduct a proper review of the impact of the tax increase. The tax information impact note for those measures states:
“The measure could increase the day rates by up to 10% on new contracts for drilling rigs and accommodation vessels”,
yet goes on to suggest that such increases will be “insignificant” to companies—those on the UK continental shelf may disagree. The final sentence of the tax information impact note states that the Government will review the impact of those measures in a year’s time—perhaps a tacit acknowledgement that they could be more detrimental than the Government’s optimistic assessment seems to suggest.
Considering the many similar concerns about the impact that the changes will have on certain fields and their economic viability—including from within the Treasury—I would be grateful if the Minister would inform the House how many fields, already marginal, his Department has estimated will become uneconomically unviable as a result? Considering that such assessments were carried out in 2011, presumably they have also been made on this occasion.
When the Government increased the supplementary charge in the 2011 Budget, The Times reported that big oil firms such as Statoil and Centrica were freezing their investment decisions—reportedly worth more than £6 billion—or temporarily closing fields as a result. Again, there are concerns in the industry that if the additional tax costs are passed on in higher day rates—and many, including the Government, expect that they will be—that will lead to higher exploration costs in the sector as a result of the increased cost of renting drilling rigs.
As Oil & Gas UK has pointed out, driving drilling rigs out of the UK continental shelf may only compound the problem of low levels of exploration and production. As the Wood review recently identified, exploration is now at a critically low level. Even more worryingly, production fell by 38% between 2010 and 2013.
The hon. Lady is making an important point: maximising exploration is crucial to future revenues. Unless oil is produced out of the ground, we will not see any tax revenue.
That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.
Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.
This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.
I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.
The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for
Tax Journal in February highlighted this issue and concluded:
“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”
Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.
As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.
After the debacle of the autumn statement last year with regard to this unexpected announcement, Ministers have finally, three years after they made the same mistake, learned the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.
New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.
The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read the
Hansard to see the extensive debates and discussions we had in the Public Bill Committee.
Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?
Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.
I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.
In the case of the film tax credits, the British Film Institute has a role in assessing whether the criteria are met, and it obviously has great expertise in that area. It would be helpful to know whether this work is going to be contracted out in any way or whether any particular expertise is needed by Revenue officials in doing this job.
My hon. Friend raises a very important point. I have not specifically considered it, but it fits well with some of the additional concerns put to me, which I am now putting to the Minister, about defining who should qualify for the relief and how it should be assessed by HMRC. It would be interesting to hear whether consideration has been given to using the expertise of outside bodies to ensure that HMRC gets its assessments right first time in administering this tax relief.
In the light of the National Audit Office’s recent report that HMRC monitors just 10% of its “tax expenditures”—there are more than 1,000—it would be reassuring if the Government committed themselves to reviewing the operation and take-up of this tax relief each year to ensure that HMRC is fully aware of how it is being used, and, more important, whether it is being abused.
My second query relates to the interaction of not-for-profit productions, which are often registered as charities, and this tax relief. In its press release on the publication of the consultation document in March, Arts Council England pointed out that the majority of theatre productions which receive funds from it are registered as charities, not companies, and are therefore not liable for corporation tax. It seems that such concerns were also raised throughout the consultation, with many wondering how the numerous not-for-profit productions to which this tax relief would be hugely valuable would still be able to benefit. The press release suggested that such registered charities would have to set up a trading subsidiary in order to benefit from the tax relief.
The Government’s response to the consultation, which I believe was published last week, noted those concerns and suggested that the Government had worked closely with stakeholders to ensure that such charities could benefit without incurring significant additional administrative costs. However, it remains unclear whether Arts Council England’s suggestion about the setting up of trading subsidiaries is the Government’s favoured approach. The document merely states that HMRC intends to publish “comprehensive guidance”. Clearly, in the light of recent reports from the Public Accounts Committee and the National Audit Office, the right balance must be struck between making this welcome relief available to those at whom it is aimed, and ensuring that such well-intentioned reliefs are not open to widespread abuse. I hope that the Minister will be able to provide some clarity and reassurance.
Let me now say something about the definition of “touring productions” for the purposes of a payable tax credit. As the Minister helpfully explained, two levels of tax credit are available to touring productions that surrender their losses—if they have losses, of course—in order to give further incentives to the bringing of productions to areas that are, as the response puts it, “under utilised”. If a production does tour, an enhanced rate of tax credit is available, amounting to 25% of losses surrendered. For all other productions—those that do not tour—the payable tax credit is 20%.
The Government’s consultation response indicates that they have changed the definition of “touring production” following suggestions that many smaller productions do not present as many as 14 performances in a single venue, or perform the same show in 12 different venues, which were the previous criteria. The Government have now decided that productions are defined as “touring” if they meet one of two criteria: they must either perform in at least six separate premises or present at least 14 performances in at least two different premises.
It is the second criterion that has caused concern, because it remains unchanged even following the consultation. I should be interested to hear the Minister’s justification for that. The Government have clearly responded to concern about the number of different venues on a tour, but perhaps he can explain the thinking behind the classing of a production as being “on tour” if it performs in just two different venues. Even if it puts on a number of shows at those two venues, I wonder if that really could be classed as a tour. What is to prevent a production from moving from one side of the road to the other, for example, in order to benefit from an enhanced tax credit?
Concerns have also been raised by the National Centre for Circus Arts, which is worried about the definition of “theatre”. Although the word “circus” is specifically mentioned, the centre thinks that the definition is still too narrow to reflect the nature of many contemporary performances, not least those in circuses. It would welcome confirmation that all circus performances will qualify for the tax relief. It feels that the new clause refers to a dramatic production in which
“the performers are to give their performances wholly or mainly through the playing of roles”.
That wording could exclude a great many excellent shows which the centre feels that the Minister would want to encourage and which, in the nature of circus, showcase superb skills of dexterity and athleticism, but may not involve a narrative or character acting as we might understand it to be, in the context of a traditional play. Is the Minister prepared to provide some clarity and reassurance, or alternatively to meet the National Centre for Circus Arts to discuss how HMRC can best evolve the guidance that is supposed to flow from this Bill, and which people are still awaiting, to ensure that as wide a range of circuses that do not involve the use of wild animals are eligible for the relief? As has been said, circus originated in this country, and this new tax relief could help it grow internationally also.
As the Labour party introduced this tax relief for the creative industry, we fully support another tax relief of a similar nature. However, there has been only a short time to reflect on the issue, and there are some outstanding queries, on which I hope the Minister will be able to give some reassurance.
New clause 6 is on the exclusion of incentivised electricity and heat generation activities. It removes more renewables activities from being eligible for the enterprise investment scheme—although it still allows anaerobic digestion and hydro-power remain to be covered—unless carried out by a community company. This was announced a little while ago. It is worth reiterating some of the points we made on clause 53. We have a particular concern regarding the impact on investment in the renewable energy sector. New section 257MS explicitly rules out enterprises that benefit from Government renewables subsidies, including feed-in tariffs, renewable obligation certificates and the heat incentive scheme. Given the well-publicised need for alternative sources of energy, it seems very strange that the Government are content to disincentivise this activity, because it could result in a big slow down in investment in the renewable energy sector in Britain, and potentially jeopardise our chances of meeting European renewable energy targets and climate change targets. It could also limit the ability of communities to invest in localised renewable energy schemes.
In addition, funds already invested in renewable energy projects may have to be returned. It has been estimated that, for anaerobic digestion alone, the sum is over £130 million. Considerable anxiety has been expressed over the past four years about this Government’s slightly erratic approach to renewable energy and renewable energy generation, so it would be helpful if the Minister could provide some reassurance in that regard.
Does the hon. Lady not think it right that we incentivise these renewables projects through contracts for difference and all the mechanisms the Department of Energy and Climate Change has brought forward rather than these sorts of EIS schemes? Therefore, it is rational to do what the Government have done, and that of itself should not make any difference to the propensity to go ahead with these things.
We would always hope that the Government would behave rationally in respect of these matters. I am pleased that the hon. Gentleman has absolute confidence in that, but I would be grateful if the Minister could provide some reassurance because the Government’s record on these issues has not always been entirely rational and I do not share the confidence of David Mowat in this regard.
On follower notices and accelerated payments, amendment 2 inserts subsection (8A), which provides that if a tribunal finds that a penalty should not have been charged because it was reasonable for the taxpayer to continue his dispute, the follower notice on which it was based remains valid, as does any accelerated payment notice or partner payment notice related to it. Concerns have been raised that if a penalty is cancelled on the grounds specified in clause 207, the validity of the follower notice—or related accelerated payment notice or partner payment notice—is not affected by the cancellation of the penalty. HMRC has confirmed that the intention is that if the penalty is cancelled on other grounds specified in subsection (2A), the follower notice, and any related accelerated payment notice or partner payment notice, would be cancelled. That is clearly the logical result of a successful appeal against the penalty. However, a few questions have been raised about this, so will the Minister say in what circumstances the grounds of appeal in clause 207(2A)(d) might be used, and why if successful, the FN and related APN or PPN would not be cancelled? When will guidance be published on this and the rest of the legislation on FNs and APNs, bearing in mind how important the guidance will be in helping taxpayers and their advisers to understand how this legislation is intended to operate? When will HMRC be publishing a list of the disclosure of tax avoidance schemes that will be issued with an APN, as we know that there is a lot of concern about the implementation of some of the Government’s proposed changes? On that very technical note, I conclude my queries to the Minister and I look forward to receiving reassurances from him in his response.
I welcome the chance to make a brief contribution to the debate on this group of amendments. It was a pleasure to serve on the Public Bill Committee with the Exchequer Secretary; it was certainly an educational experience for me. It was also a pleasure to serve with Catherine McKinnell, although her professed determination to scrutinise the legislation line by line did at times make it feel as though she was scrutinising it word by word.
I should like to speak briefly to Government amendments 1 and 2, which affect clause 207, encompassing clauses 192 to 212. As the Minister and the shadow Minister have said, those provisions deal with follower notices and the accelerated payments regime. I was heartened to hear that the Minister is spelling out the ground rules for appeal in respect of follower notices, but he will know that there remains some residual concern, to say the least, about the retrospective nature of accelerated payment notices.
A number of people and their advisers have made what they believe to be a proper disclosure, particularly after the increase in the fine for non-disclosure from £5,000 to £1 million, erring on the side of caution and over-disclosing. They are concerned that they will now be caught up by that disclosure and will find themselves with retrospective tax liabilities, perhaps dating back to 2004. The Minister was good in Committee in making it clear that he would continue to consult the industry and taxpayers, because the original consultation was brief. I hope that he will do that, and will continue the dialogue with the industry and with taxpayers to ensure that nobody is caught up unfairly, having tried to do the right thing, by these proposals. I look forward to hearing him make the position clear in his remarks .
I rise to speak against new clause 1 and the introduction of the bareboat chartering regime. I heard the Minister’s comment that this is about trying to get a fair tax return from this small but important sector. It tells us that at the moment it is paying about £200 million a year in tax and national insurance. At a yield of about £100 million, the tax return from this small sector will be increased by about 50%—that seems a substantial increase in a short period.
I would like to say that this bareboat chartering regime was a one-off stand-alone bad measure, but it does not stand in isolation. It is part of a pattern of ill-judged, disjointed and sclerotic decisions that this Government have taken, and it typifies their attitude to the North sea. Some years ago, we had the massive hike in North sea corporation tax supplementary charge, which absolutely stifled investment and brought it to a grinding halt. That led the Government, in panic, to make some kind of correction through the introduction of a large series of complicated new and enhanced field allowances.
My hon. Friend makes a very good point. Given that the Government have so recently and so enthusiastically embraced the Wood review, does he not think that it is an odd measure to introduce, as it will hit the maximisation of the recovery of our oil and gas reserves?
That is an extremely good point. It is not just the International Association of Drilling Contractors that has welcomed the Government’s approach to accepting the full recommendations of the Wood review, but the overall trade body, Oil and Gas UK. Indeed, the Scottish National party thinks that it is a good thing, too. Both the industry and the SNP have also welcomed some of the field allowances that the Government were forced to introduce, particularly the ultra-high-temperature, high-pressure field allowance for mixed gas and oil fields. That kind of measure is incredibly sensible, but as my hon. Friend says, and as Oil and Gas UK points out, there is huge disappointment that the Government are continuing with the bareboat charter measure. They believe that it is ill-conceived and should have been dropped in its entirety. The backdrop to its introduction is a period in which operating costs have increased sharply. Last year’s cost increases of more than 15% led to an all-time record high of almost £9 billion in costs. I understand that new developments in the North sea are facing similar cost pressures, so it is illogical to introduce this measure at this point, especially as drilling rigs and accommodation vessels alone are included in the scope of the legislation.
We are looking at a part of the sector where the return on capital is only 8% or 9%, and the cash break-even on a drilling rig or an accommodation platform is typically 15 years. These are large investments, with investors taking substantial long-term risks, and we cannot understand why the Government want to put that at risk at this particular point.
My hon. Friend makes a very good point. Does he also recognise that there is a shortage of rigs? By applying this measure specifically to drilling rigs, we are adding another disincentive for investment in the North sea that would maximise our oil and gas recovery.
Indeed; I recognise all those points, and the pressures that are being applied to finite and very mobile resources, such as rigs and accommodation vessels, but I will come back to some of that later.
This measure not only penalises the drilling and accommodation vessel sector, but potentially impacts on the entire £35 billion upstream oil and gas supply chain. Derek Henderson from Deloitte UK said:
“While it doesn’t affect operators directly, many expect that the costs will be passed on to them and could discourage drilling.”
That would impact on the entire support and supply chain that is dependent on drilling activities.
On the point about making other jurisdictions more attractive, are the Government not actually helping Scotland’s competitors by ensuring that rigs, of which there is a shortage, go to more sympathetic jurisdictions?
Indeed, and Malcolm Webb from Oil and Gas UK made a near-identical point when he said:
“It is perplexing…that the Government has chosen to proceed with the bareboat measure. This can only increase costs on the”
UK continental shelf. He also said:
“we fear that this move will drive drilling rigs, already in short supply, out of the UKCS.”
That would be a ridiculous thing to do.
What makes this measure all the more peculiar is that the bareboat charter arrangements are commercial arrangements that are widely used across a range of industries, and not just in the oil and gas sector. The arrangements we are talking about are used internationally, and have formed a consistent part of the UK continental shelf operation for 40 years. So why pick now to take an extra £500 million or £600 million out of the North sea over the next five years? The Treasury’s decision in the Budget to apply this measure only to the oil and gas industry, and only now, to a few specific vessel types, is utterly illogical.
I do not want to detain the House too long, so I think that the key thing to do is to consider the points that the International Association of Drilling Contractors makes about the measure. This is not a gentle criticism of a mildly inconvenient tax; it is an excoriating critique of what the UK Government have done. The association says:
“The measure is unfair and a unilateral deviation from international best practice…with no ability for contractors to reset prices,” it
“amounts to retrospective and double taxation”,
and in a real and practical sense, it does. It says:
“The measure will depress economic activity. The…changes affect the cost base of the drilling industry”,
with all the impact that might have. It goes on:
“The measure targets a single, specialist sector for additional rent…Specialist international companies that have relocated” to the UK “will be particularly hit”, when they and their investment should be welcomed instead.
The association argues:
“The government has manipulated the introduction of the measure to avoid proper scrutiny.”
In a particular criticism, it goes on to say:
“It is not appropriate for legislation as complex as this to be published in initial draft form” on the day it was due to come into effect. That is a preposterous way for the UK Government to behave. The association continues:
“The consequences of the measure have not been properly assessed by HRMC”,
and it says that there are reports that up to £2 billion could be lost from the continental shelf. It also says:
“The measure is deliberately discriminatory...all vessels bar drilling rigs and accommodation units have been exempted for reasons that are far from clear.”
To put that another way, only two sorts of vessels remain included in the scope of the measure, which appears to be the usual sort of smash-and-grab cash raid that this Government make on the North sea.
There appear to be a great many reasons why the bareboat chartering regime is wrong. There appears to be an illogicality about the way it is being introduced, as well as a complete lack of transparency and time properly to assess the long-term impact, not just on drilling rigs and accommodation vessels, but on the entire supply chain. Little concern appears to have been felt about the consequential impact on growth and jobs in the sector and in the economy in general. That is quite a scathing set of criticisms to make of this Government, although it is not unique and could apply to any number of other things that they have done.
I look forward to hearing what the Minister has to say, but unless there is a very credible explanation of the amount of tax that he believes is lost, and of how the proposals will help, rather than having the consequences that I have described, I fear that we might divide on new clause 1.
I should like to speak to new clause 5 and new schedule 4 on the theatre tax relief and to set this in the context of the current state of British theatre.
The Government’s own documents point out that the film tax credit introduced by the previous Labour Government has been a significant success. In answer to written questions from my right hon. and learned Friend Ms Harman, the Government have told us that the film tax credit has supported 1,200 films, provides 46,000 jobs, and has brought in £1 billion of investment. Obviously, therefore, a theatre tax relief is a good idea in principle, but it is worth considering whether the drafting of the new clause will achieve all the desired objectives. If it is not drafted sufficiently generously, the positive benefits to the theatre industry and to the British economy will not be achieved, but if it is drafted too loosely, it can become open to abuse. In either of those instances, we will have to come back and revisit the drafting, and the industry will face an unstable regime that is not helpful to its planning. In one respect, the drafting is a bit too loose and in another respect it might be a little too tight.
I strongly support the hon. Lady’s thesis that it is essential to get the wording right. At the moment, there seems to be a practice on the part of HMRC investigators to assume that any investment—certainly by private individuals taking advantage of this facility—is, by definition, improper. There is far too much of an assumption that people are on the fiddle. I share her view that it is an entirely valid form of tax allowance and that it is important to get the definitions absolutely bang on the nail.
I am grateful to the hon. Gentleman. It is slightly unfortunate that the Government have brought the new clause and new schedule to the House now, because this is the only opportunity we are going to get to scrutinise this.
The object is obviously to support the development of British theatre and, in particular, to support touring. We have some of the best theatre in the world; we all know that. It all began with having the best playwright in the world. We have built on that over time, and our theatre is one of the major attractions for inward visitors and a major export industry. I point out to the Minister that we can draw a distinction—it is a little crude—between two parts of the current theatre industry. The commercial part is a series of chains of theatres producing successful, profitable plays that are often sold to New York and have very long runs, particularly in the west end of London.
If the sole benefit of the tax relief was to make those companies more profitable, that would be very nice for them, but it would not achieve what the Minister is aiming for—namely, to support the development of the industry. We therefore need to look at whether the relief supports the part of the theatre that is not always profitable and is supported by the public purse. That is why the question that my hon. Friend Catherine McKinnell asked about whether the allowance will be claimable by companies that are charities is very pertinent. Large parts of the subsidised theatre sector, the Minister hopes, will be getting a tax subsidy instead of a public spending subsidy; I appreciate that that is his aim. However, that will not happen if their legal structure is not in line with what the Bill provides for. It is rather disappointing that we are being asked to agree this primary legislation when the guidelines on the definitions have not yet been published and so it has not yet been possible for them to be scrutinised by people in the industry who understand this very well.
To take a concrete example, the National Theatre is a publicly supported theatre, and the publicly supported theatre, by and large, is more innovative, more adventurous, puts on more new productions and, as some might say, is more interesting. That theatre has a wider portfolio of riskier and more different productions, and sometimes, some of them turn out to be extremely popular and can transfer into the commercial sector. The most obvious recent example is “War Horse”, which has done very well indeed. It started at the National, it went to the west end and now it has been on in New York as well. We obviously want more of that.
The Minister must tell us more about who can claim the relief if he is to convince us of its effectiveness. He also needs to understand that we will not accept that it completely cancels out the effect of the public spending cuts that the present Government have imposed on the theatre. Yesterday, Arts Council England announced its new set of national portfolio organisations; it has had to cut the number because the Department for Culture, Media and Sport has taken a £70 million cut.
I am, because I know that my hon. Friend has a keen interest in that, as do people up and down this country.
So we have had big cuts to the Arts Council. The Government have also imposed big cuts on local government, and from answers that I have received to freedom of information requests, we now know that on average local authorities are cutting their arts provision by even more—some 14%. So, given the estimates in the Red Book of the value of this tax relief rising from £5 million to £20 million per year, we can immediately see that it does not compensate for the reductions that have been experienced in public support.
My hon. Friend is right: there is a big issue about what is going on in the regions. The “Rebalancing our Cultural Capital” report suggested that the Government were supporting cultural institutions to the tune of 14 times as much per person in London as elsewhere, and that is not conscionable in the long term for this country. It is clearly because of that concern about regional imbalance that the Minister has decided to provide a slightly more generous relief for touring.
I think it must be a matter of regret to everybody in the House that DCMS has taken 36% cuts. Of course, the question whether they can be restored is, as the hon. Gentleman knows, a completely separate question. I am just pointing out that the tax relief, if the legislation is properly drafted, will not cancel out the effect of those cuts. I am hoping that no one on the Government side is trying, through some sleight of hand, to give such an impression.
To return to the point that my hon. Friend Jenny Chapman raised, it is my understanding that in Darlington, the theatre is what is called a receiving house. That means that new plays are not being made in Darlington. Companies come on tour to Darlington and their productions are shown for several days. There are many very good producing houses in the regions as well; one good example would be the Nottingham Playhouse, where they make plays and tour them, and sometimes they tour them to London—they have just had something on at the Almeida.
A receiving house will not get the benefit of this tax relief; it is the producing company that gets the benefit. Of course, it may be that if they get the tax relief or the tax credit, they could offer the production to the receiving house for slightly less money, which might ease the situation in a place like Darlington, but there will not be a direct benefit, as I understand it.
My next question is whether the definition of touring is the right one and whether the measure will address the regional imbalance. As my hon. Friend the Member for Newcastle upon Tyne North pointed out, it is completely sensible to say that the extra relief is given if the play is taken to more than six places, but we must question whether 14 productions in two places is an appropriate definition of touring. Some of those who responded to the Government’s consultation said it would be a good idea to have a geographical definition of touring, and I do not understand why the Minister has not done that. I think he is risking some revenue leakage on this point. To give a concrete example, a play could be on on one side of Shaftesbury avenue for 14 nights, then move to the other side of Shaftesbury avenue for 15 or 25 nights and it would benefit, but the Government would not have achieved their policy objective of ensuring that the theatrical experience took in a new, wider audience.
I think there is a problem and I am disappointed by the way the Minister has drafted the provision; it is a weak spot. On the other hand, he might be being too restrictive in the number of production companies that can benefit, although we do not yet know how the guidelines will operate. In principle, of course it is a good idea to support British theatre. It is a great industry, we are very good at it and we have some of the best actors and theatre companies in the world, so in principle, it is a good idea to have a theatre tax relief, but I do have those two questions about those two parts of the new clause and the schedule.
I have a couple of questions for the Minister about the accelerated payment of tax and avoidance cases. I have written to him about this and received a letter from him, and also met him subsequently. Others have mentioned this issue, which has caused a lot of concern, especially within the accounting community. Many of my constituents who are accountants and who run businesses have written to me and met me to voice their concern about what they believe is retrospective legislation, with no right of independent appeal. I hope the Minister will be able to reassure my constituents and those of other Members.
The first question is about the oft-quoted 80% success rate in tax avoidance cases tried at court. The Minister has quoted that statistic, and HMRC has quoted similar figures, but we have yet to discover the source of that statistic, nor do we have a list of the cases on which it is based. Many of those who have contacted me feel that the figure is unsubstantiated. Will the Minister tell us the source of that 80% success rate statistic?
Secondly, there is a strong view that this law is being implemented retrospectively, with no right of independent appeal. I know the Minister has said it is not retrospective legislation, but he knows that that opinion is not shared by the accountancy profession, the legal profession, the CBI or even the Treasury Select Committee. Will he comment on that?
It is predicted that the legislation will result in some 150,000 redundancies, and the loss of future tax revenues from companies going to the wall, including some in my constituency, is estimated to be £50 billion, all to collect a mere £4 billion in unpaid revenues over the next five years. That seems to me to be a very bad bang for your buck. Does the Minister believe it is worth such loss and unemployment?
We have had, unsurprisingly, a wide ranging debate. I shall try to respond to the points raised by hon. Members in our debate, starting with those relating to new clause 1 and new schedule 1 on oil and gas. I outlined the measure in my opening remarks, and a number of questions have been raised. The question that gets to the heart of the matter concerns the impact on drilling activity and how that affects the UK’s competitiveness.
The Government’s support for the sector over the past few years through field allowances and decommissioning relief certainly has helped to encourage record levels of investment—£14.4 billion in 2013 alone—and supported the market for rigs in the UK continental shelf, where rates are driven by demand. Rig rates in the UK are among the highest globally, so we are not convinced that this measure will drive rigs from the UK continental shelf. In fact, recent press coverage indicates that rigs continue to be attracted to the UK continental shelf after the measure’s introduction.
In addition, the Government do not accept that they should seek to address the issue of rising costs by accepting an unfair tax system where a small group of companies are able to pay almost no UK tax. The new oil and gas authority which the Government announced as part of their implementation of Sir Ian Wood’s recommendations will aim to identify ways to ensure that Government and industry can work together to address cost escalation.
That is a valid point to make, but having had the chartering regime in place in the North sea for 40 years, why introduce change now and why restrict it to rigs and accommodation vessels, affecting only one industry?
On the question why now, it is worth pointing out that following a refocusing of the UK corporation tax regime to a more territorial basis over recent years, and in view of increasing recognition, through the base erosion and profit shifting OECD initiative, that transfer pricing and other international rules do not always provide a fair or consistent outcome, the Government have decided that the need to protect the tax take from those who benefit indirectly from the exploitation of the UK’s natural resources requires domestic action now.
In addition, recent Government incentives have resulted in record investment in the UK continental shelf. It is right that action is taken to ensure a fair amount of tax from activities carried out in connection with the exploitation of the UK’s natural resources, and HMRC ensures that all businesses pay the tax due in accordance with the tax law.
I have a constituent who is on a ship that serves the North sea. He is the only member of the crew who has had his national insurance contributions changed in the last round. He is an electrical engineer. The mechanical engineer, the captain and the bosun are still on the old rate, but the electrical engineer is not. Can the Minister explain to me why an electrical engineer is being discriminated against on a North sea supply vessel?
The hon. Gentleman raises a somewhat different point from the one that I am addressing, but if he writes to me in respect of the individual case—[Interruption.] If he has already written to me, I am delighted to hear that. HMRC may be better placed to respond to the particular case, but we are taking action in respect of intermediaries to ensure that the national insurance contribution system works fairly. This is another area where we are making sure that businesses that benefit from our natural resources make a fair contribution in tax.
With regard to whether evidence of profit shifting constitutes tax avoidance, this measure is designed to provide a fair amount of taxation for activities carried out in connection with the UK’s valuable natural resources. The current arrangements result in significant profits from activity on the UK continental shelf moving out of the UK tax net. This measure is designed to prevent that. As for the argument that it could result in a loss of tax revenue, we expect it to raise £535 million over the scorecard period, on revenues of £1.75 billion, and that has been certified by the independent Office for Budget Responsibility.
We do not expect this measure to result in a decline in activity. The Government are fully committed to supporting investment in oil and gas. The work that we are doing with the industry, for example by introducing new allowances and providing certainty on decommissioning relief, as I mentioned earlier, has helped unlock billions of pounds worth of investment in the UK. That is the right way to support investment. I do not think that the right way would be to accept an unfair tax system that allows some highly profitable companies to pay almost no tax in the UK; there are better ways to ensure that we are competitive in this area.
With regard to the concern that this measure is somehow being rushed through, the Government have consulted widely with industry. Unlike many measures aimed at correcting unfairness, this one was not introduced with immediate effect in the autumn statement. We welcomed the industry’s responses to the consultation, which resulted in a number of changes to the approach adopted. As a result of the evidence received, the scope of the measure has been limited to drilling rigs and accommodation vessels and we have increased the deduction cap. We have also announced that we will review the measure in a year.
With regard to the concerns over fiscal stability, the tax rules that apply to contractors have been in place since 1973, and I think that we must look at this in that context. I think that it is right that we correct an unfairness. The Government are aware of the concerns about exploration, which is why the Chancellor announced in the Budget that one of the new oil and gas authority’s first tasks will be to report on how we can encourage exploration. The new allowance for ultra-high pressure, high temperature clusters, which was also announced in the Budget, is being designed specifically to incentivise exploration activity around new developments.
I do not accept that an unfair tax system that allows some highly profitable companies to pay almost no corporation tax in the UK is necessary to boost exploration. We are seeing no evidence of projects being cancelled. We are aware that there are marginal projects on the UK continental shelf, but that is why we have introduced the field allowances. That is the correct way to maximise economic recovery.
Catherine McKinnell asked about setting aside the arm’s length principle for transfer pricing. The UK remains committed to the arm’s length principle. At the heart of transfer pricing is the requirement to find the price that would arise at arm’s length. However, very few transactions of the type targeted by this measure take place between unconnected parties. That gives rise to uncertainty over the allocation to specific jurisdictions of the overall global profits made by the contractor. I hope that those points of clarification on the matter are helpful.
A number of questions were asked about theatre tax relief. Let me seek to answer them. Members raised concerns that the relief could be abused and asked whether we will review the measure in future. We consider that effective anti-avoidance rules are critical to the long-term success and stability of theatre tax relief, a view that I think has been expressed on both sides of the House. The Government will include rules similar to those applied under film tax relief to prevent artificial inflation of claims. In addition, there will be a general anti-avoidance rule, based on the general anti-abuse rule, denying relief where there are tax-avoidance arrangements relating to the production. Of course, HMRC will monitor for abuse once the regime has been introduced.
I am grateful to my hon. Friend for another example of Labour opposing yet another measure that this Government have taken to try to reduce the deficit. At least Labour Members did not make another spending pledge on this occasion, but we will, of course, continue to monitor their remarks very closely because they frequently do make spending pledges. [Interruption.] Perhaps the presence of the shadow Chief Secretary, Chris Leslie, has instilled some uncharacteristic discipline in Labour Front Benchers.
Let me turn to the question of why some circuses are excluded and some points of definition. With the exception of the named exclusions, other types of performing arts can benefit, provided that those giving the performance can demonstrate that they are wholly or mainly playing a role and that each performance is live and that the presentation of live performance is the main object, or one of the main objects, of the theatre production company’s activities. The Government believe that using that definition, which considers the nature of the performance, is more appropriate than listing types of performing arts. In cases where further clarity may be required, companies should seek professional advice or contact HMRC. On the subject of HMRC, I was asked about its resources. The House may be pleased to know that a specialist unit has been provided to assist businesses with making claims under this relief.
The definition of “touring” has been raised and whether more should be done in terms of relating it to geographical location. A production can qualify as “touring” if there is an intention to perform at six or more separate premises or to present 14 performances in two or more premises. Helen Goodman is right to say that we considered alternative definitions of “touring,” including the use of geographical restrictions, but we believe that our definition provides a simple and effective way to support the range of types and sizes of tours that take place. That is why we have gone with that definition.
On the question whether this will cause a significant administrative burden for charities or not-for-profit theatre companies, minimising complexity and ensuring straightforward compliance was one of the central considerations in designing the relief. That is why we are basing it on the film tax relief model, which is also used successfully for other creative industry tax reliefs. We have worked closely with industry in determining the design of the relief, to ensure that it works for the industry, particularly the not-for-profit sector. Officials continue to engage with industry, including by attending events to help and advise in the run-up to companies starting to make claims in September. Ultimately, detailed guidance will be published on the HMRC website to ensure that companies and charities get the support they need.
Is it the Treasury’s intention, for the sake of simplicity and certainty, to ensure that the definition of “touring” is a nationwide one? In central London, which has a lot of theatres, it would be very easy to suggest that performing in only two or three theatres would not be a tour.
Order. It is not good for Members just to walk in and intervene, in fairness to those who have been here throughout. I know that the hon. Gentleman has a great interest in this issue, but may I ask Members to please not just walk in and intervene? I am sure, however, that the Exchequer Secretary would like to take the question on board, because it is such a good intervention.
I will do so, Mr Deputy Speaker, because my hon. Friend makes an interesting point. I have set out the definition of touring. We think that the right approach is to use that definition, for the sake of simplicity, rather than to try to come up with something more complicated.
A question was asked about how a business not subject to corporation tax can qualify for relief. The new relief is available only to companies subject to corporation tax: it is a corporation tax relief. As I have said, it is modelled on the successful reliefs that already exist for the creative sector, and it is designed to give the relief to producers while minimising the scope for abuse. The Government recognise that not-for-profit companies make up a valuable and substantial part of the theatre industry, and we are confident that the sector will be able to access the relief without significant additional administrative burdens. A concern was expressed about whether setting up a trading subsidiary is complicated for charities. As I have said, we have tried to minimise complexity, and we have based the relief on what is already in place. We believe that charities will get the support they need.
I have, indeed, been here all the time, Mr Deputy Speaker.
Helen Goodman asked whether the relief will apply to blockbuster successes, such as “Les Misérables”, on which massive amounts of money are made. Indeed, the return on capital for such ventures is far higher than that for contractors in the North sea. Can the Minister give us any assurance that the relief will not be disproportionately skewed towards such companies?
The point is that the relief is designed to support the range of theatre productions across the UK, in both the subsidised and commercial sectors. We worked closely with the subsidised sector when developing the policy, and we are confident that it will benefit from the relief.
Let me turn to the points made about measures to deal with tax avoidance schemes, including the accelerated payments regime and follower notices. My hon. Friend Christopher Pincher asked whether taxpayers who have not used a true tax avoidance scheme will be caught, perhaps with a precautionary notification having been made under the DOTAS regime. Any unintended consequences for compliant taxpayers will be minimal. Where the taxpayer has used a relief correctly, but a DOTAS disclosure has been triggered, there would not normally be any tax in dispute, and there will therefore be no accelerated payment. If a taxpayer has used a relief largely as intended, but some elements are disputed, then an accelerated payment—if one is required—would be confined to the disputed elements. Let me be clear that the accelerated payment is the amount of tax that the taxpayer can expect to pay if their avoidance fails, taking account of their overall tax position. It is not some arbitrary amount, as has been alleged by those who have tried to discredit the measure.
My hon. Friend asked whether the measure will be retrospective in effect, as did my hon. Friend Mr Burley. We had an extensive debate on that point in Committee, and the Committee reached a sensible conclusion, but let me set out the issue again. The measure is not retrospective. The rules about whether the taxpayer’s scheme does or does not work and about the amount of any tax liability will not be changed. The taxpayer would have already paid the money had they not entered an avoidance scheme. The taxpayer can continue to dispute the case, and will be paid back with interest should they win. We are not restricting people’s rights. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and that the tax might become payable, so they should make plans for such an outcome.
My hon. Friend is being very generous with his time. I am pleased that he has made the position clear. Will he also make it clear that he will continue the dialogue with the tax advice industry and with taxpayers who are concerned about the issue? The Treasury Committee has described the measure as a retrospective piece of legislation. I know that he has received representations from the noble Lord Flight, and I trust that he will also take those on board.
I have received a number of representations on the matter, but I have been clear as to why the Government do not consider the measure to be retrospective. It is right that in these circumstances the disputed tax should be held by the Revenue.
The hon. Member for Newcastle upon Tyne North asked about the grounds for a penalty appeal. We have introduced amendments to provide extra clarity on that. They separate cases in which the penalty is cancelled because the notice should not have been issued from those cases in which the notice was appropriate but the taxpayer has reasonable grounds to continue the dispute—for example, because they could reasonably argue that different grounds are relevant. Then it will be for the tribunal to decide. HMRC is on course to publish the guidance and the DOTAS list in time for Royal Assent.
To answer the question from my hon. Friend the Member for Cannock Chase about the follower notices, there is no appeal against the requirement to pay the accelerated payment. That would simply substitute one dispute over the substance of the scheme for another. HMRC is not making a decision about whether the avoidance scheme works, which would have full rights of appeal, and the rules do not change that situation; rather, the requirement imposed on the taxpayer relates solely to the timing of the payment. If payment of the tax is a problem because the taxpayer cannot afford the full amount immediately, HMRC will use its normal approaches, including appropriate payment arrangements.
The source for the HMRC success rate of 80% is the list of tribunal and court decisions. Those decisions are all published and people can read for themselves HMRC’s continued success in these cases.
The hon. Member for Newcastle upon Tyne North asked whether we are withdrawing support for investment in renewables. The change we are making is not an attack on renewables. It will simply end double subsidy of companies that are at lower risk because they will benefit from Department of Energy and Climate Change support, and will ensure that the venture capital schemes remain well targeted and operate in a fair and sustainable way. The Government continue to support the renewables sector more generally and have set out the amount of support we will allocate to low-carbon generation up to 2020-21, when it will reach £7.6 billion. The Government continue to offer generous incentives to the sector.
The hon. Lady asked whether funds already invested in renewable energy schemes will have to be returned to investors. I can reassure her that new clause 6 will have effect only for shares issued by companies on or after Royal Assent to the Bill. Existing schemes and investors will not be affected by the changes.
With those points of clarification, I hope the House will support the proposals.
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