With this, it will be convenient to take new clause 2—Gifts of medical supplies and equipment (No. 2)—
'.—(1) Where on or after 1st April 2002 any person (''the donor'') makes a gift of relevant goods from trading stock for a relevant purpose then:
(a) no amount shall be required to be brought into account as a trading receipt or gain in consequence of the making or receiving of the gift; and
(b) the costs of making and delivering the gift shall be deducted as an expense of the trade of the donor in computing the profits of that trade.
(2) Where the donor or any person connected with him receives any benefit in money or money's worth attributable to the making of that gift, then for the accounting period in which the benefit is received the donor shall be deemed to be in receipt of income chargeable to tax under Case VI of Schedule D on an amount equal to the higher of—
(a) any relief claimed pursuant to subsection (1), and
(b) the amount of the benefit in question.
(3) The Secretary of State may by order prescribe relevant purposes and relevant goods to have effect for the purposes of this section, either generally or in respect of a given time or situation. Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of subsection (2).'.
The clause offers tax incentives to companies for gifts made from trading stock of medical supplies or equipment for human use and humanitarian purposes. There are two incentives: first, the value of the gift is not included in the company's tax computations, so the company will get a full tax deduction for the cost of acquiring the stock without having to show any corresponding income. Secondly, any costs of transportation, delivery or distribution incurred by the company will also be tax deductible. If the company or a person connected to the company receives a benefit from the gift, the company is taxed on the value of that benefit. The Treasury has given
power to determine which supplies and equipment the incentives do not apply to. The tax reliefs apply to gifts made on or after the beginning of the tax year.
We have three objections, which is why we introduced the new clause. First, the incentives would apply to companies alone, not to unincorporated businesses. Although there may not be many such unincorporated businesses, why should they not be covered in the event that they have something to contribute?
Secondly, War on Want has raised concerns that the measures could be used for drug dumping—making gifts of drugs that may be good products but are not especially useful in over-supply.
Thirdly, the measures apply to medical supplies or equipment given for humanitarian purposes, but there is no definition as to what constitutes medical supplies or equipment or, indeed, humanitarian purposes. Under corporation tax self-assessment, companies are required to assess their tax liabilities to the best of their knowledge. Would it not be helpful, therefore, to provide guidance as to what will constitute qualifying gifts? As drafted, the clause provides help only for humanitarian purposes and does not give incentives for gifts of supplies and equipment that may help emergency recovery in event of disasters.
I want to raise an issue of clarification with the Minister and, if his clarification should prove disappointing, to stimulate thought within the Treasury about the classification of equipment used for the care of the elderly. That equipment may not fall under the definition of medical equipment, but under the auspices of the clause it is plausible that a company might make a donation of equipment to provide home care for the elderly. Such equipment is often discriminated against by the tax system. For example, VAT is payable on the purchase of stairlifts or handrails for the home. The clause may open up another discriminatory area against such equipment.
One can imagine a company donating to Age Concern, for example, a set of household care equipment for the elderly that the organisation could use for people who are in need of such equipment. My suspicion is that such a donation would not fall within the terms of the clause. Will the Minister consider making it an eligible area of equipment, by amending the clause and returning to it on Report or on another occasion?
The clause introduces a new relief for corporate donations of medical supplies and equipment. It removes a potential tax charge on corporate donations of medical supplies made for humanitarian purposes and allows companies to deduct from their taxable profits the cost of transporting, delivering and distributing those goods. From 1 April, the new relief will encourage companies to donate medicines, medical supplies and equipment to developing countries without incurring a tax charge and in the full knowledge that the cost of getting donations to recipients will be tax deductible.
This debate, engendered by the new clause, has been helpful, and I shall try to answer the points that have been raised. We want the provision to be enabling rather than regulatory. It would have been possible to take the approach suggested by the hon. Member for Arundel and South Downs and introduce a raft of regulations, but we chose an enabling approach, which was favoured in the representations that we received from the charitable sector and from industry. It maximises the flexibility of such bodies in determining how best to respond to the sort of philanthropic impulse outlined by the hon. Member for Epsom and Ewell (Chris Grayling) in his interesting example. Provided that companies comply with the requirements of the clause and the gift is made for humanitarian purposes, donors and recipients will have the assurance that gifts of medical supplies and equipment can be made without the donor suffering a tax charge.
The hon. Member for Arundel and South Downs favoured a different approach, whereby tax relief would be available only for goods given in accordance with regulations made by the Secretary of State. I do not understand why anyone would want to increase the burden of regulation, especially in this area. Instead of a clear enabling measure that will help willing donors and recipients to get together, the hon. Gentleman's approach would restrict relief to defined gifts in defined circumstances. In fact, it goes against the thrust of the argument of the hon. Member for Epsom and Ewell, and I shall return to his interesting point in a moment.
The point that the new clause seeks to make is clear. There seems to be some uncertainty about what falls within the definitions, which could be a deterrent and a hassle. In addition, there is the issue of potential drug dumping, which is not unknown, and we must find a straightforward way of dealing with that.
I shall deal with the issue of drug dumping immediately. Within this enabling, rather than restrictive and over-regulatory, framework, we are seeking to encourage donors to comply with the World Health Organisation guidelines on drug donations, to which the guidance that the Inland Revenue issues to its inspectors will refer. That will ensure the appropriate conduct of donors. However, as the hon. Gentleman will be aware, the guidelines do not have legal force in the United Kingdom, and there would be a real problem in making entitlement to a statutory relief dependent on a code that has no legal force. Companies already receive relief for donations in kind made to UK charities, and there is no evidence to suggest that that has led to widespread abuse. We are extending the treatment of donations made for humanitarian purposes directly to other bodies such as overseas charities or public health authorities, and there is no reason to think that that will lead to misuse.
On the interesting point made by the hon. Member for Epsom and Ewell, I recognise the issue that he outlined as a real one. In a previous incarnation as Under-Secretary at the Department of Health, it gave
me a great deal of cause for concern, and successive Governments for many years have been exercised as to where to draw the line. A proper debate is needed on the issue, but we cannot have it in the context of this narrow, focused measure.
There is an ongoing dialogue among Age Concern, Help the Aged, several other medical and old people's charities, the Department of Health and my Department about the issues. Guidelines are in place, but there are also lines to be drawn. I shall certainly explore the issue and give the hon. Gentleman in correspondence an indication of the aids that would come under the definition as it is in the measure and those that, frankly, would not at this time. We cannot deal with the wider and vexed issue as a side wind of the measure, but it is certainly well worth keeping under review.
One issue that has not been raised is that of unincorporated businesses. I apologise if the Financial Secretary was coming to it. I appreciate that there is provision for sole traders to make various donations and receive tax benefits as individuals. However, in the City of London there are several large law firms, for example—obviously, unincorporated businesses—that have been involved for a period of years in collective schemes that would fall within the confines of the measure. International law firms have international links through which they help in disasters. Has any thought been given to extending the provision to such businesses?
I was about to deal with unincorporated businesses. Before the hon. Gentleman spoke, I was racking my brains to think of unincorporated institutions that were big enough or in a position to make such donations. If I was doing that, I suspect that others were as well, although, obviously, I cannot know. However, the hon. Gentleman's intervention has helped concentrate my mind. I, too, can think of law firms that undoubtedly have made similar donations in the past in response to appeals from organisations such as Afro-Aid and others. The issue is worth exploring, and I shall do so. If evidence shows that there is a capacity on the part of unincorporated businesses to make such donations, we are certainly prepared to consider an extension. I shall reply to Members on the issue before Report.
Another example would be new businesses constructed as limited partnerships in the venture capital world, which may be doing important work of that nature.
I am grateful for that comment. If hon. Members have practical examples of unincorporated organisations that are thinking of, or might be in a position to, make similar donations, it would be helpful if they could give them to me so that we can explore the issue to see how we might make provision for them. I hope that with that assurance the clause will be given a fair wind.
Mr. Flight: I have one final question. The Financial Secretary said that the definitions will be covered by IR guidance based on WHO guidelines. My fourth question is whether, in the event of a disaster, emergency recovery would be covered, as opposed to a broad humanitarian course. It may be intended, but clarification would be helpful.
A donation will be treated as having been made for humanitarian purposes if it is genuinely appropriate to the needs of the recipient. Therefore, if there is a genuine need of recovery in the circumstances that the hon. Gentleman's describes, it will count as humanitarian. The definition is not meant to be restrictive; it is to ensure that donations are appropriate. It is designed to achieve in an enabling way exactly what the hon. Gentleman would seek to achieve in a regulatory or restrictive way. I assure him that the Inland Revenue's approach to the definition of ''humanitarian purposes'' is and will be as I have outlined.
I thank the Financial Secretary for that reply, but I should like further clarification. In the event of a disaster, there are medical needs but also the separate issues of food, housing and other things that fall under the category of supplies. Is the right hon. Gentleman saying that the provision would be limited to medical equipment?
I am. The clause is limited to medical supplies and equipment for humanitarian purposes. It is not meant to deal with food relief, which the hon. Gentleman will appreciate is a different form of relief.
Issues about the definition of medical supplies—such as whether the preparation of instant food for young babies comes under foods or medicines—cannot be resolved here. Such borderline issues will be interpreted by the Inland Revenue, as usual.