Clause 93 - Deduction of tax:

Finance Bill – in a Public Bill Committee at 2:45 pm on 13th June 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 2:45 pm, 13th June 2002

I beg to move amendment No. 188 in page 70, line 9, leave out '1st October 2002' and insert

'the day on which this Act is passed.'.

Photo of Joe Benton Joe Benton Labour, Bootle

With this we may discuss the following amendments: No. 189 in clause 94, page 70, line 35, leave out '1st October 2002' and insert

'the day on which this Act is passed.'.

No. 191, in clause 95, page 72, line 11, leave out '1st October 2002' and insert

'the day on which this Act is passed.'.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

These are simple probing amendments to ask why, in the three respective cases, the exemption is timed to apply from 1 October 2002 rather than applying more speedily. The amendments would give effect to clause 93 from the date of Royal Assent. We are asking whether there is a technical reason for the date being 1 October.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

It may help the Committee if I set the amendments in context. Over recent years, the Government have taken steps to reduce the regulatory burdens associated with deducting tax at source when making certain payments. In 2000, we abolished withholding tax against national bonds, and last year we effectively lifted the withholding tax rules for interest and other payments passing between companies within the United Kingdom.

Clause 93 will build on those earlier reforms to provide further deregulatory benefits. It will remove the obligation for companies to withhold tax on payments of interest royalties, annuities and other annual payments made to specified tax-exempt bodies. That change will help companies by increasing the range of payments that they can make without deducting tax at source. It will benefit tax-exempt bodies such as charities, local authorities and pension funds because they will no longer have to make claims to recover the tax suffered.

The measure will align the obligation to record tax for local authorities with that of companies, which will simplify the administration of local authority debt and is something for which local authorities have asked. It will also update the withholding tax rules covering

payments to partnerships. That will ensure that tax is not withheld from payments to a partnership, the entire membership of which would each be entitled individually to receive gross payments.

Amendment No. 188 seeks to bring forward the start date for the new rules from 1 October 2002 to the date on which the Bill is passed. The other two amendments seek to achieve a similar result with two other clauses that impact on the rules for deduction of tax. The rules set down in clauses 93, 94 and 95 will generally be welcomed by the firms concerned, many of which would like to see them implemented as quickly as possible. Many firms will already have systems in place that would allow for early implementation, as the hon. Gentleman suggests. Some firms, however, will need a little longer to establish their systems under the changed rules. They will have to establish procedures to enable them to decide whether or how much tax should be withheld from the various payments that they make. Some preparation time is required, and to reduce complexity it seems sensible to have the same start date for all three measures.

There is clearly no magic significance about the October start date, and we could have chosen another date. October 2002 strikes a reasonable balance, however, providing adequate preparation time without unreasonably delaying the introduction of deregulatory reform. It also has the advantage of being the beginning of one of the calendar quarters by reference to which firms make returns on the tax that they have deducted at source. If we were to bring the start date forward to Royal Assent, as the hon. Gentleman suggests, firms would have to operate two different systems and sets of rules within the same quarterly return period.

For those reasons, the hon. Gentleman's proposal would not be universally welcomed, and I suggest that we stick with the start date set out in the clause.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I thank the Minister for her explanation, which is perfectly reasonable. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 93 ordered to stand part of the Bill.

Clause 94 ordered to stand part of the Bill.