Clause 138 - Corporation tax: health service bodies

Finance Bill – in a Public Bill Committee at 5:15 pm on 25th May 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

You will be pleased to hear, Mr. McWilliam, that I will not delay the Committee for long. I want clarification about what the clause means because the background notes are somewhat confusing. As I understand it, the Treasury is saying that, by order, it can remove a foundation trust exemption for a specified activity or class of activity that appears to be of a commercial nature where the exemption is likely to favour the foundation trust over a commercial body which might want to undertake or is already undertaking the activity. In that case, the foundation trust can choose to form a non-charitable company to conduct such activities and be taxed in the normal way; otherwise, I presume, it is possible for the foundation trust to form charitable companies so that the foundation can benefit from gift aid. In other words, it can get the relief on tax that it would

otherwise have to pay back to the foundation through gift aid. If that is what the measure is about, I want to raise two issues.

First, what is the purport, if any, of paragraph 16 of the background notes? It states that

''there is no requirement for NHS foundation trusts to conduct such activities within a limited company. So''

in the absence of

''any requirement to do so, it is entirely possible for such activities to be carried on by and within NHS foundation trusts themselves and any profits would be exempt from tax.''

That is confusing.

Secondly, I presume that there are some general provisions to prevent round-tripping of the gift aid so that, if the money goes back to the foundation trust, it cannot then go back to that commercial entity to which I referred and thereby give the company that has been created by the foundation trust a commercial advantage.

Provided that I have clarification of those two points, I am happy with the clause.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The purpose of the clause is straightforward: to put NHS foundation trusts on the same tax footing as NHS trusts. The companies set up by NHS foundation trusts are not charities, so the issues that the hon. Gentleman raises do not apply. They would be run as commercial companies and taxed on the same basis as NHS trusts are currently taxed. This is purely a competitive issue so that NHS foundation trusts do not have an unfair competitive advantage over other companies that are attempting to run the same business. [Interruption.]

Does the hon. Gentleman want to intervene?

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

I am sorry, but I have not made myself clear. We are completely at one on the intention. I just wanted clarification on the blocking of round-tripping, which I am sure is there somewhere, on the gift aid side. Perhaps the explanatory notes could have been better drafted. When the Financial Secretary looks at them later, she will see how much scope for confusion they contain.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

It is unclear how the issue with gift aid arises because we are not discussing a charitable situation. However, I will certainly look at the explanatory notes and ensure that the hon. Gentleman is satisfied that the true intention is met through those notes. We agree on the principle and I am sure that he will wish to support the clause.

Question put and agreed to.

Clause 138 ordered to stand part of the Bill.

Further consideration adjourned.—[Jim Fitzpatrick.]

Bill to be further considered on Tuesday 8 June at half-past Nine o'clock.—[Jim Fitzpatrick.]

Adjourned accordingly at twenty-three minutes past Five o'clock till Tuesday 8 June at half-past Nine o'clock.