Clause 121 - Charge to income tax

Finance Bill – in a Public Bill Committee at 3:15 pm on 25th May 2004.

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

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I do not intend to detain the Committee too long—[Interruption.] I hear sounds of disappointment.

The clause concerns the tax charge for individuals exiting a partnership. As the Financial Secretary is aware, the tax law rewrite project, which has support from across the House, has as one of its aims a reduction in the number of charges, so it is quite clear that that is Government policy. Would it therefore not make more sense if in this clause the charge to tax was under case I of schedule D and not under case VI? I have received a number of representations on this point and although I do not profess to be an expert on the tax law rewrite project, it seems to be a prima facie point to raise. What is the Government's view?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The clause is part of the same anti-avoidance measure as clause 120. It sets out when a charge to tax can arise under the measure and how to calculate the amount that is chargeable to tax. In calculating the amount to be charged, the clause makes clear the link between the losses relieved against income tax and the amount received, and ensures that tax is charged at the same rate as the rate of relief for the earlier trading losses. It is normal practice for anti-avoidance charges to be made under case VI so that the charge to tax is fully effective and not reduced by other losses or reliefs. If we changed the basis to case I, which is a charge for trading profits, it would, for example, allow the partnership to set up a new scheme, under which the losses might be restricted by clause 119, and then claim the balance of those losses against the exit charge. That would defeat the Bill's intention and allow yet more avoidance. For that reason, I hope that the hon. Gentleman will support the clause.

Question put and agreed to.

Clause 121 ordered to stand part of the Bill.

Clauses 122 to 124 ordered to stand part of the Bill.