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I remind the Committee that schedule 46 is introduced by clause 92, which was extensively debated by the Committee of the whole House on 13 May, so the principle of imposing duties on senior accounting officers has been dealt with. We are dealing with schedule 46, which sets out the mechanics of that, so we do not want a rerun of the original debate.
On a point of order, Mr. Atkinson. The matter was debated on the floor of the House but, given the number of Government amendments, surely there should be some leeway and opportunity for us to look at this in general as well as at the provisions the Government have put in place, because the clause is now somewhat different from the one debated only six weeks ago?
With respect, I do not wish to change my view. We have discussed the broader principles. If there is a problem as the debate on the schedule unfolds, we shall deal with it as it arises. If the hon. Gentleman gets too far back into the original debate, I will stop him. It is as simple as that.
The schedule makes senior accounting officers of large UK companies and groups of companies personally responsible for ensuring and certifying that adequate controls are in place to calculate tax and duty liabilities. Clause 92, under which schedule 46 sits, helps to protect tax revenues by ensuring that, in the present difficult economic environment, tax compliance does not become a cost that is overlooked by the largest UK companies. The clause will underpin the existing good practices of the majority by ensuring that tax remains a priority at boardroom level, and tackling poor tax compliance among a small minority of companies that do not have robust systems and processes in place.
HMRC is keen to continue to develop open and transparent relationships with large businesses. The schedule builds on that and on work that is already under way to help business to improve tax governance. That will allow HMRC to continue its risk-based approach, focusing resources on the most important issues, while reducing burdensome checks and interventions when they are not required.
At the time of the Budget, we made it clear that, because of the need to act now to underpin tax revenues from such an important sector, we would discuss the operation of the measure with interested parties. HMRC has held wide-ranging discussions, and we have listened to what has been said. The Government amendments take account of those discussions and are designed to smooth the operation of the measure in practice.
Those discussions began immediately after the Budget, so that when clause 92, which introduces schedule 46, was debated by the Committee of the whole House, my right hon. Friend the Financial Secretary was able to announce the intention to table amendments to make three changes during the Public Bill Committee stage. Those changes are first, to refine the population of companies within the scope of the provision to give the best possible fit with its aims; secondly, to remove the requirement for the senior accounting officer to notify the company auditors of any respects in which the tax accounting arrangements of the company are not appropriate; and, thirdly, to revise the certification requirement to allow notification of the appropriateness or otherwise of the companys tax accounting arrangements using a single form of certificate rather than one of two forms.
Discussions with interested parties have continued, and three further changes are proposed which, like those announced in the Committee of the whole House, are designed to smooth the operation of the measure, yet fully retain its effectiveness. They are: to focus the measure only on major taxes and duties; to ensure that the wording of the draft legislation is clear about what constitutes appropriate tax accounting arrangements; and to refine the definition of senior accounting officer to allow more flexibility for those groups of companies organised on less conventional lines. We will discuss each of these changes in more detail. However, all have been welcomed by the parties involved in our discussions and each will help to smooth the efficient operation of the measure. None undermines or dilutes the essential aim of underpinning the tax compliance of the very largest companies.
I remind the Committee that my right hon. Friend the Financial Secretary wrote to Committee members last week enclosing a draft of the guidance on the measure. The Government are grateful for the ongoing input of representatives from business and the tax profession in developing the guidance.
I draw the Committees attention to a particular point mentioned in the guidance, which is about how the measure will operate following Royal Assent. A senior accounting officer who begins a review of the appropriateness of the tax accounting arrangements during the first financial year covered by the measure will be treated as having taken reasonable steps to comply with the main duty introduced by the legislation for that first period. It follows that, in those circumstances, the senior accounting officer would not be penalised for any failure in the main duty in respect of that first year.
Before speaking to the amendments, I remind the Committee of the situation that the schedule seeks to address. The majority of large companies already ensure that appropriate tax accounting arrangements are in place in their companies or groups. For those companies, we want to ensure that the burden of the new requirement will be minimised. It is not intended to introduce a costly and complex bureaucracy for companies when it is not required. However, a small minority of large companies do not have robust systems and processes in place. We want identified individualsthe senior accounting officersin those companies to take responsibility. We need to be clear whose responsibility it is to put that right.
Amendments 269 to 273, 276, 280 to 282, 287, 289 to 291, 296 to 297 and 300 to 304 relate to the definition of the companies that fall within the scope of the measure. Schedule 46 already provides for the population of companies within the scope of the measure to be restricted by Treasury regulations. However, in the Committee of the whole House my right hon. Friend the Financial Secretary made it clear that, following discussions with representatives of business, we were mindful to restrict the population of companies that fall within the scope of the measure, so that it was broadly limited to those largest companies and groups to whom HMRC has assigned a customer relationship manager.
Not off the top of my head. If I cannot get an explanation for the hon. Gentleman by the end of my remarks, I will write to him and explain why that decision was made.
May I give the hon. Ladys officials notice of my next question? Does the measure include mutuals? The Exchequer Secretary will be aware that there is a large number of, say, financial mutuals, building societies and mutual insurers out there who, I suspect, would fall within the definitions of size that the Government will insert in the schedule through their amendments. I would like to know if those companies are included in the scope of the measure or if they are outside its scope.
Again, I hope to get back to the hon. Gentleman on that point.
As I was saying, the scope of the measure is broadly limited to the largest companies and groups that have a CRM. The legislation could technically be drafted to define the population as those companies with a CRM. However, it is not appropriate to use defining criteria that rely on HMRCs administrative practices. Instead, we have identified objective criteria by reference to company turnover and asset value, which will very closely equate to the assignment of a CRM. That means that the measure will encompass the top 2,000 groups of companies.
For both singleton companies and groups of companies alike, those criteria are turnover of more than £200 million and/or a balance sheet total of more than £2 billion. It is a test that brings banks within the scope of the measure, as otherwise they would fall outside its scope. The amendments will also ensure that the measure will apply only in relation to UK companies and their senior accounting companies, and not to foreign companies.
Given the restricted number of companies that will meet the criteria, can the Exchequer Secretary say to what extent the cost-benefit analysis set out in the regulatory impact assessment should be revised?
Once again, I will get back to the hon. Gentleman on that.
Amendment 303 deals with the definition of group of companies for the purposes of the legislation. The Government received some representations in informal consultation that the legislation as drafted may have included companies and other entities that we did not want to catch. We have given the matter further consideration and we have introduced a definition that is drawn from existing tax legislation, which will be more familiar to companies and easier for them to work with. The new definition of group is set out in the amendment.
Amendments 288 to 298 and amendment 65 concern the definition of senior accounting officer for the purposes of the schedule. Who can be and who should be a senior accounting officer has been discussed extensively with interested parties and we are introducing amendments that give more flexibility, so that the legislation is better fitted to some of the situations that can occur in practice. However, the legislation still requires the senior accounting officer to be a person who has overall responsibility for the companys financial accounting arrangements.
In particular, amendment 298 makes it possible for a director or officer of any group company to fulfil the requirements of the legislation on behalf of another company in that group, or on behalf of the whole group, if the company or companies concerned consider that that person has the appropriate responsibility.
It is my understanding that if the company is based in the UK, it is liable for the penalty regime. The exclusion was for foreign companies based outside the UK. My understanding is that a UK-based company that chooses to have a senior accounting officer based outside the UK will still be liable. I will check that to ensure that I understand correctly.
Amendment 65 would go against the trend of the representations from business by narrowing the field of possible candidates to carry out the functions of senior accounting officer. Businesses consistently ask for flexibility and the Government are happy to provide it, as long as the person appointed to be senior accounting officer is appropriately qualified to carry out the role. I therefore ask the Committee to reject that amendment.
I look forward to the debate on this group of amendments. When I sum up, I hope to respond to the points hon. Gentleman raised in his interventions.
It is a pleasure to serve under your chairmanship this morning, Mr. Atkinson.
I welcome my neighbour, the hon. Member for Portsmouth, North, to her new role. As I said last week, we have got used to seeing press releases from the Department for Children, Schools and Families with the Ministers name attached rebadged as reports in the Portsmouth Evening News. I am looking forward to seeing Treasury press releases on foreign exchange reserves and new appointments to the Monetary Policy Committee being rebadged in that way. It will be interesting to see what coverage such matters get in that august journal.
Given the longevity of the Ministers predecessor, a week or a month may be a long time. Indeed, a day is a long time in the hot seat of Exchequer Secretary.
The hon. Lady clearly got the press machine working. Perhaps she is so keen to get those press releases in the local paper because they might affect her longevity in the post.
I am mindful of your strictures, Mr. Atkinson, that there was a long stand part debate on clause 92 in Committee of the whole House. The amendments flow from that debate. There was wide concern across professional and business bodies about the scope of schedule 46 and the need to restrict it. The amendments reflect those concerns and it is good that the Government listened to them. It would have been better still had the Government consulted on the matter first, rather than put the schedule in the Bill and then table the amendments. The amendments will change the schedule significantly and they reflect the concerns that were raised.
HMRC desires to improve its relationship with large businesses. A conclusion of the Varney report of 2006 on that matter was that there should be clarity through effective consultation and dialogue. If HMRC and the Treasury had embraced that conclusion, they would not have had to table so many amendments to restrict the nature of large groups.
I will deal first with amendment 65. The Minister referred to the representation that HMRC received from business organisations that were supportive of the concept that it should be directors or officers of companies that were senior accounting officers. I argue in amendment 65 that a senior accounting officer should be a director of a company. The Government did not acknowledge in their review the representation from the hon. Member for Coventry, North-West (Mr. Robinson), who was Paymaster General and who played a pivotal role in determining how tax law developed at the start of the Governments first term in office. In the debate had on the floor of the House, it became clear that the hon. Gentlemans approach to tax law was, Bung it in the Finance Bill and amend it in Committee.a practice to which the Government seem to have returned with schedule 46. He said that it should be a director who took responsibility:
The point of the person being on the board, as opposed to being an officer, is that being on the board carries certain specific personal liabilities. The chief financial officer or the person with tax responsibilities might in many cases be taken off the board precisely so that they avoid that sort of responsibility, which a directorship carries with it.[Official Report, 13 May 2009; Vol. 492, c. 885.]
The Financial Secretary did say that he would look at that important point. Why did the Government ignore it?
There is an issue for directors in that they have particular responsibility for the stewardship of a business. We have seen that a lot over the past weeks and months. There are obligations that go with being a board director and one would expect the senior accounting officer of a company of the relevant size and status to be a director. It would be very odd for such a company not to have a finance director. A senior accounting officer always being a board member tightens up the measure and focuses responsibilities on the board. It is important, and the Minister may say that professional bodies have argued for flexibility but sometimes Parliament needs to take a view. I am pleased that the hon. Member for Coventry, North-West and I seem to share a common view on the matter.
Am I to understand from my hon. Friends well argued comments that it would be possible to have a senior accounting officer who was not a board member and was junior to the people sitting on the board, but who took all the flack while the board member escaped? Are the Government giving an opt-out to board members?
My hon. Friend hits the nail on the head. That is what is happening. The flexibility means that the responsibility for certifying the appropriateness of the tax accounting arrangements could pass from a board member to somebody more junior in the companyrather than the finance director, it might be the financial controller or a financial accountant, tax director or tax manager. There are others to whom the duty could be allocated who are not main board directors. I think that we ought to focus responsibility on the board rather than on more junior staff. The people at the top of the organisation, who have to certify that the accounts are true and fair, are the people taking responsibility for the tax information as well as other financial information. The Government should think about that point carefully because it is important, as I said, to focus responsibility on the boards.
The Government amendments would restrict the number of companies that fall within the measure. When we debated the matter earlier, the Financial Secretary acknowledged that that was something that should happen. I am pleased that the definition is in the Bill and not in regulation and that it is based not on some administrative term within HMRC, but on objective criteria. We all know that HMRC terms change from time to time. A company that is subject to customer relationship management today may not be in 10 years time, or a wider range of companies may be caught, so it is important that there are objective criteria. I am interested to know how many companies are involved. When we debated the matter in Committee of the whole House, the criteria used in the Bill were drawn up with reference to the Companies Act 2006. A large company would have to satisfy two of the following three criteria: a turnover of more than £22.8 million, a balance-sheet total of more than £11.4 million and more than 250 employees.
At the time, the regulatory impact assessment suggested that 3 per cent. of all large incorporated companies would fall within the 60,000 companies defined in the 2006 Act. However, in putting together the RIA, the Government suggested that many companies were parts of groups and so whittled down the number of companies needing to appoint a senior accounting officer to between 1,600 and 2,000. Will the Minister give us another estimate of the number of companies that fall within the new category? The qualifying criteria are now, according to amendment 296, a company with a turnover exceeding £200 million or a balance-sheet total exceeding £2 billion. It would be helpful if the Minister told us how many companies fall within those criteria. I also wonder whether it is feasible for the Treasury to tell us the names of the companies that fall within the criteria. Having identified the criteria, it must be relatively straightforward to understand which companies are affected.
Although the size criteria help, it is not clear how big a difference they will make compared with the statements that were made justifying the RIA when the measures were first published. That is why I asked the question about the cost-benefit analysis. Was it based on the type of companies that are now caught, or was it based on the wider pool of companies that was envisaged at the time of the regional definition? As I said to the Minister in my intervention, there are other carve-outs from the scope of this measure. It excludes partnerships. On one level, I can understand that because it deals with the circumstances in which a company is owned by a private equity company. For example, the partnership exclusion means that the limited partners at the top will not have to report on the accounting provisions of the companies it owns. As a result, only portfolio companies that meet the criteria will have to appoint a senior accounting officer. However, that excludes some large businesses that are partnershipsfor instance, John Lewis Partnership would not be coveredand if there was a partnership within a group, the partnership itself would be carved out.
I am not sure what the consequence would be in practice. It is in the guidance notes, but it seems to me that if the accounting arrangements for one part of the business were not entirely certain, the company might try to hive it off into a partnership.
That is correct. The exclusion for limited liability partnerships is set out in the guidance notes: they are not companies as defined by the Companies Act. My former employer, PricewaterhouseCoopers, would be excluded, as would my hon. Friend the Member for Henley, who was a partner. My hon. Friend the Member for South-West Hertfordshire has worked for a firm of solicitorsanother partnership. If it met the criteria, it too would be excluded. A wide range of significant businesses will be excluded as a result of the carve-out for partnerships.
There are sensible reasons why partnerships should be carved outfor example, the provision would impose upon the limited partner in a private equity firm an obligation that probably could not be carried out. However, the provision goes some distance beyond that by excluding retail or professional partnerships. It would help if the Minister were to clarify why these businesses should not be included, and why they are carved out. Does she believe that they are inherently low risk? If so, why are other low-risk businesses not carved out?
We need some explanation for the inconsistencies on which businesses are carved out. I go back to my earlier point that part of the problem is that the Government did not think the matter through. The provision was included in the Bill at a late stage, perhaps on a whim. I do not know what whim it was meant to satisfy; perhaps someone felt good trying to tackle some of the tax measures that companies take, without thinking through the process or of what the outcome would be. We need some explanation of why partnerships and mutuals are excluded.
The Minister also sought to deal with the question of foreign companies. Branches of foreign companies are excluded from the provision. I know that Deutsche bank in the UK is established as a branch and that many European financial services businesses are based here under a branch structure. The Economic Secretary and I have discussed before the question of passporting, which enables companies incorporated in other European economic area member states to operate through a branch structure in the UK.
The Minister spoke of ensuring that the balance sheet totalled more than £2 billion, to ensure that the banks were picked up. I suspect that the balance sheet of the UK branch of Deutsche bank would meet the criteria. I suspect that it is quite a big taxpayer, if only through the tax paid on staff salaries, bonuses and so on, the VAT paid on purchases and the stamp duties paid on share transactions, but it has been excluded. The Government need to state more clearly the nature of the exclusions. A group with its headquarters in the UK has to sign off tax returns and give the declaration required under schedule 46, but I am not sure how it would be able satisfy itself about the operation of overseas subsidiaries. We shall come to later to how the materiality exemption in the later amendments could help those companies, but it is clear from the guidance notes that the materiality level to which the Government refer is not the materiality that is used in sets of statutory accounts; it is a different, unspecified level of materiality.
What expectations do the Government have of people in UK-headquartered groups being able to sign off the way in which tax is dealt with in their overseas subsidiaries? A company in the UK that is part of an international group may fall within the regime and be required to understand the tax accounting elsewhere in the group. The senior accounting officer would have to attest to the sufficiency of not only the UK companys accounting arrangements, but those of the worldwide group, and he may have little practical or technical knowledge of that.
Some significant concerns arise from the tighter definition in the group of amendments. To put the matter beyond doubt, I am not arguing that the measure should be extended to cover branches, partnership or mutuals. I am trying to understand why they are excluded, because that will give some insight into the Governments thinking on the purposes of the measures. We debated the matter in Committee of the whole House and there are more issues to be teased out in this Committee. Depending on the Ministers response, we may return to it on Report.
The guidance notes on the schedule are extremely revealing. They state that there was previously no requirement on anyone within a qualifying company to ensure that the underlying tax accounting arrangements were fit for purpose. They go on to say that this measure addresses the accountability gap. There is a huge gap between the logic of those two statements, so it would be good to have clarification on that.
There could be a situation in which a number of different people were responsible for this in a company. The fact that more than one person was involved would not equate to a gap. A gap is an absence of something, and we are yet to hear that there is the real gap to which the guidance notes refer.
The Minister referred to the risk-based approach of HMRC on this matter. I have a point that follows on from the remarks made by my hon. Friend the Member for Fareham about understanding where the detail of the schedule came from. I get the feeling that it emerged out of HMRCs risk framework document. I have put together risk framework documents in the public sector, so I know that one must identify all possible risks that might occur. It would be extremely useful to know where this risk occurs in the HMRC risk framework and what weighting it was given before a conclusion was reached. Our concern comes from the guidance note in paragraph 58.
I am struggling with the concept of a huge gap in all these large companies that is ruining their tax affairs. How can the auditors in those companies sign off a certificate to say that the statement of affairs shows a true and fair view? Is this a sledgehammer cracking a nut when there was no nut to crack in the first place?
My hon. Friend makes an extremely good point. He has amplified my point that we are yet to be convinced that there is a gap at all. If there was a gap, we would have expected to have heard about it from the auditors of major companies. It is inconceivable that companies of the size we are discussing would allow such a gap to continue.
Paragraph 58 of the guidance notes deals with interaction with other countries requirements. It mentions two countries: the US and Japan. It ends by saying that a company that is compliant with the Japanese requirements may derive some comfort that the Japanese procedures go some way towards satisfying the reasonable steps required by the schedule. I cannot imagine that anyone in that situation would get any reasonable comfort from such a statement. It would be extremely helpful to understand what the Exchequer Secretary sees as the principal differences between what is set out in schedule 46 and what is set out in the Japanese and US arrangements.
My final point relates to the interaction of the schedule and the charter that we have just been examining. It seems to me that the schedule conflicts with the charter, particularly on point 2, which is called Treat you as honest. It says:
We know that most people want to get things right. Unless we have a good reason not to, we will, and it goes on to list a number of things, one of which is:
presume you are telling us the truth.
The schedule goes completely against that. We have had no good reasons advanced as to why a different treatment to point 2 of the charter should apply. The schedule is clearly not treating the companies as being honest. We have already seen the first of the holes that have been driven through the charter.
The second element of the charter that the schedule goes against is point 9, which says that HMRC will do
all we can to keep the cost of dealing with us as low as possible.
I heard the Minister say that the process will not raise too many costs on the part of companies. I simply do not believe that that will be the case. There will be additional costs, but no justification for them has been given.
My hon. Friends point about costs is right. One of the issues here is that companies that are already compliant, or those that are assessed as being low risk by HMRCthere is a risk-assessment process that HMRC has undertaken for these large companieswill end up incurring unnecessary additional costs.
My hon. Friend is right. These costs will be additional costs that a company will incur, on top of what it is already paying, simply to meet the reporting requirements.
Point 2 in the charter goes against point 3 of the taxpayers duties, which is about takings reasonable care when they compute their tax returns. That shows that there is no trust in the company that is going through the process of putting these details together.
For those reasons, there are huge gaps in our understanding, which I hope that the Minister will fill. These are real gaps, unlike the accountability gap, in that there is absolutely nothing to provide me with any comfort.
I thank hon. Members for their contribution to our discussion of these amendments. I will try to address all the points that have been made.
The overarching point is that the majority of large companies already have appropriate tax accounting arrangements in place. I do not accept that this measure will put an additional burden on them.
I cannot give the hon. Gentleman numbers, but I can say that there have been large companies whose tax computations are calculated incorrectly each year, due to known problems in the accounting system. One group of companies had system problems every year. They could not identify the source of the problem or satisfy HMRC that the tax computation was correct. The measure is intended to encompass the small minority of large companies that do not have those systems in place. For those companies, it is difficult for either the company or HMRC to know whether the right amount of tax is being paid.
The example that the Exchequer Secretary cited was exactly the same example that the Financial Secretary gave to the Committee of the whole House. I asked him then if he could say how much tax had been lost in these circumstances and he could not give me an answer. Will the Exchequer Secretary give me an answer to that question now?
We will see whether that information is available. Part of the problem is that the examples giventhey often involve a number of companiesdo not provide robust justification. Perhaps the Minister will look at it another way. A risk-assessment process goes on now for large companies. What proportion of those companies are deemed to be high risk?
Again, I do not have that information to hand but I will pass it on to the hon. Gentleman. I imagine it will be a percentage not a number.
I want to get to the specific questions asked. Amendment 65, which the hon. Gentleman spoke about, relates to whether a director of a company with board responsibility should always be the senior accounting officer. The board has overall responsibility for meeting tax obligations. We think it is right to give businesses and boards the responsibility and flexibility to decide who is responsible for ensuring that the systems and processes are correct so that the board delivers its obligations. HMRC customer relationship managers will work with businesses to ensure that an appropriate senior accounting officer is identified and has the appropriate responsibility to fulfil this role. With the flexibility we are giving business, working with the customer relationship manager, we can ensure we meet our requirement for an appropriately qualified person to carry out the role.
I forgot to welcome the Minister to her new post and apologise for not doing so earlier. Does she think there is a danger that a financial director could pass the buck down to the financial controller, who would probably have day-to-day organisational responsibility? It will be the poor financial controller who hits the dirt, rather than the financial director who sits on the board with all the perks and extra bonuses, and who really should be taking the flak because he has ultimate responsibility?
I disagree with the hon. Gentleman. Given that the board has overall responsibility for meeting tax obligationswe are talking about systems and processesit is for the board to decide what it wishes. The request for such flexibility came from business. By working with the customer relationship manager we can manage to balance both sides so that HMRC is satisfied and we also meet the flexibility that business has asked for.
The Minister said that the customer relationship manager would discuss with the business whether it had identified an appropriate person to be the senior accounting officer. That seems sensible. Does it mean, in effect, that HMRC will have a veto over whom the business decides to appoint as a senior accounting officer?
It is not my understanding that he or she will have a veto but I will clarify that point.
I was asked why we had tabled so many Government amendments in Committee. This is part of a compliance package that was announced in the Budget. We would all agree that it is right that all companies pay the appropriate level of tax. We said at the Budget that we would work with stakeholders to manage the implementation. The number of Government amendments reflects the fact that we listened to stakeholders in the consultation and I do not apologise for that.
The hon. Member for Fareham raised a point about partnerships but answered his own question. He asked whether partnerships were included and then he said they were not. Partnerships and other unincorporated bodies are excluded. The biggest risks are posed by corporates, so the measure is focused on corporates, on a risk-based analysis.
I knew that partnerships were excluded. It is clear that they are and the Financial Secretary said so at the time. The question was about why they were excluded. The Minister seems to return to the concept of risk. Partnerships are seen to be low riskI am not sure about the basis for deciding thatbut all companies, depending on the size criteria, and whether they are high or low risk, will have to take part in this regime. Why should low-risk companies be part of the regime, when low-risk partnerships are outside it?
As a whole, corporates pose the greatest risk. We are seeking to minimise the burden on businesses, so we are focusing on corporates, which is why the measure does not cover partnerships and unincorporated large businesses.
The hon. Gentleman asked what would happen if the senior accounting officer of a UK-based company was based outside the UK. I can confirm that the information provided was correct. I was also asked to name the companies that would be caught by the provision, but for reasons of taxpayer confidentiality, I cannot disclose the names of particular taxpayers. However, as a result of the amendments, about 2,000 large UK companies will be encompassed.
The hon. Gentleman also asked about the impact assessment, which was based on the original analysis. Following the Budget, our discussions showed that the draft legislation was likely to encompass more companies than originally envisaged, which is why the commitment was made to narrow the scope. We want to ensure that the measure focuses on the area of greatest risk to the Exchequer and that we do not impose administrative burdens on those who pose less risk. I also say to the hon. Member for Wellingborough that compliance with the provisions will not cause additional difficulties to companies with robust systems in place.
When I have asked how many companies were assessed as being high risk and how much tax had been lost, Ministers have responded and given examples. However, I raised a further question that the Minister has not addressed explicitly: why are branches and mutuals excluded from the provisions, given that some operate in the same business areas as companies, including in the financial services sector? Should there not be a level playing field for both?
We need to strike the right balance and to apply the provision to a particular group, which is why we have restricted the measure to the largest 2,000 companies. They pose the greatest potential for Exchequer loss. We do not have a specific number for high-risk companies, which the hon. Gentleman asked about, but about 40 per cent. of companies are classified as low risk by HMRC.
I can do the maths as well as the hon. Gentleman. If 40 per cent. are classified as low risk, it would seem to imply that 60 per cent. are classified as high risk.
I return to my earlier point about why some bodies are excluded and others are not. We have taken a risk-based approach to decide where we think that the greatest cost to the taxpayer lies. That is the reason behind the provision.
We do not want to include partnerships or public bodies, or to bring too many people into the scope of the provision. We are focusing only on very large corporate companies. The highest risk is in the corporate sector, although I appreciate what the hon. Gentleman is saying: sometimes bodies operate in the same areas.
I am not aware of a technical difficulty in bringing partnerships into the regime. The hon. Gentleman knows as well as I do that we always keep our legislation under review, which is why we have a Finance Bill each year. We always seek to manage the balance between ensuring that we have the right tax revenues and ensuring that we are not putting too great a burden on business. I can only repeat that it is right to focus on the area in which there is the greatest potential for risk, which is why we have concentrated on companies.
Amendments made: 270, in schedule 46, page 338, line 35, leave out and each of its subsidiaries (if any).
Amendment 271, in schedule 46, page 339, line 1, leave out large and insert qualifying.
Amendment 272, in schedule 46, page 339, line 3, leave out and its subsidiaries (if any).(Sarah McCarthy-Fry.)
With this it will be convenient to discuss the following: Government amendments 277 and 283 to 286.
Amendment 224, in schedule 46, page 341, line 28, at end insert
(3) For the purposes of this Schedule a reasonable excuse for failure to comply includes any circumstance where the failure is attributable to any matter outside the persons control or any matter of which a person could not reasonably be expected to be aware..
Government amendments 291 and 292
Amendment 225, in schedule 46, page 341, line 41, at end insert
(3) No penalty may be assessed under paragraphs 5 to 7 of this Schedule if the matter in question has given rise to any civil or criminal penalty under any other legislation or enactment whatsoever..
Government amendments 293 and 299
Amendment 219 was originally tabled by Opposition Members and removes paragraph 2 of the schedule, thus removing the requirement for a companys senior accounting officer to notify the companys auditors, as well as HMRC, of the respects in which the companys tax accounting arrangements are not appropriate. The Financial Secretary announced our intention to remove that requirement during the Committee of the whole House debate on clause 92. However, the removal of paragraph 2 requires consequential amendments throughout the schedule to remove references, which is achieved by Government amendments 283 to 286, 293 and 299.
Amendments 224 and 225 are Opposition amendments and propose additional rules to lift penalties in certain circumstances. Neither amendment should be accepted. Amendment 224 is covered by the reasonable excuse provision and by the formal guidance on the measure, while amendment 225 is not entirely clear. I hope that Opposition Members will be able to offer clarification when they speak to amendment 225, but if its intention is to prevent a penalty from being levied in an instance where another penalty has already been chargedfor an incorrect return, for instance, or for late filingwe cannot accept it. The penalties under the schedule and the other tax penalties are completely separate, and the purpose of the senior accounting officer rules would be thwarted if there were a get-out for those who have failed to comply with tax legislation elsewhere.
Government amendment 277 is a minor consequential amendment resulting from the proposal to change the certification rules, allowing companies to submit only one form of certificate. I think that the Committee will agree that the text deleted by the amendment is redundant given the move to a single form of certificate.
Government amendment 291 is a small, consequential amendment consistent with Government amendments 276 and 281, clarifying which company is relevant for determining whether a penalty is due on the senior accounting officer. Government amendment 292 removes a potential risk of double jeopardy by making sure that where one company, or a senior accounting officer in a group of companies, has already been subject to a penalty for a particular financial year, no other senior accounting officer or company can be assessed as liable for the same period. I hope that the Committee agrees that that is a useful safeguard limiting the application of penalties.
I welcome the Governments acceptance of amendment 219, which I originally tabled. When we looked at schedule 46, it was hard to see why there was a need to notify the auditors. It seems that the relationship involved is actually that between the taxpayer and HMRC, so such a notification seemed a fairly redundant step. As my hon. Friend the Member for Wellingborough identified in the previous group of amendments, the accountants or auditors of a company would already know if the tax systems were not up to producing figures that could be included in the accounts and that would give a true and fair view of a companys profit and loss account for the year and the balance sheet at the year end, so it seemed to be a redundant step. The Government seem to be rather tardy in tabling amendments to that. I thought that I might beat them to the punch and keep them to their promise. I am pleased that I did so on this occasion and will do so with the next group of amendments.
Amendment 224 seeks to deal with the issue of what is a reasonable excuse, with respect to failure to apply. When we debated that in the HouseI will return to a specific example in the final group of amendmentsthe Government were extremely hard line in their approach and were not accepting materiality. I felt that it was important to place on record that there may be circumstances where we cannot expect a senior accounting officer to know what was happening on the ground and to take responsibility for that. One of the examples I quoted demonstrates part of the problem. The VAT change was implemented in December and, in a number of places, the reduction in VAT was calculated manually rather than through updating a system. Why was it the case that the senior accounting officer would know, or be able to vouch for, the accuracy of someone doing manual calculations for that VAT reduction? Therefore, I wanted to make sure that there was some definition of what was reasonable. My amendments would add the following words:
any circumstances where the failure is attributable to any matter outside the persons control or any matter of which a person could not reasonably be expected to be aware..
I have heard the Ministers explanation about why she thinks that the amendment is unnecessary and I am inclined to accept her argument.
The daft, sorry, draft guidancea Freudian slip, perhapsdeals with this issue of what is reasonable. The guidance is quite widely drafted and we need to make sure that, in order to protect senior accounting officers, there is some degree of certainty in the Bill. Guidance notes are helpful, but they change, whereas the law can be changed only with the approval of the House. That is why we have sought, where possible, to make sure that where there are protections, they should be in the Bill and not tucked away in guidance notes that will not receive the full scrutiny that is offered by primary or secondary legislation. While I accept that there is coverage in the guidance notes and I will not be pressing the amendment to a vote, we need to be very careful that, where we are giving some form of protection, it has a bit more standing than simply a note in a draft document.
The aim of amendment 225, identified by the Minister, is to ensure that where somebody is penalised for late filing of a return, they are not doubly penalised in their capacity as a senior accounting officer. There is a risk of multiple fines for the same offence. I am not sure whether to push this much further with the Minister. It is important that there are penalties in place, but the fact that someone could be fined for the same thing twice would not strike people as particularly fair. We would need to be careful about the circumstances in which such penalties are levied. I accept the point about personal responsibilitythere is a gap opening up between the personal responsibility of an accounting officer and the corporate responsibility of a businessbut we need to be make sure that we do not lose sight of the fairness issue in the drive to tighten up responsibility for accounting.
I shall respond briefly to amendment 225, about which the hon. Gentleman spoke. It is important to note that the measure is different because we are talking about the underlying systems and processes. We should have that distinction. All of these companies will have a customer relationship manager. That relationship is important to make sure that such matters are properly discussed with business. I still ask the hon. Gentleman to withdraw the amendment.
The first group of amendments is concerned with the certification requirement set out in the schedule, including the requirement in the original draft for senior accounting officers to notify the companys auditors, where needed, of the respects in which the companys tax accounting arrangements are not appropriate.
On the question of certification, Opposition amendments 220, 221 and 222 all deal with the arrangements for certifying to the commissioners of HMRC that appropriate tax accounting arrangements are in place, or otherwise reporting the respects in which those arrangements are not appropriate. The broad effect of the amendments is to enable certification to be achieved by a single dual-purpose certificate. The intention to accommodate was raised by my right hon. Friend the Financial Secretary during the Committee of the whole House, and parliamentary counsel was instructed accordingly. Opposition amendmentsorry, Government amendment 220 is identical to that drafted by counsel. The associated amendments 275, 278 and 279 have the same practical effect as Opposition amendments 221 and 222. So I ask the Committee to accept amendments 275, 278 and 279, which would make amendments 221 and 222 unnecessary.
I am delighted that the Government have added their name to my amendment 220. It is right for the Government to do so. That is yet another example of the failure of the Government to think through carefully what they were trying to achieve for business. Instead, they created a situation in which there were two certificatesperhaps the measure was inspired by those old telephone kiosks where one had to press A or B when making a call.
It was indeed a long time agoin the dim and distant recess of my memory. It seemed entirely pointless to have two different certificates: one to say that someone had complied and one to say someone did not comply. I could notI do not think anyone else couldunderstand just quite why the Government thought that was a good idea in the first place. That is why we made the point in the Committee of the whole House, and why we were pleased when the Treasury conceded that point.
We are grateful that the Government have taken up the issue. Once again, it shows the merits of getting a consultation right. The Minister says, We have listened and therefore we have changed the Bill, but it would have been better to have listened first, thought about the legislation and got it right first time. That would have avoided the damage to the relationship between HMRC, the Treasury and business as a result of putting provisions in the Bill when no one had really thought about their practical implications.
Given that the Prime Minister has talked about greater openness and transparency and said that he is going to listen to people and consult more, it is disappointing that the Government have turned this into a Government amendment rather than accepted it as an Opposition amendment. It would have shown us the new spirit that the Prime Minister wants to generate. I am so disappointed that the Treasury team has not taken up the Prime Ministers advice.
Amendments made: 274, in schedule 46, page 339, leave out lines 21 to 25 and insert
( ) The certificate must
(a) state whether the company.
Amendment 275, in schedule 46, page 339, line 28, leave out giving and insert if it did not, give.
Amendment 276, in schedule 46, page 339, line 29, leave out and its subsidiaries (if any).
Amendment 277, in schedule 46, page 339, line 30, leave out from arrangements to end of line 32.
Amendment 278, in schedule 46, page 339, line 36, after third the, insert companys.
Amendment 279, in schedule 46, page 339, line 38, at end insert
( ) A certificate may relate to more than one qualifying company..
Amendment 280, in schedule 46, page 339, line 40, leave out large company must notify the Commissioners and insert
qualifying company must ensure that the Commissioners are notified.
Amendment 281, in schedule 46, page 340, line 3, after third the, insert companys.
Amendment 282, in schedule 46, page 340, line 6, at end insert
( ) A notification may relate to more than one qualifying company..
Amendment 283, in schedule 46, page 340, line 14, leave out paragraph 6.
Amendment 284, in schedule 46, page 340, leave out lines 37 to 40.
Amendment 285, in schedule 46, page 341, line 6, leave out 2 or.
Amendment 286, in schedule 46, page 341, line 7, leave out 6 or.
Amendment 287, in schedule 46, page 341, line 11, leave out large and insert qualifying.
Amendment 288, in schedule 46, page 341, line 11, leave out it fails to notify the Commissioners of the name and insert
, for a financial year, the Commissioners are not notified of the name or names.
Amendment 289, in schedule 46, page 341, line 16, leave out large and insert qualifying.
Amendment 290, in schedule 46, page 341, line 30, leave out large and insert qualifying.
Amendment 291, in schedule 46, page 341, line 40, after third the insert companys.
Amendment 292, in schedule 46, page 341, line 41, at end insert
( ) HMRC may not assess a person who is the senior accounting officer of a company (C) as liable to a penalty under paragraph 5 or 7 for a financial year (the relevant financial year) if
(a) at any time in the relevant financial year the person was the senior accounting officer of another company that was a member of the same group as C, and
(b) HMRC has assessed the person as liable, as the senior accounting officer of the other company, to a penalty under that paragraph for a financial year that ends on a day in the relevant financial year.
( ) HMRC may not assess a company (C) as liable to a penalty under paragraph 9 for a financial year (the relevant financial year) if
(a) C was a member of a group at the end of that year, and
(b) HMRC has assessed another company that was a member of the same group as C at that time as liable to a penalty under that paragraph
(i) for its financial year ending on the same day as the relevant financial year, or
(ii) if its financial year does not end on that day, for its financial year ending last before that day..
Amendment 293, in schedule 46, page 342, line 25, leave out 6,.(Sarah McCarthy-Fry.)
With this it will be convenient to discuss the following:
Government amendment 294
Amendment 226, in schedule 46, page 343, line 4, after calculated, insert reasonably.
Government amendment 295
Amendment 227, in schedule 46, page 343, line 8, at end insert
(4) Accounting arrangements are to be regarded as enabling the liability to taxes and duties of the company to be calculated reasonably accurately if the accuracy with which those liabilities can be calculated is within the normal bounds of materiality as that principle is defined for accounting purposes..
This is the final group of amendments relating to schedule 46. Its substance stems from the debate on materiality that we had in the Committee of the whole House. It seems that the Government have moved beyond the position that they enunciated then. The issue is important because where one strikes the line on what is material in a tax computation or a tax return determines the exposure to penalties of the senior accounting officer. What was seen to be missing from the legislation as drafted was any concept of materiality. We pushed the Financial Secretary on the matter in the debate in the Committee of the whole House. I thought, at that point, that the Financial Secretary was loath to move. When I raised the point of materiality, he said that
companies already have an obligation to deliver correct and complete returns. The measure ensures that the minority of senior accounting officers who do not oversee systems that generate correct and complete computations take responsibility for addressing that. That is the level of the bar that we envisage applying.[Official Report, 13 May 2009; Vol. 492, c. 886.]
I had no doubt that that meant 100 per cent. accuracy. I pushed the Minister again and he came up with the same example that the Exchequer Secretary used earlier about this apparently large company that had systemic errors, which we have only just got to the bottom of.
So, there is an important issue of principle here. What we must bear in mind is the obligation to keep proper accounting records that directors are already subject to under the Companies Act 2006. Section 386 of the 2006 Act imposes a duty to keep adequate accounting records
to disclose with reasonable accuracy, at any time, the financial position of the company at that time.
That obviously includes the tax liabilities to which the company has been subject. There are penalties that relate to a failure to comply with that duty. So, a mechanism is already in place to ensure compliance.
The Bill, as drafted in paragraph 16 of the schedule refers to appropriate tax accounting arrangements. Amendment 268 seeks to provide a definition of tax accounting arrangements through secondary legislation, so that the senior accounting officer will know exactly what are appropriate tax accounting arrangements.
One option would be to omit the current vague definition and divert to regulation, which would give time for proper consultation; instead, it has been rammed into the Finance Bill, with the Department hoping that everything works out for the best. Including a regulation-making power would give the Treasury time to think carefully and consult business properly; it would allow due process. Alternative methods are suggested in amendment 226, which would inset the word reasonably in paragraph 16(2)that would go some way to introducing the concept of materialityand amendment 227, which would add a new sub-paragraph.
The Government have listened to the argument and understood the strength of the representations made by the Committee of the whole House and others about materiality. The draft guidance now starts to approach that question, which I welcome. A commonly accepted definition of materiality relates to what is in the accounting standards. However, the final sentence of paragraph 61 of the draft guidance says of the standards that
They should not be interpreted as imposing any higher standards than are already required when preparing returns but neither does the phrase in all material respects import the concept of accountancy or audit materiality into the legislation.
Given that tax return completions have to be signed off as being accurate, why have another test on the certificate to say that the systems are accurate? It would lead to needless duplicationunless one is introducing a new definition of materiality.
The senior accounting officer might breathe a sigh of relief on hearing that material respects had been introduced, but paragraph 62 of the guidance does not give anything more concrete. It states:
The reference to material respects along with the use of the words appropriate and reasonable within the legislation does however make it clear that the focus is on the significance of the transaction, system or tax and the relative size of these items in terms of the business.
No guidance has been given on relative size. The guidance goes on to say that
HMRC are not interested in small or insignificant errors and this fits with our policy of focusing on significant risks.
Again, no guidance is given on what is meant by small or insignificant.
The question is what further clarity the Government are seeking to give through this change. They have disregarded the conventional accounting and auditing definition of materiality, and they have introduced some clarification in paragraph 62 of the draft guidance; but it seems that materiality rests somewhere between the accounting and auditing definitions. It should be a little more significant than the language now used to sign off tax returns and computations.
I return to the example given by the Financial Secretary. I raised the issue of systemic calculations, wondering whether it would be a problem if each computation or transaction was a penny out. The guidance now reflects that, so I can see that there has been at least some outcome from my raising the issue. However, there is the question of what happens with systemic errors, and how big they must be to be noted and disclosed to Inland Revenue.
This is a major U-turn by the Treasury, which has now accepted that maturity has a role to play in the sign-off by the senior accounting officer. It has been a bit more specific than the current guidance about what that actually means in practice for businesses.
Government amendment 295 relates to an issue that has been raised by several bodies that are concerned about the kind of taxes that might be brought within the scope of the measure. No taxes were excluded from the original clause, so the fact that the Government have been specific about which taxes should be the focus of the accounting certificate is welcome. To be fair to the Government, on page 5 of the guidance they have also excluded certain taxes, duties and liabilities explicitly, including things such as the child trust fund, life assurance premium relief, the unclaimed asset scheme and the European savings directive, and any requirements that come from them.
I welcome the greater clarity that amendment 295 gives, but I think that the Government need to go a little further in providing some clarity on amendment 294 so that there is a much clearer understanding in the minds of senior accounting officers as to what material respects actually means.
This group of amendments is concerned with the definition of appropriate tax accounting arrangements and introduces new wording to make it absolutely clear that the measure does not require a higher standard than that already required to sign off tax returns as correct and complete. It also makes it clear that HMRCs focus will be on significant weaknesses and not on small or insignificant amounts.
The hon. Member for Fareham spoke at length about Government amendment 294, which changes the definition of appropriate tax accounting arrangements and adds the words in all material respects. The wording is careful because the intention is not to introduce the concept of audit or accountancy materiality, as it is not a tax concept. We have to separate them, as the hon. Gentleman said. I make it clear that the legislation should not be interpreted as imposing any higher standards than those already required when preparing returns, and that HMRCs focus will be on the significance of a transaction, system or tax. It will not be interested in small or insignificant errors. It is important to put that on the record.
The hon. Member for Fareham asked if we could be more specific in guidance as to what the measure will mean in practice. He will be aware that this is draft guidance. We have been working with interested parties to develop the solution that is reflected in Government amendment 294, and we will continue to consult on the draft guidance.
I am trying to think what is left as a consequence of all the amendments. The Minister is saying that the standard is no different from the one that already applies in signing off returns and computations. That almost begs the question, why do we need the certificate if all that is happening is that the senior accounting officer will reconfirm what people signed off when they submitted returns to HMRC?
I come back to the point that I made about using the definition of accountancy and audit materiality. That has never applied for tax. What happens in practice is that accounts are prepared according to materiality, but that is unpicked when the tax finance people prepare their computations and returns. The amendment makes it absolutely clear that the legislation does not raise the tax bar in respect of what is required to sign off returns. That is an important protection for senior accounting officers.
The hon. Gentleman spoke about significance. We can provide more examples of significance within the guidance; as I said, it is part of the ongoing consultation. I welcomed the hon. Gentlemans support for draft guidance on appropriate tax accounting arrangements and, again, that will be subject to further consultation.
Moving to amendment 295, the thrust of the schedule is to help maintain fiscal sustainability by making the senior accounting officers of the very largest companies and groups responsible for ensuring that they have appropriate tax accounting arrangements in place and, as currently drafted, the measure applies to all liabilities regardless of relative importance. However, in some instances the associated administrative burden, while not significant in relative terms, might be disproportionate in relation to the size of those liabilities, which are relatively small, therefore amendment 295 restricts the measures scope to specify mainstream taxes and duty.
At the end of what has been a lengthy debate on four groups of amendments, I am left wondering what is left. The Minister has now said that the standard of accuracy applied to the certificates is no different to the standard already applied to tax returns and computations. We are effectively asking a senior accounting officer to confirm that what has been submitted and said was and is still materially accurate.
That is part of the issue. A senior accounting officer could sign off the computation as being materially accurate only if they were content and only if their systems were accurate. We know that HMRC has access to the systems of large companies and that it does a risk assessment. As a senior accounting officer, I could not sign off a tax return if I knew that the underlying systems were not robust or able to produce correct and accurate financial information.
I am at a loss to think of what is left. I almost feel that the four amendment groups have made schedule 46 a hollowed out husk. Expense will be imposed on companies, depending on their size, but not other types of business combination. The amount of additional comfort that senior accounting officers are given is minimal. Given the nature of the relationship between HMRC and large companies, which are already risk- assessed, the Government will not get more value out of this measure. HMRC already has access to systems as part of the Varney review.
We will end up with a compliance burden on companies without, as far as I can see, additional value to HMRC. Companies may be grateful that the Minister has listened to them, but I am not convinced where the measures value rests. I am grateful that the Government have listened to the concerns about materiality, because that certainly was not the message from the Financial Secretary in the debate in the Committee of the whole House, and that is a sign of movement. However, moving so far on so many issues has left me questioning what the Government have got out of schedule 46 and clause 92. As they have addressed the issue in amendment 264 with amendment 294, I beg to ask leave to withdraw the amendment.
Amendments made: 294, in schedule 46, page 343, line 3, leave out from enable to end of line 4 and insert
the companys relevant liabilities to be calculated accurately in all material respects..
Amendment 295, in schedule 46, page 343, leave out lines 7 and 8 and insert
( ) Relevant liabilities, in relation to a company, means liabilities in respect of
(a) corporation tax (including any amount assessable or chargeable as if it were corporation tax),
(b) value added tax,
(c) amounts for which the company is accountable under PAYE regulations,
(d) insurance premium tax,
(e) stamp duty land tax,
(f) stamp duty reserve tax,
(g) petroleum revenue tax,
(h) customs duties, and
(i) excise duties..
Amendment 296, in schedule 46, page 343, leave out lines 10 to 15 and insert
Meaning of qualifying company
17 (1) A company is a qualifying company in relation to a financial year if the qualification test was satisfied in the previous financial year (subject to any regulations under sub-paragraph (2)).
(1A) The qualification test is that the company satisfied either or both of the following requirements
1. Relevant turnover
More than £200 million
2. Relevant balance sheet total
More than £2 billion.
(1B) If the company was not a member of a group at the end of the previous financial year
(a) relevant turnover means the companys turnover, and
(b) relevant balance sheet total means the companys balance sheet total.
(1C) If the company was a member of a group at the end of the previous financial year
(a) relevant turnover means the aggregate turnover of the company (C) and any other company that was a member of the same group as C at the end of Cs previous financial year, and
(b) relevant balance sheet total means the aggregate balance sheet totals of C and any such company.
(1D) If the financial year of a company that was a member of the same group as C does not end on the same day as Cs previous financial year, the figures for that company that are to be included in the aggregate figures are the figures for that companys financial year ending last before the end of Cs previous financial year.
(1E) Turnover, in relation to a company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act).
(1F) Balance sheet total, in relation to a company and a financial year, means the aggregate of the amounts shown as assets in the companys balance sheet as at the end of the financial year..
Amendment 297, in schedule 46, page 343, line 17, leave out large and insert qualifying.
Amendment 298, in schedule 46, page 343, leave out lines 20 to 22 and insert
( ) Senior accounting officer, in relation to a company that is not a member of a group, means the director or officer who, in the companys reasonable opinion, has overall responsibility for the companys financial accounting arrangements.
( ) Senior accounting officer, in relation to a company that is a member of a group, means the group director or officer who, in the companys reasonable opinion, has overall responsibility for the companys financial accounting arrangements.
( ) Group director or officer, in relation to a company, means a director or officer of the company or of a relevant body that is a member of the same group as the company.
( ) A person may be the senior accounting officer of more than one company..
Amendment 299, in schedule 46, page 343, leave out lines 29 to 32.
Amendment 300, in schedule 46, page 343, line 35, leave out from company to end of line 36 and insert
has the same meaning as in the Companies Acts (see section 1(1) of the Companies Act 2006) but does not include a company that is an open-ended investment company (within the meaning of section 468A of ICTA) or an investment trust (within the meaning of section 842 of ICTA);.
Amendment 301, in schedule 46, page 343, leave out lines 39 and 40.
Amendment 302, in schedule 46, page 344, line 2, at end insert
relevant body means a company or other body corporate but does not include a limited liability partnership;.
Amendment 303, in schedule 46, page 344, leave out lines 3 to 5.
Amendment 304, in schedule 46, page 344, line 7, at end insert
(2) For the purposes of this Schedule
(a) a relevant body is a member of a group if
(i) another relevant body is its 51 per cent subsidiary, or
(ii) it is a 51 per cent subsidiary of another relevant body, and
(b) two relevant bodies are members of the same group if
(i) one is a 51 per cent subsidiary of the other, or
(ii) both are 51 per cent subsidiaries of a third relevant body.
(3) Section 838 of ICTA (meaning of 51 per cent subsidiary) applies for the purposes of this Schedule as it applies for the purposes of the Corporation Tax Acts (subject to the modification in sub-paragraph (4)).
(4) It applies as if references in that section to a body corporate were to a relevant body..(Sarah McCarthy-Fry.)