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

With this it will be convenient to discuss the following:

Clause 33 stand part.

Government amendments 8 to 10.

That schedule 7 be the Seventh schedule to the Bill.

The clauses and the schedule make wide-ranging changes to the corporation tax rules for company debt—referred to as loan relationships in the statute—and derivatives. These changes bring the rules up to date, making them simpler and easier for companies to use and at the same harder to misuse or manipulate.

It may help the Committee if, before I explain the changes in detail, I provide some background. The rules on loan relationships are almost 20 years old. They are based on the straightforward idea of taxing company debt on the basis of commercial accounts. The rules operate without difficulty for many, particularly for smaller companies with simple financing arrangements, but they also have to cater for commercial situations that can be highly complicated. The Government have frequently received comments on the complexity of the rules. At the same time, the loan relationships and derivatives regimes have frequently been targeted by tax avoiders. Often, the reaction to those attempts at avoidance has been to close loopholes by very specific, narrowly focused changes to the law. That approach has generally been successful, but it has not deterred avoiders from finding new ways to get round the rules or abuse them. It has also added to their complexity. In addition, over the years there have been changes to the accounting standards that underlie the tax rules, and further significant changes are being made at the moment.

Those factors mean that the time is ripe for a general review of this part of the tax code. Indeed, an article in Tax Journal in December 2014 noted that such a review was “long overdue and necessary”. At Budget 2013, the Government announced a consultation on a package of proposals to modernise the legislation. The clauses and schedule before the Committee today are the outcome of that consultation.

We are making extensive changes. I will explain briefly the most significant elements of the package. First, we are aligning taxable amounts more closely with commercial accounting profits, so taxation of loans and derivatives will now be based on amounts recognised in accounts as profits or losses, similar to the way trading profits are calculated. In contrast, up to now the tax rules for loans and derivatives have looked at amounts recognised anywhere in accounts—in equity or reserves, for example. A transitional rule will ensure that this change is broadly tax-neutral and that nothing is taxed twice or not at all. A recent article in Tax Journal described the change as “a hugely welcome simplification”. Alongside it, we are making further changes that will reduce the occasions when taxation does not follow the accounting treatment.

We are introducing new corporate rescue provisions, which will benefit companies that are in genuine financial difficulty and looking to restructure their loans to avoid insolvency. The rules will make it easier for such companies to agree arrangements with creditors without incurring a tax charge. The change has been warmly welcomed and will help companies to stay in business, to continue contributing to the UK economy and to preserve jobs. For example, in its February 2015 client newsletter, Allen & Overy noted:

“These exemptions received a uniformly positive welcome.”

I described how, although they effectively close down avoidance schemes as they come to light, the existing narrowly focused rules have not stopped attempts to target or use company loans and derivatives in tax avoidance arrangements. Because of that, we are strengthening the protection for the Exchequer by introducing new regime-wide anti-avoidance rules, which will deter and block arrangements of any kind that are entered into with the intention of obtaining a tax advantage  by way of the loan relationships or derivatives rules. Unlike many existing anti-avoidance provisions, the new rules do not focus narrowly on specific situations or types of avoidance, so it will be harder to sidestep them.

It is important that the rules do not interfere with genuine commercial activity, so we have worked closely with interested parties to ensure that they will prevent avoidance without affecting legitimate business transactions. A number of existing anti-avoidance rules will now be redundant, so we are repealing them, which will be a welcome simplification.

Consultation has continued since the Bill was introduced and has identified the need for Government amendments to schedule 7 to deal with a potential unintended outcome. The amendments do not represent any substantive change of policy, but simply bring forward the date at which the corporate rescue reliefs that I described a few moments ago become available. The Bill currently provides for those reliefs to be available from the date of Royal Assent, but we have recently been made aware in consultation that a small number of companies have entered into transactions on the basis that retrospective relief would be available from 1 January 2015, as was envisaged in earlier draft legislation published in December 2014. As a result, they would not qualify for relief and so would be in danger of becoming insolvent, with possible loss of jobs.

As a rule, the Government do not legislate to take account of the fact that taxpayers have acted on the basis of unenacted legislation, but I am mindful that in this case the whole purpose of the corporate rescue reliefs is to avoid unnecessary insolvencies and preserve businesses and jobs, so the amendments reset the commencement date to 1 January 2015.

In conclusion, the provisions support the Government’s aim of promoting a tax system that is efficient, competitive, predictable, simple and fair. They bring the tax system for corporate debt and derivative contracts up to date and make it simpler. They make it easier for companies to restructure debt to avoid insolvency and they make it harder for tax avoiders to get around or take advantage of the rules. I therefore commend clauses 31 and 33 and schedule 7 to the Committee.

These are welcome anti-avoidance measures, although I must say that they are of such complexity that I do not understand them and, with respect to my hon. Friends, I suspect that few of them do either. I am pleased that the Government have listened to the consultation and changed the commencement date to 1 January 2015, which was something on which I was lobbied.

The provisions indicate how difficult it is to simplify our tax regime—something with which the Minister will have struggled in the past five and a half years since he got into government. It is easy to argue from the Opposition Benches for a simplified tax regime, and of course I would argue for that as well. Clause 31 looks simple: it is 11 words long—now that is nice and simple. However, those 11 words incorporate schedule 7, which is, at 43 pages, the longest schedule I can recall seeing appended to any Bill. I would like some further reassurance from the Minister, if he is in a position to give it, that a 43-page schedule simplifies our tax regime.

I would probably pray in aid the various remarks in the articles I quoted earlier. We consulted extensively with industry and tax professionals to ensure that the changes we are making are balanced and fair, and that they fulfil the aims of the review, which include making the rules as simple as possible to understand and use. The rules are straightforward for the great majority of companies with ordinary loans, which means that the great majority of small companies will experience simplification. However, the measure must also cater for highly complex commercial situations and financial instruments, so it can never be entirely simple.

Key simplifications that we are making include aligning tax and commercial accounting profits more closely. As I said, the 30 July article in Tax Journal, which I suspect the hon. Gentleman will read assiduously from now on, described the measure as “a hugely welcome simplification”. The changes include the repeal of about 26 pages of primary legislation with more than seven pages of anti-avoidance rules. There is a net increase of 18 pages, but I think it is fair to say that, as the Office of Tax Simplification has pointed out, the number of pages of legislation is not always the best measure of complexity.

I note that by and large there is consensus between us on the measures, although not about the pronunciation of “schedule”.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.