Again, this is a minor and technical amendment that makes a change to the Finance Act 2019 to remove a potential ambiguity in the spreading rules for businesses adopting the latest lease accounting standards.
The Finance Act 2019 made changes to the income and corporation tax rules for businesses leasing assets in order to allow rules to work following the introduction of international financial reporting standards 16. That legislation was designed to ensure equitable treatment for businesses by spreading the tax effects of adopting IFRS 16 over the average remaining terms of asset leases. Consequently, the Exchequer impact of those changes would also be spread out.
It was subsequently brought to the Treasury’s attention that minor aspects of the legislation did not work as originally intended. To address that, this clause makes minor amendments to the legislation, clarifying how the rules ought to be implemented. The Government published the amendments in draft on
The changes made by clause 34 clarify that firms ought to spread the tax effect of changes in adopting IFRS 16 over the average remaining term of asset leases. The changes are to be treated as having always had effect from
Making these clarificatory amendments will ensure that the legislation introduced in the Finance Act 2019 operates as intended, and therefore that there is fairness, certainty and stability for all businesses when applying the relevant accounting rules. I therefore commend the clause to the Committee.
It is a pleasure to welcome you to the Chair, Ms McDonagh, and to take up the case for the Opposition on what my hon. Friend the Member for Ilford North described as the more technical aspects of the Bill. I am sure we will continue to enjoy debating these clauses none the less.
The Opposition do not object to the principle behind this clause, which appears straightforward and achieves its aim. Bringing leases on to the balance sheet is a welcome step in achieving greater transparency in our system. The Opposition believe that there is a very important need for the Government to continue to do more in this area. I simply ask the Minister why this was not done sooner.
I am keen to raise the broader issue of tax transparency and tax fairness in our system as a whole. Our small and family-run businesses are operating in a very difficult climate due to the ongoing pandemic, and they want to have confidence that everyone is playing by the rules and that there is fairness across the system. We know from various documents that we continue to have an ongoing problem with tax avoidance and the broader tax gap in our country.
I am always grateful to the House of Commons Library for providing additional material in this area. It is a wonderful source of useful information, research and analysis, especially for Opposition Members; our ability to undertake some of this research ourselves is a bit more limited, as we do not have access to the fine officials who the Minister has the privilege of working with on a daily basis. The Library has put to us that the wider tax gap for income tax, national insurance contributions and capital gains tax was estimated at £12.9 billion in 2017-18, based on HMRC documents; there are other assessments, of course.
I am sure that the Minister will want to make sure that we do everything in our power to ensure that there is fairness right across the system, particularly at this time. We believe that income must be more tightly tied to tax treatment, with tax liability going up with income, so that the Government can fund, and can ensure that we have revenue available to fund, our vital public services—not least now, at this very trying time for our country.
We hope that this change and the future legislation that the Government might seek to bring forward will be developed in the same spirit of creating greater transparency within our system. We also hope that the pressures that Ministers and officials are under at this time will not divert them from the necessary action that they must continue to take, to ensure that we have greater transparency and that everyone pays their fair share. We also want to make sure that HMRC has all the resources and staffing it needs to do this work to the best of its ability.
I am very grateful to the hon. Lady—what an effortless tag team she and the hon. Member for Ilford North make! It is good to see them in action.
The hon. Lady’s points are very well made, and I hope she recognises that the Government take these issues seriously—not just avoidance and evasion, and, in a separate category, fraud, but the wider question of fairness. It is absolutely right that we should do so. In an environment where the vast majority of taxpayers pay tax as due, in good time and do not become subject to any enforcement proceedings, it is all the more vital to maintain that consent and recognition of the public fairness of the system. She is absolutely right about that.
I hope that the hon. Lady will see that some of the issues that we have been facing in this Finance Bill and its predecessors, be they the loan charge or IR35, have reflected a persistent desire of the Government to see fairness through, despite some pretty strong headwinds. Also important is the ability to strike a fair balance within each of those schemes; we have discussed the loan charge and the Amyas Morse review, which is designed to ensure the right balance, even within that area.
However, I also draw attention to other important aspects. As the hon. Lady will be aware, we have announced a consultation on a strategy that takes a much more vigorous approach towards tackling the promoters and enablers of tax avoidance. I hope she will note that there continues to be a robust enforcement process within HMRC—one that has been carefully modulated and restrained in the context of coronavirus, but has not been in any sense left off thereby.
I will also say a couple of other things of which the hon. Lady may be less aware. One is that because of the concern about the balance of powers, which has been raised in part by the Lords Economic Affairs Committee and others, we now have a customer experience committee within HMRC. It has also brought in a series of experts who understand what might be called effective and successful customer and taxpayer treatment, bringing them in from other sources across the private sector to make sure that people do feel well treated and well handled, and that it is not a bruising process to have an interaction with HMRC. That sense of the importance of maintaining consent, and of Revenue and Customs not being oppressive while remaining highly effective in ensuring that people pay the right tax due, is a balance that both HMRC and the Government are constantly seeking to strike.