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

The Government are taking action to tackle those who attempt to bend or break the rules to avoid paying the tax that they owe. The Clause introduces a new provision to address avoidance arrangements in certain very specific situations involving the creation of liabilities and related expenses for accounting purposes. The rule addresses certain arrangements that are designed to secure a tax advantage.

The accounting and tax analysis in relation to when financial assets are derecognised or may continue to be recognised can be complex. In some cases, assets that are transferred to a securitisation vehicle may continue to be recognised for accounting purposes in the transferor’s accounts. This can potentially happen for commercial reasons. In certain circumstances, a liability may also be recognised for accounting purposes in connection with the underlying assets or otherwise in connection with the transfer. This liability is a non-derecognition liability.

This new rule addresses scenarios where, as a result of tax-driven arrangements, a company seeks a tax deduction for expenses in connection with such a non-derecognition liability. HMRC considers that existing legislation already negates any UK tax advantage from these arrangements. However, introducing the new rule aims to deter such tax avoidance arrangements and secure receipts for the Exchequer that might otherwise be deferred through tax disputes. I therefore commend the clause to the Committee.

As the Minister said, the Clause introduces a new anti-avoidance provision aimed at arrangements involving non-derecognition liabilities. These are complex structures whereby a company transfers assets to another entity, but under accounting rules continues to recognise those assets and related liabilities on its own balance sheets. Such structures are of course common in securitisations, which are an important part of the UK’s financial landscape. In these arrangements an originating company passes on the economic risks and rewards with an asset, yet maintains the asset on its books. Used properly, these arrangements serve a legitimate commercial purpose. However, as the Minister said, there are examples of people bending or breaking the rules. Can he give the Committee a flavour of how prevalent he thinks that bending or breaking of the rules is?

The provisions of this clause seek to correct any rule-breaking by denying tax deductions where their main purpose is to seek to gain a tax advantage by exploiting non-derecognition accounting. The Opposition strongly support efforts to tackle avoidance and close loopholes that undermine trust in the tax system, and efforts to bring the tax gap down—as the last Government successfully did, and this Government are, I am sure, continuing to seek to do—but, as always, the details matter.

According to the “Budget 2025 Policy Costings” document—I commend it to the Committee if any member of the Committee has not read it—this measure is expected to raise around £20 million in 2025-26. That amount is expected to rise to £145 million by 2028-29 as it blocks schemes that seek to erode the UK tax base. However, the measure as drafted relies on a broad “main purpose” test—that is, I believe, a deliberately broad standard. It is important that that wording does not capture genuine commercial transactions that rely on similar accounting treatment, not least because the securitisation market is very significant: according to figures from the Association for Financial Markets in Europe, the value of outstanding securitisations in the UK was €224 billion at the end of Q3 2024.

The Opposition want to ensure that we maintain the competitiveness and the scale of that sector, so I will conclude with a few questions to the Minister. First, how will HMRC distinguish between the abusive non-derecognition schemes and bona fide securitisation deals that have valid commercial purposes? Secondly, what guidance will be published to provide clarity around the new main purpose test so that businesses have confidence and know which existing structures could be at risk? Finally, what assessment has the Treasury made of the impact of this measure on the UK’s ability to attract and retain securitisation business, compared with other jurisdictions?

The Opposition spokesperson is right to ask about the extent to which HMRC will be able to distinguish between valid purposes and uses and those that seek to bend or break the rules. HMRC is aware of a small number of companies and businesses that we think are engaging in such practices. It would not be appropriate for me to disclose the precise number, but there are some of which HMRC is aware. We certainly do not want traditional and reasonable uses of the non-derecognition method to be affected.

The Opposition spokesperson asks about the potential impact of this measure. I am glad that he has also read the costings. According to those costings, which have been certified by the Office for Budget Responsibility, this measure is expected to raise quite a significant sum: £465 million in total over the scorecard period. That suggests that the experts and analysts in HMRC, as well as the independent officials at the OBR, believe that there is a volume of bending or breaking of the rules here that we should be able to go after more effectively under this measure.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.