Lords Committee publishes report on Finance Bill 2023-24

• Report: Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (HTML)
• Report: Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (PDF)
• Inquiry: Draft Finance Bill 2023-24
• Economic Affairs Finance Bill-Sub Committee

Background

The House of Lords Economic Affairs Committee appoints a Finance Bill-Sub-Committee each year to inquire into the draft Finance Bill. The Sub-Committee’s inquiries focus on technical issues of tax administration, clarification, and simplification rather than on rates or incidence of tax.

The report

The report covers the Government’s draft Finance Bill 2023-24 which was published on 18 July 2023. The report covers its reforms on Research and Development (R&D) tax relief, the requirement for businesses to provide additional information to HMRC, measures dealing with promoters of tax avoidance, and the doubling of the maximum prison term for tax fraud.

Key recommendations

The reports main conclusions and recommendations are:

• The Sub-Committee welcomes the announcement at Autumn Statement 2023 that the R&D review is now complete and recommends that the Government does not make further changes to R&D tax relief, other than to simplify certain aspects of the scheme.
• The Government must monitor the operation of the R&D intensive scheme and keep the threshold for R&D intensity under review to ensure that the scheme is appropriately targeted and effective in achieving its policy objectives.
• HMRC must thoroughly review the assumptions on which the costs to business of the employee hours requirements were based and ensure that future costings accurately reflect the true cost to business of any changes.
• The Government must provide greater clarity about how the measures targeting promoters of tax avoidance schemes will be effective against promoters based offshore.
• HMRC must collect data about the sentences handed down for tax fraud, including the number of times the new maximum sentence is imposed by the courts and an analysis of the deterrent effect of these sentences.
• The Government must ensure that there are proper, external and independent safeguards in place for any powers granted to HMRC, particularly those relating to criminal prosecution and the disqualification of directors

Chair’s Comments

Lord Leigh of Hurley, Chair of the Finance Bill Sub-Committee said:

“Businesses will be relieved that the Government’s review of R&D tax relief has been completed and that they can now plan ahead with some much-needed certainty. However, the Government still has a lot of work to do in terms of the early publication of the regulations and guidance relevant to changes and a realistic timetable.” 

“We struggled to understand what the Government was trying to achieve by requiring additional data from employers and individual taxpayers. Additional burdens should not be placed on businesses unless there is a compelling reason to do so.” 

“The Sub-committee was sceptical about whether increasing the maximum prison term is the most effective deterrent against tax fraud. We were also concerned by how the legislation aimed at dealing with promoters of tax avoidance schemes would be applied to offshore promoters, which we know deliberately place themselves in locations that don’t have tax treaties and exchange agreements with the UK.”

Further information

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