Finance Bill

I thank the shadow Minister for his words of support. It would be somewhat surprising if he did not support the measure, as I am sure that he would have introduced it had he been in our position. Clause 8 relates to corporation tax avoidance involving de-recognition. The corporation tax rules on financial instruments broadly follow the treatment of profits and losses recognised in accounts drawn up under generally accepted accounting practice. That applies to most financial instruments, including loans and derivatives. However, in certain cases where the terms of an asset and a liability are closely related, accounting practice may mean that neither the income nor the expenses arising on them are included in the accounts. For example, a company may have issued preference shares on which the dividends payable equal the interest received. As the company is economically flat in such cases, accounting practice allows it to de-recognise both the income and expenses. However, for tax purposes, that gives rise to a mismatch. The income is taxable, while the dividends are not deductible. Unfortunately, avoidance schemes have continually sought to exploit the practice of de-recognising income. In 2006, legislation was introduced to block such avoidance by overriding the de-recognition for tax purposes. It required that where certain conditions are met, taxable profits are to be computed as if there had been no de-recognition in the accounts. It was necessary to amend the original legislation in 2007 and 2009 to block new schemes. Previous action has protected something like between £100 million and £150 million. To answer the shadow Minister's question, it is anticipated that the measures in the Bill will protect £150 million per annum. It is worth making the point that in addition to blocking the latest schemes, the Government intend to remove the opportunity for new abuse. We will amend the anti-avoidance rule in question so that it works in a more wide-ranging manner. Such a rule will make it unnecessary repeatedly to block similar versions of what is essentially the same scheme, and will allow us to address the matter more completely. HMRC will issue a technical note on the subject shortly, with a view to us making the amendments in the Finance Bill 2011. Any such changes would be effective from a date to be announced in the autumn, following consultation on the details of the proposals. I note your earlier guidance, Mr Evans, and I will not go into detail on the points that the shadow Minister made, but we continue to look at the issue, and the Government take anti-avoidance measures very seriously. Question put and agreed to. Clause 8 accordingly ordered to stand part of the Bill. Schedule 5 agreed to. Clauses 9 to 11 ordered to stand part of the Bill. The Deputy Speaker resumed the Chair. Bill reported, without amendment. Bill to be read the Third time tomorrow.