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Where Taxpayers and Advisers Meet
Minor Finance Bill Clause Could have Major Impact on Brexit Discussions
10/01/2019, by Andrew Hubbard, Tax News - General
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RSM's Andrew Hubbard warns of potential conflict over the Finance Bill, thanks to Brexit.

Update - the amendment was approved, such that the government's taxing powers are restricted in the event of a "no-deal Brexit"

Ahead of tomorrow’s parliamentary debate on the Finance Bill, one minor technical clause has the potential to create real problems for the government.

Clause 89 is headed ‘minor amendments in consequence of EU withdrawal’, which could also be called a ‘keeping the lights on’ clause. It allows the Treasury to make regulations to ensure that the tax system continues to operate as it does now if there is a no-deal Brexit. The sort of thing it is intended to deal with is changes in definitions, for example to allow reference to ‘the EU’ to be replaced with references to ‘the EU and the UK’: in other words minor drafting amendments.

The first point to note is that although the word minor appears in the heading it does not actually appear in the draft legislation itself. The clause allows the Treasury to make ‘such provisions as they consider appropriate for the purpose of maintaining the effect of any tax legislation (other than VAT, Customs or Excise duties)’. This means that any changes could be made, provided they preserve the effect of existing legislation. That is an astonishingly wide power, not least because it assumes that it is clear what the effect of the existing legislation actually is. Readers of this bulletin will know that courts have regularly tied themselves up in knots when faced with that problem.

What has brought this clause out of the shade normally reserved for the back pages of the Finance Bill is the tabling of an amendment by a senior cross-party group of MPs. The effect of the amendment would be to prevent clause 89 from having effect unless Parliament had approved a negotiated withdrawal agreement; the Government had requested an extension to the article 50 withdrawal period; or Parliament had approved leaving the UK without an exit agreement. In other circumstances, i.e. a no-deal Brexit not approved by Parliament, clause 89 would not come into effect.

It is difficult to judge how much difficulty would actually be created if the amendment were to be accepted by Parliament (at the time of writing it is not certain that it will actually be put to a vote). If problems did emerge following a no-deal Brexit, the Government would still be able to amend tax legislation in the normal way by introducing new clauses into a future Finance Bill or even introducing an emergency bill, but of course that would be a much more cumbersome process than giving the treasury power to make regulations. There would be a much higher level of Parliamentary scrutiny and the potential for endless arguments. So, even if the clause were passed and there was a no-deal Brexit, the system could still function.

But there is no doubt that if the clause were passed it would represent a huge challenge to the authority of the Government and would increase yet further pressure to find a negotiated way out of the current deadlock.

About The Author

Andrew Hubbard is a tax consultant at RSM. He initially trained as an inspector of taxes before joining the profession. He has worked in a 'Big Four' environment and was a partner in a mid-tier firm before joining RSM Tenon, where he was a tax policy partner and had the responsibility of advising the Plc Board on taxation matters.
 
He is also editor-in-chief of Taxation magazine, is a regular contributor to the professional press and won the tax writer of the year award in 2006. He is closely involved with consultations with HMRC on a variety of tax matters, particularly relating to HMRC powers.
 
RSM is a leading audit, tax and consulting firm to the middle market with nearly 3,500 partners and staff operating from 35 locations throughout the UK. For the year ending 31 March 2017, RSM generated revenues of £319m. RSM UK is a member firm of RSM International - the sixth largest network of audit, tax and consulting firms globally. The network spans over 120 countries, 813 offices and more than 43,000 people, with a fee income of more than $5bn.
 
(W) www.rsmuk.com
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