A House of Lords Select Committee has reported on this year's Finance Bill.  It draws attention to the increasing complexity of tax law and to the need for the Government to balance its desire to close loopholes in the law which allow some people to avoid paying the taxes due from them with the need to reduce the costs of compliance for bona fide taxpayers. It also calls for more prior consultation with those likely to be affected by tax changes.

While the Report, from the all-party Economic Affairs Committee, commends the Government for the extensive and constructive discussions that preceded the introduction of measures to simplify the taxation of pensions, it has some criticisms of other "revenue protection" measures in the Bill. The measures in question are:

  • the requirement for prior disclosure to the Inland Revenue of tax planning arrangements which are designed to reduce payment of Direct Tax and VAT;

  • the payment by small businesses of corporation tax on distributed income;

  • the extension of Stamp Duty Land Tax (introduced in last year's Finance Act) to partnerships;

  • the introduction of strip stamps on spirits bottles to reduce the evasion of duty in this area. 

The Committee expresses its wholehearted support for the Government's objective of clamping down on "sophisticated and aggressive tax avoidance schemes". But it concludes that the way in which the Bill and its supporting regulations are currently drafted involves a risk that the net which the tax authorities are proposing to cast will catch large numbers of bona fide taxpayers as well as the small number of serious tax avoiders at whom the measures are aimed. 

It also concludes that:

  • the complexities of the new rules on corporation tax will make tax  and dividend planning difficult for thousands of normal small businesses;

  • while there is a case for closing the loophole whereby stamp duty land tax might be evaded through contrived partnership arrangements, there is a danger that bona fide commercial partnership transactions could become liable to the tax;

  • the spirits industry - and especially the smaller enterprises - will be saddled with large implementation costs when duty stamps are introduced in 2006.

The Chairman of the Committee, Lord Peston said:

"We are one hundred percent behind the Government in its aim of curbing tax avoidance. But we are not convinced that the legislation as it stands has been sufficiently thought through or exposed for serious consultation with those who will have to deal with its consequences."

"We have seen the good results which such consultation has produced in the case of the Government's measures to simplify the taxation of pensions. We would like to have seen something along the same lines for some at least of the revenue protection measures."


1. The report was produced by the Finance Bill Sub-Committee of the House of Lords Select Committee on Economic Affairs.  The Sub-Committee's inquiry was the second of a two-year experiment launched last year for House of Lords scrutiny of Finance Bills. Its terms of reference require it to focus on tax administration, clarification and simplification and preclude examination of the rates or incidence of taxes.

2. The members of this year's Sub-Committee were Lord Barnett, Lord Blackwell, Lord Freeman (until 9 May), Lord Moser, Lord Newby, Lord Paul, Lord Peston (Chairman), Lord Roll, Lord Sheldon, Lord Sheppard of Didgemere, Lord Shutt of Greetland and Lord Wakeham.

3. The report is published by the Stationery Office: The Finance Bill 2004, House of Lords Select Committee on Economic Affairs, 1st Report, Session 2003−04, HL Paper 109, ISBN 010 400466 5, price £14.50. There is a separate volume of evidence. The report is available on the internet via by 3.30 pm on the day of publication.

For embargoed copies of the report please contact:

  • Jillian Bailey
    Press and Publicity Officer (Committees) on 020 7219 8659.

For background information please contact:

  • Robert Preston, Clerk to the Sub-Committee on 020 7219 5358.