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Stanbrook, Ivor

Steen, Anthony

Stern, Michael

Stevens, Lewis

Stewart, Allan (Eastwood)

Stewart, Andy (Sherwood)

Stewart, Rt Hon Ian (Herts N)

Stokes, Sir John

Stradling Thomas, Sir John

Sumberg, David

Tapsell, Sir Peter

Taylor, Ian (Esher)

Taylor, Teddy (S'end E)

Tebbit, Rt Hon Norman

Temple-Morris, Peter

Thompson, D. (Calder Valley)

Thompson, Patrick (Norwich N)

Thorne, Neil

Thornton, Malcolm

Thurnham, Peter

Townsend, Cyril D. (B'heath)

Tracey, Richard

Trotter, Neville

Twinn, Dr Ian

Vaughan, Sir Gerard

Waddington, Rt Hon David

Walker, Bill (T'side North)

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Waller, Gary

Wardle, Charles (Bexhill)

Watts, John

Wells, Bowen

Whitney, Ray

Widdecombe, Ann

Wiggin, Jerry

Wilkinson, John

Wilshire, David

Winterton, Mrs Ann

Wolfson, Mark

Wood, Timothy

Woodcock, Dr. Mike

Yeo, Tim

Young, Sir George (Acton)

Younger, Rt Hon George

Tellers for the Noes :

Mr. John M. Taylor and

Mr. Sydney Chapman.

Question accordingly negatived.

Amendments made : No. 35, in page 55, line 49, after council', insert or company'.

No. 36, in page 56, line 17, at end insert

(b) "local enterprise company" means a company with which an agreement (not being one which has terminated) under which it is agreed that the company shall carry out the functions of a local enterprise company has been made by the Scottish Development Agency, the Highlands and Islands Development Board, Scottish Enterprise or Highlands and Islands Enterprise.'.-- [Mr. Lilley.]

Clause 68, as amended, ordered to stand part of the Bill.

Clause 9

Registration

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

Mr. Chris Smith (Islington, South and Finsbury) : Clause 9 simplifies the procedures by which businesses determine whether they must register for VAT.

I must begin by taking slight issue with the notes on clauses issued by the Treasury, which are intended to simplify and to explain clauses. It was with some surprise and concern that I came across the following note on clause 9 :

"Sub-paragraph 1(1) provides reference to the new sub-paragraphs (3) to (5) and continues to cite the revised sub-paragraph 1(a). The revised sub- paragraph 1(1)(a) replaces the current sub-paragraphs 1(1)(a) (i) and (ii)".

That is impenetrable and does not enlighten our consideration of the clause. I hope that in future the notes on clauses will be clearer than the clause, not less clear.

Clause 9 has already been welcomed by many small traders, and we intend to support it. There has long been discontent that the tests to determine whether a small trader should register for VAT were too complex. Even before the new regime for VAT penalties and interest which has just been introduced, the cost of not registering when one should have done so could have been punitive, and that has become more so with the recent new system of penalties.

Before the changes proposed in clause 9, a trader had to apply four different tests in order to see whether he should register. The first was a test of the past year's turnover exceeding a specified threshold ; the second was a test of the past quarter's turnover exceeding another specified threshold ; the third a test of the next month's anticipated turnover being likely to exceed a third threshold ; and the fourth a test of the next year's turnover being likely to exceed a fourth threshold. Those four tests all had to be undertaken regularly by a small business in order to ascertain whether it should register. It was a complex bureaucratic procedure, which was resented by many small businesses.

Clause 9 effectively removes two of those tests--the test of the past quarter's turnover and the test of the next year's

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turnover. The removal of those two tests is welcome, but I have two questions for the Economic Secretary. First, it appears from the clause that a trader must register at the end of a month if the previous year's turnover exceeded £25,400. In other words, the trader has to make an assessment on a rolling 12-month basis with a new assessment having to be made each month about whether the two remaining tests will be exceeded. That is somewhat onerous and I hope that, in a spirit of bipartisanship, the Government will consider some change, perhaps to a calendar quarter rather than the existing calendar month with the rolling provision.

6.15 pm

Secondly, the increase in the threshold that the Government are introducing in the clause is an increase from £23,600 to £25,400--an increase of 7.6 per cent. Under the European Community sixth directive, the increase must be limited to a rise in real terms--that is, allowing for inflation. However, I am sure that the Government will be aware that inflation is currently running at considerably more than 7.6 per cent. It would be useful to know from the Government whether it might be possible to allow a slightly greater increase in the VAT threshold in the light of the rising level of inflation that we faced at the time of the Budget and that we certainly face now.

I raise those two small points, but in broad terms we support the general thrust of clause 9 and wish to see it included in the Bill.

Mr. Tim Smith (Beaconsfield) : I welcome clause 9 because it considerably simplifies the arrangements for the registration of VAT traders. We have had VAT now for about 20 years, and ever since it was introduced the registration requirements have caused difficulties for small businesses. Small businesses are inevitably affected, because the threshold is so low.

There was no great problem until 1985, when the new Keith-type default provisions were introduced. Since then, a number of cases have been decided which many felt were penal in their outcome. Therefore, clause 9 is good news and I congratulate Treasury Ministers on it. It is obviously always difficult to anticipate turnover, and it makes so much more sense to have a registration requirement based on turnover recorded in the books of a business. I have seen the representations made by the Institute of Taxation, to which I think the hon. Member for Islington, South and Finsbury (Mr. Smith) referred, which suggested that, despite a simplification, there was an increase in the compliance burden, because a business would have to look at its turnover at the end of each month rather than at the end of each quarter under the previous arrangement. I always think that small businesses are ambivalent about VAT. They complain about the compliance burden that VAT imposes, but I was interested to note that, when annual VAT accounting was introduced a couple of years ago to lessen the burden on small businesses, take-up was low. I believe that one reason is that small businesses find the obligation to complete a VAT return once every quarter a useful discipline. They are usually busy trying to make a success of themselves and do not keep their books much up-to-date. However, every quarter they are compelled to bring their books up to date by the end of the

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following month, for the purpose of completing their VAT return. That is probably why take-up of monthly VAT accounting has been less than anticipated.

I have read the views of the Institute of Taxation, but I imagine that a small and growing business would want to know fairly soon after the end of any particular month what its turnover was in the preceding four weeks. That is not a difficult figure to calculate. Although I have some sympathy with the suggestion that, in subsection (2)(1)(a), the word "month" should be replaced by the word "quarter", the new obligation is not terribly onerous. Clause 9 offers a valuable simplification for small businesses that has already been widely welcomed.

Mr. Beith : I welcome the improvement that clause 9 represents. We should not get too excited when we remember that these days the VAT registration limit is such that any small business employing two people and paying some rent is likely to be over the threshold anyway. Therefore, we are taking only about the smallest businesses, to which monthly VAT accounting would be of advantage in many cases. It will allow some to remain free even of the threat of the requirement to register and offer them more peace of mind. Nevertheless, the complex problems of VAT, as they relate to other aspects such as bad debts, to which we shall return later, remain for a large number of other businesses. For a few, the clause will be most helpful.

Mr. Jeremy Hanley (Richmond and Barnes) : I first declare an interest as parliamentary adviser to the Institute of Chartered Accountants in England and Wales. I hope that the submissions that the institute lodged with the Treasury will prove helpful, not only to the Committee of the whole House but when right hon. and hon. Members repair to the Standing Committee later this week. There are three technical questions that I want to put to my hon. Friend the Economic Secretary, but first I echo the remarks of my hon. Friend the Member for Beaconsfield (Mr. Smith), who congratulated Treasury Ministers on simplifying the registration procedure, which will be warmly welcomed by small businesses. My only gripe was that raised also by my hon. Friend the Member for Beaconsfield and by the hon. Member for Islington, South and Finsbury (Mr. Smith) : that monthly accounting could prove onerous for some businesses and that a quarterly calculation might be fairer. My hon. Friend the Member for Beaconsfield put his finger on the button when he argued that, as a result of hardware that was not available even four or five years ago, small businesses can calculate their monthly turnover. If they do not do so, their bank would probably be extremely interested.

The institute suggests that, as a counterweight to the requirement placed on small businesses to monitor turnover monthly, the time limit for notifying a liability to register might be extended to two or three months. That would seem a fair bargain.

I turn now to my three technical points. I suggest that if the words

"in the period then ending not exceeding one year"

was substituted for the words

"in the period of one year then ending"

in subsection (1)(1)(a), that would make it clear that the period does not have to be a full year. The existing words suggest that a full year must be taken into account, and I am not sure that that is what is intended.

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Secondly, I know some chartered accountants who would like confirmation that the word "business" in subsection (1)(2) includes part of a business, to align with the wording that appears in article 12(1)(b) in the Value Added Tax (Special Provisions) Order 1981. Finally, it is not clear, having regard to section 33 (1)(a) of the Valued Added Tax Act 1983 whether the words "his taxable supplies" in subsection (2)(a) refer to the transferee or include the supplies of the transferor now transferred to the transferee.

I acknowledge that these purely technical points may be extremely boring to the Committee, but they are important. I shall be happy if my hon. Friend the Economic Secretary will write to me about them.

Mr. Graham Allen (Nottingham, North) : In common with right hon. and hon. Members in all parts of the House, I believe that clause 9 is to be welcomed. I hope that it sets a precedent in establishing cross-party agreement on such matters, and that when my right hon. and hon. Friends present new clauses that are equally reasonable, they will similarly receive a fair hearing from Government Members. I understand from right hon. and hon. Members who served on previous Committees that that has not always been the case, but I am sure that open-minded Members of the Government Front Bench will want to prove their good will at an early point in the Committee proceedings, by accepting reasoned and reasonable amendments.

In the past, businesses had to check their turnover on a quarterly and full -year basis, and guess at their possible future turnover, to establish whether they needed to register for VAT. The new system will provide for registration only if the turnover threshold was achieved in the previous 12 months, which is a helpful and useful improvement.

The old system was extremely complicated, so any change that simplifies it must be welcomed. I hope that the Government will consider extending the principle to other areas--such as to people trying to complete housing benefit forms, which are also very complicated. Disposing of red tape in respect of small businesses will always have the support of my right hon. and hon. Friends. Equally, I hope that there will be support for simplifying the forms that must be completed for the purpose of poll tax rebates. I am sure that right hon. and hon. Members in all parts of the House have received letters from their constituents complaining about the complicated procedure that must be observed to obtain a rebate. I hope that clause 9 sets a precedent in simplifying procedures in that respect.

Small busineses constitute a vociferous local lobby, and rightly so. However, if one asks them for a list of the provisions in the Finance Bill that should be reconsidered, the imposition and complexities of VAT would probably come fairly low down on it. Other matters need to be examined in some detail, particularly interest rates. Certainly the chamber of commerce and small business organisations in my constituency have made endless representations to me--and I have no doubt to the Government and the Treasury--regarding the effect on their businesses of high interest rates and the uncertainty about whether the rates will go higher.

The one-club policy that the Government are adopting over interest rates is not merely a club but a sledge-hammer, and an ineffective one at that. The Government should show more diversity and flexibility in

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their policies for dealing with the present state of the economy. High interest rates alone are not the answer--they need to be part of a more comprehensive attack on inflation and the other problems that beset us, and which particularly beset small business people. They would benefit from an attack on high interest rates and the continued development of some of the things that hon. Members mentioned earlier, such as training to ensure that the skill levels in our communities guarantee higher levels of employment and income so that small businesses can continue to grow and flourish.

6.30 pm

If asked to list their priorities, while small business people would welcome clarification and simplification of VAT registration, they would probably put it fairly low on the list compared with other issues that we need to consider. In Committee those other issues will be important. Small business people will make representations in Committee and, among other things, they will concentrate on the economic indicators, which show the stagnant output that undoubtedly afflicts our economy, and the need to drive the economy back towards growth with sensible rather than obsessive and dogmatic policies on interest rates.

Small businesses have also been particularly affected by the uniform business rate. It would be remiss of us to discuss the clause without putting on record what UBR has meant to many small businesses. The Inland Revenue estimates that 252,000 businesses will face increases in bills. They are small businesses. While clarifying VAT for small businesses, surely we should consider all the other things that afflict them and VAT may not--

The Temporary Chairman (Mr. Geoffrey Lofthouse) : Order. The hon. Gentleman is going rather wide of the subject. We may discuss some of these issues at a later date, but at present we should be discussing whether clause 9 should stand part of the Bill.

Mr. Allen : The last thing that I wish to do is to get on the wrong side of you at this early juncture, Mr. Lofthouse. Unfortunately that may happen later--who knows? In view of your comments, I shall conclude my remarks.

Mr. Neil Hamilton (Tatton) : I am sure that all hon. Members present will be disappointed to learn that I shall not be serving on the Standing Committee this year as I have already sat for 270 hours in Committee on the King's Cross Bill--in which the hon. Member for Islington, South and Finsbury (Mr. Smith) has some interest. I have enjoyed Committees enough this year and should allow others, such as the hon. Member for Nottingham, North (Mr. Allen), the privilege of enjoying the Finance Bill Committee.

Mr. Beith : Who is to assist me in scourging the Government over retrospective legislation, on which the hon. Gentleman had such a distinguished record on previous Committees?

Mr. Hamilton : I recall the fight that the hon. Member for Berwick- upon-Tweed (Mr. Beith) and I had last year on the Standing Committee to support what I believed to be the true Conservative principles in respect of

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retrospective legislation. I regret to say that even all the eloquence at his command, in addition to the few small words that fell from my lips, was not sufficient to persuade the Government of the merits of our cause. Virtually every week we had cause to join forces on the Select Committee on the Treasury and Civil Service and I hope that that will suffice in the hon. Gentleman's mind to sustain the alliance which we have held together across the Floor, which was perhaps in rather better shape than the alliance he had with his own colleagues.

I welcome clause 9, because it increases the certainty of rules for the trader in an ingenious way and increases the effective level of registration threshold within the constraints of European Community legislation.

One of the complaints of small businesses, as the hon. Member for Nottingham, North said, has been the onerous burden of VAT compliance over the years. Until 1984 or 1985, I recall that the annual report of Customs and Excise used to contain a useful table which revealed the yield of VAT from traders within different bands of turnover threshold. I cannot recall the figures exactly, but the overwhelming bulk of VAT receipts come not from small businesses but from relatively large businesses, although the majority of registered traders are small businesses. Therefore, it is an expensive way to collect revenue, and the expense falls not on the public departments, but on small businesses who are responsible by and large, for administration of the tax. It is a great shame that that table is no longer published. I do not know whether it caused too much embarrassment and therefore had to be removed, but I should like to see it published once again.

Although I know that the arguments against raising the threshold too much are that it introduces inequities in competition between businesses, in particular when the VAT rate is 15 per cent., as it is in this country, we should have regard to the compliance costs of such a tax on small businesses. I am pleased that the Government have borne that in mind over the years and have made a number of useful reforms--perhaps this is one of them.

The clause demonstrates once again that the maximum registration threshold permitted by the European Community under the sixth directive is unrealistically low. It is a great shame that we are constrained in such a way. I am certain that if we had complete freedom of action on the matter we would not choose to have such a low VAT threshold. It amazes me that we have been unable to persuade our partners in the European Community of the rightness of our arguments in favour of raising the threshold significantly. One mystifying aspect of the European Community is that so many sensible ideas put forward by the Government are not accepted by our colleagues across the water.

The large increase in the compliance burden alluded to by my hon. Friend the Member for Beaconsfield (Mr. Smith), following the Keith report recommendations--now enshrined in legislation--and the risk that small businesses will incur penalties, make it all the more urgent for the Government to reopen in Brussels the question of a substantially increased threshold. It is not fair to expect the smallest businesses to have the same sort of resources available to understand and administer complex legislation as larger firms, which can afford to maintain their own in- house accounts and tax administrators. Consequently, it would be a great misfortune if the issue of the VAT threshold were to decline in importance over the years.

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I hope that the Economic Secretary will redouble his efforts to raise the VAT threshold or to persuade our EC partners to support our campaign to raise it. That will lift a significant burden in administration and costs from businesses that are ill-equipped to carry the costs, particularly when other costs have been rising recently, as the hon. Member for Nottingham, North pointed out in his somewhat wide- ranging and discursive remarks on the community charge. I welcome the clause, and I shall support it if there is a Division.

Mr. Haynes : I remember the last exchanges with the Economic Secretary to the Treasury. We were talking about the good old British banger. They tried to take that away from us at the other end of the building. However, we got in first.

The hon. Member for Beaconsfield (Mr. Smith) referred to the need for small businesses to show discipline. You and I, Mr. Lofthouse, knows what discipline means. We worked in the bowels of the earth. Discipline was all about saving life and limb. The hon. Member for Beaconsfield knows that there are many small businesses in my constituency. My constituents come to see me about their financial problems, some of which are the direct result of measures introduced by this Government.

One of my constituents with a fairly small business employed an accountant. I employ an accountant ; I am no financial wizard. My constituent was in serious difficulty over VAT. He was told by the Inland Revenue that he was in deep trouble, so he came to my surgery and asked for help. I told him that I was no financial wizard and that I could not work it out for him but that I would write to Sir Lawrence Airey, who was the chairman of the Board of Inland Revenue at that time. We found out that the accountant had not done his job and that therefore his business owed the Inland Revenue £6,000 in VAT.

Shortly afterwards, Sir Lawrence Airey was summoned before the Select Committee on the Parliamentary Commissioner for Administration to give evidence. I am a member of the Select Committee, so I had a word with him after the meeting. It turned out that although the accountant had not done his job properly, my constituent had been overcharged for VAT, so he got some of his money back. My constituent told me that he had always voted Conservative but that because he had got some of his money back he had decided to vote for me at the next election.

Local people who have left the pits have set themselves up in small businesses with their redundancy money. They are screaming like hell back home about the way this Government are taxing small businesses. They are hitting small firms hard and VAT involves them in more and more work. I agree with the hon. Member for Beaconsfield that self-discipline is needed- -that small business men ought to do their books regularly and not wait until the end of the year to sort it all out. The Government must not, however, clobber the small business man. The Prime Minister told us a long time ago that small businesses create jobs and that small businesses ought to be encouraged. However, the Government must be fairer when it comes to taxing them. I appeal to the Government to help them. Small businesses make a valuable contribution to the economy.

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