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Mr. Andrew Smith: The Minister is right to say that, if there is a constant level of the same profits, the payments will be the same, but if there are rising profits, will there not be a higher burden in any given year? The Minister, in his letter to The Independent, put the£850 million extra tax yield in the Red Book down to business profitability and bringing forward the moment when the tax bill has to be paid. How much of that£850 million is due to rising business profitability, and how much is due to bringing forward the date of payment?
Mr. Jack: The hon. Gentleman has practically answered his own question. A rising trend of profits means that there will be more profits to tax. That is why, against a rising trend of profits, the Red Book shows an increase. If the hon. Gentleman had read the fine print, he would have seen that it was against original baseline figures. Therefore, we are acknowledging that there is a change.
It is a bit like putting the clocks forward. There is the same amount of taxable profit, but we get at it a bit earlier. Do not forget that those are profits that business has already earned. The money is in the bank. Businesses on any given level of profit will not pay any more or any less tax than is necessary.
Other factors affect the figure in the Red Book. I have already said that other forms of income are subject to the change in the tax--we believe that it amounts to about £713 million in terms of rising profit trends. I should have thought that the hon. Gentleman would have been rather pleased about the fact that we are projecting rising business profitability. Perhaps it embarrasses him because it is a sign of the growing strength that we anticipate in the British economy.
I think that I heard the hon. Gentleman accept that, if we had a constant level of profit, there would be no double hit.
Mr. Andrew Smith
indicated assent.
Mr. Jack:
I am delighted to see that thehon. Gentleman agrees. If he agrees with that, he must agree that there can be no double tax on business. I am glad that we have settled that across the Dispatch Box.
Mr. Smith:
Is there or is there not an extra£850 million tax yield in the year shown in the Red Book?
Mr. Jack:
If the hon. Gentleman reads the fine print, he will clearly see that, against the index level, more tax is coming in because more taxable profit is available. That is a most important point.
Mr. Jack:
Time is against me. The hon. Gentleman has had his say, and I need mine.
I pray in aid some supporters of not slowing down the process of introduction of self-assessment. Colin Sharman, a senior partner of KPMG, said:
He went on:
That is an important supporting point.
Mr. Brodie of Taxaid said:
Those and the many others who have spoken in favour of self-assessment should be heeded.
Mr. Grant Thornton of the East Anglian Daily Times said that he believed that self-assessment represented a significant simplification of the old system and that once the new rules were in place it would be much easier for everybody to understand.
The Inland Revenue is well prepared. It is carrying out a massive information exercise. Many thousands of people have already come to our seminars. Much information will be given during the course of the year.I assure the House that no stone will be left unturned to ensure that all concerned understand self-assessment. But if we were to follow the Opposition's line on delay, it would be a recipe for disaster and problems. As for their point about the penalty, it only applies to the penalty on the final payment. I do not think that they would want laxity to creep into the arrangements for the necessary regulation to ensure that people pay their taxes on time.
For all those reasons, I urge the House to reject the amendments.
Mr. Andrew Smith:
The Minister, and Conservative Members generally, will come to rue the day that they turned down the opportunity to defer self-assessment to enable it to be introduced more efficiently. In this context as in so many others, one word screams out from the Conservative Benches: complacency. Conservative Members are complacent about the scale of the problems posed by the introduction of self-assessment, and they are complacent about the effects on millions of self-employed people and small businesses, and the other costs that business will incur.
The hon. Member for Beaconsfield (Mr. Smith) said that the proposal had been announced in 1993, and had been in the Finance Acts 1994 and 1995. Given that we have been through the process so often, why does the current Bill contain all these clauses? Why have the Government not managed to get it right in all that time?
The Minister assured us that, following the Leicester trials, further trials are now to take place in Southampton. How will the errors be corrected if those trials show up matters that will require further change? The Government are not allowing the time that is needed. A stream of accountants, commentators and representatives of small businesses--cited by my hon. Friend the Member for North Warwickshire (Mr. O'Brien)--are alarmed by the way in which the Government are rushing ahead.
The hon. Member for Carshalton and Wallington(Mr. Forman) seemed to place considerable reliance on the assistance provided by photocopiers. Valuable though such devices are, if the hon. Gentleman thinks that he will get away with simply photocopying last year's tax return and sending it in for the following year, he will come a cropper. The hon. Member for Gordon (Mr. Bruce)--who has left the Chamber--recognised the problems, but did not seem sure whether he and his hon. Friends would join us in the Division Lobby. We shall note how they vote, and we shall remind the electorate if they do not support this opportunity to provide time to get the self-assessment regime right.
My hon. Friend the Member for St Helens, South(Mr. Bermingham) drew attention to the problems facing professions involving variable cash flow, and to what he rightly described as the guessing game that would confront them in the event of a gap between the sending of an invoice and the receipt of cash. He spoke of the devastating effect that the bungled introduction of the regime could have on prospects of self-employment, and on people's confidence not only in the tax regime but in enterprise and self-employment as a way of earning a living.
The Minister has not given us the assurances that self-employed people and small businesses would want to hear. He has not dealt satisfactorily with the issues that we have raised in relation to the £850 million extra tax imposition. We had an interesting discussion about cash flow and the fact that people might be affected differently in different circumstances, but the Minister cannot deny the existence of the extra £850 million tax yield, which is in the Red Book. Someone will be paying that extra money, and it will not be the Minister; it will be the9 million self-employed people and small businesses.
Mr. Smith:
It seems that the Minister is about to volunteer to pay the £850 million.
Mr. Jack:
I thought that the hon. Gentleman had followed the argument. The answer is that there will be no extra tax hit on businesses. There is no double taxation. As I told the hon. Gentleman, the extra sum against indexation was a result of the rising profit trend. He agreed with me a moment ago; this shows how confused he is.
Mr. Smith:
The Minister does not deny--he cannot, because his own Red Book shows it--that there will be
The Minister also did not deal with all the problems of complexity, and the difficulties that the Revenue is experiencing--notwithstanding its professionalism, to which I pay tribute--in completing the final version of the tax form. He did not deal with the recurrent costs to the self-employed. He did not deal with the point made by my hon. Friend the Member for North Warwickshire about the danger of a different and more confrontational relationship between taxpayers and tax authorities; and he did not deal with the additional burdens on employers of all kinds, who will face more demands for extra information from both tax authorities and their employees.
There can be no doubt that self-assessment, as introduced by the present Government, has enormous and damaging potential to turn an important change into a formidable crisis for small businesses and the self-employed. Opposition Members urge the Government, even now, to start listening, and to provide the time that will allow us to get the position right. It is clear from everything that the Minister has said that it is not right yet.
"Recent calls for delay in its implementation and re-examination of its scope are misplaced."
"The project has been well managed by the Revenue with a thorough communication process. Fundamental change of this nature is never easy, but it is well overdue."
"This really is a major improvement."
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