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Mr. Gibb: The hon. Gentleman will be aware of other leading tax accountants, who say that we are getting perilously close to some constitutional issues by the fact that the Government are legislating a major reform to the corporation tax system through regulation. Such a reform is unprecedented, and the accountancy profession is dismayed at what is happening.

The underestimate of the amount of FIDs paid is not tiny or minor. Indeed, it amounts to about £2 billion. Errors or mistakes seem to proliferate in clause 30 and in the consultation document that heralded it. Paragraph 4.28 of that document refers to charging interest to taxpayers from the date that the Inland Revenue receives funds from taxpayers. Should not that be interest charged until the Inland Revenue receives the funds? That is a minor error, but one which is indicative of the competence level and lack of attention to detail that reflect on the Government and on the consequences of what they are proposing. Perhaps that is why clause 30 contains no details of the workings of the new corporation tax system but only paves the way for future Treasury regulations. The Chancellor hyped the reform to the corporate system as a once-in-a-lifetime, fundamental reform, so it is astonishing that it is not included in the Finance Bill.

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The Government's intention to legislate for a new corporation tax system through secondary legislation, subject only to the negative resolution, is a disgrace. It is unprecedented for changes in tax legislation, other than details of administration, to be enacted other than directly through an Act of Parliament. The introduction of a new corporation tax system does not constitute merely an administrative matter but goes to the very heart of how much a company will pay and when.

Legislating through statutory instruments on this matter is widely condemned by leading figures in the accountancy profession, the tax faculty of the Institute of Chartered Accountants in England and Wales, by the Institute of Directors and others. My former boss,Mr. Ian Barlow, head of tax at KPMG, said that regulations were normally used for detail and:


Richard Collier-Keywood, a partner at Coopers and Lybrand, said:


    "I think we are getting perilously close to some constitutional issues."

The Institute of Directors said:


    "The dates on which tax is payable and any associated penalties are fundamental matters which should be dealt with in primary legislation. Only if they are in primary legislation can Parliament debate them properly and make amendments as appropriate."

According to the Financial Times, the reason for wanting to use regulations is that Ministers do not want to be seen to be making U-turns, but it is a bit late for that. However, what does that say about the competence of Treasury Ministers? Proposals, flawed as they are, were announced in a consultation document in November, some six months ago. Is not that an admission that the Government have yet again produced tax proposals which are not acceptable to those whom they affect, just as they are not acceptable to those who administer and understand the tax system or to the wider public?

If the Government believe that the corporation tax proposals in the consultation document, as amended, are flawed, and if they wish to change them, they should do

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so. A change on the lines urged by Conservative Members and by industry would be widely favoured. Sneaking changes through by statutory instrument will not reduce criticism that the Government have yet again produced an ill-thought-out proposal which they were forced to change. If, on the other hand, the Government do not intend to change their proposals, legislating through regulation will not enable them to get away with introducing bad law without public criticism from the Opposition and from industry. They will achieve nothing from these antics, so I urge them to stop undermining the House, stop listening to their spin doctors, to put democratic procedure before presentation and sheen, and to accept the amendment.

Mr. Cranston: The hon. Gentleman is generous in giving way a second time. Has he consulted the draft regulations, which are available, and will he be commenting on them?

Mr. Gibb: I have not yet consulted the draft regulations, but, like industry, I look forward to examining them in great detail.

The errors that I have catalogued have led eventually to the quarterly corporation tax system and the abolition of ACT. When the repayment of dividend tax credits was abolished, FIDs had to be abolished. Their abolition has been causing huge problems with unrelieved ACT, and the only answer that the Government could come up with was the abolition of ACT. How were the Government to solve the problem that that created--the cash-flow cost to the Treasury arising from no more advance payments of corporation tax?

The answer, for the Government, is the quarterly corporation tax payment system set out in the consultative document, "A Modern System for Corporation Tax Payment". Of course, it is not modern at all; it has been a long-established practice in several countries. The proposals have been widely condemned, as one might by now have been expected, judging from the Government's track record on their tax proposals.

The Institute of Chartered Accountants said of the abolition of ACT:


They are the words of the body that represents chartered accountants in this country.

The Government have already performed one U-turn on this issue by exempting small and medium companies from the burdensome proposals, but large companies remain subject to them. As my hon. Friend the Member for Grantham and Stamford (Mr. Davies) said, the consultative document and the notes on clauses state that the term "large" includes those companies whose profits are £1.5 million a year or more. That means 20,000 companies, some of which most people would not regard as being especially large.

Those companies will have to pay their corporation tax bills in four quarterly payments, beginning halfway through months seven, 10, 13 and 16. Therefore, for a

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December year end company, which is the most popular accounting period, the first instalment will be on 14 July and the second on 14 October, both payments being before the year end. The third and fourth payments will be in January and April after the year end. There are transitional rules in place which limit the amount of corporation tax payable, but the changes will have serious cash flow effects on companies, notwithstanding the fact that they are being phased in over three years.

The new rules will affect accounting periods ending on or after 1 July 1999. For example, a December year end company will have to make the first quarterly payment, representing 60 per cent. of its annual tax bill, on 14 July 1999. On 1 October 1999, it will have to pay the whole of its corporation tax bill for 1998, and on 14 October--14 days later--it will have to pay the second quarterly instalment of its 1999 tax bill. That represents130 per cent. of the company's annual tax bill being paid within just one year. That is why the Government are not only making up their cash flow shortfall as a result of the abolition of ACT, but accelerating its cash flow for the next four years as my hon. Friend the Member for Grantham and Stamford said--by £1.6 billion in 1999-2000, by £2 billion the following year, and by£3.1 billion the year after. It is cash that British industry will have to find and, in most instances, will have to borrow. As the Institute of Chartered Accountants said in response to the consultative document, this proposal


The Red Book figures, which reveal £6.8 billion extra revenue for the Government over the lifetime of this Parliament, show just how the Government are using the change surreptitiously to raise further taxes, and significant further taxes. It is one of Labour's stealth taxes, and it will do nothing to help investment, nothing to encourage enterprises and nothing to encourage the creation of new jobs but everything to reduce investment and destroy jobs. Before the regulations are passed by an overwhelming majority, I hope that these criticisms will be taken into account.

Mr. Gardiner: Will the hon. Gentleman confirm that for small and medium companies that have been paying dividends--companies that he has been careful not to mention--the abolition will mean a net cash flow benefit of £1 billion?

Mr. Gibb: I did not refer to that point because we are debating large companies which constitute a substantial proportion of British industry. If one were to examine the aggregate turnover of those companies, I suspect that one would find that it represented more than half the turnover of all companies in this country.

One of the worst aspects of the proposed system is that it is based on a company's current year profits. Companies will have to calculate their first two instalments on the basis of their annual profits when the year has not been completed.

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As the Institute of Chartered Accountants said,


Of course, such unpredictable events can affect any company. It would make far more sense to base the quarterly payments on the company's prior year results and the statutory instrument should specify that, as does the income tax system for the self-employed and for sole traders.

The consultation document and the notes on clauses cite a number of overseas jurisdictions as examples of quarterly payment systems--Australia, Canada, France, Germany, Japan and the United States. However, the systems used in all those countries except Australia and the United States base instalments wholly or mainly on the previous year's tax liability.

Even in Australia and the United States, the system is not as uncompromising as that proposed in the Bill. For example, in the United States there are options to base instalments on the prior year's results with a top-up when the company files its tax return. There are also other methods for determining quarterly payments when companies have uneven revenues and expenses throughout the year. For example, there is what is known as the annualised method and the seasonal adjustment method for companies that generally earn at least 70 per cent. of their income in the second half of the year.


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