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Session 2001- 02
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Standing Committee Debates
Tax Credits Bill

Tax Credits Bill

Column Number: 205

Standing Committee A

Thursday 24 January 2002


[Mr. Nigel Beard in the Chair]

Tax Credits

Schedule 2

Penalties: supplementary

9.30 am

Mr. James Clappison (Hertsmere): I beg to move amendment No. 28, in page 39, line 15, at end insert

    'but before making any such determination in respect of an employer the Board must give the employer an opportunity to make written representations in respect of the matter which is the subject of the determination.'.

The Chairman: With this we may take the following amendments: No. 30, in page 39, line 36, at end insert—

    '(1A) In the case of an appeal against a penalty imposed on an employer the Commissioners must have regard to the size of the employer in decisions they take under subparagraph (1) above.'.

No. 29, in page 40, line 27, at end insert

    'and in the case of an employer they shall have regard to the size of the employer in any decisions they take under this paragraph'.

No. 43, in page 41, line 17, at end add—

    '8 The Board must within one year of this schedule coming into operation consult such organisations as appear to it to be representative of employers, including employers in small and medium sized enterprises, about the operation of this schedule and make a report to Parliament setting out the outcome of such consultations.'.

Mr. Clappison: Good morning, Mr. Beard. Once again, it is a pleasure to serve under your chairmanship.

Schedule 2 concerns the procedure for imposing penalties. Under paragraph 1, the person on whom the penalty is imposed is either the claimant or the employer. We are concerned here with the employer, for reasons that we gave in previous debates.

Under the schedule a penalty is imposed and then, if the person concerned wishes to challenge the determination, he may appeal to the general commissioners or the special commissioners. Amendment No. 28 would require the board to give an employer the opportunity to make representations before a penalty was imposed. We hope that the Minister will agree that at least employers should have an opportunity to put their case before a penalty is imposed. We want the emphasis to be placed on advice and discussion rather than on penalties.

The Financial Secretary to the Treasury (Mr. Paul Boateng): The amendments deal with the manner in which penalties can be imposed on employers. They would require the Inland Revenue and the general commissioners to take into account the employer's size when mitigating, or hearing an appeal against, penalties; they would require the Inland Revenue to allow the employer the opportunity to make written representations before settling penalties; and, finally, they would require a report to be made to Parliament

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about consultations with employers on the operation of penalties in respect of the payment of tax credits. I understand why the hon. Member for Hertsmere (Mr. Clappison) has tabled the amendments, but I shall try to explain why they are not necessary.

As regards amendment No. 28, employers can at any time make representations to the Inland Revenue about their circumstances. That position does not change because a penalty may be levied; if anything, the reverse applies. The board would always provide an employer with the opportunity to make representations, whether written or not. It is not necessary for us to prescribe the form in cases where penalties are being considered. Some employers might ring up and give an explanation; others might write. The amendment would not add anything. In any event, the code of practice rather than the Bill is a better way of dealing with the issue.

I now turn to amendments Nos. 29 and 30. As employees will receive their working tax credit through their wage packet, we consider it important to emphasise the link between receiving the credit and working. That applies equally whether someone works for a small or large employer. I know that the hon. Gentleman has raised the issue of the employer's size before, but size should not be a factor that determines the penalty in the rare cases where employers fail to meet their obligations.

Mr. Clappison: Given that the Minister is putting forward the view that employers, whatever their size, should not escape liability in the case of a failure that results in a tax credit not being paid, will he none the less agree that, although the employer's size does not affect the determination, it could be a mitigating factor to take into account under paragraph 5?

Mr. Boateng: The employer's size will undoubtedly have an impact on the size of the penalty: larger employers will tend to have more employees receiving working tax credit, so the maximum penalties that could be levied on a small employers would tend to be less. However, beyond that natural effect, size in isolation should not be used as a justification for employers failing to meet their obligations. As I have already sought to explain in regard to other amendments, we would expect the Revenue, or the commissioners, to have regard to the individual circumstances of the case when considering the imposition of a penalty, and those circumstances may well include the size of the enterprise and the resulting capacity issues.

Mr. Howard Flight (Arundel and South Downs): Will the Minister confirm that the term ''employer'' in clause 30(2) and the schedule means the company or partners and does not include culpable officers? The Minister will recollect that in clause 25 we focused on potential liabilities of culpable officers. There probably is a definition of employer in the Bill, but I have not put my hand on it.

Mr. Boateng: I shall refer the hon. Gentleman in due course to the point where the term ''employer'' is defined, but it has the same meaning here as in all the other clauses and schedules.

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Amendment No. 43 would require the Revenue, within a year, to consult employer representatives about the way in which the schedule was working and report the outcome to Parliament. That is not necessary because the Revenue has well-established and valued links with employers and employers' organisations—not only general links in relation to capacity, compliance and cost, but also specific links relating to payroll issues. Those links have been particularly important in formulating the proposals in relation to tax credits. I assure the hon. Member for Hertsmere that there have been continuing discussions among employers, their organisations and the Revenue about the way in which working families tax credit and disabled person's tax credit have worked. The Revenue has already started talking to employers' groups about the way in which working tax credit will operate. Indeed, as a result of the feedback from those useful talks, we have sought to improve the system as we move to the new tax credits.

Therefore, the amendment is not necessary. The majority of employers meet their obligations to their employees. If there are problems, we shall be only too ready to contact and work with employers to help put matters right. I assure the hon. Member for Hertsmere that we do not envisage that the number of penalties to be levied on employers in this respect will be large—on the contrary. All the evidence shows, and it was also the outcome of our discussions, that numbers are likely to be small. Indeed, any representative sample of employees that might be consulted or involved in implementing the amendment would be unlikely to include employers who had been subject to penalties in the first place. Therefore, avenues have already been established. We are committed to consultation and I hope that, on that basis, the hon. Gentleman will not press his amendments.

Mr. Clappison: We have made some progress in the debate, although not as much as we were looking for, particularly in regard to small and medium employers. However, I draw some comfort from what the Minister said about consultation. Generally I urge the case for consultation and the provision of advice and emphasis to employers as a result of that consultation.

The point that I press most strongly on the Minister is the one that I raised in my intervention—the case of small and medium employers. They should not escape from their lawful liabilities, but their size should be taken into account as a matter of mitigation after a decision has been taken to impose a penalty on them. When the Revenue deals with employers, particularly small ones, their size could be something over which a penalty could be mitigated. For example, somebody who has recently moved from self-employment to employing one or two people to expand their business would face a greater burden of administration so the penalty would make a bigger difference to them.

Were such employers to fail to pay a tax credit, under clause 31 they could face liability for a £3,000 penalty. At the end of the last Session, the Government made some welcome modifications to

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the liability that must be established before a penalty is imposed. None the less, a penalty could still be imposed and make a substantial difference to a firm in the throes of expansion. Mitigation could take that into account and we would like the Minister to reflect on that as further discussions and guidance unfold. Having made progress on the subject, and in order not to delay the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Clappison: I beg to move amendment No. 41, in page 39, line 39, after '(a)', insert 'a county court or'.

The Chairman: With this it will be convenient to take amendment No. 42, in page 40, line 9, after 'to', insert 'a county court or'.

Mr. Clappison: I can deal with the amendment in short order. A person who has had a penalty imposed on them may appeal to the general commissioners or special commissioners under the provisions of schedule 2, and may appeal against the decision of those commissioners only to the High Court or, in Scotland, to the Court of Session. That is the position under the Tax Credits Act 1999. The amendment would allow appellants to take appeals to the county court too. Why are county courts not considered to be appropriate tribunals for that purpose? As hon. Members know, they are convenient tribunals in many respects, widely available to appellants in most major towns and generally regarded as an appropriate tribunal for civil claims involving similar sums.

Allowing appeals to county courts could make the system a little more flexible and convenient for appellants and other users. It will be useful to hear from the Financial Secretary how many appeals have been brought under the Tax Credits Act 1999.


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