First Standing Committee on Delegated Legislation
Monday 9 December 2002
[Mr. Eric Illsley in the Chair]
Draft Tax Credits (Appeals) (No. 2) Regulations 2002
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the draft Tax Credits (Appeals) (No. 2) Regulations 2002.
The Chairman: With this it will be convenient to consider the draft Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002.
Dawn Primarolo: The Tax Credits (Appeals) (No. 2) Regulations 2002 and the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002 will temporarily enable the tribunals that hear current tax credit and benefit appeals to hear appeals from claimants of the new working tax credit and child tax credit.
I shall explain how and why we have come to this situation. In the longer term, it is the Government's intention that tax appeals and tax credit appeals should be heard by the same appeal tribunal. During the passage of the Tax Credits Act 2002, and after considerable discussion in Committee, we made an amendment that would allow the appeal tribunal temporarily to stand in the shoes of the tax appeal commissioners.
We think that our longer-term aim, which is that the tax commissioners should hear those appeals, is right. Unlike current tax credits, the working tax credit and child tax credit are not built on a framework provided by benefits, and their administration has more in common with the way in which tax is administered than with the tax credits that they replace.
The way in which tax credit appeals will be handled by the Inland Revenue will mirror what happens with tax, as it acknowledges the annual nature of tax credits and the use of annual income for a tax year. It will recognise tax credits as part of the tax system and provide a common process for tax credit claimants, many of whom will be taxpayers.
For many of the issues that come before them, such as the proper measurement of income, the tax appeal commissioners already have considerable expertise; but when considering the Tax Credits Bill, as it then was, the House expressed concerns about the tax appeal commissioners' suitability to take on that work; although some of it would be similar to what they already do, some of it would be new. At the same time, however, my noble and learned Friend the Lord Chancellor had embarked on a review of the tax appeal commissioners. It is obviously essential that tax credit claimants should have access to an appeals process that fully meets their needs from the outset. In view of those concerns, and in the light of the
Column Number: 004
impending review of the tax appeal commissioners, we therefore thought it sensible temporarily to route the tax credit appeals from claimants to the appeal tribunals administered by the Appeals Service.
Appeals from employers, who administer tax credits for their employees much as they administer PAYE, do not come under these temporary measures. Their appeals, like PAYE appeals, are about administration and will continue to be heard by the general and special commissioners.
The appeal tribunals currently hear benefit appeals and appeals from claimants against decisions on existing tax credits. They have an acknowledged expertise in dealing with many of the issues likely to be raised by the new tax credits, and they will be fully able to hear and determine those appeals. There will be an onward right of appeal from the appeal tribunal to the social security commissioner.
I want to explain how the two sets of regulations fit together. The Tax Credits (Appeals) Regulations 2002, made on 26 November, began the process of putting into effect the temporary routing of tax credit appeals to the appeal tribunal and the social security commissioners. The regulations being considered today complete that process. The first of the draft statutory instruments, laid by the Secretary of State for Work and Pensions, makes regulations for procedures at the appeal tribunal for Great Britain. The second, made by the Lord Chancellor, provides for procedures at the social security commissioners.
The two sets of regulations are made under powers in the Social Security Act 1998, as applied and modified by the Tax Credits (Appeals) Regulations 2002. Those regulations are made under powers in section 63(8) of the Tax Credits Act 2002 and their purpose is to provide the same appeal route as that which currently applies for working families tax credit and disabled persons tax credit appeals.
The regulations will not, however, provide for a new appeal tribunal. Routing appeals through the appeal tribunal and the social security commissioners will harness the expertise of the tribunal members in many of the areas with which they are familiar. It will also provide a continuity of process for claimants and their advisers who are used to the current tax credit system and to the way in which benefit appeals are handled.
Appeals about entitlement that rely on household circumstances and appeals about many of the rules that are common to both current and new tax credits, such as the ''eligible childcare rules'', will be very familiar. Others, like the ''remunerative work test'', will have the same objectives that people are used to, although they will be different. In essence, such appeals will still be a matter of sorting out the facts in disputes between claimants and the Inland Revenue—deciding how the rules should be applied and what financial consequences will flow from those decisions. That will remain the prime role of the appeal tribunals.
The Tax Credits Act 2002 provides for inquiry powers more like those generally used by the Inland Revenue. Consequently, applications before the
Column Number: 005
tribunals will be much more like those in tax appeals. Section 19 of the Tax Credits Act enables the Inland Revenue to inquire into a person's entitlement to a tax credit and the amount due. As with tax inquiries, the claimant can apply in writing to the Inland Revenue for the inquiry to be brought to a close. Those applications go before the tribunal, which must, if it is not satisfied that the Inland Revenue has reasonable grounds for continuing, direct it to finalise the inquiry and to issue its decision as to the proper award. That is the same sort of protection that currently exists in tax matters, and it is right to give it to tax credit claimants.
The new inquiry powers bring with them new penalties like those relating to tax. There are two types of penalty proceedings, which carry rights of appeal and which will be heard and determined by the appeal tribunals. The Inland Revenue can impose a penalty on a person for providing an incorrect statement or information, and there is an appeal to the tribunal, which hears the facts and can set aside, confirm, reduce or increase the penalty, up to the maximum. That is the same arrangement—with a similar appeal procedure—that applies to penalties in tax inquiries.
There are also penalties for not supplying information required by the Revenue in the course of its inquiries. In this case, as with tax, it will be for the appeal tribunal to decide whether or not a penalty should be imposed. The Inland Revenue tells the tribunal about the failure and asks for a penalty to be awarded. The tribunal asks the provider of the information to explain the failure, but a penalty cannot be imposed if the failure has been remedied beforehand. If there is still a failure to provide information, the tribunal may declare the failure and impose a penalty of up to £300.
I now turn to the Tax Credits (Appeals) (No. 2) Regulations, which make provisions for penalty proceedings, administering and deciding tax credits appeals, and applications for a direction to close down an inquiry. I shall not discuss each individual regulation, but it might be helpful for me to draw the Committee's attention to the broad areas that are covered.
Regulation 2 provides for the service of notices and documents. Regulations 3 to 8 describe persons with a right to appeal and set out time limits and various procedural issues. Regulation 9 provides for flexible tribunal composition, depending on the types of issues raised in a case, and ensures that an appeal tribunal includes all the expertise required. In practice, as now, most cases will be heard by a single, legally qualified panel member sitting alone. Cases raising more complex financial issues will be heard by a two-person tribunal comprising a legal and a financial panel member. Appeals raising issues of incapacity or disability will be heard by a three-person tribunal consisting of legal, medical and disability experts.
Regulations 10 to 27 deal with procedures relating to appeals tribunals. They broadly mirror the provisions of the Social Security and Child Support (Decisions and Appeals) Regulations 1999, which parallel the procedural rules for the general and special commissioners.
Column Number: 006
I turn briefly to the second set of regulations, the Social Security Commissioners (Procedure) (Tax Credits Appeals) Regulations 2002. The social security commissioners provide the next level of appeal for appeals arising from decisions of the appeals tribunals. The regulations broadly follow the existing procedural regulations governing the commissioners, which are set out in the Social Security Commissioners (Procedures) Regulations 1999. All appeal tribunal decisions carry the right of appeal to the social security commissioners.
Changes are made where necessary to reflect the new tax credits system. For instance, some provisions in the 1999 regulations that are not applicable to tax credits—such as the provisions under the Forfeiture Act—have been omitted, and additions and amendments have been made.
Other consequential changes, due to the different nature of penalty proceedings, have also been made so that, for example, a person on whom a penalty has been imposed may give evidence, call witnesses and put questions directly to any other person called as a witness without the need for leave to do so. Those changes ensure that the rights of claimants undertaking this route of appeal are similar to those that they will ultimately have when appeals go before the reformed tax appeal tribunal, and to those that are currently present in tax appeals.
In conclusion, the regulations fit together to provide an appeals procedure that protects the position of claimants and rights of appeal, in the period during which the Lord Chancellor concludes his review of the reform of the tax commissioners. I am satisfied that the regulations are compatible with the European convention on human rights and that they fulfil the commitment that I made during the passage of the Tax Credits Act. I commend them to the House.