Clause 37: Inspection

209.      This clause provides for the inspection by HM Chief Inspector of the Crown Prosecution Service of the operation of the Revenue and Customs Prosecutions Office and provides that the Chief Inspector will report any findings arising out of that inspection to the Attorney General. The Chief Inspector may designate an inspector to carry out the inspection.

Clause 38: Expenditure

210.      The clause provides that the expenses incurred in managing HMRC (for example, staff and accommodation costs) should be paid from funds provided by Parliament - this is the normal way of financing a Government Department. This Bill does not provide for the detailed financial and accounting arrangements that will apply to HMRC's departmental expenditure. These arrangements, including the provisions governing the preparation and audit of resource accounts, and the appointment of accounting officers, are specified within the Government Resources and Accounts Act 2000. In accordance with that Act, Parliament will annually vote upon a resource allocation for HMRC on the basis of Estimates laid before it. And HMRC will prepare annual resource accounts, setting out its expenditure for the year. Those accounts will be audited by the Comptroller & Auditor General.

Clause 39: Payment into Consolidated Fund

211.      Clause 39 stipulates how the Commissioners should handle revenues (e.g. taxes and duties) and other monies received in the course of their functions (so this clause does not apply to departmental funding). Subsection (1) requires the Commissioners to pay monies received into the Consolidated Fund. Subsection (1)(b), however, introduces a number of exceptions to this rule, which are specified at subsection (2):

• national insurance contributions (which are dealt with under the Social Security Administration Act 1992, the Social Security Contributions and Benefits Act 1992, and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, and which are payable to the National Insurance Fund or National Insurance Fund for Northern Ireland);

• sums due to be paid into the National Loans Fund (for example, sums received for certificates of tax deposits);

• student loan repayments (which are paid to the Secretary of State before disposal into the Consolidated Fund);

• penalties in respect of the National Minimum Wage (which are also paid to the Secretary of State before disposal into the Consolidated Fund); and

• sums due to the Scottish Consolidated Fund (there are a small number of items that must be paid in to the Scottish Consolidated Fund such as forfeited monies under the Proceeds of Crime Act and fines under SI 2004/953 Scotland Act 1998 (Designation of Receipts) Order.

212.      Subsection (1)(a) of the clause allows the Treasury to issue directions stipulating the detailed arrangements for how and when payments into the Consolidated Fund are to be made. The Commissioners must comply with these directions.

213.      Subsection (1)(c) permits the Commissioners to deduct certain sums from revenue receipts before those receipts are paid over to the Consolidated Fund. Those deductions are specified at subsection (3).

214.      The list of permitted deductions at subsection (3) is inclusive, so if a deduction does not fall within the descriptions at this paragraph, it may not be deducted from revenue receipts, but the gross amount must be paid over in some other manner. Paragraph (a) permits deduction of repayments of revenues (such as VAT repayments) and deduction of drawbacks and discounts, such as excise drawbacks, any deduction under the Excise Duties (Surcharges or Rebates) Act 1979, or discounts under regulations made under Schedule 38 paragraphs (1) and (2)(a) Finance Act 2000. Paragraph (b) allows the deduction of amounts due to be paid to the Scottish Consolidated Fund in respect of the Scottish Variable Rate of tax. Paragraph (c) allows the deduction of payments that are required by law to be made to the Isle of Man, allowing the Isle of Man's share of revenues due under UK and Isle of Man Revenue Sharing Agreement to be paid out of UK revenue. And Paragraph (d) permits the Commissioners to deduct payments of tax credits from revenues received.

215.      Subsection (4) defines the "repayments" that fall within the permitted deductions at subsection (3)(a). It ensures that repayments include not only the repayment of the tax or duty itself, but also any interest or repayment supplement that is due to be paid alongside that repayment of tax or duty.

Clause 40: Remuneration, &c.

216.      Subsection (1) provides for the Commissioners' own salaries and related costs to be paid, in accordance with the terms set by the Minister for the Civil Service, out of the money provided by Parliament for the costs of running HMRC.

217.      Subsection (2) confirms the authority for the Commissioners to pay for staff, through salaries and similar related costs.

218.      Subsection (3) requires the Commissioners to pay sums in respect of superannuations out of the money provided by Parliament for the costs of running HMRC.

219.      These sums will all be accounted for through the process applying to all expenditure specified at clause 38.

Clause 41: Accounts

220.      This clause places a requirement upon the Commissioners to place accounts before the Comptroller and Auditor General - a House of Commons office holder, and head of the National Audit Office.

221.      Subsection (1) covers accounting for the revenues (i.e. money) received and paid out by the Commissioners (this requirement relates to revenues and not to departmental resources). Each day, the Commissioners must send the Comptroller an & Auditor General accounts showing how much they have received in revenues, and what they have done with that money. The Treasury will issue a direction to the Commissioners specifying the form that these accounts are to take.

222.      Subsection (2) covers property received in lieu of money, and requires the Commissioners to account for this property at such times as the Treasury directs. The Treasury direction will also stipulate the form that the accounts should take. This requirement specifically covers Heritage Assets received in lieu of inheritance tax under the Conditional Exemption Tax Incentive scheme, but paragraph (b) ensures that any other enactment permitting the satisfaction of tax liabilities by property is also covered by this accounting requirement.

Clause 42: Payment out of Consolidated Fund

223.      This clause permits HMRC to receive cash from the Consolidated Fund on days when revenue incomings are insufficient to fund the outgoing revenue payments that HMRC is obliged to make.

224.      Subsection (1) specifies the outgoing payments that may be funded by a draw down of cash from the Consolidated Fund. These payments are any payment into the National Insurance Fund or National Insurance Fund for Northern Ireland, and any of the other exceptions or disbursements specified within subsections 39(2) and 34(3).

225.      Subsection (2) provides that the Treasury may make a payment to the Commissioners out of the Consolidated Fund to allow a payment specified in subsection (1) to be made. In order to make use of this facility, HMRC would be required to apply to the Treasury for funding from the Consolidated Fund. Payment out of the Consolidated Fund under this Clause would constitute a payment for standing services (that is a payment for a service that, under an Act, is due to be made out of the Consolidated Fund) under section 13 of the Exchequer and Audit Departments Act 1866 and would therefore be subject to the Treasury obtaining permission from the Comptroller and Auditor General for a draw down of funds from the Consolidated Fund. The form of such a permission would be governed by section 3 of the Government Resources and Accounts Act (GRAA) 2000, and would be subject to the Comptroller & Auditor General being satisfied that the draw down of funds was appropriate and necessary. If the Comptroller & Auditor General granted permissions, the Treasury would pay the required cash to HMRC. This process ensures that Parliamentary scrutiny of this facility is maintained.

226.      Subsection (3) ensures that the facility to draw down cash from the Consolidated Fund can be utilised to fund all payments specified in subsection (1), even where the payment is being made in order to correct a previous allocation of funds that was based upon an incorrect estimate of the amounts to be paid into the Consolidated Fund or other funds.

227.      It should be noted that the facility to draw down cash from the Consolidated Fund under this clause applies only to revenue outgoings - it does not apply to the department's own expenditure which is provided for at clause 38.

Clause 43: Transfer of property &c.: general

228.      This clause effects the transfer of all matters, other than functions, from the Inland Revenue and Customs and Excise to the new department. It is subject to clause 44, which provides for the appropriate property, rights and liabilities of the old departments to be transferred to the Director of Revenue and Customs prosecutions.

229.      Subsection (1) provides for the transfer of all property, rights and liabilities of the Commissioners of Inland Revenue and of Customs and Excise to be transferred to the Commissioners of Revenue and Customs. It will be effective from the time the functions set out in clause 4 are vested in the Commissioners of Revenue and Customs.

230.      Subsections (2) and (3) provide for anything being done, or in the process of being done, by or on behalf of the Commissioners of the old departments immediately before the commencement may take effect as if done, or may continue to be done by the new Commissioners. This includes legal proceedings which are in progress at the time of the transfer.

231.      Subsections (4) to (6) effect the same provisions in respect of officers' property etc.

232.      Subsection (7) provides that, where necessary and appropriate, references to the Commissioners of the old departments in any documents, shall be treated as a reference to the new Commissioners on and after commencement.

Clause 44: Transfer of property &c.: Prosecutions Office

233.      Subsection (1) provides for the making of a scheme by the Treasury identifying the property, rights and liabilities which are to transfer to the Director of Revenue and Customs Prosecutions on the creation of his office rather than transfer to the Commissioners of HM Revenue and Customs.

234.      Subsection (2) sets out the timing of the effect of the scheme set out in subsection 1. Where the scheme identifies property, rights and liabilities which should be excluded from the provisions of clause 43, it comes into force at the same time as section 43. Where the scheme transfers property, rights and liabilities to the Director RCPO, it comes into force at the same as clause 31 (which sets out the functions of the Director).

235.      Subsection (3) provides that the above scheme may apply to and / or modify clause 43 and may require, if appropriate, that the ownership and use of such property, rights and liabilities be shared between the Director and the Commissioners.

236.      Subsection (4) provides that the Treasury may require the Commissioners of HMRC to transfer such property, rights and liabilities to the Director and the Commissioners must comply with any such requirement.

237.      Subsection (5) modifies specified subsections of section 43 to incorporate a reference to the Director RCPO. An effect of this modification is that any criminal legal proceedings (including those for the restraint and confiscation of assets) instituted, or being conducted, by or on behalf of the Commissioners or officers of HM Customs and Excise or Inland Revenue immediately prior to the commencement of clause 4 may be continued by the Director.

Clause 45: Consequential amendments, &c.

238.      This clause makes general provisions to ensure the body of legislation (both Acts and other instruments) referring to Commissioners or officers of the old departments, shall apply to the new department where appropriate.

239.      Subsections (1) to (3) provide for the old references to be taken as new references in respect of Commissioners, officers and the Valuation Office.

240.      Subsections (4) and (5) provide for the Treasury to make regulations (by affirmative resolution) by which they could amend references in Acts or other instruments to the old departments and their officers and Commissioners, replacing them with the appropriate references to the new department and other incidental or consequential changes.

241.      Subsection (6) gives effect to Schedule 4, which sets out detailed amendments to other enactments.

242.      The provisions in this clause will have effect on existing legislation, or legislation passed after commencement of this Act.

Clause 47: Repeals and Schedule 5: Repeals

243.      This clause repeals obsolete provisions either where the provisions were no longer relevant prior to the formation of HMRC, or where this Bill contains provisions that replace older statute.

244.      Subsection (1)(a) provides for a number of obsolete or superseded provisions in the Customs and Excise Management Act (CEMA) 1979 to cease to have effect. The provisions are as follows:

• paragraph (i) section 12 (inquiries) - the provision has not been used in recent times and is no longer required;

• paragraph (ii) section 15 (bribery and collusion) - in practice, such conduct is now prosecuted under the Prevention of Corruption Act 1906 and under common law as misconduct in public office, which make available heavier and more appropriate penalties;

• paragraph (iii) section 32 (kidnapping officers) - in practice the conduct would be penalised as obstruction;

• paragraph (iv) section 84 (signalling to smugglers) - the specific provision is no longer seen as required, as the conduct in question constitutes an offence of being knowingly concerned in an attempt at evasion of duty or prohibition, and is arrestable under section 170 (2) CEMA. Under the Police and Criminal Evidence Act 1984 (PACE) as applied to customs and excise matters (by the PACE (Application to Customs and Excise) Order SI 1985 No 1800) an officer may enter premises under section 17 PACE to effect such an arrest;

• paragraph (v) section 86 (higher penalty where offender armed etc.) - the provision has been overtaken by increases to the mainstream penalties for smuggling under the Customs and Excise Management Act 1979, and it is now the Firearms Act 1968 which provides for enhanced penalties for armed crime of all sorts;

• paragraphs (vi) and (vii) sections 152(c) and (d) (mitigation and remission of penalties and early discharge from prison) - this is no longer seen as an appropriate function for the Commissioners; and

• paragraph (viii) section 169 (false scales etc.) - in practice the use of false scales would be penalised as obstruction.

255. Subsection (1)(b) This causes an obstruction provision specific to valuation work, in section 111(2) Taxes Management Act 1970 to cease to have effect. This is superseded by the general obstruction provision in clause 27.

256. Subsection (2) introduces Schedule 5, which deals with repeals

Clause 51: Extent.

257. This clause defines the geographical limitations upon the content of the Bill. Subsection (1) of the clause provides that the Bill applies to the United Kingdom (England, Wales, Scotland and Northern Ireland).

258. However, the following clauses specifically state that they shall extend otherwise:

• clauses 23, 24 and 25 - external scrutiny arrangements - which apply only to England and Wales; and

• clauses 30 to 37, plus Schedule 3 - Revenue and Customs Prosecutions Office - which operate only in England and Wales.

259.      Subsection (2) ensures that, where the HMRC Bill amends or repeals another Act of Parliament, the amendment will have the same extent as the provision that it amends. So, for example, an amendment to a provision that applied only to Scotland would also apply only to Scotland, while an amendment to a provision that extended to the Isle of Man would extend there too.

SCHEDULES

Schedule 2: Functions of Commissioners and officers: Restrictions, &c.

Part 1 - General

260.      Part 1 of this Schedule places some specific restrictions on the exercise of certain functions. Except for the conduct of prosecutions of revenue and customs offences in England and Wales covered in the section on the Prosecutions Office (clauses 25 to 32), all of the functions of the Commissioners and staff of both Inland Revenue and Customs and Excise are transferred to the Commissioners and staff of HMRC by clause 4 to 6. This includes some powers which can be used widely in one of the two predecessor departments, but less widely or not at all in the other. In order to prevent the accidental spread of the wider powers to the whole of the new department's business, it is necessary to ring fence these powers by reference to the matters inherited from each predecessor dept. This Schedule supplements the generic restriction on officers' powers in clause 6 by some specific restrictions for matters not otherwise covered, such as Commissioners' powers. Most Commissioners' powers do not need to be included here, because they are already defined as relating to particular functions, and would not apply generally anyway.

261.      Paragraph 1 limits the Commissioners' powers to intercept wireless telegraphy to obtain or disclose information about the contents, sender or addressee of any message. This power is currently only available to Customs and Excise, and this paragraph prevents it from being used in relation to matters inherited from the Inland Revenue.

262.      Paragraph 2 restricts the Commissioners' power to prescribe the form of notices to matters relating to functions inherited from the Inland Revenue. The particular power in question currently relates only to Inland Revenue matters. Powers to prescribe forms for Customs and Excise matters are differently worded, and are often particular to types of form. This ring fencing prevents any confusion.

263.      Paragraph 3 limits to previous Customs and Excise functions the Commissioners' power to depute other persons to exercise the powers of officers, e.g. to enable Ministry of Defence (MoD) police to undertake anti-smuggling functions in relation to imports and exports of sensitive military equipment.

264.      Paragraph 4 restricts the matters in connection with which a member of the armed forces or police can be required to give assistance. At the moment they only do so in relation to Customs and Excise functions, and sub-paragraph (1) prevents the requirement from applying to former Inland Revenue matters. Sub-paragraph (2) gives an assurance to members of the armed forces or police that they are entitled to rely on the word of an officer of Revenue and Customs in interpreting this restriction.

265.      Paragraph 5 confines the current Customs and Excise penalties for false declarations and counterfeiting to their current scope by preventing them from applying to former Inland Revenue matters.

266.      Paragraph 6 restricts the application of the Police and Criminal Evidence Act (PACE) in relation to HMRC. (It does not apply in Scotland, because the relevant provisions of PACE do not apply in Scotland.) PACE contains various police powers, such as powers of arrest, search and seizure. Most of these powers are regulated by reference to the conduct of a given police investigation. PACE contains a provision enabling its provisions to be applied by order in respect of Customs and Excise investigations. The general consequential amendments in clause 40 of this Bill will deem this to refer to any Revenue and Customs investigation, but sub-paragraph (1) excludes investigations relating to former Inland Revenue matters. This maintains the status quo.

267.      Sub-paragraph (2) disapplies the generic restriction on officers' powers (clause 6) from PACE powers used by HMRC. This is because Customs and Excise officers using PACE powers for their primary investigation are legally entitled, to carry on doing so in relation to an ancillary matter, which could happen to be an Inland Revenue matter. This limited flexibility is being preserved. Thus at present a Customs and Excise officer who has entered premises during a Customs and Excise investigation, to search for evidence of a Customs-related offence, may also seize any evidence he comes across of any other offence, which could include income tax offences. If the generic restriction on officers' powers were to apply, that capability would be lost. The combined effect of sub-paragraphs (1) and (2) is to maintain the status quo, so that an officer of Revenue and Customs may use ancillary PACE powers in respect of former Inland Revenue matters, but only where he has used primary powers in the context of an investigation relating to former Customs and Excise matters.

268.      Paragraph 7 confines to its current scope the Customs and Excise provision which extends information powers to cover electronic media. The provision allows Customs and Excise to gain access to documents stored electronically, and to inspect computers used to store such documents. The Inland Revenue does not have a general power of this sort and the status quo is preserved by preventing the power from being used in relation to former Inland Revenue matters.

269.      Paragraph 8 performs the same function as paragraph 6, but in relation to PACE as it applies to Northern Ireland.

270.      Paragraph 9 restricts the scope for making regulations that might be needed as a result of other EU member states adopting the single currency. Such regulations can currently be made only in relation to matters dealt with by the Inland Revenue, and this maintains the status quo.

271.      Paragraph 10 deals with differences in the powers which the two predecessor departments have under the Regulation of Investigatory Powers Act (RIPA). In several areas Customs and Excise have wider powers than the Inland Revenue. Sub-paragraph (1) provides that these wider powers may not be used in respect of former Inland Revenue matters, and sub-paragraph (2) lists them. The wider powers in question are:

• the interception of communications under a warrant;

• intrusive surveillance; seeking a disclosure notice for encrypted material received by lawful means other than under statute or a warrant; and

• making an anti-tipping-off order in relation to a disclosure notice.

272.      Paragraph 11 restricts the use of a regulatory-making power relating to mandatory electronic filing. It ensures that the power can only be used in relation to a taxation matter formerly dealt with by the Inland Revenue, thereby maintaining its current scope.

273.      Paragraph 12 adjusts the way the generic restriction on officers' powers applies to a provision of the Proceeds of Crime Act (POCA). POCA allows a customs officer who is lawfully at any place, e.g. at the frontier, or on premises executing a search warrant, to seize any cash which he suspects is either recoverable property (such as the proceeds of crime), or intended for use in unlawful activity. The power is not limited in its scope, so that a Customs officer could use it if, for instance, he came across money which he suspected to be the proceeds of PAYE fraud, even though PAYE is not currently a responsibility of Customs and Excise. Paragraph (10) maintains the status quo. An officer of Revenue and Customs is only allowed to use the POCA power when exercising a function which is not a former Inland Revenue function. In that case he is allowed to use the POCA power in relation to a suspicion about a former Inland Revenue function. This means that an officer of HMRC would not be able to use the power at all if he were carrying out a PAYE inspection. But if he were carrying out a VAT assurance visit, he would be able to use the power to seize suspect cash, even if he suspected that it related to a PAYE fraud.

274.      Paragraph 13 restricts the scope for enabling the Commissioners to exercise powers relating to the provision of evidence of crime to other jurisdictions. The current provision relates only to the Commissioners of Customs and Excise, and that position is maintained by excluding matters relating to former Inland Revenue functions, and their overseas equivalents.

Part 2 - use of information

275.      Part 2 of Schedule 2 makes modifications to the terms of various provisions that authorise the supply of information to and by the existing Commissioners and their officers (provisions termed "statutory gateways"), so that they can be applied to the new department. In most cases the information to be supplied is itself specified by the gateway provision, or is in practice specific to the functions of one or other of the predecessor departments. Most gateway provisions, therefore, fall to be converted for use by the new department by a simple change of name of the body authorised to supply or receive it, as the case may be, and that is achieved by the working of clause 45 (1) and (2). So, for example, the reference to the Commissioners of Customs and Excise in section 8 Finance Act 1988 (power for those Commissioners to disclose to interested parties the consignee and description of imported goods) becomes a reference to the Commissioners for HM Revenue and Customs, and the power thereby devolves on them, without any change in subject matter.

276.      But there are a few gateway provisions, such as section 20 Immigration and Asylum Act 1999, where the information to be supplied to the Home Secretary is described at large only as "information held" by the Commissioners of Customs and Excise. By contrast, the Commissioners of Inland Revenue are authorised under section 130 Nationality, Immigration and Asylum Act 2002 to supply only address details of persons thought to be present or working in the United Kingdom in breach of immigration control. To prevent an inadvertent widening of the scope of these gateways by the integration of the predecessor departments, specific provision is made by paragraphs 14 to 18 to limit the scope of five outward gateway provisions where this might be an issue. In paragraphs 14, 15, 17, and 18, the gateways are inherited from the Commissioners of Inland Revenue, and the limitation is to information obtained in exercise of functions related to former Revenue matters, as defined in clause 6. In paragraph 16 , the gateway in question is inherited from the Commissioners of Customs and Excise, and the limitation is to information obtained other than in exercise of functions related to former Revenue matters. As information may now be held for multiple purposes, such as an address held on a common name and address file used for a number of functions, and updated from any of them, clause 46(4) (interpretation) provides that references in the Bill to information acquired for a particular purpose are to be taken as including references to information held for those purposes also.