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21 Jun 2006 : Column 503WH—continued
In that respect, I was particularly interested to hear about the partnership that the community set up with Argyll and Bute council and the Isle of Mull hotel. It was unfortunate that the hon. Gentleman referred to “the dreaded VAT man”. Again, I shall defend my officials. Anybody who works in Her Majesty’s
Revenue and Customs is following the law of the land as instructed by this Parliament. They are not allowed to vary it—Members of Parliament do that. They do a fine job and are not to be dreaded. I hope to demonstrate that in this case we are in great danger from a series of misunderstandings.
The hon. Gentleman appreciates that HMRC administers the VAT rules, as I have said. Those rules are laid down by Parliament and I have no power personally to intervene and direct HMRC. It follows the law of the land.
I understand that Mull and Iona Community Enterprise—referred to by the hon. Gentleman as MICE—has sought to waive an exemption on the proposed lease of the swimming pool to the hotel. That would enable MICE to reclaim the VAT costs incurred on the construction of the pool, subject to the normal VAT rules. Let us be clear about events: the scheme was notified to HMRC in March 2006 and, in defence of my officials, the numbers of letters that have been exchanged are two from HMRC to MICE asking for information about the proposed scheme and its financial structure, two from MICE to HMRC responding to those requests, and another one or two—no more than five or six. We are only a little way into the discussion.
The hon. Gentleman touched on what is at the heart of the problem. Just before the 1997 election, the then Government introduced anti-avoidance rules to prevent significant VAT revenue losses, which were £100 million or more a year. The rules were designed to head off a classic VAT avoidance structure in the property sector whereby non-VAT recovering bodies created taxable bodies to reclaim the VAT incurred on construction costs, and then charged an artificially low rent for the occupation of the premises.
Whatever the advice that the hon. Gentleman received from Ernst and Young about the court cases and whether the anti-avoidance rules are still needed, I must tell him that if he cares to look at any Finance Bill, including the one that we finished considering in Committee only yesterday, he will see that VAT on property remains one of the main areas of avoidance activity. That has not changed and is not affected by the rulings.
There is a dilemma over how to proceed. There are classic VAT avoidance structures that involve hundreds of millions of pounds, and they follow certain key steps, but I want to make it absolutely clear that HMRC accepts that the intention of the arrangements in relation to the swimming pool is not to avoid that VAT. Nevertheless, the Department has to satisfy itself—we do not want to set a precedent here and find the same scheme popping up somewhere else, but this time involving a bank and hundreds of millions of pounds. It is necessary for the facts to be put on the table, then Revenue and Customs can give an adjudication.
The best advice that the accountants can give MICE is to disclose the facts of the case and put them on the table as quickly as possible. I can assure the hon. Gentleman, because I have made sure of this in talking to my officials, that HMRC officials will resolve the matters as quickly as possible. Instead of relying on complex accounting—which, as my hon. Friend the Member for North Swindon said, is not always
accessible—simply and straightforwardly say, “This is what we want to do and why we want to do it.” Then a decision can be taken, and very speedily.
I want to emphasise that HMRC stands ready now, as quickly as possible, to clarify the VAT treatment, once all the facts have been established, although we are still waiting for all the facts. It is much better to get it done this way than via a VAT tribunal. Then a decision can be made.
The issue of whether a swimming pool has a similar use to a village hall goes to the heart of the points that I want to make to the hon. Member for Argyll and Bute. This is the question: is the proposed use of the swimming pool similar to that of the village hall for the purposes of VAT and why do they not come within that? Even a cursory glance will demonstrate why. Here, case law is followed and it is defined in case law what needs to be done for a building to qualify. It must be constructed by a charity, it must have a high degree of community involvement in its operation and
activity, and it must be provided for a wide range of predominantly social and/or recreational activities.
As I understand the proposals, the pool will be managed and operated by the hotel, which is not a charity. The pool may also not be managed with a high degree of community involvement. Furthermore, by definition, the pool is unlikely to be able to cater for a wide range of social and/or recreational activities beyond swimming and water safety. Therefore, it is not within the similar treatment. But to recap, this is an important scheme that is hugely important to the community, which has done a great deal. We should pay tribute to it.
I must impress this on the hon. Gentleman: get the facts on the table and HMRC will make a decision. I am confident that it will be the right decision and all will be happy. That is all that needs to be done.
Adjourned accordingly at thirteen minutes past Five o’clock.
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