Clause 1
Goods subject to warehousing regime: place of acquisition or supply
Mr. Richard Spring (West Suffolk) (Con): I beg to move amendment No. 60, in clause 1, page 1, line 7, at end add—
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'(1B) The circumstances which may be prescribed in subsection (1A) shall be limited to those where goods are sold by taxable persons to non-registered persons within the United Kingdom.'.
I hope that the Paymaster General will find this minor amendment quite helpful. The regulations could be interpreted as being unnecessarily wide and the amendment would merely to compel them to be limited to the tax planning that the clause intends to prevent and any derivations of that planning that may follow the proposed regulations.
Dawn Primarolo: The VAT-free trading of goods within a customs warehouse is a valuable trade facilitation measure that is enjoyed by hundreds of UK businesses. Unfortunately, it has been subject to an abuse by a small number of traders. Therefore, new section 18(1A) of the Value Added Tax Act 1994 will provide Her Majesty's Revenue and Customs with the power to specify circumstances in which the relief from VAT afforded to transactions in a customs warehouse will not apply.
I understand the intention behind the amendment: the hon. Gentleman is trying to protect the overwhelming majority of businesses that benefit from the relief as intended. However, the amendment is not necessary because they are already protected. The Government recognise the value of section 18(1) of the 1994 Act and what it provides. They have no wish to limit its availability, except in cases where the relief is being abused. The relief will continue to be available to compliant taxpayers.
The problem with the amendment as drafted is that it would allow those few taxpayers to circumvent the clause. All that any taxpayer would need to do to abuse the relief is use a business that trades wholly in a warehouse. Such a business is not a taxable person within the meaning of the 1994 Act by virtue of section 18(1). Any supplies made by such a person would not therefore be caught by the proposed amendment. To catch such cases is the specific purpose of the measure.
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I considered this issue carefully because of the importance of the warehouse arrangements in the clause. Responsible and compliant taxpayers should not be affected in any way, but it is necessary to ensure that we catch the taxpayers who are trying to get around the rules. A reasonably large amount of money—£25 million—is involved. Perhaps the hon. Member for West Suffolk will be satisfied and withdraw his amendment if I say that I share his concern that the compliant taxpayer should not face additional challenges; however, I do not believe that they will do so under the clause. I am more than happy to give an assurance, as I do on all anti-avoidance measures, to keep the issue under careful review.
The Government proposals are based on schemes that we have seen and challenges that have been made. I assure the hon. Gentleman that, unfortunately, his amendment would enable a taxpayer to circumvent our intention. I hope that, having probed the Government's intention, the hon. Gentleman will agree to withdraw his amendment. If he does not, I shall ask my hon. Friends to oppose it.
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Mr. Spring: I am grateful to the Paymaster General for her reassurances. I think that the definition is too wide, but I accept her assurance that she will keep the matter under review. I do not wish to press the issue any further and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2
Cars: determination of consideration for fuel supplied for private use
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (John Healey): Sir Nicholas, I welcome you and your co-Chairman. Based on my experience of other Committees, let me say that I appreciate to the firm and fair way in which you conduct proceedings. I look forward to serving under your chairmanship and that of Mr. Cook.
Clause 2 is modest and straightforward. It is designed to provide the flexibility for the VAT fuel scale charge system to be amended to include a charge based on a vehicle's carbon dioxide emissions. The fuel scale charge system is a business facilitation measure that offers a simplified method of taxing the private use of a fuel when a vehicle is used for both business and private purposes. Without such a system, taxpayers would have to keep a full record of mileage driven in order to apportion the tax charge between private and business motoring. Taxpayers can choose to operate the normal rules and keep such detailed mileage records if they wish, but, unsurprisingly, most businesses choose to apply the fuel scale charge.
In broad terms, the system provides the taxpayer with a figure for the average fuel expenditure on private mileage, the calculation of which is based on private motoring data. Business tax payers use that figure to calculate an output VAT charge to account for their private mileage. The current charge is based on a combination of engine size and type of fuel. Clause 2 gives the flexibility to reform the charge to one based on CO2 emissions, which would align the VAT fuel scale charge with the Government's other reforms to transport taxation in order to support our environmental objectives on climate change and air quality and to encourage a switch to less polluting cars through tax incentives and other measures.
The proposal is entirely consistent with the action that we have taken since 1997 and with our reforms to vehicle excise duty in 2001, to company car tax in 2002 and to the direct tax system for fuel scale charges in 2003. Let me clear: our objective in making the change is purely environmental, no more, no less. It is not intended as a revenue-raising measure. Any change to a CO2 basis for the VAT fuel scale charge will be revenue neutral overall.
As members of the Committee would expect, Her Majesty's Revenue and Customs has already been discussing with business the proposed change to basing
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the fuel scale charge on emissions. We have heard useful views in those discussions and the informal consultation, which we will continue before publishing any regulations to make the reforms that are provided for in clause 2. It is sensible to align the VAT system more closely with the direct tax fuel scale charge. It is sensible that businesses account for direct tax and VAT on fuel where possible on a consistent basis. It is obviously sensible that the industry has the opportunity to discuss the details of any scheme.
The flexibility contained in the clause acknowledges the need to secure a derogation from the European Commission before we can introduce such a scheme. It also offers the opportunity for HMRC to design an effective scheme, following detailed discussions with the industry. I commend the clause to the Committee.
Mr. Spring: I apologise to you, Sir Nicholas. It was remiss of me not to add my congratulations. I remember that when you were accorded a knighthood, I said that you were well on your way to becoming recognised as a living national treasure.
John Healey: There is no VAT relief on being a living national treasure. [Laughter.]
The Chairman: I thank the hon. Gentlemen very much. They need not go on.
Mr. Spring: I thank the Financial Secretary for his explanation, and I am pleased that he has discussed the change with and consulted the business community. As he indicated, the clause paves the way for fuel scale charges—the notional VAT charge for fuel made available by employers to employees for private use—to be based on CO2 emissions rather than engine capacity. It will penalise less efficient cars. It appears sensible to us, as it aligns the VAT bandings closely to those used for benefit in kind taxation.
However, will the Financial Secretary comment on what implication, if any, he thinks the measure will have for the Government's pursuit of a road pricing scheme?
John Healey: None whatsoever.
Stephen Williams (Bristol, West) (LD): Sir Nicholas, as this is the first time I have taken part in a Standing Committee, forgive me if I do not do things in the right way. We are not sure when to bob up or catch your eye. I have not known you long enough to be sure that you are a national treasure, but you and your wife were very kind to me in the Tea Room on my first day, when I was a bit lost, and I thank you for that.
I have a question to ask the Financial Secretary. It makes sense to us to align the direct tax treatment of an employee and an employer in respect of a benefit in kind. That treatment was introduced a few years ago. I wonder, however, what studies the Treasury has commissioned of whether the environmental objectives of that move have been met—whether the fleet purchasing decisions of fleet managers have been in any way affected by the changes to direct taxation, or whether the preferences of the company car users have been affected. Such a study would enable us to see whether tax changes that are intended to have environmental benefits actually have that effect.
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Mr. Mark Field (Cities of London and Westminster) (Con): Although we do not wish to engage in a fully fledged debate on road charging, I support the comments made by my hon. Friend the Member for West Suffolk. The Financial Secretary assures us that the proposals will have a degree of revenue neutrality, on the basis that there will be some additional income because of additional CO2 emissions. Can he give us some indication of which vehicles will therefore save money and, as a result, reduce Treasury income?
It would be worth while if the Financial Secretary were to comment, at least briefly, on the broader range of policies. He justified the change on the basis of consistency—the golden thread that has run through the Government's thinking on tax matters over the past six or seven years. There has been new thinking on road pricing; which affects many folk in my London constituency, and it is important that people are brought along with such thinking. If the measure is regarded simply as a revenue raiser—I am sure that the Financial Secretary would not suggest that it is that and that alone—it will have little public support. It is important that the Financial Secretary considers which aspects of good environmental behaviour will save taxpayers money, as well as which aspects of behaviour will be penalised.
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