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Mr. Timms:
Clause 70 is one of two clauses in this year’s Finance Bill that we have introduced to tackle stamp duty land tax avoidance schemes. This clause counters two types of scheme: those using leaseholds
and those using sub-sales that have been specifically developed to avoid payment of stamp duty land tax. Clause 71 addresses another kind of avoidance. The two schemes that clause 70 tackles have sought to avoid payment of stamp duty land tax by adding often complex additional stages into the sale of a property in such a way as to remove the need to pay tax on the transaction.
When we debated this clause in Committee, concerns were expressed that it could affect those engaged in innocent transactions rather than those involved in deliberately seeking to avoid payment of tax. I explained in that debate how we intended to protect innocent taxpayers, and how we had listened to the representations made to us about the measure. I also pointed out how we had shown that we were willing to change the clause in order to protect those involved in innocent transactions. I hope that I also demonstrated how we would operate the provisions fairly—for example, by ensuring that retrospective taxation powers would be used only if they favoured the taxpayer. The hon. Member for Chipping Barnet (Mrs. Villiers) was right to say that the amendment would remove one of the very safeguards that we have included in order to protect innocent taxpayers who might unintentionally be caught by the clause.
I shall confine my remaining remarks to the amendment, other than to say in response to the hon. Member for Chipping Barnet that we have tried to ensure that the scope of the clause is limited, so that it covers only the specific avoidance methods that we wish to prevent. We have acted on representations that we have received, and our amendments will help legitimate transactions. In drafting the clauses, we became aware that if they were too specific, they might allow some avoidance schemes to continue without challenge. We have therefore included proposed new subsection (11) so that transactions inadvertently caught can be excluded. That is a helpful move.
The amendment seeks to delete some lines in clause 70 that will allow the Treasury to disapply the main provisions of the clause—proposed new section 75A—in specified circumstances. We had hoped that this proviso would rarely, if ever, have to be used by the Government, but we need it in case the need arises. If the amendment were accepted, HM Revenue and Customs would have no option but to tell a taxpayer in such circumstances, “I am very sorry, but although we know you weren’t trying to avoid paying us stamp duty land tax, what you have done has inadvertently triggered our anti-avoidance provisions and unfortunately you have to pay us tax as prescribed by this provision.” That would be unfortunate. That is the reason why the clause reads as it does.
The hon. Member for Chipping Barnet referred to a famous comment which she attributed to Lord Upjohn, although I am advised that it was actually Mr. Justice Walton who uttered the remark that
“A taxpayer should be taxed by law not untaxed by concession”.
I see the sense in that comment, but in circumstances such as those I described an innocent taxpayer might have to pay tax in situations that we did not expect
when we drafted the legislation. I suspect that a reference to the words of Mr. Justice Walton, or indeed Lord Upjohn, would probably not satisfy someone who found themselves in that position.
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Finally, I welcome the concern of the hon. Member for Falmouth and Camborne (Julia Goldsworthy) to deal with avoidance. She is perfectly right to make the point that we need to be vigilant, as new avoidance mechanisms may arise. However, we have demonstrated in the changes we made in previous legislation to end relief on seeding trusts that we are prepared to act to prevent tax avoidance when we become aware of it. We have done so again in the Bill.
The hon. Lady asked about special purpose vehicles and residential properties. At present, only a small number of properties are affected, but I confirm that we will keep the matter under review. Once again, we shall not hesitate to act robustly if the legislation on stamp duty land tax is abused. Given that reassurance, I hope that the hon. Lady will, as she indicated, not press the amendment to a vote.
Julia Goldsworthy: As I said at the outset, the amendment is intended to be probing, so that we can understand why that aspect of avoidance, which appears to be a growing issue, was not tackled in the Bill. As I pointed out earlier, Savills estate agent said that of 300 homes in London that sold for more than £5 million in 2006, only 118 were registered with the Land Registry, which suggests that the remainder were sold through offshore companies and thus not registered.
The debate has given us the opportunity to raise legitimate concerns about the use of special payment vehicles to minimise stamp duty land tax. As the hon. Member for Chipping Barnet (Mrs. Villiers) and the Chief Secretary know, there are certain difficulties in trying to formulate an amendment that does not have revenue-raising implications, so our proposal was the easiest way of raising the issue. I shall certainly try to find out if there is a more detailed way to tackle it, because at present SPVs not only mean that there is not a level playing field for property buyers in London; they could also be further inflating the property market at the top end. They could have a wider destabilising influence on the housing market, so I shall find a way of raising the issue again if the Chief Secretary does not make proposals himself, as I hope he will in the next Finance Bill.
The concerns raised by professional bodies about the provisions are that they are a mini general anti-avoidance rule. The subsections singled out by the amendment are a way of trying to limit that. One proposed solution was to implement a clearance procedure, so perhaps the Chief Secretary will comment on that.
I have been reassured that the right hon. Gentleman is taking the issue seriously, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: No. 2, page 70, line 13, at end insert—
‘( ) In section 97(4) of that Act (orders ceasing to have effect unless approved by House of Commons), after paragraph (ea) insert—
“(eb) an order under section 77A(9) or (9A);”.’.— [Mr. Timms.]
Mrs. Villiers: I beg to move amendment No. 8, page 92, line 21, leave out from ‘person’ to first ‘the’ in line 22 and insert
‘whose sole or main business (either alone or together with that of any associate) is the provision or facilitation of’.
Mr. Deputy Speaker (Sir Michael Lord): With this it will be convenient to discuss the following amendments:
No. 9, page 92, line 23, leave out ‘involved with the company’ and insert
‘regularly involved (either directly or through an associate) with all or most aspects of running the company on an ongoing basis’.
No. 11, page 92, line 29, leave out ‘influences or’.
No. 12, page 92, line 29, at end insert ‘or’.
No. 13, page 92, line 30, leave out lines 30 to 34 and insert—
‘(c) exerts a substantial degree of influence over the provision of those services by providing a standardised company product to the individual (“the worker”) whose services are then provided by the company.
(2A) For the purposes of subsection (2), arrangements involve a standardised company product if—
(a) the arrangements have standardised, or substantially standardised, documentation—
(i) the purpose of which is to enable the implementation, by the worker, of the arrangements; and
(ii) the form of which is determined by the provider, and is not tailored, to any material extent, to reflect the circumstances of the worker;
(b) the worker enters into a specific arrangement or series of arrangements; and
(c) that arrangement or that series of arrangements is standardised, or substantially standardised, in form and is connected with the provision of services by the worker.’.
No. 10, page 97, line 14, at end insert—
‘(3A) References in section 61B to an associate of a person (“P”) shall include a person who, for the purposes of securing that the individual’s services are provided by a company, acts in concert with P (or with P and other persons).’.
No. 14, page 98, line 15, leave out ‘an officer of Revenue and Customs considers’.
No. 15, page 98, line 22, leave out ‘encouraged or’.
No. 16, in page 98, line 26 [Schedule 3], at end insert—
‘(2A) No person shall fall within the scope of subsection (2)(c) above unless they knew or could have reasonably been expected to know that the services of the individual were being provided by a managed service company.’.
No. 17, page 98, line 32, at end insert—
‘(3A) HM Revenue and Customs may not pursue any person mentioned in any paragraph of subsection (2) under the provisions of this section unless, in the opinion of an officer of Revenue and Customs—
(a) it is impossible to recover the specified amount from any other person mentioned in any of the preceding paragraphs of subsection (2), or
(b) it is impracticable to recover the specified amount from any of those persons.’.
Mrs. Villiers: Throughout the debate on schedule 3 and managed service companies, the Opposition have recognised that there is an avoidance problem at the borderline between the employed and the self-employed, and that not all workers currently operating through managed service companies are genuinely in business on their own account. We would support measures to tackle that problem, but only if they were clearly drafted and appropriately targeted. Schedule 3 complies with neither of those two conditions, which is why we tabled amendments both in Committee and on Report to try to remedy the problems.
Anne Swain of the Association of Technology Staffing Companies has told me of her concerns about the
“huge amount of uncertainty around these provisions.”
The uncertainty around schedule 3 is costing people their jobs and their livelihoods. There is a real danger that innocent parties—contractors who are clearly in business on their own account—will be hit by collateral damage simply because they choose to outsource aspects of the management of the companies through which they provide their services.
After the IR35 debacle and the millions spent on compliance checking, many in the contractor community feel victimised by this Chancellor. They resent the fact that the legislation will make it more difficult to use advisers who specialise in the contractor market. They also find it hard to understand why restrictions are being placed on their ability to outsource matters relating to their company, but larger businesses face no such constraints.
Before addressing the amendments directly, I should make it clear that I welcome the Financial Secretary’s clarification in Committee of a number of points relating to how the legislation should be interpreted. I shall refer to a number of his statements during the debate. The Opposition seek to persuade the House, however, that amendments are still necessary. Welcome though the Financial Secretary’s words of comfort in Committee were, and welcome though HMRC guidance will be, the protection of a change in the statute will still be needed to remedy the problems with the drafting of schedule 3.
It is possible to use Hansard in interpreting legislation, but only in limited circumstances. In Pepper v. Hart, the House of Lords restricted that to instances in which the relevant statute was
“ambiguous or obscure, or leads to an absurdity”.
Nor can HMRC guidance provide an adequate answer to the problems in relation to the legislation. Certainly, it is useful, and it is regrettable that it has yet to be published, despite the fact that the regime has been in operation since April. One cannot, however, realistically expect thousands of contractors potentially affected by the legislation to check HMRC’s website and keep track of guidance, as with the problems to which I referred in relation to clause 70.
Moreover, guidance cannot be relied on in court and can be changed or withdrawn at any time. In a number of examples, HMRC indicated in guidance that legislation did or did not apply in a certain way, and then changed its mind and sought to use it in exactly the way that it said that it would not: for example, in Bibby v. Prudential Assurance, and in Sema Group Pension Scheme Trustees v. Commissioners of Inland Revenue. In both cases, HMRC had given a clear indication of how it expected the legislation to work in guidance, and then sought to go back on that.
Relying purely on guidance would also contravene the principle in the House of Lords decision in Wilkinson, and the constitutional principles to which I drew the House’s attention during the debate on stamp duty. HMRC’s controversial record on the enforcement of IR35, and the numerous cases in which an allegation of failure to comply with IR35 has been made and later dropped, show the risks of leaving tax inspectors with too much discretion. Relying wholly on guidance rather than making sure that the legislation is clear would give tax inspectors too much discretion.
On amendments Nos. 8 to 10, schedule 3 means that any freelancer must ask the key question whether his professional advisers could fall into the category of an MSC provider, which would change his tax status from that of a service business to that of an employee. The definition of an MSC provider is contained in paragraph (d) of proposed new section 61B in schedule 3, and covers any
“person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals”.
As many professional bodies have repeatedly pointed out, that is exactly what many accountants do. They will frequently advise their clients as to the best corporate structure to use, establish companies for them and go on to provide company secretarial services and process payments relating to those companies. Similar issues arise for company formation agents and other professionals providing company secretarial services.
It is true that the Financial Secretary gave some comfort on that point in Committee, stating that even when the specific exclusion for professionals in subsection (3) does not apply,
“the purpose of the legislation is not to include within the definition of MSC provider accountants, tax advisers, lawyers and company secretaries who provide advice or other professional services to companies in general. Those persons are not in the business of promoting or facilitating the use of companies to provide the services of individuals, nor are they regarded as involved with the company in the way in which the legislation envisages.” ——[Official Report, Finance Public Bill Committee, 15 May 2007; c.175-76. ]
That is a welcome clarification, but as Professor Anne Redston of King’s college London has pointed out:
“the worry is that this is not what the legislation actually says”.
There is no exclusion for those who facilitate the use of companies to provide the services of individuals only in the course of providing services to companies generally. Indeed, it would be quite difficult to draft such a provision without leaving loopholes. It seems to me that looking at the drafting of paragraph (d), the mere provision of services to a range of different companies, some of which happen to be used for the provision of services of individuals, would be enough to bring the adviser within the scope of the legislation, whether the Financial Secretary says so in Committee or not.
Amendment No. 8 would remove the threat from accountants and other professionals who carry out such activities as part of a wider practice of accountancy and business advice. Amendment No. 9 would ensure that only those who had a close day-to-day involvement with the running of the service company and a wide range of its activities would trigger the MSC provisions.
The two amendments would focus the legislation on the sort of situations in which the provider and not the worker is in the driving seat—where the company is essentially an emanation of the provider rather than a separate entity run by the worker. The effect would be to target the MSC provisions at the people the Government seem to have in mind—those for whom the provision and facilitation of service companies is a core and discernable part of their business.
The amendments are revised versions of those tabled in Committee. Amendment No. 10 has been added in response to the concern expressed by the Financial Secretary in Committee that an MSC provider could combine its business with other services to avoid being caught by the legislation. I hope that the changes would ensure that the provider cannot use the cover of linked services provided by associates to avoid measures in the legislation. The amendments are tighter than those rejected in Committee.
Amendments Nos. 10, 11, 12 and 13 address similar concerns, but they can stand alone and should be considered independently by the Financial Secretary. They address the serious problems with proposed new section 61B(2), which provides that if a third party influences the service company, it is sufficient to amount to involvement and to trigger the MSC provisions.
Taking a commonsense interpretation, every professional adviser could be said to influence their client. There is no point in engaging professionals unless the intention is at least to consider acting on their advice. Why would people pay their fees if they are not interested in being influenced by their advice? Again, some welcome comfort can be drawn from the Financial Secretary’s comments in Committee:
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