Mr. Hammond: What the hon. Member for Ealing, North pays himself as rent might be of interest to others, but I am sure that it is of no concern to the Committee. Does my hon. Friend the Member for South-West Hertfordshire agree that that might be the appropriate way to define a dwelling for those purposes? That would ensure that the man in the streets understanding of a residential property is protected, which we hope is what is intended.
Mr. Gauke: I am grateful to my hon. Friend for that useful suggestion, and I ask the Financial Secretary to provide greater clarification about what is meant by the phrase,
used solely as a dwelling.
Amendment No. 250 suggests that the wording should be expanded to cover a place that is used solely or substantially as a dwelling. The pattern of work is changing. Technological advances make it easier for more people to work from home. The Government recognise that a dwelling should be treated differently, and there is sensitivity about a dwelling being a place from which documents or information should be handed over. Perhaps the Financial Secretary can explain why there is such sensitivity; we certainly recognise that it exists.
I wonder whether the definition,
used solely as a dwelling,
is too tight, and whether the family home would be used in these circumstances, when that is probably not the Governments intention. Greater clarification would therefore be helpful, although I am sure that we will
Turning to amendment No.270, which jumps us forward to paragraph 62, which has given rise to a certain amount of comment. It deals with the important definition of tax position, which runs through this schedule, and refers to someones position
as regards past, present and future liability to pay any tax.
We have no difficulty with past or present liability to pay tax, but future liability is a rather curious conceptI am not sure about this and the Minister will correct me if I am wrongthat is recognised as giving HMRC particular powers. Is it right that HMRC that can make use of the various powers set out in schedule 36 with regard to future liability, which is a tax liability which does not exist at the time at which those powers are used? I do not know whether this signals a more fundamental change to our tax system, but we have proposed an amendment which is reasonable and not absolutist. We refer to any past or present liability
or any future liability to the extent that it depends in whole or in part to any past or present transactions,
which addresses the Ministers legitimate concerns. We would be grateful if she enlightened the Committee about the thinking behind the proposed working definition of tax position. We look forward to what the Minister has to say regarding this first group of amendments.
Dr. Palmer: May I speak briefly to amendments Nos. 244 to 247, which seem to be a bit of a drafting mess, with due respect.
The position in the Bill seems balanced and clear. Paragraph 3 of schedule 36 discusses the issuance of third-party notices, with the due safeguards to which the hon. Member for South-West Hertfordshire referred. Sub-paragraph (4) requires that the taxpayer should be informed unless there is a good reason why not. Amendment No. 244 somewhat duplicates sub-paragraph (4) but amendment No. 247 goes further and requires that
No notice shall be given...unless the person to whom the notice is addressed and the taxpayer have been given notice of a hearing...to consider the issue of the notice.
Contrary to what the hon. Gentleman told us earlier, amendment No. 247 is not qualified by sub-paragraph (4). In other words, even if the first-tier tribunal believes that the actions would prejudice the assessment or collection of tax, that would not apply to his new sub-paragraph.
Mr. Gauke: I concede that the hon. Gentleman raises a fair point. As I was reading through the amendments again, I could see the difficulty that he mentioned. I do not quibble with what he is saying. Making amendment No. 247 subject to the provisions of paragraph 3(4) could improve the measure.
Dr. Palmer: I am grateful to the hon. Gentleman for his open-mindedness. I think that we agree on what we are trying to achieve: the taxpayer should be informed, unless there is good reason why he should not be. As it
The Financial Secretary to the Treasury (Jane Kennedy): It is a pleasure, Sir Nicholas, to be here this morning serving under your chairmanship. Many of us would claim that our boroughs were our boroughs, but few with the authority that you can with Macclesfield. I congratulate Macclesfield on its success at the weekend.
I cannot disagree with a word that my hon. Friend the Member for Broxtowe has said and will come to the detail of that amendment shortly. The hon. Member for South-West Hertfordshire moved several amendments out of a concern that I have heard expressed by a number of people as the powers have been developed and the consultation has gone through the usual process. His questions deserve a proper and reasonable answer.
Once again, the amendments all seek to add extra safeguards to the provisions about information powers. In a broader debate last Thursday, we talked about the overall aim of the changes that schedule 36 introduces. The amendments would reduce flexibility and affect HMRCs effectiveness, particularly in dealing with the minority of taxpayers who do not wish to comply. To safeguard the majority, it is important that I set out what HMRCs intent is.
Tribunal approval is required before an information notice can be issued to a third party. Amendments Nos. 244 and 245 seek further safeguards to require the taxpayer to be informed and, in addition, to enable them to make representations to the third party. In practice, there are two situations in which HMRC needs to approach third parties. The first involves a taxpayer who may have a gap in their records, but is otherwise generally compliant, and information is being sought to fill that gap. In those situations, HMRC would normally ask the taxpayer to obtain the information from the third party. There may be occasions in which the third party would refuse to provide that information to the taxpayer, so the notice is needed. In those circumstances, the taxpayer would be aware that a notice had been issued and of what it was requesting.
The second situation is where a taxpayer is suspected of concealing the truth from HMRC. HMRC then has to verify the true position with evidence from third parties. In such a situation, tax could be prejudiced if the taxpayer were made aware of HMRCs intentions. Therefore, the amendment does not add a great deal to the Bill for compliant taxpayers, as they have already had the chance to discuss matters with HMRC and to influence the notice. Where a deliberate mis-declaration of tax was suspected, the amendment would be overridden by paragraph (3)(4) in the way that my hon. Friend the Member for Broxtowe described.
HMRC will be able to ask for information from a third party only with the consent of either the taxpayer or the independent tribunal. Amendment No. 246 seeks to replace the requirement to give the tribunal a summary of representations, replacing that with a requirement to provide full representations. Summaries are often better as they highlight the salient facts and can explain complex matters in plain English. HMRC does use plain English. Some representations are made verbally[Interruption.]
A summary must include all the facts and must not omit any issues. Existing case law shows that a notice is vulnerable under judicial review if HMRC has not made the tribunal properly aware of all representations it has received. Where the tribunal wished to see full representations, therefore, it would be able to do so. Where the taxpayers representations are in writing and set out their case, the officers would just provide a copy of the representations to the tribunal. The amendment does not therefore give any better protection and it could be worse for some more vulnerable taxpayers. I understand, however, the reason behind the questions that have arisen from the legislation.
Amendment No. 247 seeks to give taxpayers and recipients of notices a right to make representations in person to the first-tier tribunal. This is really a matter for the Ministry of Justice to decide upon, not something for a Finance Bill. However, HMRC is exploring this with the new tribunals. The consideration will be taken forward once the tribunals are established. There are difficulties over taxpayer confidentiality and prejudicing the case where the third party and taxpayer are present for the whole hearing. Members of the Committee can imagine what those would be. We do think that it would be helpful for parties to make their representations in person to the tribunal as that would allow the tribunal to clarify particular points and ask questions. In principle, therefore, we think this is fine.
Amendment No. 248 seeks to restrict the scope of information notices by replacing may with must, as described by the hon. Member for South-West Hertfordshire. Where HMRC knows the nature of the information and the documents, they will be specified but there are times when the exact nature is not known so the notice will need to be worded a little more vaguely. For example, a notice might say, all documentation relating to the sale of the White house in New Town. Or it might say, details of all company cars purchased in 2009.
As far as possible, HMRC will limit the scope. For example, I know there has been concern where a company was required to send in all e-mails from a particular year. That clearly goes far wider than is necessary or of benefit to anybody. There is no intention on the part of HMRC to seek that width of information. There is certainly no intention on the part of HMRC to do the job of accountants. The only purpose of seeking information and being vague would be because they did not know the exact definition. I hope my examples give an indication of the sort of information that will be sought.
Mr. Peter Bone (Wellingborough) (Con): It is a pleasure, Sir Nicholas, to serve under your chairmanship. When I was in practice dealing with these matters, especially on investigations, the Revenue would employ very wide definitions when in fact they could have been much tighter. I have seen no evidence in practice, therefore, that the Revenue is doing that.
Jane Kennedy: I am aware of one example in particular where a bank was asked for all e-mails. I do not quarrel with the hon. Gentlemans experience but this has been the practice in the past. I said earlier that the changes
Dr. Palmer: I share the concern that we do not open a loophole to allow, as the Minister says, a requirement for all e-mails over the last year, or something like that. This section is qualified, though, by the original paragraph 1, which says:
the information is reasonably required by the officer for the purpose of checking the taxpayers tax position.
I assume the tribunal would refuse to allow a notice where some ridiculous request was made.
Jane Kennedy: Indeed, that would be my expectation and as we discussed before, HMRC is required to act reasonably and there is a very well understood meaning of that word.
Mr. Mark Field (Cities of London and Westminster) (Con): Notwithstanding our discussion, which has been useful in focusing on where HMRC is trying to operate, given the concerns expressed in our initial debate last week about fishing expeditions, where is the incentive for HMRC to have as narrow a focus as possible? Is it possible to construct a financial disincentive? Since some administrative costs would clearly be incurred in a larger inquiry than was strictly necessary and genuinely reasonable, could we ensure that any party that lost out or incurred significant administrative costs as a result of such an inquiry could be compensated? My concern is the lack of any incentive for HMRC to behave in a narrow, focused way.
Jane Kennedy: That is a very fair point. The incentive is the pressurethe requirementon HMRC, to act in every way as efficiently as possible. Even if it was charging for the administrative costs, it has finite human resources and if its human resources were deployed in that way, it would seem to me, as the Minister to whom it is accountable, that that is not the best use of the resources available and that it could deploy them to areas of greater risk. The requirement on HMRC to act reasonably, in my view, includes a reasonable use of the resources HMRC has at its disposal. I hope that in our brief discussion this morning I have explained the purpose behind the reforms and why I think the amendment is unnecessary, although I appreciate the spirit in which it was moved.
Amendments Nos. 249 and 251 are too inflexible in insisting that 30 days should always be given for the production of documents and information. In many cases, the information will be readily to hand and officers can use discretion in setting a time limit. They must act reasonably and be able to show that they have acted reasonably. The time allowed would usually be agreed with the taxpayer in advance.
Mr. Bone: Again, going back to my experience, it used to annoy me enormously when we were served with a notice to supply a lot of documents within, say, 30 days. We would provide these documents, it would be a very long time before the Revenue ever bothered to get
Jane Kennedy: I hear what the hon. Gentleman says. I am advised that HMRC, where it is appropriate and because there may be a lot of documents in deep storage that it needs to see, would often allow more than 30 days where it was necessary. His point would be covered if HMRC would deal in more co-operatively with the taxpayer, in the way we have just been discussing. I want to give some thought to his point and do some further probing of my own.
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