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 street’s 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 Government’s intention. Greater
clarification would therefore be helpful, although I am sure that we
will
return to this issue in our discussions of paragraph 10. Amendment No.
251 makes a similar point to amendment No. 249 about the period of time
in which documents must be produced. Again, we have suggested at least
30 days. There might be a case for saying that the period for producing
copies should be shorter than the period it takes to produce the
original documents, but we will listen to the Government’s
arguments. 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 someone’s 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 concept—I am not sure about this and the Minister
will correct me if I am wrong—that 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 Minister’s
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
stands, the wording of paragraph 3(3) together with paragraph 3(4)
covers that. I encourage him to consider withdrawing the amendments
relating to those. I will not address the
others.
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 HMRC’s
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 HMRC’s 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 HMRC’s 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.
11
am 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.]
Or, indeed, in a foreign language. It would be an extra burden to make
taxpayers put them in writing, especially low-income tax
payers. 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 taxpayer’s
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.
Gentleman’s experience but this has been the practice in the
past. I said earlier that the changes
that are being made—the reforms we are making to the
powers—mean that, in some areas, HMRC accepts that it must rein
back those powers. It is not in its interests to have that huge range
of information, which must require huge resources to work through. Its
whole purpose is to make sure that the appropriate taxes are paid, not
to impose unnecessary burdens on
business.
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 taxpayer’s 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
pressure——the requirement——on 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
back to us and then they would serve us with another short period
notice. Putting in a minimum of 30 days would be a safeguard that would
not damage the Revenue but would be very helpful to people in
business.
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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