Mr.
Gauke: I am grateful to the Financial Secretary. She has
given a reasonable response to my hon. Friend the Member for
Wellingborough. She mentioned circumstances where documents will be
readily available and where 30 days will therefore be too long. I
acknowledge that point, but we are talking about a minimum. What does
she think would be reasonable? Would it be reasonable for the documents
to be handed over in 24 hours, 48 hours or is she talking about seven
days? With documents that are not vast and which are readily available,
what should be the minimum? After how long would it be reasonable for
an HMRC officer to say, “Please hand it
over.”?
Jane
Kennedy: As I recall, there will be a greater requirement
on taxpayers to have good documentation available. That ought to mean
that it will be reasonable to demand it. This will be done on a
case-by-case basis as the work develops. A change of culture is
required in HMRC to make this work in the way that I am describing.
There may be occasions when HMRC needs to ask for further documents. It
would be unreasonable to impose a 30-day period on every occasion,
particularly when the taxpayer is compliant and only wants to get their
records in
order.
Mr.
Bone: The Financial Secretary is describing exactly the
problem that taxpayers face. They are asked for a huge amount of
information, usually within 30 days. After they provide that
information, six months goes by with nothing happening and with no
information available to the taxpayer. They are then served with
another 30-day notice for further information. This uneven-handed
approach by the Revenue is wrong. I have seen no evidence that it is
changing its
practices.
Jane
Kennedy: I want to give a lot of thought to what has been
said on this issue, particularly by the hon. Gentleman who is bringing
his own valuable experience to the Committee. As things stand, my
strong view is that to require 30 days on every occasion is unnecessary
and too restrictive. I will see what can be done to allay his concerns
and to improve the experience of taxpayers that he
describes. On
amendment No. 250, allowing no production of documents at a building
substantially used as a dwelling would be impractical, particularly for
VAT purposes. Where businesses are run from dual-purpose buildings, the
term “substantially” adds no real protection as it needs
interpretation. It will not be possible for HMRC to visit private
residences that are not used for business purposes without the
taxpayer’s consent. That has been
a huge area of concern in business. The exceptions are in criminal
investigation cases or for taxes not covered by the
schedule. In
most cases, it is clear whether premises are for business or private
use. We cannot set out every situation in legislation, but the
legislation sets out the principal aim that HMRC should be able to
inspect a business, but not a private home. The correct place to
explore borderline cases and give examples is in guidance, which will
be produced in partnership with taxpayer representatives. That is an
approach taken by other public bodies that need to distinguish between
businesses and private premises. One example is the council tax banding
authority. It has been suggested that we use the same definitions as
local authorities and I am open to that. HMRC will consult in full on
the production of the
guidance. There
is general concern from external commentators about the relevance of
checking records for income tax and corporation tax before the tax
return for the year in question has been completed, which amendment No.
270 seeks to address. The new powers under the schedule and the
proposals we will be making in respect of time limits are designed to
allow HMRC to make compliance checks on a cross tax risk-assessed
basis.
11.15
am The
powers can be used without a tax return being issued and completed
first. This is new for income tax, capital gains tax and corporation
tax and it is true to say that it has not been universally supported in
consultations. None the less, I am persuaded and HMRC certainly
believes that it is essential to enable it to be flexible in the
different circumstances that it encounters. HMRC should be able to ask
simple questions of taxpayers who do not normally file tax returns,
without putting them to the trouble of completing a tax return that
might ultimately prove unnecessary. It should also be able to check
those persons who do not submit returns because they trade in the
hidden
economy.
Where that
is identified, it makes sense to approach the person, ask the questions
and establish the tax that needs to be paid for all of the years
concerned, rather than sending them a large number of years’
worth of income tax, VAT and pay-as-you-earn returns to complete. As I
said earlier, good records are fundamental to accurate returns. HMRC
should be able to check that the records that are kept will allow a
correct return to be made. It is sensible that HMRC should be able to
correct poor record keeping before incorrect returns are filed and
penalties are
incurred. Furthermore,
where there is a risk of evasion or serious abuse of the tax system and
the taxpayer is likely to move on—as I have said, that does
happen—HMRC cannot afford to wait for a return to be issued and
completed, as it needs to act as soon as the risk is identified. In
order to address all those circumstances, these powers have been
designed to check a tax position, which has necessarily been defined in
a wide sense. HMRC will only check things on a visit that it is
legitimate to check. An officer will check whether records have been
kept, which is an ongoing requirement, but they cannot assess tax that
is not yet due. There is no need to enshrine that protection
specifically, as it is already inherent in the
legislation.
Overall, the
amendments go too far in restricting HMRC’s ability to see
information and documents, but I understand the motive behind their
tabling. I appreciate that there are genuine concerns, which I hope I
have been able to allay this morning. I hope that the amendment will be
withdrawn.
Mr.
Gauke: We have had a useful debate. There is much that the
Financial Secretary has said this morning that will be viewed with
interest and probably welcomed in many quarters. Amendments Nos. 244
and 245, which should be taken together, make a reasonable point,
particularly amendment No. 245. I shall not press either amendment to a
vote, and I beg to ask leave to withdraw them, because the Financial
Secretary has provided some reassurance as to how the powers contained
in paragraph (3) will operate. I shall also seek leave to withdraw
amendment No. 246, although I am not 100 per cent.
persuaded—
The
Chairman: Order. The hon. Gentleman does not have to
announce that he will seek leave to withdraw anything but the lead
amendment. If he wants to seek a Division on any of the amendments and
makes a request to me in the Chair, I would certainly consider it. The
only amendment that he need seek leave to withdraw is the lead
amendment.
Mr.
Gauke: I am grateful, Sir Nicholas, for your guidance. I
will indeed press for a Division on one of the amendments, but I will
stop begging to withdraw the other amendments. On the requirement to
give a summary, which we have queried, the Minister’s remarks
are helpful. She said that where there are written representations,
those will be provided to the relevant person. The summary will also be
provided to the third party. That is helpful, and essentially addresses
our concern. She points out that that will enable HMRC to provide the
information in plain English. We are talking about the first-tier
tribunal, which should be capable of understanding something a little
more complex. I am therefore not persuaded by that argument, but the
reassurances that she otherwise provided were
helpful. The
appeal process is being worked out with the Ministry of Justice, which
underlines my earlier point that many of these measures do not fit well
with the Finance Bill. The appeal process is a broader issue. We will
wait to see the outcome of those discussions, but I hope that the House
of Commons will have the opportunity to look at the measures again, so
that we can get the balance right. I am not convinced by the Financial
Secretary’s response on amendment No. 248. She gave an example
in which it would be too prescriptive to use “must”
instead of “may”. In the circumstances to which she
referred—she used the example of “the White house in New
Town”—there is a description in the Bill of the
information or documents to be provided, rather than a specification,
and the arguments apply, whether we use “may” or “
must”. Having said that, what she said overall on the amendment
was helpful. It is of some comfort that HMRC will not misuse the
measure and engage in “fishing expeditions”, to use an
expression deployed by my hon. Friend the Member for Cities of London
and
Westminster. In
amendments Nos. 249 and 251, I touched on the argument for greater
flexibility regarding the time limit. We are talking about a minimum
period, and the compliant
taxpayer to whom the Financial Secretary referred may be able to respond
more quickly. I know that HMRC will use its discretion, but greater
guidance would be helpful. However, I will not press the amendment, nor
will I press amendment No. 250, as we will return to the debate about
the phrase, “used solely or substantially” as a dwelling
when we discuss paragraph
10. Finally,
amendment No. 270 addresses future liability, and the use of the powers
with regard to a tax return that is not yet due. The wording that we
have introduced addresses the circumstances to which the Financial
Secretary referred, where there is a need for HMRC to act early
regarding the long-compliant taxpayer who may be about to disappear. At
that point there will be a future liability in respect of past or
present transactions, and I was therefore not persuaded that the
Government proposals reasonably address the concerns of the
professional bodies to which the Financial Secretary referred, or
accommodate the needs of HMRC, which she outlined. When we reach
paragraph 62 and amendment No. 270, I will press the amendment to a
Division.
The
Chairman: I assume that the hon. Gentleman wishes to seek
leave to withdraw amendment No. 244, but is giving notice that he
wishes seek a Division on amendment No. 270 when we reach that point.
When we do so, I am happy to grant a Division on the
amendment. Amendment,
by leave, withdrawn.
Jane
Kennedy: I will move Government amendment No. 219
formally, as it may make it easier for the Committee if I simply do so
and hear the case being made for the amendments that appear in the
middle of the series of Government amendments. In responding, I can
explain the thinking behind the Government
amendments. Amendment
proposed: No. 219, in schedule 36, page 355,
line 12, leave out ‘any’ and insert
‘a person’s’.—[Jane
Kennedy.]
The
Chairman: With this it will be convenient to discuss the
following: Government amendments Nos. 220 and
221 No.
165, in
schedule 36, page 355, line 18, at
end insert— ‘(1A) For the
purpose of this paragraph an inspection does not include the searching
of premises or any personal
effects.’ Government
amendment No. 222, in schedule 36, page 355, line 19, leave out from
‘this’ to end of line 22 and insert
‘Part of this Schedule may be carried out
only— (a) at a time
agreed to by the occupier of the premises,
or (b) if sub-paragraph (3) is
satisfied, at any reasonable
time. (3) This sub-paragraph is
satisfied if— (a) the
occupier of the premises has been given at least 7 days’ notice
of the time of the
inspection’. Amendment
(a) to the proposed amendment, in line 5, leave out
‘7’ and insert
‘14’. No.
166, in
schedule 36, page 355, line 22, leave
out ‘24’and insert
‘72’. No.
167, in
schedule 36, page 355, line 24, leave
out from first ‘the’ to end of line 25 and
insert ‘approval of the First-tier
Tribunal has been obtained under paragraph
11.’.
No. 168, in
schedule 36, page 355, line 32, leave
out from ‘person’ to end of line
34. No.
169, in
schedule 36, page 355, line 35, leave
out from ‘state’ to end of line 36 and
insert— ‘(a) the rights of
the occupier of the premises that are to be searched,
and (b) the rights of any
person to whom paragraph 10(1) may
apply.’ Government
amendment No.
223 No.
252, in
schedule 36, page 356, line 3, after
‘records’, insert
‘so far as they relate to the
business’. No.
253, in
schedule 36, page 356, line 5, at
end insert ‘wholly or
mainly’. No.
254, in
schedule 36, page 356, line 6, after
‘business’, insert
‘, or from which a business is
substantially carried
on’. Government
amendment No.
225 Amendment
No. 269, in schedule 36, page 370, line 29, leave
out sub-paragraph
(3). Government
amendments Nos. 226 to
228. Mr.
Jeremy Browne (Taunton) (LD): Good morning, Sir Nicholas.
I will try to keep the tempo high, as the Minister indicated she would.
Amendments Nos. 165 to 169 were tabled by my hon. Friends and myself.
It might be helpful for the Committee if I go through the amendments
systematically and explain the purpose of each of them in
turn.
To be fair,
the Government have demonstrated a willingness to be open-minded
through some of their amendments. There has been some well-intentioned
movement from the Government in response to representations from
relevant outside bodies, which I am sure the Committee will broadly
support. Amendment no. 165 defines the word “inspect” to
prevent inspectors rifling through the drawers of people they choose to
inspect. The drafting in the Bill is extremely wide and could
conceivably allow HMRC greater access to the private possessions of the
taxpayer who is being inspected than we would wish. The amendment would
add a new sub-paragraph to paragraph 10(1), which would exclude the
searching of premises—the intention is to cover non-business
premises—and personal effects. Some of that was touched on in
the discussions we had earlier this morning.
My party and
I welcome Government amendments Nos. 220 to 222, especially the
explicit exclusion of areas used solely as a dwelling, but our belief,
nevertheless, is that the word “inspect” is not defined
adequately. There is concern in some quarters that it may be
interpreted in the broadest possible sense by those carrying out the
inspections.
Amendment
No. 166 has been overtaken by the Government acting to an even greater
extent than we envisaged, but it would increase the notice period for
an inspection from 24 to 72 hours, or from one day to three days. The
Government have tabled amendment No. 222 which goes further and extends
the notice period to seven days. That is beyond our greatest
expectations, and we are extremely supportive of the Government in that
regard, albeit with one caveat. An HMRC officer’s ability to
bypass the notice period stipulated in paragraph 10(3)(b) means that
the period of seven days, as detailed
in Government amendment No. 222, would not necessarily apply in all
circumstances. We are concerned that the circumstances in which it
would not apply may be used by HMRC inspectors too freely and
liberally. In other regards, amendment No. 166 has become redundant as
a result of the Government’s own
amendment. 11.30
am Amendment
No. 167, in my name, requires more senior accountability if no notice
period is required. It follows the point I was making with regard to
the previous amendment: because of reservations in our party regarding
sub-paragraph (3)(b), even with the Government amendment I have just
described, amendment No. 167 would replace the
description, “an
authorised officer of Revenue and Customs”,
with a requirement
that a first-tier tribunal give authorisation for the seven-day notice
period to be bypassed. The tribunal is a more appropriate mechanism,
because of its impartiality in such investigations, and it would
provide greater protection for the taxpayer.
Amendment
No. 168 says that notice must be given appropriately. This would remove
paragraph 10(4)(c) which requires a notice
to “be
left in a prominent place on the premises”.
My colleagues and I
regard that as an inadequate safeguard, and would replace it with the
requirement that the notice should be provided directly to the occupier
or the relevant person in person, rather than merely being left in a
prominent place on their premises.
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