Finance Bill

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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.
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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.
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.
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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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Prepared 11 June 2008