Finance Bill

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The Chairman: Order. I am not sure that what the hon. Gentleman is raising is entirely relevant, but I will allow him to continue, otherwise he may seek a schedule stand part debate. If he raises the issues now, I am confident that he will not ask for that debate.
Mr. Newmark: Thank you, Sir Nicholas. You are right—I was trying to put in context the various amendments, which I will now get on to. The Government’s uncompromising position is likely to drag huge numbers of taxpayers, who live and work in the same place, into a net of potentially draconian new inspection powers.
In that context, amendment No. 269, which strikes out the commissioners’ ability to decide in future by regulations what constitutes a business, is perhaps the most important. There have, for example, been periodic warnings to taxpayers who make substantial incomes from buying and selling items on internet auction sites such as eBay but do not pay the correct tax on that income. The figures that I have seen suggest that 68,000 people make all or a substantial part of their living from selling things on eBay. Presumably, those people fall within the category that the Financial Secretary last week described as “ghosts and moonlighters”. Indeed, HMRC ran an advertising campaign on that issue last year, which a spokesman justified by saying:
“The overwhelming majority (of online sellers) are selling off unwanted goods. We are concerned with the minority conducting a business.”
However, the minority who may be conducting a business are presumably doing so from their own homes.
The question becomes whether someone can be said to be conducting a business merely by dint of regular use of an online auction site, and, by extension, whether that might justify the invasion of their homes by Revenue and Customs officers. I do not know if my hypothesis is valid, but I would not want the commissioners of the Treasury to be able to decide at a later date what constitutes a business. It would seem extraordinary if the home addresses of some 70,000 people suddenly became subject to inspection by Revenue officers because those people were suddenly deemed by regulation to be carrying on a business there for the purposes of the powers in the schedule.
Like my right hon. Friend—he is not quite right honourable yet, but I have huge aspirations for him—my hon. Friend the Member for South-West Hertfordshire, I am not reassured by Government amendment No. 221, which does nothing to narrow the potential scope of the powers. Buy-to-let landlords were also mentioned by HMRC last year, in the same breath as the clampdown on internet auctioneers. The Chartered Institute of Taxation goes a step further and expresses concern about whether the inspection powers will apply to lodgers or employees who take work home. If the Treasury has those kinds of situation in mind, it ought to be made explicit in primary legislation so that the reservations can be made equally explicit.
I welcome amendments Nos. 252 to 254, which would clarify the position for those who share their workplace and home, and introduce a little flexibility to the situations to which the new powers apply.
12 noon
“The normal rule will be that the occupier of the premises must be given 7 days notice of the visit, instead of only 24 hours as required in the Bill. A shorter notice period (or no notice at all) may apply where this is agreed with the occupier or approved by an authorised officer of HMRC.”
The Government are not displaying an unambiguous commitment to a minimum period of notice and to reasonable conditions, which I believe taxpayers are entitled to expect. Perhaps the Financial Secretary will flesh out the situations in which she expects the normal courtesies to be suspended.
My final observation concerns the presence of adequate safeguards, which the Financial Secretary began to address in last week’s debate. In my view, safeguards should not be limited to the training and oversight of HMRC officers before the fact, but must include monitoring of the process going forwards. I want to close my remarks by quoting again from the report of the Joint Committee on Human Rights on the use of invasive powers:
“We consider that, without an effective means of monitoring and regulating the execution of the invasive powers provided by the Bill, there will be a greater risk that these powers may be used in a way which leads to a breach of Article 8 ECHR”.
That is a warning that resonates with the matters that we are discussing and I hope that the Financial Secretary will set out the way in which the operation of the new powers will be monitored and, if necessary, adapted and improved.
Peter Viggers (Gosport) (Con): I thank the Financial Secretary for the helpful and thoughtful way in which she has introduced the amendments. It is very useful for us to hear her responses to our concerns. My central point is on amendment No. 269. My party is concerned that it is left to regulations and guidance made by the Government by secondary legislation to set out definitions. We would prefer to see definitions in primary legislation rather than delegated to regulations and guidance in secondary legislation.
A number of concerns have been expressed. The Chartered Institute of Taxation makes the very general point that HMRC should explain why it needs such wide powers to inspect business records anywhere and at any reasonable time. It makes the point in detail that it seems that HMRC is giving itself powers to enter a bank to check the bank records of an individual taxpayer in order to ascertain that taxpayer’s position. Does HMRC anticipate that it will take the power to enter a business premises, namely a bank, to check the tax and financial records of an individual taxpayer?
Under paragraph 10(4), a visiting officer is required to give a notice to the taxpayer. It would be helpful if HMRC could confirm that that notice to the taxpayer will contain a statement of the taxpayer’s rights and will not be just an implied threat, as suggested in paragraph 10(5).
An important point was made by my hon. Friend the Member for Braintree when he pointed out that while the legislation seems to restrict the rights of HMRC to business premises, the definition of business premises is nevertheless very widely drawn in amendment No. 221:
“‘business premises’, in relation to a person, means premises (or any part of premises) that an officer of Revenue and Customs has reason to believe are (or is) used in connection with the carrying on of a business by or on behalf of the person.”
That definition is extremely broad, bearing in mind not only the older habit of taking work home, but the increasing use of computers at home. There cannot be many people engaged in business practice who do not have in their house a computer capable of being used for pulling out records, or for other business purposes. Any home with such a computer would seem to be included in that definition of business premises. Specifically, I would like to ask the Financial Secretary whether that definition would include domestic premises where a lodger pays for residence.
I have two further detailed points. Where HMRC makes unannounced visits, will it assume responsibility for the health and safety of the visiting officers, and have that responsibility enshrined in legislation? On building sites in particular, and on various other premises, it will not necessarily be safe for untrained personnel to visit unannounced, to inspect any part of that premises and its contents. It would seem unfair for such risks as may be entailed to be imposed upon businesses, namely on the owner-occupier of the premises.
Where an HMRC officer wishes to take a copy of a document that has been produced to or inspected by him, will HMRC bear the cost, which could be considerable if the document is extensive? I am grateful for the opportunity to ask those questions, and I look forward to the Financial Secretary’s response.
Jane Kennedy: This discussion has been useful. In response to what the hon. Member for Gosport said regarding secondary legislation, we regularly debate whether certain details of legislation should be primary or secondary, but the aligned powers that we have discussed leave relatively little to secondary legislation. Following the changes, more provisions governing the conduct of HMRC will be dealt with in primary legislation than before. For example, the review’s work on penalties has seen the framework for the mitigation of a penalty for an incorrect return brought out of guidance and put into primary legislation. There are times, however, when secondary legislation is more appropriate. In this package, the only provisions left to secondary legislation are those that provide the detail—for example, those clarifying what is and is not a business or a statutory record—and those that need to respond quickly to external changes, such as those on credit card fees.
Before turning to the detail I will make a general point. The Committee will hopefully be reassured by the fact that training will be really important to HMRC in exercising the new powers. I anticipate that HMRC will make what I describe as a culture change. At the moment, over 25,000 compliance staff in HMRC are undergoing training on the penalties changes that were made in the Finance Act 2007. The same e-learning package is available online to tax practitioners and the public, and it has been well received.
I turn now to the detail of the amendments. Paragraph 10 of schedule 36 introduces the power to enter and inspect business premises of taxpayers and third parties for income tax, corporation tax and capital gains tax purposes. Previously that power has been available for VAT and PAYE inspections in the UK, and it exists in other OECD countries. It is not an unusual power, but its operation quite rightly concerns the Committee.
At the same time as extending the power to other taxes, the opportunity has been taken to build in a number of taxpayer safeguards not present in the existing VAT and PAYE provisions. Our amendments seek to strengthen further those new safeguards in the light of the representations that have been made by the Chartered Institute of Taxation among others. They did say when they saw the January consultation documents that they felt the suggestions on visits to business premises seemed reasonable.
The first change that we are making is to restrict the circumstances in which third-party premises can be inspected. As drafted, paragraph 10(1) allows HMRC to inspect any business premises in order to check the tax position of any person. It is modelled on the existing VAT power to enter and inspect premises and it is applied to all tax checks. The circumstances in which HMRC will need to visit the business premises of a third party are essentially those where officers wish to check on the movement of goods.
I hope to reassure the hon. Member for Taunton who asked about the position of employees. A number of other Members mentioned this. I reassure him that employees of the business are excluded from inspection. They are not business taxpayers. Their homes are not business premises for the purposes of this part of the schedule. Our amendments Nos. 219, 220 and 221 therefore change or omit references to “any person” as appropriate to refer instead to the person whose tax position is being checked. The effect is that revised paragraph 10 will provide the main rule that the business premises that HMRC may inspect must be premises used by the person whose liability is being checked. This is subject to new paragraph 10A, which is introduced by the main part of amendment No. 221.
That part does a number of things. First, it provides that the power of entry and inspection does not extend to any part of premises used solely as a dwelling. That is an important new taxpayer safeguard. The hon. Member for Dundee, East gave a good example of an individual musician. I hope to reassure him that it would be very unlikely that these powers of inspection would apply in that sort of example.
A fair question would need to be asked: what business activity would take place that it would be reasonable for HMRC to inspect in that individual’s home? It is unlikely that part of the home would be used just for business. We will make it clear in guidance so that people in those circumstances ought not to feel that this would apply to them.
Amendment No. 221 also deals with the definitions of business assets, business documents and business premises and it redefines business premises in relation to a person.
As I have just mentioned, the amendment inserts new paragraph 10A in schedule 36. That maintains the current rule that third-party premises may be inspected where broadly speaking they are being used in connection with the supply of goods. There is an added restriction that premises used solely as dwellings are excluded. It is important that HMRC retains the power to inspect third-party business premises, goods on those premises and documents relating to those goods in order to combat large-scale VAT fraud. The hon. Member for South-West Hertfordshire asked a number of questions, including about vehicles, which I will come to in a moment.
I want to deal with the questions raised by the hon. Member for Taunton who asked whether we could get an idea of the scale of the number of visits and where disputes might arise. In 2007-08, the last year for which we have figures, HMRC carried out approximately 12,000 unannounced VAT visits, 5 to 10 per cent of total visits carried out. I expect there will be fewer visits in the future but taxpayers refused a visit or complained about a visit in only 44 of those cases, so I hope that sets the context within which we are discussing these matters.
12.15 pm
The hon. Member for South-West Hertfordshire asked about a taxpayer who was on holiday. I will come in a moment to an example of the type of premises where there would be nobody present, but he asked what would happen if the taxpayer was temporarily not present. The visit will normally have been arranged by phone and confirmed in writing, so the taxpayer should be aware of the visit. Guidance will cover matters such as providing a copy of the appointment letter and when it is appropriate to rearrange a visit. The seven days that we are suggesting is the minimum notice we would anticipate being given.
The hon. Member for Braintree made an entertaining speech. Being an eBay shopper myself, I encourage him to continue to defend the interests of eBay sellers, but on the detail of what he was asking for, it is appropriate that we deal with that in the guidance. I know that that is not a popular answer in Committee, but that sort of very close detail is better worked out through guidance and in discussion with the representative bodies, which will, no doubt, make their views clear when the guidance is published.
Amendment No. 222 modifies the rule on the amount of prior notice to be given to an occupier that an inspection of the business premises is to be made. Much has been made of this. We now know that our amendment has found a third way between the ways proposed by the Liberal Democrats and by the Conservatives. It is worth mentioning again that is no minimum notice period is set out in the existing VAT and PAYE legislation. It is considered that most businesses should have no difficulty in accommodating a visit within a week’s notice. If there are good business reasons for delaying it by another week, HMRC will of course listen to those representations.
As a public body, HMRC is required to act reasonably. It will not make a visit at a time when it is known to be particularly inconvenient. Normally, HMRC would telephone the taxpayer—we are back to the co-operative way of working that I am pleased to see HMRC developing. A phone call would be made in advance of a notice being issued, and that phone call would agree a convenient time and date for a visit. It is very unlikely that a notice would ever be issued out of the blue. Seven days is a minimum, partly chosen as it is the longest period which could be given without interfering with HMRC’s aim—the hon. Gentleman is right to say it was an administrative reason—to deal with repayments in 10 days. Since many visits are undertaken to verify a repayment claim, we did not feel it was right that the legislation should inhibit HMRC’s ability to meet its target.
I hope the Committee will welcome the fact that we have listened to representations made since the Bill was published. We have tabled a number of amendments.
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