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 My
second theme from the comments of the Joint Committee on Human Rights
on invasive powers is the need for notice. I am not at all reassured by
Government
amendment No. 222, which seemingly gives with one hand while snatching
away with the other. On the face of it, the occupier of the premises is
promised a visit at a reasonable time by prior agreement with at least
seven days notice. However, the notes to the amendment give cold
comfort: “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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