Mr.
Gauke: When discussing schedule 36, we are trying to
balance, as always in such circumstances, the rights of individual
taxpayers and the efficacy of the system to enable HMRC to pursue
taxpayers who owe money. A key element in getting the balance right is
ensuring that we have the right appeals process in place and that an
appeals mechanism applies where it is needed. The group of amendments
that we are discussing relates to that
objective. The
hon. Member for South-East Cornwall set out the main issues, and there
is no need for me to repeat everything that he said. He made an
important point relating to paragraph 27(2), which proposes that the
right of appeal to the first-tier tribunal should
“not apply to a
requirement in a taxpayer notice to provide any information, or produce
any document, that forms part of the taxpayer’s statutory
records.”
The point about
statutory records is important. I should be grateful if the Minister
gave the Committee some detail on, if not a definition of,
“statutory records”, because that can be interpreted
broadly. I
have spoken to experts in this field who argue that, in particular
circumstances, a person’s diary could constitute a statutory
record, depending on the information that it contained. We are not
necessarily talking about a narrow definition, but we will listen
carefully to what the Minister says on that point. We are interested in
the reason why notices seeking such information should not be subject
to appeal. If that is a simple matter and such a provision could be
included—that is, a provision to the effect that no one has a
legitimate right or claim to say that such information should not be
presented to HMRC—presumably the first-tier tribunal should be
able to draw the necessary conclusions. We share the views of the
Liberal Democrats on that point. The Minister needs to explain why the
right of appeal should not be available, even if documentation
constitutes part of the statutory records. That argument relates to
amendments Nos. 259, 174 and
177. Amendment
No. 176, tabled by Liberal Democrat Members, makes a fair point, as
paragraph 28 gives a right of appeal against the third-party notice
only
“on the ground
that it would be unduly onerous to comply with the notice or
requirement.” There
might be other circumstances in which it would be right for the
first-tier tribunal to grant an appeal, but the wording is very
narrowly defined, and provides for a small exemption. I would be
grateful to know the Minister’s thoughts as to why it is
necessary to restrict that right of appeal to that narrow
ground. Amendment
No. 261 provides that the notice of appeal should go to the first-tier
tribunal, rather than to Revenue and Customs. It is largely an
administrative point, on which we would welcome the Minister’s
comments. Amendment No. 262 relates to paragraph 30(4), which
states: “Where
the First-tier Tribunal confirms or varies the information notice or a
requirement, the person to whom the information notice was given must
comply with the notice...within such period as is specified by the
Tribunal”. We
suggest a clarification of that measure. Our proposal is similar to
that which we made in a couple of debates this morning, because we
suggest there should be a minimum period of
“at least 30
days starting with the day after the notification of the decision to
the person to whom the information notice was
given”. That
would provide a degree of certainty, and ensure that there is a
reasonable amount of time for someone to comply with the tribunal
decision. Amendment
No. 292 deals with a slightly different point. Paragraph 32 deals with
the supply of goods or services as special cases, and makes particular
rules for such circumstances. Essentially, it deals with
MTIC—missing trader intra-community fraud—which is a
major issue that we have not debated a great deal in this Finance Bill
Committee, although it has been debated in previous years. It
represents a considerable threat to the Exchequer, and there is a case
for special rules to be made in relevant circumstances. However, to
provide a little more clarification and to ensure that paragraph 32
applies only in those circumstances, we suggest a specific reference to
statutory records for “VAT purposes”, to relate the
provision directly to MTIC fraud, and prevent the provision applying
more generally, which I do not think is the Government’s
intention. We await the Minister’s
comments. Jane
Kennedy: As has been described, these paragraphs in
schedule 36 set out the appeal rights for taxpayers against information
notices, and strike a balance between the need to give taxpayers the
right safeguards and the need for HMRC to be able to check and identify
where non-compliant taxpayers have underpaid tax. Amendments Nos. 174
to 177 and 259 would exclude the two circumstances in which there would
not be a right of appeal, and I shall seek to answer questions about
the reasons for those exemptions. However, before doing that, I shall
try to answer the questions raised by both hon. Gentlemen about what
constitutes statutory records.
The hon.
Member for South-East Cornwall suggested that bank or mortgage
statements might constitute statutory records. A bank statement could
be a statutory record if the bank account is used for the business or
for taxable transactions, but a mortgage statement would be unlikely to
be a statutory record. It could be requested as supplementary
information, but that would have to be via an information
notice. Statutory
records will also be defined in the record-keeping regulations, which
we have taken powers to lay in schedule 37, and in guidance. A diary,
as suggested by the hon. Member for South-West Hertfordshire, would be
a statutory record only if it were a business appointment diary, such
as a hairdresser might keep—a business close to both our hearts,
Sir Nicholas. That is a reasonable reason for a diary to be
requested. For
income tax, capital gains tax and corporation tax, the law says that
records must be kept in order to enable a complete and correct tax
return or a claim to be made. Those include records of receipts and
expenditure and sales or purchases of goods, where relevant; VAT
business and accounting records must also be kept, plus additional
records specified for certain purposes. It is reasonable to expect that
HMRC should be able to inspect such records, given that keeping them is
a statutory
requirement. A
right of appeal against a statutory right is inappropriate and would be
unworkable in practice. For example, what could the right of appeal be?
It would be exploited by the non-compliant to delay HMRC’s
compliance work. There are many examples of other statutory checks by
public sector bodies, professional and trade associations without a
direct right of appeal. Sometimes it is not appropriate to give a right
of appeal where other safeguards are in place, in order to prevent
unnecessary delays in the checking process, or where the appeal right
would be meaningless. Some taxpayers already exploit existing appeal
rights to delay legitimate checking, withdrawing their appeal at the
last
moment. I
propose that there will be no appeal where HMRC asks for statutory
records. If a taxpayer is required to keep the records, it is
reasonable that they should be asked to provide them and to show them
to HMRC. The concept of statutory records was introduced into the
legislation as a safeguard. It gives HMRC a right to see the basic
records that need to be kept in order to pay the right tax. Where it is
considered that more detailed
information is needed, an information notice will be required. We have
debated the safeguards that are being built in around
that. Where
there is doubt about whether something constitutes a statutory record,
the taxpayer can make representations to HMRC; and where there is
genuine doubt about the categorisation of the records, a penalty would
not be incurred at that point. If necessary an information notice can
be issued for those records, again with the safeguards around
information notices that I have alluded to. There will also be no
appeal where the appeal tribunal has already considered whether an
information notice is appropriate. That is something that we have done
in response to representations made by the British Bankers Association
during the consultation. Its concern has been to protect
taxpayers’ right to privacy.
That
pre-authorisation route may be used only where the tribunal considers
HMRC is justified in doing so. Previously, there was absolutely no
right of appeal against information requests when HMRC was checking
VAT, pay-as-you-earn or periods outside the self-assessment inquiry
regimes. Now, there will be appeal rights if HMRC asks for something
that a taxpayer is not required to keep by law. Although this schedule
retains the ability for HMRC to seek pre-authorisation by the tribunal,
it allows for an appeal right to be given against third-party
information notices where the taxpayer has consented to HMRC seeking
supplementary
information. Amendment
No. 261 seeks to provide that notice of an appeal should be given to
the tribunal rather than to HMRC. There is a very sound reason why that
should not happen. The provision that the notice of an appeal should be
given to HMRC replicates the existing legislation, but that is not the
reason why I believe it should remain. HMRC needs to be given notice of
an appeal by a taxpayer to make sure that further action is not taken
in seeking information and in order to prepare the necessary material
for HMRC to present its case at appeal. It may be that, on
consideration of the appeal, HMRC agrees that the information is not
required—that can happen—but imagine the frustration of
an individual who has lodged their appeal at the tribunal if HMRC
unknowingly continues to pursue them for the information it has
requested. This matter is also being considered as part of tribunal
reform. The Ministry of Justice is content with the formulation as it
stands. I hope that that description of what I anticipate happening has
allayed some of the anxieties
expressed. Amendment
No. 262 seeks to limit the tribunal’s power to vary the time
period within which a taxpayer must comply with an information notice
to 30 days or more. It is similar to amendment No. 249, which seeks to
do the same where HMRC sets a time period. The arguments for not
including the provision are the same, but even stronger. If a time
period of less than 30 days is set, it is because the independent
appeal tribunal considers that to be reasonable in the case being
considered. Amendment No. 292 would not achieve anything. If records
are statutory records for VAT purposes, they are still statutory
records. It is difficult to think of any document about the supply of
goods or services that would be a statutory record for some other tax
purpose without also being a statutory record for VAT purposes.
Although the main purpose of paragraph 32 is to enable goods to be
checked along a supply chain for
VAT purposes, the legislation is written without reference to specific
taxes as far as possible, as part of the alignment process. I hope I
have managed to address some of the concerns that have been expressed.
I know they were tabled as probing amendments, and I hope the hon.
Gentlemen will not press them to a
vote.
The
Chairman: I will call the hon. Member for South-West
Hertfordshire first because the hon. Member for South-East Cornwall has
the lead amendment, and he might take some decision towards the end of
his response to the Minister’s
reply. 5
pm
Mr.
Gauke: Thank you, Sir Nicholas. On amendment No. 292, I
note the Financial Secretary’s comment that she does not want to
specify within the Bill that the provision applies to a specific
tax—VAT—but I would be grateful for clarification as to
whether the provisions contained in the paragraph could or will be used
more broadly. We understand that the provision is there to tackle MTIC
fraud, so I question the reason for her reluctance to specify VAT
purposes and ask her to provide some clarification to the Committee on
that point.
I note the
right hon. Lady’s comments on various other amendments. I do not
intend to press them to a Division, as they were tabled to prove the
Government’s position. We are not entirely satisfied with the
position on appeal—that is a point we touched upon this morning.
I do not know whether the Financial Secretary wishes to intervene at
all with regard to paragraph
32.
Jane
Kennedy: It may help in the consideration that the hon.
Member for South-East Cornwall is undertaking. The hon. Member for
South-West Hertfordshire is right and it is a good question, in that it
has clarified the matter. MTIC fraud, which is commonly known as
carousel fraud and which in recent years presented a major risk to
revenue is the focus that we have in mind with this measure, but that
may change, so it is possible that it could be used for some other
purpose.
Mr.
Gauke: I am grateful for that intervention. The only other
comment that I wish to make is on statutory records and diaries. The
Financial Secretary said that the provision will be used only for an
appointments diary and gave the example of a hairdresser. She will be
aware that some people may be sensitive about an appointments diary
being in the hands of HMRC, because it may well contain appointments of
a more personal nature that they would not necessarily wish to be in
its hands. The concern cannot automatically be dismissed that there
could be something of a private nature that HMRC could retain in such
circumstances. That is why we have raised the lack of a right of appeal
with regard to statutory records. I do not wish to press any of the
amendments that I tabled to
Division.
Mr.
Breed: Some questions that we raised have been answered
satisfactorily, but I am not entirely sure that the fundamental issues
raised by Liberal Democrat amendments Nos. 174 and 177 have been
addressed. Our concerns are about statutory records and documents.
As it stands, if someone is required to maintain such records, it is not
unreasonable to expect them to have some idea of what they constitute.
Otherwise, the list could go on and on and almost anything could be
said to be a statutory document. The argument in favour of a right of
appeal therefore seems to be strengthened. If there were a clear list,
or at least some indication of what those documents were, the right of
appeal could be diluted. That is what the amendments are designed to
address. I can understand the Financial Secretary’s difficulty
in this area, but the right of appeal is an important principle for the
taxpayer in such
matters.
Jane
Kennedy: I am trying to be helpful. I said that
regulations laid at a later date would bring greater clarity. I
appreciate that that answer is often a frustration for hon. Members in
Public Bill Committee debates, but there is a clear intention to set
out greater detail at a later
date.
Mr.
Breed: I am grateful for that further clarification. I
accept that if the Financial Secretary says that in Committee, we can
rely on it. She might just about have saved the day. I want her to
realise that we believe that this is a very important principle. The
right of appeal is paramount when people are trying to defend
themselves against the things that are held against them on tax issues.
Those things could include all sorts of documentation that they do not
believe should be made available for scrutiny by HMRC and there are
issues of privacy in such cases. I hope that the Government recognise
that and will make proposals accordingly. On the basis of the Financial
Secretary’s promises, I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn.
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