Finance Bill

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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.
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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