Jane
Kennedy: As my hon. Friend the Member for Telford is
proposing an expedition next Wednesday evening, if time will permit, to
a Twenty20 game, I am not so
dismissive.
Mr.
Gauke: I wish to clarify that I am not anti-Twenty20
cricket, but test cricket is none the less the greater form. I think
that my diary is free for that
evening.
The
Chairman: The intervention had something to do with
numbers so I will allow it.
[Interruption.]
Jane
Kennedy: My hon. Friend the Exchequer Secretary says that
it is all my fault for accepting the amendment earlier this week. With
regard to the point about the phrase, “some time later”,
what was said sounds reasonable, and it is important that I respond to
it thoughtfully. The
legislation makes it clear that after six years a careless inaccuracy
cannot be corrected, so the taxpayer knows that he or she need not
inform HMRC. The Bill replicates the definition used for penalties for
incorrect returns in the Finance Act 2007: a taxpayer should take
reasonable steps to tell HMRC if he or she finds an error in
information given to HMRC. Both the amendments seek to restrict the
time available to taxpayers to do so, which would mean that HMRC would
not be told of certain errors that led to the underpayment of tax. It
would also mean that the definition for a careless loss of tax would no
longer be aligned with that used for penalties, which would be
confusing for taxpayers. The onus would be on HMRC to demonstrate
careless or deliberate behaviour, for both penalty purposes and the
assessment of time limits. That definition of a careless loss of tax
does not create any new obligation to notify HMRC beyond that which
already exists. Instead, it clarifies the situation as a careless loss
of tax. The alignment of time limits, as I said earlier, was welcomed,
because overall, the changes in time limits give taxpayers certainty
earlier. However, giving that certainty to those who know there are
inaccuracies in their returns but choose not to tell HMRC, does not
meet the objective of ensuring that taxpayers pay the right amount of
tax at the right time.
The hon. Member for
Taunton spoke on amendment No. 195, which would mean that the schedule
applied only to claims made on or after 6 April 2009. In the Budget
note accompanying the changes, we said that the new time limits would
not be introduced in full until 1 April 2010 following extensive
publicity, as I have described. That will ensure that taxpayers have
sufficient time to make any necessary claims or preparations. As a
result, the amendment is not necessary. I hope that all three
amendments were tabled in a probing spirit, and that I have reassured
the Committee about the concerns that have been
raised.
Mr.
Browne: I will spare you my views on all the different
forms of cricket, Sir Nicholas, and just say that I beg to ask leave to
withdraw the
amendment. Amendment,
by leave, withdrawn.
Amendments made: No.
236, in schedule 39, page 386, line 21, after
‘500(4)’, insert ‘and
(9)’. No. 237,
in
schedule 39, page 386, line 31, at
end insert— ‘FA
199126A In section 65(6) of FA 1991 (additional assessment to
corporation tax on receipt of reimbursement expenditure), for
“six years” substitute “4
years”.’. No.
238, in
schedule 39, page 389, line 34, at
end insert— ‘51A
In section 840A(1) (claims for relief for backdated pensions charged on
arising basis) (inserted by Schedule 7 to this Act), for “on or
before the fifth anniversary of the normal self-assessment filing date
for” substitute “not more than 4 years after the end
of”.’.—[Jane
Kennedy.] Question
proposed, That the schedule, as amended, be the Thirty-ninth
schedule to the Bill.
Mr.
Gauke: It will be a short stand part debate. I have one
question, which I could have addressed on amendments Nos. 298 and 299
but it was not directly related to that group. It involves returning to
paragraph 9 of schedule 39, which concerns the extended time periods
that may be available for HMRC assessment. Under new subsection (1B),
the circumstances include those where the loss has been brought about
by another person as opposed to the taxpayer—that is, a
third party or an adviser. Concerns have been raised about that, given
that the taxpayer may be entirely innocent and not complicit in any
way. I have not proposed an amendment and I do not advocate deleting
the new subsection, but could the Minister briefly inform the Committee
of the thinking behind it? Does she have any concerns that taxpayers
may be treated unfairly as a consequence of
it?
Jane
Kennedy: I do not, but it is always helpful to give the
issue some thought. The tax assessment can be made only to require a
taxpayer to pay the tax that they should have paid in the first place
and that other taxpayers have had to pay. That is a basic obligation,
it is not a penalty. It would not be fair on other taxpayers if the tax
remain unpaid. The purpose of the extended time limits is to give HMRC
more time to identify and to quantify loss of tax where necessary. It
has long been that case that time limits are extended where a person
acting on behalf of the taxpayer is negligent. Where that happens,
there is recognition that the taxpayer ought not to be penalised
unfairly. The schedule reduces the time limit in those circumstances
from 20 years to six
years. During the
debate, I set out the purpose of the schedule, which is to align the
time limits. That alignment has been warmly welcomed. Representative
bodies have described harmonised time limits as reasonable, sensible
and logical. I hope that the hon. Gentleman will accept that, given the
approach that HMRC will develop with the new arrangements, there will
be a willingness to recognise where such an event has occurred and, as
I have said, to work in co-operation with taxpayers who are seeking to
be compliant.
Question put and agreed
to. Schedule
39, as amended, ordered to stand part of the
Bill.
Clause
114Correction
and amendment of tax
returns Amendment
made: No. 239, in
clause 114, page 71, line 39, at
end insert— ‘( ) In
paragraph 61(1)(a) and (3)(a) (consequential claims etc), for
“34(2)(b)” substitute
“34(2A)”. ( ) In
paragraph 88 (conclusiveness of amounts stated in
return)— (a) in
sub-paragraph (3)(b), omit the words from “and” to the
end, (b) in sub-paragraph
(3)(c), for “34(2)” substitute
“34”, (c) in
sub-paragraph (4)(b), for “the end of the period specified in
paragraph 34(1)” substitute “the completion of the
enquiry”, and (d) in
sub-paragraph (4)(c), for “34(2)” substitute
“34”. ( ) In
paragraph 93(1)(b) (general jurisdiction of Special or General
Commissioners), for “34(2)” substitute
“34”. ( ) In the
following provisions, for “34(2)” substitute
“34”— (a)
in TMA 1970— (i) section
46B(2)(aa) (questions to be determined by Special
Commissioners), (ii) section
46C(2)(b) (jurisdiction of Special Commissioners over certain claims
included in returns),
(iii) section 46D(2)(aa) (questions to be determined
by Land Tribunal), and (iv)
section 55(1)(a)(ii) (recovery of tax not postponed),
and (b) in ICTA, section
754(2E) (assessment, recovery and postponement of
tax).’.—[Jane
Kennedy] Clause
114, as amended, ordered to stand part of the
Bill. Clauses
115 and 116 ordered to stand part of the
Bill.
Schedule
40Penalties:
amendments of Schedule 24 to FA
200740
Jane
Kennedy: It has been my practice to move Government
amendments formally in the event that we might have a debate and I can
hear the concerns of the Committee and respond appropriately.
Amendment
proposed: No. 240, in
schedule 40, page 393, line 17, after
‘T’, insert ‘deliberately’.
.—[Jane
Kennedy]
The
Chairman: With this it will be convenient to discuss
amendment No. 301, in
schedule 40, page 393, line 17, after
‘T’, insert
‘knowingly’.
Mr.
Gauke: We are so enthusiastic about this amendment that we
have even tabled one that is very similar; it refers to
“knowingly”, rather than “deliberately”. A
number of representations from professional bodies have suggested that
this was appropriate. We are delighted that the Government are thinking
along the same lines. I do not think that there is any need for me to
say anything more.
The
Chairman: Does the Minister wish to speak? If she does, I
am happy to call
her.
Jane
Kennedy: I have only one thing to say, which is that the
reference to “after ‘T’” took me back to
cricket. Amendment
agreed
to. 9.45
am
Mr.
Gauke: I beg to move amendment No. 302, in
schedule 40, page 394, line 16, at
end insert— ‘(A2) For this
purpose a person shall be deemed to have disclosed an inaccuracy if he
corrects the inaccuracy in accordance with regulation 34(3) of the
Value Added Tax Regulations 1995 provided that if requested to do so he
subsequently gave HMRC the help and access referred to in sub-paragraph
(1)’. Again,
this is a rather technical amendment. We have tabled it as a
consequence of representations made by the Institute of Chartered
Accountants. It relates to disclosure of VAT errors. The ICA is
concerned that amendments to the Finance Act 2007 provisions in
paragraph 9 essentially mean that a deregulatory provision will prove
ineffective. The Government have decided to increase the VAT de minimis
limit for mandatory disclosure of VAT errors under regulation 34(3) of
the Value Added Tax Regulations 1995 from £2,000 to
£10,000, which is a welcome deregulatory
measure. The concern is that the revised penalty rules will deter most
taxpayers from taking advantage of this
deregulation. The
reason for that is that paragraph 9 largely negates this provision
because it grants reduction in penalties for disclosure of an
underassessment subject to the taxpayer meeting certain conditions.
Where a person seeks to take advantage of the Government’s
deregulatory relaxation, he cannot benefit from the reduction in
paragraph 9, as the correction will not meet the conditions in
sub-paragraph (1). This effectively means that it will be dangerous for
a taxpayer to correct an error on a subsequent tax return unless he
also makes a separate disclosure of the inaccuracy to HMRC, as a
taxpayer has no way of knowing when he discovers an error whether HMRC
might consider the error as one arising due to failure to take
reasonable
care. The
effect of the Government’s deregulatory intention in increasing
the de minimis limit will, in the view of the ICA, impose a greater
rather then lesser burden on business, as the business in question will
have to make two notifications instead of one. It is unlikely that the
Government intended that this deregulatory measure should deny
taxpayers the benefit of paragraph 9, and the amendment would give the
taxpayer that benefit provided that he meets the appropriate conditions
in response to a later request for information by HMRC. As I said, this
is a technical amendment. We hope that it is consistent with the
Government’s intention of reducing the burden on reporting VAT
errors. As the drafting stands there appears to be a concern, which we
hope the amendment will enable the Government to
address.
Jane
Kennedy: The hon. Gentleman is right in saying that
overall, schedule 40 has been welcomed as a measure reducing
administrative burdens on business. He is also right to say that there
has been concern about how the error-correction procedure will interact
with the new penalties for incorrect returns. In the past, so-called
VAT voluntary disclosures have been guaranteed not to attract a
penalty. Under the new regime, most will still escape a penalty, but
this will no longer be guaranteed. Instead, whether a penalty is due
will depend on whether that error was careless or deliberate and on the
quality of the taxpayer’s disclosure. The change is being made
because the guaranteed escape from penalty was undermining the key
message that taxpayers should declare the right tax at the right time.
HMRC have been working closely with VAT experts from industry and
representative bodies to develop clear policy and guidance in this
sensitive
area. The
majority of errors identified by taxpayers for correction are neither
careless nor deliberate, so penalties will not be an issue. Where a
taxpayer is unsure whether they have taken reasonable care with their
tax affairs, they should notify any resulting errors to HMRC separately
even if they are below the de minimis limit. In this way they can make
a full unprompted disclosure, reducing the penalty to nil. This is
because the special arrangements for correcting smaller errors are not
necessarily visible to HMRC. The onus is on HMRC to determine whether
reasonable care has been taken in an individual case, and they cannot
do that unless they are aware of the
facts. In considering the interaction between the new penalties and the
VAT error correction procedure, HMRC have tried to balance reducing
administrative burdens on businesses with encouraging taxpayers to
declare the right tax at the right time. It is quite proper that we
have a debate as to whether that balance is
right. Mr.
Bone: In reality, if a business person discovers that they
have made a VAT error and correct it—as does happen—under
the new rules there is no incentive to tell the Revenue. Telling the
Revenue might attract penalties that one would attract anyway if the
error were discovered, so the provision is actually a disincentive to
declare the error
voluntarily.
Jane
Kennedy: I do not think that most compliant taxpayers
would see it in that way. The hon. Gentleman’s experience has
been very valuable in Committee and I acknowledge that he has
experience of precisely these matters. However, HMRC, in consultation
with VAT experts and business, believe that the balance is right in
terms of encouraging the taxpayer to be compliant, to get the tax right
and therefore to report
errors.
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