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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 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Amendment, by leave, withdrawn.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 114

Correction 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),
Clause 114, as amended, ordered to stand part of the Bill.
Clauses 115 and 116 ordered to stand part of the Bill.

Schedule 40

Penalties: 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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