Mr. Bone: I am thinking of a situation where the taxpayer does make a correction, so the tax is then right; however, there is not the incentive to tell the Revenue because penalties might be imposed. Before, they knew that if they told the Revenue, there would not be any penalties.
Jane Kennedy: If it was later discovered that there was an error, their not telling HMRC about an error that they have found would risk a penalty of up to 30 per cent. of the tax understated. HMRC believes that that is the incentive to the taxpayer. As I have explained, the vast majority of errors are not careless or deliberate, and the vast majority of VAT payers do pay correctly and on time, but this amendment, if enacted, would displace the balance that HMRC is confident it has achieved. VAT errors identified by the taxpayer of as much as £50,000 would become virtually exempt from penalty, regardless of the underlying behaviour, which would seriously undermine the regimes integrity. That would be unfair to the wider taxpaying population and would seriously undermine the objective of the penalty regime to encourage people to take care with their tax. It is also important to remember that the new penalty regime will apply to all taxes and duties. That will enable clear deterrent messages to be sent and it will help to ensure a fair and consistent approach to errors. However, it means that we need to think very carefully before creating or expanding special rules for particular taxes or groups.
I hope that I have explained the purpose behind the schedule and responded to the concerns expressed when the amendment was moved.
Mr. Gauke: Again, we are grateful for the Financial Secretarys remarks. However, as I said earlier, there is an intention here regarding what the Government are trying to do on raising the de minimis notification requirements and the tax penalty regime, and I am not sure that that has been satisfactorily considered in this
Amendment, by leave, withdrawn.
Amendment proposed: No. 241, in schedule 40, page 395, line 23, at end insert
15A (1) Paragraph 19 (companies: officers liability) is amended as follows.
(2) In sub-paragraph (1), for the words from of the company to as they substitute of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC.
(3) For sub-paragraph (5) substitute
(5) Where HMRC have specified a portion of a penalty in a notice given to an officer under sub-paragraph (1)
(a) paragraph 11 applies to the specified portion as to a penalty,
(b) the officer must pay the specified portion before the end of the period of 30 days beginning with the day on which the notice is given,
(c) paragraph 13(2), (3) and (5) apply as if the notice were an assessment of a penalty,
(d) a further notice may be given in respect of a portion of any additional amount assessed in a supplementary assessment in respect of the penalty under paragraph 13(6),
(e) paragraphs 15(1) and (2), 16 and 17(1) to (3) and (6) apply as if HMRC had decided that a penalty of the amount of the specified portion is payable by the officer, and
(f) paragraph 21 applies as if the officer were liable to a penalty..[Jane Kennedy.]
The Chairman: With this, it will be convenient to discuss the following: Government amendment No. 242.
Amendment No. 308, in schedule 41, page 407, line 37, at end insert
and in pursuing the officer, HMRC shall have regard to the proportion of the penalty that in all the circumstances is just and reasonable to allocate to the officer..
Government amendment No. 243.
Mr. Gauke: This group of amendments relates to the liability of company officers. A number of concerns have been expressed with regard to the original proposals in the Bill. In broad terms, they are: that company officers may be unduly liable; that they may be seen to be an easy target for HMRC; that the proportion of the penalty levied against an individual officer, as opposed to the company, might be unnecessarily and inappropriately high; and that more than the correct amount could be obtained by penalties both to officers and to the company itself.
The thinking behind amendment No. 308 is that in pursuing an officer, HMRC should have regard to the proportion of the penalty that, in all circumstances, is just and reasonable to allocate to the officer. On the face of it, it is difficult to argue against that and I am sure that the Minister will assure us that HMRC will not be seeking to pursue an officer for more than what is just and reasonable to allocate to the officer.
The Government have also tabled amendments on this issue, which to some extent seek to address the concerns of the various bodies that scrutinise these matters closely. We look forward to hearing what the
Jane Kennedy: The Government amendments are largely technical and I will come to the issue that they address in a moment.
Before a penalty can be pursued from an officer of a company, who is usually a director, HMRC has to demonstrate that the inaccuracy was deliberate and was caused, at least in part, by the director. It is right that HMRC officers should take into account all the circumstances and that they should act reasonably when deciding how much of the penalty should be collected from the officer. However, it is neither necessary nor desirable to specify that in legislation, as suggested. To do so in the Bill, but not in relation to other matters where HMRC makes decisions about penalties, would be inconsistent and would perhaps call into doubt the basis on which other decisions should be made.
As we have debated many times while considering these powers, HMRC officers are required to act reasonably at all times. A number of different factors should be taken into account when deciding the penalty to be paid by the directorfor example, how many directors were involved, and the extent of personal gain by each. The provision will also be helpful in combating cases where a company deliberately becomes insolvent and transfers its activity to a new company in order to evade tax liabilities. It may be a surprise to the Committee, but there are occasions when that happens.
On Government amendment No. 241, if there is a deliberate inaccuracy in a companys return that is attributable to an officer of that company, HMRC may pursue all or part of the penalty from that officer. As a result of further scrutiny by HMRC, it has come to light that the way in which the measure is drafted means that there is a risk that HMRC will not be able to assess such a penalty from the officer, and that the officer would not be able to appeal against a penalty. It is regrettable that that was not identified or addressed sooner, but it is important that it be put right before such penalties can be charged, from 1 April 2009. That is the purpose of our amendments.
I hope that I have addressed the points that the hon. Member for South-West Hertfordshire made, and I will happily listen what he has to say.
Mr. Gauke: Again, we are grateful for the Financial Secretarys comments and, in the circumstances, I beg to ask leave to withdraw the amendment.
The Chairman: The hon. Gentleman does not need to ask for leave to withdraw the amendment because it is not the lead amendment.
Mr. Gauke: I should say one other thing. While we were debating the measure, I perhaps should have declared an interest because I am a company directoralthough I hope that interest will never be relevant.
Stephen Hesford (Wirral, West) (Lab): On a point of order, Sir Nicholas, on the amendment paper, the amendments that we are discussing are listed as dealing with a different scheduleschedule 41 instead of schedule 40.
The Chairman: May I respond to that point of order in a straightforward way? It is quite often the case that amendments relating to another schedule or clause can be grouped with an amendment relating to an earlier schedule. Will the amendments be put formally by the Minister when we reach schedule 41? They will. However, we will have discussed them under an earlier schedule. Does the Chairman make himself clear?
Amendment agreed to.
Schedule 40, as amended, agreed to.
Clause 118 ordered to stand part of the Bill.
Penalties: failure to notify and certain vat and excise wrongdoing
Mr. Gauke: I beg to move amendment No. 303, in schedule 41, page 404, line 32, after failure,, insert
or (if later) within one month after the time when the person first becomes aware of the failure,.
The Chairman: With this it will be convenient to discuss amendment No. 304, in schedule 41, page 406, line 11, at end insert
16A (1) HMRC may suspend all or part of a penalty under paragraph 1 for an act or failure that is neither deliberate nor concealed by notice in writing to P.
(2) A notice must specify
(a) what part of the penalty is to be suspended;
(b) a period of suspension not exceeding two years; and
(c) conditions of suspension to be complied with by P.
(3) HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under
(a) paragraph 1 for any act or failure that is neither deliberate nor concealed; or
(b) paragraph 1 of Schedule 24 to the Finance Act 2007 for careless inaccuracy.
(4) A condition of suspension may specify
(a) action to be taken, and
(b) a period within which it must be taken.
(5) On the expiry of the period of suspension
(a) if P satisfies HMRC that the conditions of suspension have been complied with, the suspended penalty or part is cancelled, and
(b) otherwise, the suspended penalty or part becomes payable.
(6) If, during the period of suspension of all or part of a penalty under paragraph 1, P becomes liable for any other penalty, the suspended penalty or part becomes payable..
Mr. Gauke: Thank you, Sir Nicholas, again. [Laughter.] May I say how pleased I am to learn that Government Back Benchers are paying such close attention and I shall see what I can do about it.
Amendment Nos. 303 and 304 relate to penalties for non-deliberate failure to notify. It might be worth making a general point about the policy because in their approach to enforcement and penalties the Government will want people to come back into the system. When people have erred and particularly where they have not deliberately erred but found that through some mistake they are in breach of the tax law and regulations, the Government will rightly want to ensure that they comply in future. The system has its deterrents and its punishments but the desire rightly must be to ensure that those taxpayers comply in future and that they regularise their arrangements. With regard to both of these amendments we must bear in mind whether the Government has quite got the balance right. That is the point that we are testing.
On amendment No. 303, in the proposals for late notification penalties, the penalty chargeable to a person whose failure to notify is not deliberate will normally be 30 per cent. of the potential lost revenue but can be reduced for an unprompted disclosure. The reduction will normally be to 10 per cent. of the potential lost revenue but can be greater, even to nil per cent. if HMRC is told about the failure within 12 months. This point is made by the Low Incomes Tax Reform Groupthere are many unrepresented taxpayers who simply do not know that they need to notify HMRC of something and their non-culpable failure can go undetected for many years. When eventually they find out and notify HMRC, compliance officers have hitherto been empowered to agree a nil penalty. The LITRG says, however, that that will no longer be the case under these proposals. Consequently, the purpose of amendment No. 303 is to enable a reduced or nil penalty to be charged where HMRC is first told of the failure within 12 months of it occurring or within 12 months of the taxpayer first becoming aware of it, whichever is later.
There is a precedent for that within the tax credits system where a claimant is obliged to notify HMRC of a change of circumstances within one month of the change or one month of the claimant first becoming aware of it. Under the penalties proposals in schedule 41, there is scope for a nil penalty in special circumstances where the taxpayer has a reasonable excuse for not informing HMRC. However, the view of the LITRGan organisation that has considerable experience in the sectoris that trying to persuade HMRC that the unrepresented taxpayer has a reasonable excuse is often a hopeless task. The amendment would therefore give greater certainty to the taxpayer and preserve the status quo.
Amendment No. 304 introduces a suspension regime in the context of these non-deliberate failures to notify. A key feature of the new penalty regime as a whole is the provision of penalties for failure to notify as a result of carelessness. We suggest that such penalties could be suspended for up to two years, because if a
Such a requirement would be as measurable as any other criterion used for suspension and would give exactly the incentive that HMRC seeks to get taxpayers to operate properly. Without it, the incentive is for taxpayers to stay outside the system in the black economy. That is the thinking behind both of our amendments. The Low Incomes Tax Reform Group and the Chartered Institute of Taxation have made sensible representations to us on the issue, and we would be grateful if the Government closely considered the proposals.
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