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 regime’s 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
Secretary’s 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
process. However, I note the Financial Secretary’s remarks and I
beg to ask leave to withdraw the
amendment. 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withdrawn.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
Minister has to say about the Government’s amendments, and to
testing whether they satisfactorily address the real and understandable
concerns that exist about how company officers may be
pursued. 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 director—for 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
company’s 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
Secretary’s 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. 10
am
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 director—although I hope that interest
will never be relevant.
The
Chairman: We are grateful for that
declaration.
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 schedule—schedule 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?
Stephen
Hesford: Yes, Sir
Nicholas.
The
Chairman: I am
grateful. Amendment
agreed
to. Schedule
40, as amended, agreed
to. Clause 118
ordered to stand part of the
Bill.
Schedule
41Penalties:
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— ‘Suspension 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.’.
The
Chairman: I call David Gauke
again.
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
Group—there 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 LITRG—an
organisation that has considerable experience in the sector—is
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
taxpayer has merely been careless, they should be encouraged to comply
with the rules in future. The schedule 24 position can be distinguished
from what we are talking about because HMRC argues that suspension is
about curing systemic failures, to which schedule 24 relates, and it
could be argued that a failure to notify is a one-off failure rather
than a systemic problem, so suspension is not appropriate. To some
extent, I am anticipating the argument that the Financial Secretary
might make, but we point out that if the Government’s aim is to
get people to comply and to keep complying, it would fit well into the
framework to have a two-year suspension of penalties for careless
failure to notify, on the condition that accurate tax returns were
submitted on time in that period. 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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