The Commissioners may not use the power under section 125 to set that post-insolvency credit against a pre-insolvency debit
and I would be grateful for an explanation as to why the word is that, as opposed to a so that it would be a case of post-insolvency credit.
Amendment No. 288 is a consequence of representations received from the Institute of Chartered Accountants, which expresses its concern that by specifically excluding from set-off in this clause
post-insolvency credits against pre-insolvency debits, the rules are implicitly, (or perhaps even explicitly) allowing the set-off of pre-insolvency credits against post-insolvency debits.
It makes the point that
while this may not be particularly important in many corporate insolvencies, there will be many cases (and all cases of personal insolvency) where such a set-off would be detrimental to the creditors generally.
In its words, this would
fly in the face of all the basic principles of insolvency.
Therefore, I would be grateful if the Minister would explain the wording of clause 126(2).
Jane Kennedy: Clause 126 offers a safeguard. Without it, HMRCs discretionary right of set-off under clause 125 would take priority over set-off in insolvency, whereas it is not the intention to disturb the normal insolvency rules. It also provides that the earliest of a series of insolvency procedures brings that safeguard into operation. However, the routes into and out of insolvency are many and varied, and setting out all the circumstances that might apply would result in inordinately lengthy legislation to address seldom-met cases. The two amendments together would prevent HMRC setting-off a pre-insolvency credit against a post-insolvency debt.
The amendments are technically deficient, but I understand why they have been tabled and am grateful for the opportunity to clarify further. This is not a situation that HMRC often comes across in practice. The power in clause 125 is discretionary, not mandatory. It is hard to think of circumstances where HMRC would want to apply it in the way that the amendment envisages. HMRC does not seek to set pre-insolvency credits against post-insolvency debts under the current legislationschedule 81 of the Value Added Tax Act 1994. If such a credit arose, HMRC would expect to pay it to the insolvents estate for the benefit of all creditors. HMRC will continually review its guidance to ensure that commonly met circumstances are fully addressed. The amendments would not be of benefit to the Bill.
Mr. Field: Will the Financial Secretary therefore explain the purpose of clause 126, if set-off is almost inconceivable in an insolvency situation? What is the purpose of the clause, other than to codify what is already the case, unless a new regime has come about, for example as a result of the change in insolvency law under the Enterprise Act 2002?
Jane Kennedy: Clause 125 broadens HMRCs set-off abilities. Clause 126 limits those abilities in particular circumstances, and makes it clear that the powers in clause 125, to set-off sums payable to a taxpayer against an amount owed to HMRC by that same taxpayer, limit those sums where there is insolvency. So, the purpose of clause 126 is to underscore the current position. HMRC applies set-off in insolvency cases according to legislation laid down elsewhere. We do not seek to disturb the principles that underpin those rules, but tax legislation is inconsistent and does not align precisely with insolvency legislation. This clause makes that alignment. I hope that that makes it clear that we have not included the clause for no good purpose. It serves a useful purpose, and will be welcomed. Clearly the guidance that will help practitioners to manage the legislation will seek to give the clarity that perhaps is not immediately obvious to the hon. Member for South-West Hertfordshire.
Mr. Gauke: This is a highly technical area, and I have no doubt that those with greater expertise than I will look at it. [Interruption.] I have a feeling that a message is being sent that there is something wrong.
David Wright (Telford) (Lab): A message from the right hon. Member for Haltemprice and Howden (David Davis).
Mr. Gauke: My hon. Friend is proving to have expertise on the way that the Whips work. I think that we should move on.
I have no doubt that experts in this area will look closely at what the Financial Secretary has said, and I hope that she will listen to representations that arise as a consequence of our exchange. A legitimate issue has been raised, but I do not intend to press the amendment to a Division. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Chairman: I am sure that the Committee will continue, despite the modest noise being created by a light bulb that is about to explode.
Clause 126 ordered to stand part of the Bill.
Clauses 127 to 129 ordered to stand part of the Bill.
Fee for payment
Mr. Browne: I beg to move amendment No. 199, in clause 130, page 83, line 1, leave out from section to end of line 2 and add
may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons..
The Chairman: The doorkeeper is trying to isolate the bulb, but I am sure that the Committees wish is that we continue while that goes on. I call Mr. Jeremy Browne, who is used to interruptions.
Mr. Browne: I am indeed used to interruptions, but let there be light, at least for the remainder of our proceedings.
The amendment is not hugely significant in the grand scheme of things, but it addresses precisely the type of smaller concern that often leads people to feel, when dealing with the state in many of its forms, that the powers of the authorities are unfairly weighed against those of the individual citizen. It provides for positive resolution when determining fee levels under clause 130. It would be helpful to explain to the Committee why my hon. Friends and I feel that that is an appropriate way forward. Subsection (1) allows HMRC to make regulations to charge a fee for payment by specified methods of a persons financial obligations to HMRC. HMRC commissioners will be allowed to do that only when they expect that they will have to pay a fee or charge in connection with the payment they are receiving.
Therefore, in anticipation of additional transitional costs associated with the payment by the taxpayer, HMRC will be able to levy a charge to compensate itself financially for that payment, even if there is only an expectation that it will have to meet that payment in the future. Any regulations will be made under a statutory
The explanatory notes state that credit cards are thought likely to become the first specified method of payment, but I understand that currently HMRC does not generally accept credit card payments. I have tabled the amendment because there is a specific issue to discuss. It enables greater discussion about the wide-ranging impact of the clause and specifically seeks reassurance from the Minister on how HMRC will address a number of questions.
I have three questions in particular. First, is legislation necessary for that to occur? As I understand it, HMRC can decide to use credit card payments or any other method for procuring the money owed to it by the taxpayer without Parliament having to give it those powers through legislation. Secondly, what kinds of payment does HMRC envisage extending those powers to? Under the provisions of the clause as drafted, HMRC will be able to levy charges in anticipation of those costs being incurred later in proceedings. Does that mean that charges for handling cheques or bank charges could be passed on to the taxpayer as part of the procurement of their tax liability?
Finally, when HMRC takes money from taxpayers in anticipation of future charges, does it expect to reimburse them if the charges are not as great as it anticipated or if no charges arise? It is possible that HMRC will be unduly pessimistic in assuming that charges will have to be levied.
These matters are not hugely significant in the grand scheme of things. We are almost certainly talking about rather modest sums of money, but these sorts of issues provide symbolic demonstrations of HMRC holding powers over taxpayers that they might regard as unreasonable. That is particularly true if taxpayers have to deal with long, drawn-out processes with HMRC in which they feel somewhat embattled. That is what I am trying to get at with the amendment and in debating clause 130 more widely.
The Chairman: It is perhaps appropriate to suspend the sitting for five to 10 minutes so that the maintenance department can remove the offending bulb. I congratulate the hon. Member for Taunton on his tolerance and thank him for undertaking his speech with the background noise. The suspension will allow us to get back to normal and will also enable hon. Members to discuss the news that has broken while we have been deliberating this sensible Bill. [Interruption.] We will suspend until 2.15 pm.
The Chairman: We will begin our deliberations again although, unfortunately, we are still plagued by this noise. The maintenance department has failed to provide the standard of attention that I would have expected. Could Members who contribute to the debate raise their voices, as I am doing now, so that we can continue to make progress? I should like to make good progress
The normal protocol for tax is to use negative resolution for regulations that deal with routine administrative matters. Affirmative resolution is usually reserved for more contentious matters. The Committee has seen a draft of the regulations to be made under clause 130. They specify that the payment method will be the use of a credit card and then set the amount of the fee that HMRC will charge.
The hon. Member for Taunton asked whether other methods beside credit cards were being considered. HMRC will be able to pass on the fee for a specified payment method only when it expects to be charged a fee for the transaction. That is not the case for the normal cost of payment processing. Any payment method must be specified in regulations approved by Parliament. Draft regulations to pay a fee in connection with the amounts paid by using a credit card have been published, but there are currently no plans to pass on any charges other than credit cards.
New ways of paying continually arise and it makes sense to future-proof the legislation. [Interruption.]
Jane Kennedy: Legislation supports a range of payment methods, but HMRC cannot accept payment by credit card other than in limited circumstances such as at ports and airports. Early consultation by HMRC has shown that many small businesses use credit cards to manage their short-term cash flow and taxpayers regularly ask HMRC whether they can pay by credit card. Clause 130, therefore, provides for HMRC to receive payment and then to make regulations to charge a fee for payment made by such methods.
I was asked whether the taxpayer will have to bear the cost of paying by credit card. Only those taxpayers who choose to pay in this way will bear the cost of the transaction, rather than the cost falling on all taxpayers. The hon. Gentleman asked a series of questions, one of which involved the refund of transaction fees. Where either HMRC or the payer makes a mistake, which is immediately corrected, both tax and transaction fees will be refunded through the card to the card holder. For mistakes by the taxpayer that are picked up later, or a change in taxpayers circumstances giving rise to a reduced liability, the fee is not refundable. This is as advised at the time of payment, so repayment will be made to the taxpayer through whatever repayment channel is appropriate as happens now. For HMRC error, where it is decided to refund the transaction fees, the refund will be paid out of HMRCs redress budget through whatever repayment channel is appropriate.
The hon. Gentleman asked the very sensible question whether legislation is needed at all. The answer is that, because of the functions laid down in the Commissioners for Revenue and Customs Act 2005, collecting these
Mr. Browne: It is always flattering to be described as very sensible by the Financial Secretary. That is not the only reason, however, why I will seek your leave to withdraw my amendment because she also engaged with many of the points that have been raised and provided some reassurance for taxpayers. On that basis, I beg to ask sleave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 130 ordered to stand part of the Bill.
Clause 131 ordered to stand part of the Bill.
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