Finance Bill

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Clause 132

Certificates of Debt
Mr. Gauke: I beg to move amendment No. 289, in clause 132, page 83, line 36, at end insert
‘in the absence of evidence to the contrary’.
The Chairman: With this it will be convenient to discuss amendment No. 290, in clause 132, page 83, line 38, leave out from ‘enactment’ to end of line 39.
Mr. Gauke: I shall also try to keep the volume up in order to deal with the background noise. I venture to suggest that this may not be the first occasion during these proceedings when the events in this Committee Room are somewhat above the heads of Members of the Committee, but I have two points to make with regard to certificates of debt. First, proposed new section 25A to the CRCA in clause 132 states:
“A certificate of an officer of Revenue and Customs that, to the best of that officer’s knowledge and belief, a relevant sum has not been paid is sufficient evidence that the sum mentioned in the certificate is unpaid.”
We see no reason why that should not be rebuttable. We therefore suggest that we add to the clause the words:
“in the absence of evidence to the contrary”.
If there is evidence to the contrary, it is common sense that such a certificate should not be sufficient evidence.
Amendment No. 290 relates to concerns about this provision that were raised by the Institute of Chartered Accountants throughout the consultation process. The proposal will
“extend HMRC’s right to proceed against goods to amounts due under a contract settlement. There is no such right under current law and HMRC has not indicated why it believes that powers which apply to tax should be extended to purely civil debts.”
We look forward to the Financial Secretary providing that justification.
The ICAEW goes on to say:
“We believe that HMRC ought to rely on contract law to enforce contracts in the same way as other parties to a contract”.
There is also a technical point that the redefinition of a contract settlement could give rise to certain arguments. An example given by the ICAEW is that
“a taxpayer sometimes includes in an offer liabilities that are out of time for assessment and we doubt that such an amount can be said to be ‘in connection with any person’s liabilities’. An offer is also sometimes made as a pragmatic way to resolve a dispute albeit that the taxpayer does not believe that any tax is due. We also doubt that such an offer is in connection with a liability. We do not think that taking goods is an appropriate remedy where there is a possibility of a dispute.”
We would be grateful for clarification from the Financial Secretary on why contract settlements should be included in the clause. Does she recognise any difficulties with the definition? Perhaps she could identify how the definition will work in the examples that I have given.
Jane Kennedy: The clause defines a relevant sum as
“a sum payable to the Commissioners under or by virtue of an enactment”.
That includes debts arising from taxes, duties and so on imposed by statute. Contract settlements are defined in clause 133 as contractual agreements
“made in connection with any person’s liability”.
That is usually as a result of the recovery of tax during a number of years.
On amendment No. 289, HMRC has legislation that permits evidence in support of a claim for unpaid debts to be presented to the court in a way that normally avoids the meaningful, lengthy documentation. While not a necessary requirement, before HMRC takes action to recover a debt it streamlines the evidence needed by the civil courts across the taxes that HMRC collects. The amendment is unnecessary as a certificate is sufficient, rather than conclusive, evidence that the debt is unpaid. It may be challenged or it might be outweighed by other evidence brought before the court. If a taxpayer produces evidence that the facts in the certificate are incorrect, the court can use its discretion on which evidence to accept.
On amendment No. 290, contract settlements are subject to enforcement under contract law, not tax law. Contract settlements are defined as agreements
“made in connection with any person’s liability to make a payment to the Commissioners under or by virtue of an enactment.”
Simply put, they are agreements to pay tax, interest, penalties and so on. It seems sensible to apply the same HMRC recovery methods to unpaid contract settlements as to unpaid tax. The extension of certificates to all debts that HMRC currently collects, including those under a contract settlement, will help court processes run more smoothly by introducing greater consistency for HMRC officers and greater certainty for the debtor. It will also be simpler for HMRC to administer.
Having made clear the purpose of the changes, I undertake to keep under review all matters concerning the powers of HMRC. If, on testing the new provisions, concerns raised here prove to have had more substance than I gave them credit for, I will be prepared to revisit them, if necessary.
Mr. Gauke: In light of the approach set out by the Financial Secretary, and given that we are very near the end of this part of the Bill, I shall not detain her any longer. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 132 ordered to stand part of the Bill.
Schedule 44 agreed to.
Clause 133 ordered to stand part of the Bill.

Clause 134

Charge on termination of interest in possession where new interest acquired
2.30 pm
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: Just because we might run out of time, does not mean that we should not scrutinise this Bill. I have some brief questions about the clause. It is worth noting that clauses 134 and 135 tidy up provisions brought in two years ago under the Finance Act 2006. The provisions were controversial having been produced after very little, if any, consultation, and substantial amendments were tabled to them. I served on that Committee, as one or two others here did, and it was an educative experience. It is perhaps also worth noting the difficulties that can arise with legislation on which there has not been adequate consultation, and which provide for substantial changes. I am sure that we will bear that in mind when we discuss schedule 7 later in our proceedings.
Clause 134 addresses a person’s interest in possession in a trust where inheritance tax treats them as having the property in a trust comprised in their estate. When someone with an interest in possession dies, or if the interest comes to an end, there is an IHT charge on all the property in the trust payable by the trustees out of the trust’s assets. Section 53 of the Inheritance Tax Act 1984 provides some exceptions to that general rule, and the new rules will allow trustees who become entitled to an interest before or on 5 April 2008 to reorganise their interest in possession of a trust without a charge arising. The purpose of that was to allow the IIP to be changed to a disabled trust or to a serial interest. For example, the IIP would carry on for the same beneficiary if, at the age of 30, it was amended so that it rolled into a new trust to run to the age of 40. However, that did not seem to work properly and the HMRC’s guidance on it fluctuated.
Clause 134 rewrites the offending subsection. There is no problem with that—the accountancy profession has welcomed those changes—but are there any similar issues for which clarification is needed regarding the operation of the 2006 rules? What is being done to assess how well they are working, given their complexity? Will the Minister give sympathetic consideration to the problems as they emerge? That is all that I wish to say on clause 134, although I have a brief remark to make on clause 135.
The Chairman: I am happy to call a stand part debate if the hon. Gentleman wishes it.
Jane Kennedy: It would not be in the interests of good government not to listen to reasonable representations about the way in which legislation functions. The hon. Gentleman rightly says that the measure in clause 134 has arisen out of the two-year transition period that was introduced to enable trustees to reorganise existing trusts without being subject to the new rules, because the wording of the transitional provisions has left them open to different interpretations where the existing trusts are replaced with new trusts for the same beneficiaries. Clause 135, which we will discuss in a moment, ensures, as was always intended, that the new rules will not apply where a replacement of that kind is made in the transitional period. I am not aware of any other areas that we need to clarify, but I will keep the matter under review, and I am happy to receive representations if it becomes clear that such a review is necessary. The clarification has, as the hon. Gentleman said, been welcomed by tax professionals as well as by representatives of other groups.
Question put and agreed to.
Clause 134 ordered to stand part of the Bill.

Clause 135

Interest in possession settlements: extension of transitional period
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: I rise simply to ask about the extension to the transitional period, which is welcome, but the Institute of Chartered Accountants wanted a longer period. Why have the Government not conceded to that request? Why have they chosen the time period in the Bill?
Jane Kennedy: As I said earlier, the clauses relate to the “Inheritance tax: rules for trusts etc” in schedule 20 to the Finance Act 2006. Trustees who are inclined to make changes to existing trusts will already have given a lot of thought to how they might do so. However, we accept that the uncertainty regarding the inheritance tax consequences of one particular course of action might, in some cases, have prevented trustees from reaching a firm decision. The six-month extension to the transitional period provides ample time for them to do that. That step has also been welcomed by tax professionals and representatives of other groups. I am aware of the representations that have been made and, as I said earlier, we will keep the matter under review to see whether six months is problematic. However, we think that we have got things right, on balance.
Question put and agreed to.
Clause 135 ordered to stand part of the Bill.
Clauses 136 and 137 ordered to stand part of the Bill.

Clause 138

Vehicle excise duty
Justine Greening (Putney) (Con): I beg to move amendment No. 351, in clause 138, page 86, line 37, leave out ‘electronic’.
I will try to be heard above the din of the very annoying light bulb above us. I shall go into my amendment No. 351 in detail, but, with your agreement, Sir Nicholas, I will also cover the issues that I wanted to address in the clause stand part debate. That way we can progress faster.
As far as I can see, this clause is one of two that tackle anti-avoidance of some form in relation to vehicle excise duty. Amendment No. 351 is a probing amendment more than anything else, because I wish to understand whether the phraseology in the clause would work as intended. At the same time, I will also address a couple of other concerns that I have regarding the clause, although I fully understand why it is being brought forward.
Clause 138 is designed to stop motorists from surrendering vehicle excise duty licences early to get a rebate and then renewing the licence before the rate goes up in the following 12-month period. The motorist would apparently do that to avoid paying higher rates of vehicle excise duty later. We understand why they might want to do that and, therefore, why the Treasury want to bring forward measures to stop them. I have tabled the amendment because I have concerns about how the measure will work in practice and about some of the procedures that are in place—or are not, as the case may be—to stop that sort of practice from happening in the first place.
The main problem with clause 138 is that it makes applying for a rebate unnecessarily restrictive, because it seems to suggest that it can be done only
“by such electronic means as may be specified”.
Amendment No. 351 is a probing amendment to determine whether that approach is favoured by the Government for a particular reason or whether it is simply not clear what the Government intend by limiting communication purely to electronic means. The clause allows the Secretary of State to set certain conditions that a person applying for a rebate must comply with. One condition includes the provision of information to the Secretary of State by electronic means. Will the Minister clarify why it has to be electronic, and whether it limits applicants to using e-mail or whether applicants are allowed to post details or provide them over the phone? We all know that systems breakdown, for whatever reason, and, therefore, relying on electronic means is an unwise risk.
Ironically, another part of clause 138 has the opposite effect to what the clause intends to achieve, by providing—in my opinion—a loophole. New subsection (3)(f) allows for a rebate on a vehicle that has left the UK with a view to it remaining permanently outside the UK. I understand exactly why the clause has that proviso for somebody being able to claim a rebate, and it is fine. However, it seems very difficult for the Treasury to enforce, so will an individual have to provide proof of his or her move before being able to get the rebate, and, if so, what kind of proof?
Somebody may get the rebate for moving, and end up reapplying shortly afterwards for a licence for the same car, which could happen easily. For example, they may have thought that they were going to be able to sell their car to a relative in a different country, back in Poland, for example, and were planning to buy a new car in the UK, but, for whatever reason, that purchase did not happen. Therefore, they end up keeping the car in the UK and want to establish road tax for it again—quite properly. It would be difficult for whoever was renewing the vehicle excise duty to challenge that as an explanation for why it was being renewed early on the same vehicle. To that extent, I question whether it is possible to enforce this part of the clause, although I can see the sense of putting it there in the first place. Perhaps the Minister can clarify that.
2.45 pm
We can readily understand why the Government think there is a risk of more people wanting to try to avoid paying vehicle excise duty and higher rates of it. One of the key measures brought forward in the Budget was a massive rise in vehicle excise duty for some people. That is demonstrated by the fact that the Government decided to put in two clauses to tackle what it saw as a growing risk of people trying to avoid paying higher road tax. Of course, I would never condone that behaviour.
Perhaps the Treasury could explain why it feels that there is suddenly a need to bring forward this and the following clause in terms of clamping down on vehicle excise duty avoidance. Is it anything to do with these large increases that we have seen?
Finally, can the Minister give the Committee an update on how big a problem this is? How many people are now avoiding paying road tax? I understand that in the past the Treasury has taken initiatives to try to tackle, with some success, people who are avoiding paying road tax. Perhaps the Minister can give an update on the Treasury’s assessment of how many drivers and cars are currently avoiding paying road tax and the loss of revenue, specifically in terms of the Red Book figure of £735 million in 2010-11 from changes to road tax put forward in the Budget. Next year those changes amount to £435 million. Is the impact of this anti-avoidance clause factored into that amount in the Red Book or is this additional revenue that the Treasury expects to gain by clamping down on anti-avoidance?
I have asked numerous questions on vehicle excise duty following the Budget that have still not been answered by the Treasury. I hope Ministers will answer questions tabled at the beginning of May in the near future. I look forward to hearing what the Minister has to say.
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