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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: John Bercow
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Breed, Mr. Colin (South-East Cornwall) (LD)
Brown, Lyn (West Ham) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Campbell, Mr. Ronnie (Blyth Valley) (Lab)
Cruddas, Jon (Dagenham) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Efford, Clive (Eltham) (Lab)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Greenway, Mr. John (Ryedale) (Con)
Kirkbride, Miss Julie (Bromsgrove) (Con)
Pound, Stephen (Ealing, North) (Lab)
Strang, Dr. Gavin (Edinburgh, East) (Lab)
Timms, Mr. Stephen (Financial Secretary to the Treasury)
Turner, Dr. Desmond (Brighton, Kemptown) (Lab)
Yeo, Mr. Tim (South Suffolk) (Con)
Sara Howe, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
Robertson, John (Glasgow, North-West) (Lab)
Drew, Mr. David (Stroud) (Lab/Co-op)

Fourteenth Delegated Legislation Committee

Thursday 19 March 2009

[John Bercow in the Chair]

Draft Revenue and Customs Appeals Order 2009
8.55 am
The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move,
That the Committee has considered the draft Revenue and Customs Appeals Order 2009.
May I bid you a warm welcome to the Chair of our Committee on this beautiful morning, Mr. Bercow?
We debated the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 on 16 December. That order took a big step in the reform of the tribunals that consider tax appeals under the Tribunals, Courts and Enforcement Act 2007. Under that Act, existing tribunals, the general commissioners, the special commissioners and the VAT and duties tribunals are being brought together into a single, two-tier tribunal structure, which will be manifestly independent of Her Majesty’s Revenue and Customs. That means that from 1 April all tax appeals will be dealt with by the same tribunal.
The original order introduced a right to an optional statutory review of appealable decisions across the great majority of HMRC decisions. The main purpose of this order is to provide for reviews in the particular case of HMRC decisions under the Counter-Terrorism Act 2008 and to bring those arrangements into line with the December order. The 2008 Act gives the Treasury new powers against terrorist financing, money laundering and the development of chemical, biological, radiological and nuclear weapons. The Treasury may issue directions to persons operating in the financial sector to require them to take action in response to those threats. Schedule 7 of the Act gives HMRC supervisory and enforcement functions in relation to compliance with the directions issued by the Treasury. That includes the power to impose penalties. The schedule provides for reviews of, and appeals against, those penalty decisions. The provisions of the order ensure that the review and appeal procedures under schedule 7 mirror those for other HMRC matters. They could not be included in the original order because the Act received Royal Assent only on the day when the order was laid.
The order also corrects two errors that have been identified in consequential amendments made by the original order. Those corrections will restore rights to appeal tribunal decisions relating to oil taxation and statutory payments, which the amendments inadvertently removed. The order is made under powers contained in section 124 of the Finance Act 2008 and comes into force on 1 April. It is subject to the affirmative procedure in the House.
Final preparations for implementation of the tribunal changes continue to benefit from close co-operation between HMRC, the Ministry of Justice’s tribunal service, the judiciary and a wide range of interested parties outside the Government. Together with the Under-Secretary of State for Justice, my hon. Friend the Member for Lewisham, East (Bridget Prentice), I am grateful to all those who have been helping us.
8.58 am
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to serve under your chairmanship once again, Mr. Bercow.
I thank the Minister for his explanation of the order. As he said, it is in some respects a follow-up to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009, which we debated on 16 December—a date that is clearly etched in my mind, as the right hon. Gentleman will recall.
It would be fair of me to acknowledge at the beginning of our proceedings that the contents of the order are not controversial. Nevertheless, I have a few questions. Before turning to HMRC’s counter-terrorism powers, I acknowledge that the order ties up errors in the original order, which, according to the explanatory note, if left uncorrected would have resulted in the removal of existing rights of further appeal. That relates to rights of appeal under the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and specifically the Social Security Contributions (Decisions and Appeals) Regulations 1999. It would be helpful if the Minister could elaborate on what those rights of appeal would have been and what rights of appeal were to be lost under the original order. Could he shed some light on how these errors came to light? I acknowledge that that point was not picked up by the Committee in December, but it would be helpful for us to know how it happened.
On the review and appeal procedures with regard to HMRC’s powers under the Counter-Terrorism Act 2008, I appreciate the Minister’s point that it was not possible for that to be dealt with under the order that we debated in December because that Act achieved Royal Assent on the same date. However, would it not have been possible for there to have been some co-ordination to ensure that it achieved Royal Assent before we debated the order, perhaps by moving the debate back by a day or so? Was it not possible for the Act to be drafted to cover or refer to the new regime that will be in effect from April? I should be grateful for an explanation of the mechanics. There may be good reasons why we need to have this separate order, but that issue was not raised in December and some clarity might help the Committee.
I seek clarification as to the extent of the order with regard to HMRC’s powers under the 2008 Act. Paragraph 7.3.1 of the explanatory note states that the Act
“confers supervisory and enforcement functions on HMRC, including the power to impose penalties for non-compliance with directions issued to certain persons in the financial sector...Such directions may impose requirements or restrictions on business relationships with persons in countries of concern. Provision is made for review of and appeals against decisions to impose penalties.”
I understand that the right of appeal exists only in respect of penalties imposed as a consequence of non-compliance with the requirements and restrictions, but there is no review process in place to allow for objections to the requirements and restrictions in the first place. In other words, if a taxpayer seeks to deal with an entity in a country about which HMRC has concerns, and HMRC imposes some requirements and restrictions that the taxpayer wishes it to review, the only opportunity for them to achieve that under these provisions is to be in breach of the requirements and restrictions, face a penalty, and then seek a review. It is not possible to seek a review at an earlier stage in the process. I may be reading too much into this element of the explanatory notes, but it is consistent with what the Minister told the Committee a moment ago. Again, there may be good reasons for it to work in that way, but why, if my interpretation is correct, is it not possible to review the original requirements and restrictions?
Amended paragraph 26F of schedule 7 of the 2008 Act states that
“An appeal under paragraph 26 is to be made to the tribunal”.
The Minister will recall that in December we debated the fact that for direct taxes an appeal is made to HMRC by the taxpayer, while for indirect taxes the appeal is made directly by the taxpayer to the tribunal, and questioned why two different systems were in place. Why is something equivalent to the indirect taxation system in place for the provisions relating to counter-terrorism penalties, where the appeal goes directly to the tribunal?
On the counter-terrorism provisions, the explanatory notes state:
“HMRC guidance products, for both staff and customers, are in preparation and will be available, as needed, before 1 April 2009.”
I appreciate that the notes were published some time ago. However, given that there are now only 12 days until 1 April it would be helpful if the Minister could give the Committee some information as to whether those guidance products have been published and are available and, if not, when they will be made available.
In December, I asked whether we were generally on track with the new appeals and tribunals system for HMRC decisions, and the Minister gave the Committee several assurances that progress was being made. It might be helpful if I give him the opportunity to update us on that progress. In particular, I pressed him for details of when the finalised rules for the new tribunals would be published, and he assured us that it would happen in the new year, in good time for 1 April. To be fair to him, those new rules were finalised and published on 5 February. However, could he update the Committee more generally and assure us that everything is set for 1 April, which is less than two weeks away, and that he is satisfied that there will be a smooth transition to the new system?
Subject to those comments and questions, we have no intention of dividing the Committee.
9.6 am
Mr. Colin Breed (South-East Cornwall) (LD): I do not wish to detain the Committee, because these are relatively uncontroversial tidying-up measures.
The most interesting comment in the explanatory notes was that the tribunals would be “manifestly independent”. I have a feeling that that might be quoted in appeals in the not-too-distant future, because in a previous life, when attending some of those tribunals, I noted the feeling that perhaps they had not been manifestly independent. If they are now to be so, that will be a major step forward.
I, too, was concerned about guidance needing to be available to people. I suspect that reviews are in place and that much of the guidance is already known and just has to be codified, but we are getting very close to 1 April. Such reviews have sometimes taken a very long time and totally disrupted businesses, particularly small businesses, which have suddenly been caught up in them and in tribunals. These tribunals and reviews often have a great effect, so manifest independence and, I hope, speed of operation will be extremely helpful.
9.8 am
Mr. Timms: I am grateful to both hon. Gentlemen for their general assent to the proposal.
The hon. Member for South-West Hertfordshire asked about the errors that we are correcting and the effects if we did not do so. The corrections will restore rights to appeal against tribunal decisions on oil taxation and statutory payments, which consequential amendments inadvertently removed. There was never any intention of removing them, and it became apparent only subsequently that the legislation had that effect. There would have been no right of further appeal without the change. The hon. Gentleman asked me how we became aware of the issue. It came to light during work with the Ministry of Justice to finalise the practice direction for the new tribunal, so it was as a result of internal work rather than of any external alert.
The hon. Gentleman makes a perfectly fair point in asking why we could not have done everything in one go in the order in December instead of all having to come back here this morning. I checked that before I came here. The Counter-Terrorism Act 2008 was given Royal Assent on 26 November—right at the end of the parliamentary Session—and the order had to be laid on that day as well. Royal Assent happened before the debate, but I am advised that because the order was laid on the same day it was not possible to get around the need to deal with this matter separately.
The hon. Gentleman is right to say that the arrangements set out in this case, arising from the 2008 Act, follow the indirect tax model, which is generally seen as satisfactory. He is also correct to say that the tribunal rules have been published: they are on the Tribunals Service website. I am grateful to him for giving me the opportunity to confirm that we are on track for 1 April. I am not aware of any particular outstanding difficulties that are likely to affect us.
On HMRC guidance, the fact sheet was published on 6 February. The transitional guidance was also published recently. Full guidance has been consulted on and will be published shortly. I can also give that reassurance to the hon. Member for South-East Cornwall. The rules have been finalised and published, and we are in good shape for the changes that will take effect on 1 April. Some hearings in the new tribunal have already been arranged.
Question put and agreed to.
That the Committee has considered the draft Revenue and Customs Appeals Order 2009.
9.12 am
Committee rose.

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