House of Commons
|Session 2008 - 09|
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Public Bill Committee Debates
Draft Transfer of Tribunal Functions and Revenue Appeals Order 2009
The Committee consisted of the following Members:
Celia Blacklock, Committee Clerk
attended the Committee
Fifth Delegated Legislation Committee
Tuesday 16 December 2008
[Mr. Jim Hood in the Chair]
Draft Transfer of Tribunal Functions and Revenue Appeals Order 2009
That the Committee has considered the draft Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009.
Thank you, Mr. Hood, I bid you a warm welcome to the Chair. The order takes a major step towards implementing the reform of the tribunals that consider tax appeals under the Tribunals, Courts and Enforcement Act 2007. It is an important step in realising the benefits of the historic merger in April 2005 of the Inland Revenue and Customs and Excise into Her Majestys Revenue and Customs. Under the provisions of the 2007 Act the existing tribunals, in particular 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 HMRC. It means that, for the first time, all tax appeals will be dealt with by the same tribunal.
At the moment, in addition to appeals about different taxes being heard by different tribunals, there are different review and appeal processes. This order brings greater consistency to the provisions across the great majority of HMRC activities, with benefits including making HMRC action in reviewing decisions more transparent and, more broadly, making HMRCs dealings with taxpayers more open, improving quality and consistency in decision-making, and encouraging informal dispute resolution, so avoiding the expense and anxiety of unnecessary hearings.
The order is made under powers in the 2007 Act and section 124 of the Finance Act 2008, and comes into force on 1 April next year. It is subject to the affirmative procedure, both here and in the other place. The order transfers the functions of the existing tax tribunals to the new tribunals and makes a large number of consequential amendments to legislation relating to tax tribunals and the appeals that they consider. In particular, it introduces a right to an optional, statutory review of appealable decisions across the majority of HMRC business. It also makes related administrative changes to the way in which appeals are handled.
Sir Peter Viggers (Gosport) (Con): I am grateful to the Minister for giving me the chance to ask a basic question early in the proceedings. I discovered from constituency experience some years ago that Customs and Excise had quite arbitrary powers to impose penalties on individuals who had breached its regulations. Is it possible to give the Committee an idea of whether those arbitrary powers, which go back many centuries, will continue or are the general procedures going to change?
Mr. Timms: I am not sure whether I agree with the term arbitrary, but there certainly were different arrangements for VAT and direct taxes. The opportunity has been taken to ensure a much more consistent approach on penalties and other respects across the whole tax system. There has been a lot of consultation with representatives of taxpayers and others. I think that I can claim that there is broad support for the measures and arrangements that will be in place, including penalties. I hope that the hon. Gentleman will be encouraged by the changes that we are making with this order.
The order contains transitional provisions to allow a smooth transition to the new systems. Those changes, in particular those concerned with the new statutory right to a review of an HMRC decision before an appeal reaches a tribunal, have been the subject of extensive consultation. A consultation document was issued with last years pre-Budget report. After meetings with 20 representative bodies and other interested parties, it was followed up with a response document at the time of the 2008 Budget. In June this year, HMRC published a draft of the main provisions made by this order, together with a supporting technical note, and a response document on the comments received on those documents was published when the order was laid. I am very grateful to all those who took the trouble to respond in writing or at meetings during this process. Those discussions have significantly improved the legislation that is now in front of us.
Hon. Members will note that this order is a good deal longer than the draft published in June. It is some 150 pages. The earlier draft focused on the main provisions on direct and indirect taxes, the intention always being to complete the picture after consultation. This order amends more than 110 Acts and statutory instruments. It revokes 22 further statutory instruments and I am advised that, although it is quite a lengthy document, it does not in fact increase the overall length of legislation because it revokes measures as well.
The work to prepare for the implementation of the changes has required close co-operation between HMRC and the tribunals service of the Ministry of Justice and with the judiciary and a wide range of others outside Government. That co-operation will, of course, continue to be just as important, as the remaining steps are taken to prepare for this reform and, together with the Under-Secretary of State for Justice, my hon. Friend the Member for Lewisham, East, we are very grateful to all those involved.
Finally, Mr. Hood, I understand that the hon. Member for South-West Hertfordshire and his wife celebrated a very happy event yesterday. Let me congratulate him and his wife on the birth of the baby and wish them and all members of the Committee a very happy Christmas.
Mr. David Gauke (South-West Hertfordshire) (Con): First, may I welcome you to the Chair, Mr. Hook, and say what a pleasure it is to serve once again under your chairmanship. Secondly, I thank the Financial Secretary for his kind words. I can report that mother and baby Henry are doing very well and I hope to be returning home shortly to see that further progress has been made.
Mr. Gauke: Indeed, after a second SIas it happens on uprating child benefit. I shall certainly have an interest to declare there, Mr. Hood.
I do have a few questions on this particular order, the transfer of tribunal functions and revenue and customs appeals, although the delivery of those questions may well be somewhat bleary and I hope that the Minister will understand. As he has said, much of the order relates to the transfer of powers to the new tribunals and is procedural in nature. I agree with him that there is broad support for the establishment of these new tribunals but, given that the rules of the new tribunals have not yet been finalised, there is some uncertainty as to what will be in place by 1 April. One leading tax expert said to me that in the context of this order there was an element of cart before the horse. We are transferring powers to a new set-up when we do not know what that set-up is.
The draft rules for the first-tier tribunal and the upper-tier tribunal have been published, as the Minister said, and they still await finalisation. We appreciate there is an ongoing consultation process, but it would be helpful if the Minister could give some further indication as to the Treasurys and HMRCs thinking on issues such as the cost regime and the publication of decisions, these being areas where, as I understand it, there is still some discussion. I would also be grateful if the Minister could confirm that this process will be complete on 1 April, that he does not envisage a need for delay and that we are still on track.
I turn to the question of administration of appeals. The order provides that there will be a two-stage process for the administration of appeals relating to direct taxes. First, a person who disagrees with an HMRC decision will initially make the appeal to HMRC and then notify the appeal to the tribunal, if he or she wishes to proceed to a hearing. For indirect taxes, an appeal is made directly to the tribunal. Two concerns have been raised with me about that. First, given that one of the key purposes of the reform is to rely on procedures for direct and indirect taxes, we have two different procedures. That is not a purely theoretical point. For example, it is common that when HMRC believes that someone has understated his trading income, a dispute involves both VAT and income tax. The taxpayer will face two different appeal procedureshe has to notify an income tax appeal to the tribunal but make a direct appeal to the tribunal in relation to VAT. Will the Minister explain why two procedures apply?
Secondly, there is a danger that the appeal system established by the order will undermine one of the key recommendations from Sir Andrew Leggatts report that have driven the changesthe desire to separate the appeal process from the administrative framework that produced the decision that is being appealed. The Minister referred to the manifest independence of the appeal process, but that desire may not be satisfied if taxpayers make an appeal to HMRC but only notify the appeal to the tribunal. The Institute of Chartered Accountants in England and Wales has said that that
seriously undermines the perception of independence.
In addition, the low incomes tax reform group of the Chartered Institute of Taxation has described the procedure as downgrading the role of the tribunal to sweeping
If we want to encourage the perception of independence of the tribunal system, would it not be preferable for the terminology to refer to the taxpayer lodging an objection to HMRC but making an appeal to the tribunal? As it stands, the taxpayer would be forgiven for thinking that HMRC was the principal appellate body for complaints about its own decisions. That goes against one of the key purposes of the Leggatt report.
I now turn to the new review procedure, which the Minister outlined. The order introduces into statute a new review procedure for when the taxpayer disagrees with an HMRC decision. That is broadly welcome, but there is little in the order that provides confidence in the robustness of the new procedure. Paragraph 30 of schedule 1 inserts new sections 49A to 49I in the Taxes Management Act 1970, the key measure is new section 49E(2) on the review procedure, which states:
The nature and extent of the review are to be such as appear appropriate to HMRC in the circumstances.
The Institute of Chartered Accountants has said that
this appears to be saying that a review is whatever HMRC wants it to be in any particular case.
The appellant has no statutory yardstick against which to measure how HMRC is conducting his or her review and therefore no remedy if he or she thinks that it is not being done properly. HMRC may want flexibility in devising procedures for conducting reviews and will want to use guidance as much as possible, but guidance does not have statutory force and can be changed or withdrawn. Surely it should be a statutory requirement on HMRC that a review be undertaken by someone not connected with the case. Why is that not included in the order?
Another suggestion is that there should be a statutory requirement that HMRC notify the taxpayer that the review has started, and provide the taxpayer with the reviewers contact details. At the moment there is no statutory protection, only guidance. We appreciate that the order cannot be amended, but will the Minister consider subsequently introducing an order or making a statement that provides further details of the framework and safeguards for the new HMRC review process?
On transitional provisions, paragraph 5 of schedule 3 provides that for direct tax, where an appeal has been made to HMRC before the commencement date but has not yet been passed to the tribunal, the decision will qualify for an internal review. That is welcome, but the Institute of Chartered Accountants has expressed concern that the period allowed for a review in those cases is 90 days, rather than 45, and that that may deter some taxpayers from seeking a review, especially when HMRC is permitted 30 days before starting the review, which could lead to 120 days in total. Will the Minister explain why there is a 90-day limit for the transitional provisions?
The order makes consequential changes to the Tax Credits Act 2002 in relation to the proposed transfer of all tax credit appeals to the tax chamber from the social entitlement chamber. Will the Minister explain why the Government wish to do that? The social entitlement chamber is experienced in dealing with appeals relating
We will not oppose the order. There is some support for the reform of the structure, but several questions remain unanswered and there is uncertainty as to how those matters will be dealt with. It would be helpful if we had as many answers to those questions as possible in advance of the new system coming into effect on 1 April.
Mr. Jeremy Browne (Taunton) (LD): It is a pleasure to serve under your chairmanship, Mr. Hood. I congratulate the hon. Member for South-West Hertfordshire on the birth of his son yesterday. Despite the circumstances, the hon. Gentleman made a typically probing and insightful contribution. I do not wish to repeat everything that he said, so perhaps I will touch upon some more peripheral themes that the Minister might also be able to help the Committee with.
Will the Minister expand on the point raised about the separation of powers, because most people regard the streamlining of the process as desirable, so long as those conflicts are not inherent within the new system, and will he be able to satisfy the Committee that HMRC, which is not universally known for having a robust organisational constitution, will be equipped to handle any changes in a way that will not cause our constituents difficulty?
On the issue of the general commissioners and the venues, my understanding is that the number of venues for hearings will be cut from 400 to 130, so I would like a further explanation of how that will work in practice, including the video conferencing arrangementsthey sound good in theory, but may not always be so attractive in practice. The explanatory memorandum states, on page 32, that
there may be some small impact on rural communities.
I would be interested to know what that small impact will be. One assumes that it will be negative and that people will have to travel further due to the reduction in the number of venues. If that is the case, it would be helpful if it could be confirmed, along with an assessment of the difficulties that will be caused for people in the countryside.
The Minister might also be able to help with a couple of administrative issues. I was reading about the new default paper track and am curious as to how the transition arrangements will work and what effect that will have on cases already before the current system. Will it lead to an increase in the number of cases resolved before the formal appeal process? Also, what effect will that have on individual localities? Will the Minister be able to give some estimate, particularly in light of the current economic climate, of the likely impact of those changes, particularly with regard to the number of employees at HMRC? To put it more bluntly,
The Tribunals Service will incur some transitional costs in setting up the new system.
However, I have not seen an estimate of what that cost will be and I do not think the Minister mentioned it. It would be helpful for the Committee to know the impact in terms not only of the number of employees but of the financial costs to the taxpayer.
Mr. Timms: I am grateful to both hon. Members for their broad support for what we are doing. The hon. Member for South-West Hertfordshire apologised for being a little bleary-eyed. I did not notice that he was. We can only express admiration for the fact that he is here at all today. Let me have a go at responding to his points. He mentioned that the draft rules had been issued for consultation. That consultation ran until 12 November. The responses are being considered at the moment. I cannot say any more today about their precise content, but I can give him the reassurance that he sought. Finalised rules will be published in the new year in good time for everybody to see how the new tribunal will work. That will certainly be well before it starts at the beginning of April.
The hon. Gentleman queried, perfectly fairly, the fact that, although there is substantial alignment here between the treatment of direct and indirect taxes, which will all be dealt with by a single tribunal, there are still some differences. Those reflect the structural differences between the taxes and the new review procedures being introduced on a consistent basis within the existing structure. It is fair to say that the respondents to the consultation recognised that the new system needed to reflect some structural differences between direct and indirect taxation, and that is the reason for the differences that remain.
The vast majority of appeals are resolved without the need for tribunal involvement, and we want that to continue. The legislation distinguishes quite carefully between the stages before and after a direct tax appeal is notified to the tribunal, precisely to bring clarity to this area. It makes the decisive break with the past: in future the taxpayer, rather than HMRC, will trigger the tribunals consideration of an appeal. Another crucial change is that HMRC will no longer be responsible for listing the cases, which entitles us to use the term manifestly independent about the new tribunal arrangements.
Mr. Gauke: Does the Minister have any concern about the terminology of people making appeals to HMRC, whereas they merely notify the tribunal? The Governments intention is good, but the terminology may get in the way of their laudable objective.
Mr. Timms: There are different views about the terminology. Certainly, the suggestion that direct tax appeals might be described as objections was carefully considered in the consultation. There was a mixed response. Some said that changing the statutory language would create unnecessary confusion. On that basis, it was decided not to do it. I accept that there is a case, but the judgment was made that leaving the statutory language unchanged would minimise the confusion.
As the hon. Gentleman pointed out, there will be no change in VAT and duties appeals. They will continue to be sent directly to the tribunal. Direct tax appeals will be sent initially to HMRC, as now. In future, if a resolution cannot be reached the appellant will send their appeal to the tribunal; HMRC will not list it for hearing, as now. We looked at this in the consultation, but the view that we have taken, based on that consultation, is that to change the current system for direct tax would be unnecessarily confusing.
The hon. Member for South-West Hertfordshire, perfectly fairly, quoted some expressions of concern and questions from the institutes. However, let me remind the Committee that the Institute of Chartered Accountants in England and Wales said:
With regard to the internal review process, we broadly supported this proposal in our response to the earlier consultation. ... We are pleased to note that the review will be at the taxpayers option and not compulsory.
The hon. Gentleman suggested that there was a risk of downgrading the role of the tribunal. I do not think that that is the case. The taxpayer can send an appeal to the tribunal at any time. The process of reviewing the tribunals that we have been going through in Government has been aimed at strengthening the system.
On the question of tax credit appeals, they were formerly heard by the Social Security and Child Support appeals tribunal. On 3 November they transferred to the social entitlement chamber. Our intention, which was set out in the Minister of Justice response document in May this year, is that tax credit appeals will in due course move to the tax chamber. The reason for that is that tax credit issues relate more to tax than to benefits. Our view is that tax credit appeals are more properly dealt with in the tax chamber than in the social entitlement chamber, which deals with benefit matters.
The hon. Member for Taunton raised concerns about the fact that there will be a smaller number of locations. That is true. It is worth bearing it in mind that the volume of business that the appeals deal with is quite a lot smaller now than it was in the past, essentially due to self-assessment. It was right to rationalise the arrangements for the appeals and to make them more efficient, including by having a smaller number of venues. Clearly, that means that some people will have to travel further, but we are looking at video conferencing and other means of minimising those difficulties, as he acknowledged and as is set out in the documents. I hope that the new arrangements will not cause serious inconvenience. There is a nationwide network of hearing centres and I hope that that reassures him that national coverage will continue.
The hon. Gentleman made a point about paper determinations. The cases that we are dealing with are expected to be mainly appeals against relatively small value penalties, such as fixed penalties for late filing. Generally, those are straightforward and simply look at whether the taxpayer had a good reason for late filing. The intention is that somebody can ask for an oral hearing if they prefer, and the tribunal can decide to hold a hearing if it thinks that that will produce a fairer result, but in a lot of cases it will be in everybodys interest for the matter to be dealt with on paper, which the order provides for. I welcome the broad support.
One final point in response to the hon. Member for Taunton is that paper, alongside the other ways in which the appeals can be dealt with, will clearly save people from having to attend hearings. However, if they wish to go for a hearing, they will be able to do so.
Question put and agreed to.
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