| Previous Section | Index | Home Page |
HMRC misinterpreted the Kittel case, assuming that anybody with a passing connection with the trade was necessarily up for involvement, rather than applying the higher burden of proof implied in the original French of the Kittel judgment, which requires evidence of direct involvement. That case is now being challenged in the European Court of Justice and we may have a ruling in due course. Irrespective of that judgment, however, surely we do not allow collective punishment in British law for the crimes of a person or persons unknown, yet that appears to be how HMRC currently operates.
Since early 2006, HMRC has adopted what is described as an extended verification process for every trader involved in the industry, which means that it has effectively ceased paying VAT input tax refunds. A substantial amount of money is being withheld and we are now in the third year of withholding it. This has been done by a deliberately extended process, in my view. First, there is a delay in responding to requests for refunds. At the very point at which that matter reaches judicial review—sometimes only a matter of hours beforehand—there is a denial, which results in a further delay before a tribunal can consider the matter. That is followed by an HMRC appeal. That is a deliberate policy to withhold funds that are legally in the ownership of the companies, without judicial process.
When such cases have got as far as the tribunal or the High Court in chancery, there have been mixed results for the companies appealing. In some cases, the appeal has been upheld by both; in others, there has been a mixed result from the tribunal and the High Court; or the company has lost in both cases. I would be interested to know how much is currently withheld in relation to VAT reclaims, and how much is earmarked for eventual refund when the appeals are successful. My suspicion is that a very large amount is involved.
The second method that HMRC has chosen to use as a means of reprisal against assumed fraud is illustrated in its dealings with overseas banks. HMRC uses its undoubted muscle to affect the way in which overseas banks are used. My constituent’s company had funds held by the First Curaçao International Bank. The bank has effectively been closed down by HMRC, and the administrators have been told that they must not allow any funds to be given to those who have funds invested in the bank. No charges have been brought against the bank, under British jurisdiction or any other; this is simply a case of pressure being put on it.
A list has apparently been provided to the bank’s administrators of the people to whom funds may not be made available, and of anyone having dealings with those people. That is a pretty extraordinary state of affairs. Those people have not been brought before any court. They have not been found guilty of any crime, yet they have had their funds frozen on suspicion and, in the case of the First Curaçao International Bank, in a foreign jurisdiction. I am led to believe that, in this context, we are talking about billions of pounds in funds held by companies, many of which must be innocent of any fraud.
The third instance of intervention is the pressure that has been applied to UK high street banks. Again, companies engaged in this area of trade have had their
accounts closed on the recommendation of HMRC. They, too, are companies against which no evidence has been adduced, no prosecution brought and no conviction obtained. I would be interested to know how many companies have been closed in that way and, against that figure, how many have actually been prosecuted.
I suspect that what is happening is a substitution of a criminal legal process by a civil legal process that is entirely within the hands of HMRC, and I do not believe that the House has ever sanctioned such a process. Extra-judicial action by HMRC in the absence of any evidence is not something that we would normally countenance. If we were to do so, we would certainly place limits on the sanctions that could be applied—just as we place limits on the sanctions to be applied in criminal cases—rather than simply giving HMRC a free hand.
What we have here is an arbitrary exercise of power by HMRC without any due process. It is an exercise of guilt by association that is foreign to British law in any respect, either historically or currently. It involves the substitution of the opinion of HMRC for a judgment, and the testing of that judgment by probative means, in court. I have to say that HMRC opinion is not unquestionable and it is not by definition correct. If it were, these companies that are so strongly suspected of being involved in VAT fraud would not have been given VAT registration in the first place.
5.45 pm
The amendment is designed to make transparent a process that seems to have developed. If it is believed right and proper for HMRC to use civil process in this way to deal with unquestionably serious matters of fraud, these issues should be put before Parliament and agreed here. We should apply proper tests of evidence, proper judicial process and appropriate sanctions in the case of the felony, for that is what it would be if the case were proven. Instead, we have seen an incremental approach by HMRC, which I do not believe is satisfactory.
To conclude, I have no evidence whether the company in my constituency or any of the other companies have been involved in fraud. How could I possibly know? What I am saying is that while I want HMRC to be rigorous in its approach, I also want it to be transparent and lawful. I do not believe that the actions currently taken by HMRC are, frankly, lawful. We have due process in this country and it should be transparent. I invite the Minister to answer my points if he can, as I would be grateful to know the answers, but I would also like to hear him accept the principle that such processes should be open, transparent and agreed by Parliament, rather than somebody in the recesses of HMRC deciding that they have a means by which they can exercise their powers without judicial process.
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to follow the hon. Member for Somerton and Frome (Mr. Heath), who has raised a number of important points, which I hope to touch on in the context of the HMRC charter and amendment 6. The group of amendments is rather lengthy, so I shall try to run through my amendments as quickly as possible.
Clause 92 and schedule 46 relate to the senior accounting officer and the new responsibilities placed on him. We debated the matter in Committee of the whole House
and, indeed, in the Public Bill Committee. My hon. Friend the Member for Fareham (Mr. Hoban) pointed out on a number of occasions how the proposals were produced in the Budget and the Finance Bill without any consultation, yet there are concerns about their impact on large companies and about the scope of the clause.
We are grateful that the Government have tabled amendment 43, which applies the measures not to “large” but to “qualifying” companies. That is a step forward, but we none the less have a number of doubts, particularly about the lack of clarity on the administrative costs to affected companies. No proper regulatory impact assessment was done prior to the announcement because the necessary consultation did not happen, so some doubt necessarily remains.
We know that the Government estimate that about £140 million will be raised by the measures, but there remains a degree of doubt about whether that will be the case. We have tabled two amendments which I think will help the House to assess the effectiveness of the proposals. Amendment 32 is a simple sunset clause and would enable the provision to fall after four years. If after four years it emerges that it is not causing a disproportionate cost to businesses to establish that the senior accounting officer can sign off the accounts, fair enough. If it proves that substantial amounts of revenue are being raised as a consequence of the provision, there will clearly be a strong case for renewing it, but if not—I have to say that at this stage we cannot be confident one way or the other—it will be dropped.
Amendment 33, which relates to schedule 46, would require the commissioners to prepare a report on compliance with the new provisions and the additional tax raised. It would enable us to have a much better view of whether the measure was proving to be effective, given that consultation was not carried out in advance and its origin remains something of a mystery.
Clause 95 and schedule 48 relate to the extension of information and inspection powers. We have tabled two technical amendments. Currently, there are powers to inspect property for valuation purposes, which relate to a number of taxes, including stamp duty reserve tax. The Law Society has questioned how those powers will be used, and I should be grateful if the Minister explains how they will be relevant to SDRT.
Let me put amendment 8 in context. The tribunal may not approve an inspection under the new powers unless certain conditions apply. They include the ability of the relevant taxpayer to make representations, the ability of the occupier of the premises to make representations, and the supplying of a summary of the representations to the tribunal. Those conditions are disapplied if the occupier of the premises cannot be identified.
It is reasonable for the requirement to supply a summary of the representations to the tribunal not to apply if the occupier cannot be identified, but why should it not apply if the taxpayer is able to make representations? If the taxpayer makes representations, there will be no obligation for a summary to be supplied to the tribunal. That seems somewhat strange. We seek to amend schedule 48 so that the occupier would not be given an opportunity to provide representations, but a summary could still be provided if the taxpayer has made representations.
Paragraph 15 of schedule 51 provides, broadly, for a 20-year time limit for assessments in a case involving a loss of tax attributable to a failure by a person to make a return under the stamp duty land tax legislation. Normally, the time limit is six years. The Law Society has told us that the period should be extended from six to 20 years only when failure is deliberate, rather than inadvertent and careless. Consequently, we have sought to address that in amendment 9, and similarly in amendment 10 tabled to paragraph 16 of schedule 51, by making the requirement a deliberate failure.
Clause 99 and schedule 52 relate to the recovery of overpaid tax, setting out circumstances where a claim is disallowed. One of those—case A—is if a mistake is made in a claim, election or notice. The Law Society made the point that a mistake that gives a right of recovery against HMRC could result in a mistake in a claim, and therefore the unfortunate situation could arise that a mistake by HMRC leads to a mistake in a claim which then, in turn, means that the claim is disallowed. The second concern raised with us by the Law Society is what exactly a mistake means in those circumstances. The Minister might be able to help on those points, which relate to amendment 11.
Amendment 12 highlights the fact that there is a separate regime for mistakes relating to capital allowances. Will the Minister explain why capital allowances are singled out? Finally in terms of schedule 52, amendment 13 relates to case F, which excludes amounts paid, or liable to be paid, in consequence of enforcement action. Why are proceedings for enforcement relevant to HMRC’s liability under the schedule?
Clause 101 and schedule 54 relate to repayment interest on sums to be paid by HMRC. Amendment 14 seeks confirmation that repayment interest is not taxable. Will the Minister respond to that point? Amendment 19 essentially asks why the repayment interest start date should be on 31 January next, following the year in which the loss is incurred, rather than at the end of the accounting period in which the loss is incurred, which is what we have sought to achieve in amendment 19.
Clause 105 and schedule 55 relate to the penalty for failure to make returns. Paragraph 25 of the schedule states that where a representative partner fails to make a partnership return, a
“penalty in respect of the failure is payable by every”
person who was a partner in the partnership at any time during the relevant period. Amendment 20 would ensure that aggregate penalties are limited to the amount that could have been assessed on one partner. Otherwise, penalties could be more harsh where a partnership is late in making a return than where a company of equivalent size is late in equivalent circumstances. There does not seem to be any particular logic as to why the regime should be harder on a partnership as a whole than a company.
Clause 106 and schedule 56 relate to the penalty for failures to make payments on time. Amendment 21 would delete what I believe to be a typo. The Minister is a reasonable man and I assume he will accept it; if he does not, I am perfectly prepared to divide the House, but I am sure he will not make that necessary. The current wording of the schedule is as follows:
“that person fails to make or deliver the return on or before by the date by which it is required to be made or delivered”.
That first “by” appears to be a typo, and therefore should be removed.
In respect of clause 107 and schedule 56, the amendments are of a technical nature. The clause and schedule enable taxpayers to benefit from the suspension of penalties during the time-to-pay arrangements even if they have already incurred a late payment penalty. That ensures that any penalties arising after a taxpayer’s approach to HMRC will be suspended.
6 pm
I want to deal with the HMRC charter last because we have now gone through a number of clauses and schedules relating to HMRC powers. It is striking that every year we generally extend HMRC’s powers in this area as part of a process relating to powers, deterrents and safeguards. We spend a lot of time scrutinising the powers and deterrents, but very often the argument for the safeguards is that they will be set out in the HMRC charter. We debated the charter in Committee—the first draft of it caused considerable concern, but I acknowledge that the Government have moved on it. There remain some discussions to be had on this important document, and it is important that the House scrutinises how HMRC works and the safeguards that exist for the taxpayer. That is, in essence, the argument made by the hon. Member for Somerton and Frome.
The fact is that the House has very little oversight of the HMRC charter. We have had an opportunity to debate it in our consideration of the Bill and I dare say that we will be able to do much the same when we consider future Finance Bills. Amendment 6 would allow the House to debate the charter again before it is published and before it is finalised, so that the views of right hon. and hon. Members can be expressed and there is an opportunity to raise the concerns of constituents. Constituents have also come to me to discuss how they are treated while the Government and HMRC seek to address carousel fraud. That is but one example, and I am sure that hon. Members can identify others. It is important that the House has an opportunity to debate them.
I have covered, as quickly as possible, a large number of amendments, some of which are technical, others of which are broader in nature. I reiterate that it is important that the House scrutinises HMRC and that we ensure that the right balance is found between the powers, penalties and deterrents available to HMRC and the safeguards available to taxpayers. I press the Government to share that view, and I hope that we have future opportunities to debate the HMRC charter.
Mr. Colin Breed
(South-East Cornwall: I just wish to make a few comments on the charter and the senior accounting officer. These wide-ranging amendments cover a variety of issues, both technical and probing, and I am sure that the Minister will respond to them. I am grateful to my hon. Friend the Member for Somerton and Frome (Mr. Heath) for raising specifically the issue of what the charter should cover, as the charter is an important aspect of this Bill. The Minister will recall that the Government announced a consultation on a taxpayers charter last year and we were given a ministerial statement on the matter. During the Report stage of
last year’s Finance Bill, my Liberal Democrat colleagues and I tabled a new clause entitled “Taxpayers Charter”. Of course, it did not succeed, but we are grateful that something similar has appeared in this Bill.
It is important that taxpayers’ statutory rights, including the basic right of appeal against actions or decisions, is enshrined in some way, and the same applies in respect of taxpayers’ statutory duties—I am thinking of provisions relating to notice period requirements, documents that HMRC has a right to access and penalties for failure to comply. We are very happy about that arrangement, but clause 91 would insert a new section into the Commissioners for Revenue and Customs Act 2005. This clause only pays lip service to the call for a charter. In reality, it provides little or no protection or certainty for the taxpayer and, indeed, pays the taxpayer little regard. The charter cannot be independent if HMRC is solely to decide its content. I appreciate the amendment that the official Opposition have tabled to ensure that the House debates that issue, because it is important.
We would have liked the Government to consult on the content of the charter well before now. We have spent quite a lot of time consulting on stricter penalty regimes and very little on protecting the taxpayer. As I understand it, the charter will not be in statute—only the power to create a charter. That is a slight disappointment. The Bill says that the standards and values are to be “aspired” to, but there will be no way of requiring HMRC to meet and maintain the standards that it should already have achieved. The review of HMRC’s adherence to the charter would not require any consequential action. If HMRC fails to meet the aspirations in the charter, there is no provision to discipline it or enable parliamentary pressure to be applied,
While we welcome a charter setting out the rights and duties of the taxpayer, no protection is afforded to the individual. In fact, the Government have spun reforming ideas around to suit the interests of HMRC, rather than to protect the taxpayer. We do not have a taxpayers charter, but an HMRC charter—not what was envisaged at all. Some of our concerns are shared by professional bodies. The Institute of Chartered Accountants says:
“The current wording of the clause does not meet the needs of taxpayers. Firstly, it is drafted in terms of HMRC’s ‘behaviour and values’ rather than the rights of the taxpayer. Secondly, it does not make adequate provision for oversight and review.”
We have spent much time in recent Finance Bills extending the powers of HMRC in various ways, including the right to impose penalties, to make inspections, to collect data and to charge interest on late payments. Everything has been going HMRC’s way, and this was an opportunity to try to redress the situation, but the Government have failed to do so.
| Next Section | Index | Home Page |