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Schedule 46

Duties of senior acounting officers of large companies
The Chairman: I remind the Committee that schedule 46 is introduced by clause 92, which was extensively debated by the Committee of the whole House on 13 May, so the principle of imposing duties on senior accounting officers has been dealt with. We are dealing with schedule 46, which sets out the mechanics of that, so we do not want a rerun of the original debate.
Mr. Field: On a point of order, Mr. Atkinson. The matter was debated on the floor of the House but, given the number of Government amendments, surely there should be some leeway and opportunity for us to look at this in general as well as at the provisions the Government have put in place, because the clause is now somewhat different from the one debated only six weeks ago?
The Chairman: With respect, I do not wish to change my view. We have discussed the broader principles. If there is a problem as the debate on the schedule unfolds, we shall deal with it as it arises. If the hon. Gentleman gets too far back into the original debate, I will stop him. It is as simple as that.
Sarah McCarthy-Fry: I beg to move amendment 269, in schedule 46, page 338, line 34, leave out ‘large’ and insert ‘qualifying’.
The Chairman: With this it will be convenient to discuss the following: Government amendments 270 to 273, 276, 280 to 282, 287 to 290 and 296 to 298.
Amendment 65, in schedule 46, page 343, line 20, leave out ‘or officer’.
Government amendments 300 to 304.
Sarah McCarthy-Fry: The schedule makes senior accounting officers of large UK companies and groups of companies personally responsible for ensuring and certifying that adequate controls are in place to calculate tax and duty liabilities. Clause 92, under which schedule 46 sits, helps to protect tax revenues by ensuring that, in the present difficult economic environment, tax compliance does not become a cost that is overlooked by the largest UK companies. The clause will underpin the existing good practices of the majority by ensuring that tax remains a priority at boardroom level, and tackling poor tax compliance among a small minority of companies that do not have robust systems and processes in place.
HMRC is keen to continue to develop open and transparent relationships with large businesses. The schedule builds on that and on work that is already under way to help business to improve tax governance. That will allow HMRC to continue its risk-based approach, focusing resources on the most important issues, while reducing burdensome checks and interventions when they are not required.
At the time of the Budget, we made it clear that, because of the need to act now to underpin tax revenues from such an important sector, we would discuss the operation of the measure with interested parties. HMRC has held wide-ranging discussions, and we have listened to what has been said. The Government amendments take account of those discussions and are designed to smooth the operation of the measure in practice.
Those discussions began immediately after the Budget, so that when clause 92, which introduces schedule 46, was debated by the Committee of the whole House, my right hon. Friend the Financial Secretary was able to announce the intention to table amendments to make three changes during the Public Bill Committee stage. Those changes are first, to refine the population of companies within the scope of the provision to give the best possible fit with its aims; secondly, to remove the requirement for the senior accounting officer to notify the company auditors of any respects in which the tax accounting arrangements of the company are not appropriate; and, thirdly, to revise the certification requirement to allow notification of the appropriateness or otherwise of the company’s tax accounting arrangements using a single form of certificate rather than one of two forms.
Discussions with interested parties have continued, and three further changes are proposed which, like those announced in the Committee of the whole House, are designed to smooth the operation of the measure, yet fully retain its effectiveness. They are: to focus the measure only on major taxes and duties; to ensure that the wording of the draft legislation is clear about what constitutes appropriate tax accounting arrangements; and to refine the definition of senior accounting officer to allow more flexibility for those groups of companies organised on less conventional lines. We will discuss each of these changes in more detail. However, all have been welcomed by the parties involved in our discussions and each will help to smooth the efficient operation of the measure. None undermines or dilutes the essential aim of underpinning the tax compliance of the very largest companies.
I remind the Committee that my right hon. Friend the Financial Secretary wrote to Committee members last week enclosing a draft of the guidance on the measure. The Government are grateful for the ongoing input of representatives from business and the tax profession in developing the guidance.
I draw the Committee’s attention to a particular point mentioned in the guidance, which is about how the measure will operate following Royal Assent. A senior accounting officer who begins a review of the appropriateness of the tax accounting arrangements during the first financial year covered by the measure will be treated as having taken reasonable steps to comply with the main duty introduced by the legislation for that first period. It follows that, in those circumstances, the senior accounting officer would not be penalised for any failure in the main duty in respect of that first year.
Before speaking to the amendments, I remind the Committee of the situation that the schedule seeks to address. The majority of large companies already ensure that appropriate tax accounting arrangements are in place in their companies or groups. For those companies, we want to ensure that the burden of the new requirement will be minimised. It is not intended to introduce a costly and complex bureaucracy for companies when it is not required. However, a small minority of large companies do not have robust systems and processes in place. We want identified individuals—the senior accounting officers—in those companies to take responsibility. We need to be clear whose responsibility it is to put that right.
Amendments 269 to 273, 276, 280 to 282, 287, 289 to 291, 296 to 297 and 300 to 304 relate to the definition of the companies that fall within the scope of the measure. Schedule 46 already provides for the population of companies within the scope of the measure to be restricted by Treasury regulations. However, in the Committee of the whole House my right hon. Friend the Financial Secretary made it clear that, following discussions with representatives of business, we were mindful to restrict the population of companies that fall within the scope of the measure, so that it was broadly limited to those largest companies and groups to whom HMRC has assigned a customer relationship manager.
Mr. Mark Hoban (Fareham) (Con): Can the Exchequer Secretary explain to the Committee why the decision was taken to exclude partnerships from the remit of the measure?
Sarah McCarthy-Fry: Not off the top of my head. If I cannot get an explanation for the hon. Gentleman by the end of my remarks, I will write to him and explain why that decision was made.
Mr. Hoban: May I give the hon. Lady’s officials notice of my next question? Does the measure include mutuals? The Exchequer Secretary will be aware that there is a large number of, say, financial mutuals, building societies and mutual insurers out there who, I suspect, would fall within the definitions of size that the Government will insert in the schedule through their amendments. I would like to know if those companies are included in the scope of the measure or if they are outside its scope.
Sarah McCarthy-Fry: Again, I hope to get back to the hon. Gentleman on that point.
As I was saying, the scope of the measure is broadly limited to the largest companies and groups that have a CRM. The legislation could technically be drafted to define the population as those companies with a CRM. However, it is not appropriate to use defining criteria that rely on HMRC’s administrative practices. Instead, we have identified objective criteria by reference to company turnover and asset value, which will very closely equate to the assignment of a CRM. That means that the measure will encompass the top 2,000 groups of companies.
Mr. Hoban: Given the restricted number of companies that will meet the criteria, can the Exchequer Secretary say to what extent the cost-benefit analysis set out in the regulatory impact assessment should be revised?
Sarah McCarthy-Fry: Once again, I will get back to the hon. Gentleman on that.
Amendment 303 deals with the definition of “group of companies” for the purposes of the legislation. The Government received some representations in informal consultation that the legislation as drafted may have included companies and other entities that we did not want to catch. We have given the matter further consideration and we have introduced a definition that is drawn from existing tax legislation, which will be more familiar to companies and easier for them to work with. The new definition of “group” is set out in the amendment.
Amendments 288 to 298 and amendment 65 concern the definition of “senior accounting officer” for the purposes of the schedule. Who can be and who should be a senior accounting officer has been discussed extensively with interested parties and we are introducing amendments that give more flexibility, so that the legislation is better fitted to some of the situations that can occur in practice. However, the legislation still requires the senior accounting officer to be a person who has overall responsibility for the company’s financial accounting arrangements.
In particular, amendment 298 makes it possible for a director or officer of any group company to fulfil the requirements of the legislation on behalf of another company in that group, or on behalf of the whole group, if the company or companies concerned consider that that person has the appropriate responsibility.
11.45 am
Mr. Hoban: I note the flexibility that amendment 298 will give. The guidance suggests that the senior accounting officer could be based outside the UK. If they are, will they still be liable for the penalty regime that schedule 46 will introduce?
Sarah McCarthy-Fry: It is my understanding that if the company is based in the UK, it is liable for the penalty regime. The exclusion was for foreign companies based outside the UK. My understanding is that a UK-based company that chooses to have a senior accounting officer based outside the UK will still be liable. I will check that to ensure that I understand correctly.
Amendment 65 would go against the trend of the representations from business by narrowing the field of possible candidates to carry out the functions of senior accounting officer. Businesses consistently ask for flexibility and the Government are happy to provide it, as long as the person appointed to be senior accounting officer is appropriately qualified to carry out the role. I therefore ask the Committee to reject that amendment.
I look forward to the debate on this group of amendments. When I sum up, I hope to respond to the points hon. Gentleman raised in his interventions.
Mr. Hoban: It is a pleasure to serve under your chairmanship this morning, Mr. Atkinson.
I welcome my neighbour, the hon. Member for Portsmouth, North, to her new role. As I said last week, we have got used to seeing press releases from the Department for Children, Schools and Families with the Minister’s name attached rebadged as reports in the Portsmouth Evening News. I am looking forward to seeing Treasury press releases on foreign exchange reserves and new appointments to the Monetary Policy Committee being rebadged in that way. It will be interesting to see what coverage such matters get in that august journal.
Mr. Field: Given the longevity of the Minister’s predecessor, a week or a month may be a long time. Indeed, a day is a long time in the hot seat of Exchequer Secretary.
Mr. Hoban: In the week that the hon. Lady was a Minister in the Department for Communities and Local Government, I did not spot a DCLG press release being rebadged for the occasion.
Sarah McCarthy-Fry: Oh, it was.
Mr. Hoban: The hon. Lady clearly got the press machine working. Perhaps she is so keen to get those press releases in the local paper because they might affect her longevity in the post.
I am mindful of your strictures, Mr. Atkinson, that there was a long stand part debate on clause 92 in Committee of the whole House. The amendments flow from that debate. There was wide concern across professional and business bodies about the scope of schedule 46 and the need to restrict it. The amendments reflect those concerns and it is good that the Government listened to them. It would have been better still had the Government consulted on the matter first, rather than put the schedule in the Bill and then table the amendments. The amendments will change the schedule significantly and they reflect the concerns that were raised.
HMRC desires to improve its relationship with large businesses. A conclusion of the Varney report of 2006 on that matter was that there should be clarity through effective consultation and dialogue. If HMRC and the Treasury had embraced that conclusion, they would not have had to table so many amendments to restrict the nature of large groups.
I will deal first with amendment 65. The Minister referred to the representation that HMRC received from business organisations that were supportive of the concept that it should be directors or officers of companies that were senior accounting officers. I argue in amendment 65 that a senior accounting officer should be a director of a company. The Government did not acknowledge in their review the representation from the hon. Member for Coventry, North-West (Mr. Robinson), who was Paymaster General and who played a pivotal role in determining how tax law developed at the start of the Government’s first term in office. In the debate had on the floor of the House, it became clear that the hon. Gentleman’s approach to tax law was, “Bung it in the Finance Bill and amend it in Committee.”—a practice to which the Government seem to have returned with schedule 46. He said that it should be a director who took responsibility:
“The point of the person being on the board, as opposed to being an officer, is that being on the board carries certain specific personal liabilities. The chief financial officer or the person with tax responsibilities might in many cases be taken off the board precisely so that they avoid that sort of responsibility, which a directorship carries with it.”—[Official Report, 13 May 2009; Vol. 492, c. 885.]
The Financial Secretary did say that he would look at that important point. Why did the Government ignore it?
There is an issue for directors in that they have particular responsibility for the stewardship of a business. We have seen that a lot over the past weeks and months. There are obligations that go with being a board director and one would expect the senior accounting officer of a company of the relevant size and status to be a director. It would be very odd for such a company not to have a finance director. A senior accounting officer always being a board member tightens up the measure and focuses responsibilities on the board. It is important, and the Minister may say that professional bodies have argued for flexibility but sometimes Parliament needs to take a view. I am pleased that the hon. Member for Coventry, North-West and I seem to share a common view on the matter.
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