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Sarah McCarthy-Fry: I shall respond briefly to amendment 225, about which the hon. Gentleman spoke. It is important to note that the measure is different because we are talking about the underlying systems and processes. We should have that distinction. All of these companies will have a customer relationship manager. That relationship is important to make sure that such matters are properly discussed with business. I still ask the hon. Gentleman to withdraw the amendment.
The Chairman: There is no need to do that. We just need to deal with the amendment itself.
Amendment 219 agreed to.
Amendment made: 273, in schedule 46, page 339, line 18, leave out ‘large’ and insert ‘qualifying’.—(Sarah McCarthy-Fry.)
Sarah McCarthy-Fry: I beg to move amendment 220, in schedule 46, page 339, line 19, leave out ‘Type A or Type B’.
The Chairman: With this it will be convenient to discuss the following:
Government amendment 274
Amendment 221, in schedule 46, page 339, line 21, leave out subsection (2).
Amendment 222, in schedule 46, page 339, line 24, leave out ‘Type B’.
Government amendments 275, 278 and 279.
Sarah McCarthy-Fry: The first group of amendments is concerned with the certification requirement set out in the schedule, including the requirement in the original draft for senior accounting officers to notify the company’s auditors, where needed, of the respects in which the company’s tax accounting arrangements are not appropriate.
On the question of certification, Opposition amendments 220, 221 and 222 all deal with the arrangements for certifying to the commissioners of HMRC that appropriate tax accounting arrangements are in place, or otherwise reporting the respects in which those arrangements are not appropriate. The broad effect of the amendments is to enable certification to be achieved by a single dual-purpose certificate. The intention to accommodate was raised by my right hon. Friend the Financial Secretary during the Committee of the whole House, and parliamentary counsel was instructed accordingly. Opposition amendment—sorry, Government amendment 220 is identical to that drafted by counsel. The associated amendments 275, 278 and 279 have the same practical effect as Opposition amendments 221 and 222. So I ask the Committee to accept amendments 275, 278 and 279, which would make amendments 221 and 222 unnecessary.
Mr. Hoban: I am delighted that the Government have added their name to my amendment 220. It is right for the Government to do so. That is yet another example of the failure of the Government to think through carefully what they were trying to achieve for business. Instead, they created a situation in which there were two certificates—perhaps the measure was inspired by those old telephone kiosks where one had to press A or B when making a call.
John Robertson: A long time ago.
Mr. Hoban: It was indeed a long time ago—in the dim and distant recess of my memory. It seemed entirely pointless to have two different certificates: one to say that someone had complied and one to say someone did not comply. I could not—I do not think anyone else could—understand just quite why the Government thought that was a good idea in the first place. That is why we made the point in the Committee of the whole House, and why we were pleased when the Treasury conceded that point.
We are grateful that the Government have taken up the issue. Once again, it shows the merits of getting a consultation right. The Minister says, “We have listened and therefore we have changed the Bill,” but it would have been better to have listened first, thought about the legislation and got it right first time. That would have avoided the damage to the relationship between HMRC, the Treasury and business as a result of putting provisions in the Bill when no one had really thought about their practical implications.
Mr. Bone: Given that the Prime Minister has talked about greater openness and transparency and said that he is going to listen to people and consult more, it is disappointing that the Government have turned this into a Government amendment rather than accepted it as an Opposition amendment. It would have shown us the new spirit that the Prime Minister wants to generate. I am so disappointed that the Treasury team has not taken up the Prime Minister’s advice.
Amendment 220 agreed to.
Amendments made: 274, in schedule 46, page 339, leave out lines 21 to 25 and insert—
‘( ) The certificate must—
(a) state whether the company’.
Amendment 275, in schedule 46, page 339, line 28, leave out ‘giving’ and insert ‘if it did not, give’.
Amendment 276, in schedule 46, page 339, line 29, leave out ‘and its subsidiaries (if any)’.
Amendment 277, in schedule 46, page 339, line 30, leave out from ‘arrangements’ to end of line 32.
Amendment 278, in schedule 46, page 339, line 36, after third ‘the’, insert ‘company’s’.
Amendment 279, in schedule 46, page 339, line 38, at end insert—
‘( ) A certificate may relate to more than one qualifying company.’.
Amendment 280, in schedule 46, page 339, line 40, leave out ‘large company must notify the Commissioners’ and insert
‘qualifying company must ensure that the Commissioners are notified’.
Amendment 281, in schedule 46, page 340, line 3, after third ‘the’, insert ‘company’s’.
Amendment 282, in schedule 46, page 340, line 6, at end insert—
‘( ) A notification may relate to more than one qualifying company.’.
Amendment 283, in schedule 46, page 340, line 14, leave out paragraph 6.
Amendment 284, in schedule 46, page 340, leave out lines 37 to 40.
Amendment 285, in schedule 46, page 341, line 6, leave out ‘2 or’.
Amendment 286, in schedule 46, page 341, line 7, leave out ‘6 or’.
Amendment 287, in schedule 46, page 341, line 11, leave out ‘large’ and insert ‘qualifying’.
Amendment 288, in schedule 46, page 341, line 11, leave out ‘it fails to notify the Commissioners of the name’ and insert
‘, for a financial year, the Commissioners are not notified of the name or names’.
Amendment 289, in schedule 46, page 341, line 16, leave out ‘large’ and insert ‘qualifying’.
Amendment 290, in schedule 46, page 341, line 30, leave out ‘large’ and insert ‘qualifying’.
Amendment 291, in schedule 46, page 341, line 40, after third ‘the’ insert ‘company’s’.
Amendment 292, in schedule 46, page 341, line 41, at end insert—
‘( ) HMRC may not assess a person who is the senior accounting officer of a company (“C”) as liable to a penalty under paragraph 5 or 7 for a financial year (“the relevant financial year”) if—
(a) at any time in the relevant financial year the person was the senior accounting officer of another company that was a member of the same group as C, and
(b) HMRC has assessed the person as liable, as the senior accounting officer of the other company, to a penalty under that paragraph for a financial year that ends on a day in the relevant financial year.
( ) HMRC may not assess a company (“C”) as liable to a penalty under paragraph 9 for a financial year (“the relevant financial year”) if—
(a) C was a member of a group at the end of that year, and
(b) HMRC has assessed another company that was a member of the same group as C at that time as liable to a penalty under that paragraph—
(i) for its financial year ending on the same day as the relevant financial year, or
(ii) if its financial year does not end on that day, for its financial year ending last before that day.’.
Amendment 293, in schedule 46, page 342, line 25, leave out ‘6,’.—(Sarah McCarthy-Fry.)
Mr. Hoban: I beg to move amendment 268, in schedule 46, page 343, line 2, leave out paragraph 16 and insert—
‘15A The Treasury may by regulations define “appropriate tax accounting arrangements”.’.
The Chairman: With this it will be convenient to discuss the following:
Government amendment 294
Amendment 226, in schedule 46, page 343, line 4, after ‘calculated’, insert ‘reasonably’.
Government amendment 295
Amendment 227, in schedule 46, page 343, line 8, at end insert—
‘(4) Accounting arrangements are to be regarded as enabling the liability to taxes and duties of the company to be calculated reasonably accurately if the accuracy with which those liabilities can be calculated is within the normal bounds of materiality as that principle is defined for accounting purposes.’.
Mr. Hoban: This is the final group of amendments relating to schedule 46. Its substance stems from the debate on materiality that we had in the Committee of the whole House. It seems that the Government have moved beyond the position that they enunciated then. The issue is important because where one strikes the line on what is material in a tax computation or a tax return determines the exposure to penalties of the senior accounting officer. What was seen to be missing from the legislation as drafted was any concept of materiality. We pushed the Financial Secretary on the matter in the debate in the Committee of the whole House. I thought, at that point, that the Financial Secretary was loath to move. When I raised the point of materiality, he said that
“companies already have an obligation to deliver correct and complete returns. The measure ensures that the minority of senior accounting officers who do not oversee systems that generate correct and complete computations take responsibility for addressing that. That is the level of the bar that we envisage applying.”—[Official Report, 13 May 2009; Vol. 492, c. 886.]
I had no doubt that that meant 100 per cent. accuracy. I pushed the Minister again and he came up with the same example that the Exchequer Secretary used earlier about this apparently large company that had systemic errors, which we have only just got to the bottom of.
So, there is an important issue of principle here. What we must bear in mind is the obligation to keep proper accounting records that directors are already subject to under the Companies Act 2006. Section 386 of the 2006 Act imposes a duty to keep adequate accounting records
“to disclose with reasonable accuracy, at any time, the financial position of the company at that time”.
That obviously includes the tax liabilities to which the company has been subject. There are penalties that relate to a failure to comply with that duty. So, a mechanism is already in place to ensure compliance.
The Bill, as drafted in paragraph 16 of the schedule refers to “appropriate tax accounting arrangements”. Amendment 268 seeks to provide a definition of tax accounting arrangements through secondary legislation, so that the senior accounting officer will know exactly what are “appropriate tax accounting arrangements”.
12.45 pm
One option would be to omit the current vague definition and divert to regulation, which would give time for proper consultation; instead, it has been rammed into the Finance Bill, with the Department hoping that everything works out for the best. Including a regulation-making power would give the Treasury time to think carefully and consult business properly; it would allow due process. Alternative methods are suggested in amendment 226, which would inset the word “reasonably” in paragraph 16(2)—that would go some way to introducing the concept of materiality—and amendment 227, which would add a new sub-paragraph.
The Government have listened to the argument and understood the strength of the representations made by the Committee of the whole House and others about materiality. The draft guidance now starts to approach that question, which I welcome. A commonly accepted definition of materiality relates to what is in the accounting standards. However, the final sentence of paragraph 61 of the draft guidance says of the standards that
“They should not be interpreted as imposing any higher standards than are already required when preparing returns but neither does the phrase ‘in all material respects’ import the concept of accountancy or audit materiality into the legislation.”
Given that tax return completions have to be signed off as being accurate, why have another test on the certificate to say that the systems are accurate? It would lead to needless duplication—unless one is introducing a new definition of materiality.
The senior accounting officer might breathe a sigh of relief on hearing that “material respects” had been introduced, but paragraph 62 of the guidance does not give anything more concrete. It states:
“The reference to ‘material respects’ along with the use of the words ‘appropriate’ and ‘reasonable’ within the legislation does however make it clear that the focus is on the significance of the transaction, system or tax and the relative size of these items in terms of the business.”
No guidance has been given on relative size. The guidance goes on to say that
“HMRC are not interested in small or insignificant errors and this fits with our policy of focusing on significant risks.”
Again, no guidance is given on what is meant by “small or insignificant”.
The question is what further clarity the Government are seeking to give through this change. They have disregarded the conventional accounting and auditing definition of materiality, and they have introduced some clarification in paragraph 62 of the draft guidance; but it seems that materiality rests somewhere between the accounting and auditing definitions. It should be a little more significant than the language now used to sign off tax returns and computations.
I return to the example given by the Financial Secretary. I raised the issue of systemic calculations, wondering whether it would be a problem if each computation or transaction was a penny out. The guidance now reflects that, so I can see that there has been at least some outcome from my raising the issue. However, there is the question of what happens with systemic errors, and how big they must be to be noted and disclosed to Inland Revenue.
This is a major U-turn by the Treasury, which has now accepted that maturity has a role to play in the sign-off by the senior accounting officer. It has been a bit more specific than the current guidance about what that actually means in practice for businesses.
Government amendment 295 relates to an issue that has been raised by several bodies that are concerned about the kind of taxes that might be brought within the scope of the measure. No taxes were excluded from the original clause, so the fact that the Government have been specific about which taxes should be the focus of the accounting certificate is welcome. To be fair to the Government, on page 5 of the guidance they have also excluded certain taxes, duties and liabilities explicitly, including things such as the child trust fund, life assurance premium relief, the unclaimed asset scheme and the European savings directive, and any requirements that come from them.
I welcome the greater clarity that amendment 295 gives, but I think that the Government need to go a little further in providing some clarity on amendment 294 so that there is a much clearer understanding in the minds of senior accounting officers as to what “material respects” actually means.
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