Sarah
McCarthy-Fry: As I said, the schedule changes the error or
mistake rules for repayment of overpaid income tax, capital gains tax
and corporation tax. Error or mistake relief is intended to provide a
final opportunity for taxpayers to reclaim overpaid tax. The changes
modernise the system and simplify the recovery of overpaid income tax,
capital gains tax and corporation tax. The provisions widen the relief,
and the requirement that the tax must have been paid on the assessment
as a result of a mistake on a return is removed. Claims will not be
possible unless there are no other statutory steps that can be taken to
reclaim an overpayment. Taxpayers’ safeguards are improved, and
aligned more closely with the indirect tax error correction provisions,
which cuts burdens for taxpayers and HMRC.
6.30
pm After
a transitional period to enable claims to be made under the previous
regime, the changes will apply to claims made on or after 1 April 2010
and repayment claims will be subject to the ordinary four-year time
limit. As I said earlier, the proposed changes have been exposed
informally to external stakeholders, who responded
positively. The
hon. Member for South-West Hertfordshire asked a specific question that
I do not have the answer to, but I am more than happy to write to
him. Question
put and agreed
to. Schedule
52 accordingly agreed
to.
Clause
100Late
payment interest on sums due to
HMRC Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: I have a question about subsection (9), which
states: “For
the purposes of this section any reference to the payment of an amount
to HMRC includes a reference to its being set off against an amount
payable by HMRC (and, accordingly, the reference to the date on which
an amount is paid includes a reference to the date from which the
set-off takes
effect).” How
will interest be assessed when setting off? If the amount is to be
treated as paid when the offset takes effect, it appears that if HMRC
delays making the set-off, the taxpayer may incur an additional
interest charge because of the differential in the interest rates that
apply. When the taxpayer owes money, a higher interest rate applies
than when HMRC owes money to the taxpayer. Consequently, if there is a
delay in the date of setting off, it is to the financial advantage of
HMRC and, correspondingly, to the financial disadvantage of the
taxpayer. The concern has been put to us that subsection (9) gives HMRC
more flexibility than it should have in determining the date on which
the set-off takes effect. I should be grateful for the
Minister’s assurance that the clause will not be used to leave
taxpayers out of
pocket.
Sarah
McCarthy-Fry: In the Finance Act 2008, the Government
introduced legislation covering the set-off of sums that HMRC must
repay against debts it is owed. Setting off reduces the administrative
cost to both parties by cutting down the number of unnecessary
transactions. A creditor’s right to set off mutual debts is
founded in common law and enshrined for HMRC taxes in section 130 of
the Finance Act 2008. Under common law, such liabilities are not
discharged until payment is made, whether by circulation of actual cash
or cheques, or by an appropriate adjustment in the creditor’s
books. Clause 100 sets out clearly that both late payment and repayment
interest runs until the amount is repaid and the date of payment is the
date on which any set-off takes effect. I assure the hon. Member for
South-West Hertfordshire that HMRC always seeks to make repayments
promptly. Question
put and agreed
to. Clause
100 accordingly ordered to stand part of the Bill.
Schedule
53 agreed
to. Clause
101 ordered to stand part of the
Bill. Schedule
54 agreed
to.
Clause
102Rates
of
interest Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: I rise not merely to note that we have managed to
make it into triple figures, but to ask the Minister a question that
relates to the issue of differential rates that I raised under clause
100. As I understand it, those who owe money to HMRC pay a higher rate
of interest than HMRC pays taxpayers to whom it owes money. Does the
Minister have any figures on the benefit to the Exchequer of those
differential rates? What is the policy on interest rates here? In a
period in which interest rates are low, has any consideration been
given to setting a minimum interest rate for taxpayers owed sums of
money, and where does the Exchequer Secretary see the policy on
interest rates going
forward?
Sarah
McCarthy-Fry: The clause is a further part of the package
of provisions that will create a new harmonised interest rate regime.
It creates the vires for secondary legislation to be made that will set
the rates of interest to be charged and paid under the new regime.
Regulations will provide for a harmonised interest rate that is aligned
across the taxes and offers both transparency and consistency in
approach. Government estimates of the potential difference between what
is currently charged and paid and future amounts under the new regimes
show a negligible difference in the years scored until 2012-13. The aim
is not to raise revenue but to offer a regime that is based on
recompense, fairness and simplicity.
The
regulations will also provide for rates that will apply to interest
charged on late-paid taxes and paid on overpayments. The rates
themselves will track all changes in the Bank of England base rate,
with one rate charged on late-paid taxes and a further rate paid on
overpayments. Rate changes will apply 13 days after any rate changes
announced by the Monetary Policy Committee, to allow for systems to be
updated with the new rate. The two rates will apply to all taxes with
the exception of those companies paying under the quarterly instalment
payments arrangements, which will continue to have their own rates.
Basing the harmonised interest rates on the Bank of England base rate
was warmly welcomed by respondents to the consultation process as it
offered a transparent basis for setting the rate that could be clearly
understood by taxpayers. Regulations will also provide for the setting
of a repayment interest floor of 0.5 per cent. That is intended to
ensure that even when the Bank of England base rate reaches zero, the
rate of repayment interest paid by HMRC will never reach
zero. The
Government also intend to make regulations under existing powers that
mirror the new harmonised rates, following Royal Assent, in order to
align existing rates until full harmonisation of the regimes begins.
The clause forms an important part of the provisions needed to
introduce a new harmonised interest regime that will bring benefits to
taxpayers, their advisers and
HMRC. The clause itself will provide for rates that are set in a
transparent way, are clearly based on recompense and are fair and
simple to
understand. Question
put and agreed
to. Clause
102 accordingly ordered to stand part of the
Bill. Clause
103 ordered to stand part of the
Bill.
Clause
104Miscellaneous
amendments
Sarah
McCarthy-Fry: I beg to move amendment 307, in
clause 104, page 52, line 17, at
end insert— ‘( ) In the
following provisions, for the words from “the same rate”
to the end substitute “the rate applicable under section 178 of
the Finance Act
1989”— (a)
section 48(1) of FA 1975 (interest on repayment of estate duty),
and (b) section 235(1) of IHTA
1984 (interest on overpaid inheritance
tax). ( ) In section 178(2) of
FA 1989 (setting of rates of
interest)— (a) after
paragraph (g)
insert— “(ga)
section 48(1) of the Finance Act 1975,”,
and (b) in paragraph (k), after
“sections 233” insert “,
235(1)”.’. This
amendment and the clause to which it relates make changes to the
existing interest regime, setting the scene for the long-term
introduction of interest harmonisation. Subsections (1) to (3) bring
the due dates for the withdrawal of any income tax relief under the
enterprise investment scheme in line with the due date for income tax.
The removal of that difference will provide greater consistency and
certainty for
taxpayers. Amendment
307 introduces two new subsections to this clause after subsection (3).
The amendment is required to ensure that interest is charged and paid
on estate duty and inheritance tax at the same rates as interest for
other taxes. We announced at Budget 2009 our intention to align
interest rates where interest is currently charged and paid, with a
differential between the rate charged and paid, after the Bill receives
Royal
Assent. However,
the existing legislation provides that repayment interest for
inheritance taxes should be paid at the same rate as interest charged
on late payments. The amendment removes that anomaly and will ensure
that rates charged and paid can be harmonised across taxes. Those
responding to the consultation on the new interest harmonisation
proposals were in favour of harmonising rates across taxes and the
majority also recognised the need to have a differential between the
rate charged and paid.
These
changes reflect the same principles used for interest harmonisation and
as such provide recompense, fairness and simplicity. I urge the
Committee to accept the amendment.
Amendment
307 agreed
to. Clause
104, as amended, ordered to stand part of the
Bill.
Clause
105Penalties
for failure to make returns
etc Question
put, That the clause stand part of the
Bill.
Mr.
Gauke: I rise to speak to clause 105 but it could be
clause 106 because my question relates to their interaction. A penalty
is chargeable for both failure to make a return, under clause 105, and
failure to pay tax, under clause 106. Concern has been put to us that
there is an issue of double charging in a failure to make a return and
failure to pay tax due on the same return. This point was considered
during consultation, with HMRC concluding that two distinct penalties
are required in order to encourage both payment and filing on time. It
appears, however, that there is scope for taxpayers to be charged
penalties of more than 100 per cent. of the tax due, in the event that
a return is not filed within 12 months and payment is
delayed by the same
period. The
concern is that this will impact most significantly on the
unrepresented taxpayer who is not aware of his obligations. I know that
HMRC has indicated in consultation that work is ongoing to ensure
education and support for those taxpayers but there are no safeguards
in the Bill. I would be grateful if the Economic Secretary reassured
the Committee about how these two separate penalties—for late
filing and late payment—will interact. I also ask him, with
regard to clauses 105 and 106, to say a word or two about
implementation of the regime. I understand that HMRC has indicated in
consultation that the regime will be introduced by statutory instrument
on a staged basis, with the first area to be addressed being late
returns and late payment of PAYE through the year. The intention is
that it will be applied to the worst offenders first, on a
risk-assessment basis. There is no provision in the legislation to
enable such an approach to be taken. Clearly, HMRC has not laid out its
approach in primary legislation, but perhaps the Minister might say a
word or two about how the provisions made under clauses 105 and 106 are
to be
implemented.
Ian
Pearson: The clause introduces schedule 55, which provides
for penalties for late filing of tax returns. I appreciate the point
raised by the hon. Member for South-West Hertfordshire and the fact
that he might have raised it under clause 105 or 106, or perhaps at
other opportunities. It enables the Treasury to make an order to bring
into force the whole schedule or parts of the schedule for specified
circumstances. It also allows the Treasury to make incidental,
supplemental, consequential, transitional, transitory or saving
provisions by order, as appropriate, to give proper effect to the
schedule. The hon. Gentleman asked about the interaction of penalties
in the Bill. Any tax-geared penalty is reduced by any other tax-geared
penalty charged by reference to the same amount of
tax. Safeguards
outlined in the legislation include a right of appeal to an internal
review and an independent tribunal against all penalties; a common
legislative formulation of reasonable excuse, aligned across taxes,
which is similar to that devised for penalties in the Finance Act 2008;
provision in law for reduction of penalties in special circumstances
not otherwise covered; and improved accessibility to appeals by
specifically ensuring that penalties do not need to be paid in advance
of any
hearing. The
hon. Gentleman also raised the question about implementation and why it
is not in the Bill. As he is aware, these are major changes which we
believe are most appropriately introduced sequentially. He referred to
the fact that we will take a risk-based approach.
Implementation does need to consider HMRC’s capacity and resource
issues. Also, introducing change too quickly for taxpayers and their
advisers could be problematic. We want to make progress, and the hon.
Gentleman will be aware of the broader package of reforms that are
being introduced. We think that we are getting the balance right in
this area. If he has any further points that he wants to make on the
schedule or on clause 106, I will happily address
them. Question
put and agreed to.
Clause
105 accordingly ordered to stand part of the
Bill.
Schedule
55Penalty
for failure to make returns
etc 6.45
pm
Ian
Pearson: I beg to move amendment 308, in
schedule 55, page 400, line 30, after ‘P’,
insert
‘first’.
The
Chairman: With this it will be convenient to discuss
Government amendments 309 to
311.
Ian
Pearson: Amendments 308 to 311 relate to paragraph 13 of
schedule 55, which provides for fixed sum penalties incurred by persons
who fail to make a first construction industry scheme return by the due
date to be capped at £3,000. The purpose of the cap is to
prevent disproportionate results from an accumulation of fixed sum
penalties if someone is late joining the CIS, which has monthly return
filing obligations. The cap is a response to concerns expressed about
the current CIS penalty regime, and the four amendments are designed to
ensure that the taxpayer protection works as intended. It is more
generous than what was in the Bill as originally published, and I
believe that it has been welcomed by the
industry. Amendment
308 makes it clearer that the provision applies only during periods
starting from when a person should have made the first return under the
CIS, so a person who has been making returns in the scheme for several
months and then stops making returns, even for a prolonged period,
would not be subject to the
cap. Paragraph
13 of the schedule caps only the fixed sum penalties but does not
restrict tax-geared penalties, even if they are the minimum value of
£300, where no payment is due. Therefore, for those who have
very small or nil liabilities, but who still need to make a CIS return,
the protection of the cap was not as generous as intended by the
Government. Amendments 309 and 310 disapply the minimum value of
£300 for the tax-geared penalties where the cap
applies. Amendment
311 defines more clearly the circumstances in which the cap applies. It
does so by refining the definition of “earlier return” to
be those with a filing date earlier than when a first return is made,
rather than when it is due to be filed. It corrects a technical
deficiency in the
drafting. I
believe that the amendments have been welcomed by industry and
therefore ask the Committee to accept
them. Amendment
308 agreed to.
Amendments
made: 309, in schedule 55, page 400, line 34, leave out
‘P is not
liable’. Amendment
310, in schedule 55, page 400, line 35, after ‘applies’
insert— ‘(a) paragraphs
10(2)(b) and 11(5)(b) do not apply,
and (b) P is not
liable’. Amendment
311, in schedule 55, page 400, line 37, leave out from first
‘the’ to end of line 38 and insert
‘date on which P first made a
return’. —(Ian
Pearson.) Schedule
55, as amended, agreed to.
Clause
106 ordered to stand part of the
Bill.
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