Session 2010-11
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General Committee Debates
Delegated Legislation Committee Debates

Insurance Premium tax (Discounted Insurance Premiums: Higher Rate)
Order 2011
Draft Enactment of Extra-Statutory concessions Order 2011

The Committee consisted of the following Members:

Chair: Dr William McCrea 

Anderson, Mr David (Blaydon) (Lab) 

Birtwistle, Gordon (Burnley) (LD) 

Doran, Mr Frank (Aberdeen North) (Lab) 

Doyle-Price, Jackie (Thurrock) (Con) 

Gauke, Mr David (Exchequer Secretary to the Treasury)  

Goodwill, Mr Robert (Scarborough and Whitby) (Con) 

Hanson, Mr David (Delyn) (Lab) 

Harrington, Richard (Watford) (Con) 

Joyce, Eric (Falkirk) (Lab) 

Lord, Jonathan (Woking) (Con) 

Mills, Nigel (Amber Valley) (Con) 

Mitchell, Austin (Great Grimsby) (Lab) 

Offord, Mr Matthew (Hendon) (Con) 

Skinner, Mr Dennis (Bolsover) (Lab) 

Smith, Mr Andrew (Oxford East) (Lab) 

Syms, Mr Robert (Poole) (Con) 

Williams, Stephen (Bristol West) (LD) 

Wilson, Sammy (East Antrim) (DUP) 

Mark Oxborough, Committee Clerk

† attended the Committee

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Sixth Delegated Legislation Committee 

Tuesday 22 March 2011  

[Dr William McCrea in the Chair] 

Insurance Premium Tax (Discounted Insurance Premiums: Higher Rate) Order 2011 

10.30 am 

The Exchequer Secretary to the Treasury (Mr David Gauke):  I beg to move, 

That the Committee has considered the Insurance Premium Tax (Discounted Insurance Premiums: Higher Rate) Order 2011(S.I. 2011, No. 661). 

The Chair:  With this it will be convenient to consider the draft Enactment of Extra-Statutory Concessions Order 2011. 

Mr Gauke:  It is a great pleasure to serve under your chairmanship, Dr McCrea. As some members of the Committee might be aware, the orders before us are a further step in Her Majesty’s Revenue and Customs’ continuing review of extra-statutory concessions. They put eight HMRC extra-statutory concessions, commonly known as ESCs, on a statutory footing. The need to legislate to retain the tax reliefs provided by the ESCs arises following clarification of HMRC’s administrative powers, which was provided by the courts in the Wilkinson case. 

There are two orders before us. The Insurance Premium Tax (Discounted Insurance Premiums: Higher Rate) Order 2011 retains an ESC that avoids an excessive rate of insurance premium tax where motor or domestic appliance warranty insurance is provided by intermediaries at discounted rates. The draft Enactment of Extra-Statutory Concessions Order 2011 retains the effect of seven ESCs, of which perhaps the most well known is the equitable liability concession, at articles 2 to 5 of the order. 

I welcomed the previous Government’s decision, during our last debate on ESCs, to respond positively to representations about the proposed withdrawal of the equitable liability concession and retain that useful protection for taxpayers. Therefore, I am pleased to be able to bring these measures before the Committee for consideration. 

The Committee will see that the equitable liability concession is to be legislated as special relief, which forms part of the income tax and corporation tax self-assessment overpayment relief provisions. Special relief is designed to preserve a useful safety valve in the tax system, particularly for vulnerable taxpayers who have difficulty engaging with the system, and so cannot understand or comply with their obligations. It provides those taxpayers with a final opportunity to bring their affairs up to date. 

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The other six concessions in the ESC order are also significant as they preserve the benefits of concessions that, although relevant to only a small minority of taxpayers, are important safeguards to ensure that tax operates fairly and consistently. The decision to legislate to maintain the effect of those six ESCs was welcomed by consultees. The benefit to the Exchequer if all the ESCs being legislated on today were withdrawn would be minimal—certainly less than £10 million per annum. On the whole, they simplify the tax system by removing anomalies, rather than adding to its complexity. Equitable liability also provides a useful safeguard for vulnerable taxpayers. 

The orders have been fully consulted upon, and I am grateful to all who commented on the drafts for their assistance in improving them. I am particularly pleased that on equitable liability the Chartered Institute of Taxation has said : 

“We are very pleased that this Government has honour(ed) the commitment given by the previous administration to legislate… this concession, of all the extra statutory concessions, is one that very definitely needs to be retained by putting into statute”. 

That reflects the support that these measures have among taxpayers and their representatives. 

The Wilkinson review continues, and I expect further such orders and more withdrawals by HMRC. I cannot yet say when HMRC will complete the review. Some of these minor tax reliefs started as concessions rather than legislation precisely because they were difficult to formulate in law. That makes the work to draft and consult on them time consuming. If the Committee agrees to the motion, the insurance premium tax order, being a 28-day order, will come into force on 1 April. The ESC order, which is in draft, will be made quickly to ensure that it can come into force on 1 April. That is particularly important for the legislation at articles 12 and 13, dealing with wear-and-tear allowances, which must be aligned to a tax year, as they involve an annual election. 

The two orders are necessary so that worthwhile tax reliefs and useful safeguards can continue to be available to taxpayers, and I commend them to the Committee. 

10.35 am 

Mr David Hanson (Delyn) (Lab):  It is a pleasure to serve once again under your chairmanship, Dr McCrea. As the Minister has explained, the orders are a further step in the HMRC review of extra-statutory concessions and they have the broad support of the Opposition. As he also outlined, the decision of the Court in the Wilkinson case in the House of Lords has meant that we have had to consider clarifying the scope of HMRC’s discretion. That consideration has established that that discretion is narrower than was previously thought. As a result, there has been a review of the concessions, and the orders before the Committee, as well as previous measures, have been designed to regularise that aspect with respect to the Wilkinson case. 

As the Minister said, there was a discussion about several of these matters before the general election. Indeed, I note that when he was in opposition, we had a discussion on these matters in Committee that lasted about 14 minutes. We might well beat that time today—who knows? 

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The Minister knows that the equitable liability concession was a key issue, and that my right hon. Friend the Member for East Ham (Stephen Timms), when he was a Minister, reviewed that measure and listened to the concerns raised. Indeed, the measure has been included in the legislation that we are considering based on that cross-party agreement. We support the order on that basis. 

I have one question on the equitable liability concession. A consultation took place, and the Minister published the responses to it on 8 March. Concern was expressed about the ability to appeal on the concession in relation to a claim being rejected either for being incomplete or because it does not meet the entry tests. I would welcome clarification of his assessment of the right of appeal on those issues. I read that those who were concerned about such matters could seek judicial review, but that approach seems rather heavy handed. I would welcome clarification as to how appeals will be taken, so that we can at least put on record the concerns that were addressed in the consultation review. 

I shall raise one other issue if I may, Dr McCrea. A decision has been taken to defer A10, which is lump sums paid under overseas pension schemes’ income tax. I would be grateful if the Minister told the Committee the timeline—what he expects—for alternative legislation to be introduced on the deferral of A10. Does he expect that to be in the forthcoming Finance Bill, which we shall consider shortly, following the Budget? 

The Minister anticipated one question that I intended to ask, which is the cost to the Treasury of the concessions. I am pleased he has dealt with that. Notwithstanding the two points I have made, we are content with the orders, which I commend to my hon. and right hon. Friends. 

10.38 am 

Mr Gauke:  I thank the right hon. Gentleman for his support for the orders. He is right to say that there is a cross-party consensus. Initially, under the previous Administration, equitable liability was going to be lost. Considerable concern was raised by some of the professional bodies, and we raised our concerns on the point. He is correct that, when I was performing his role, I welcomed the decision by the right hon. Member for East Ham to ensure that the equitable liability concession could continue. 

The right hon. Member for Delyn also raised the issue of appeals in circumstances where special relief applies, which is how we are taking this forward. Where HMRC is unsure from the information provided with a claim whether the taxpayer qualifies for special relief, it will open an inquiry into the claim. If a taxpayer

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disagrees with HMRC’s conclusions at the end of an inquiry, they will be able to appeal to the tax tribunal. However, if HMRC says an attempted claim is unsatisfactory, it is not possible to open an inquiry at that time—for example, if the attempted claim is not in the correct format and so does not contain all the information necessary for HMRC to identify it as a claim to special relief. 

In those circumstances, the taxpayer will be told why their attempt is unsatisfactory, and so will be able to submit a claim in the correct format, which may then be inquired into. If the conditions cannot be met then the claim cannot proceed. As in all cases, the claimant can complain to HMRC or the adjudicator, or seek a judicial review if he believes that HMRC has not acted in accordance with the law. I hope that that provides a little clarity for the right hon. Gentleman. 

The right hon. Gentleman also raised the issue of ESC A10 not being legislated for at this time. Since the publication of the consultation document, it has become necessary to defer plans to legislate to retain the effect of A10. He is right to draw that to the Committee’s attention. New legislation being introduced in the 2011 Finance Bill to tackle third-party arrangements that seek to avoid or defer the payment of income tax or national insurance contributions due on employment income has required a substantial reconsideration of the scope of the draft legislation. 

Legislation replacing that concession will be introduced at the first appropriate opportunity. I am afraid that I cannot be more precise than that at the moment, but in the meantime, ESC A10 may continue to be used in its current form. I hope that that provides some reassurance to the right hon. Gentleman and to the Committee. Subject to those points of clarification, which I hope the Committee has found helpful, I ask hon. Members to agree to the motion. 

Question put and agreed to.  


That the Committee has considered the Insurance Premium Tax (Discounted Insurance Premiums: Higher Rate) Order 2011 (S.I. 2011, No. 661). 

Draft Enactment of Extra-Statutory Concessions Order 2011


That the Committee has considered the draft Enactment of Extra-Statutory Concessions Order 2011.—(Mr Gauke.)  

10.42 am 

Committee rose.