| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Higgins: I am somewhat mystified. I am not sure if I lured the noble Lord into a sense of false security. His reply seems to be based on Amendments Nos. 21, 23 and 24, to which we have not yet come. I certainly expect to raise the question of accountancy treatment of these matters at that stage, but I was seeking with these amendments--and with Amendment No. 19 particularly--to clarify the position with regard to the question of why subsection (2) of Clause 5, which says it has been netted off before it is paid in, is necessary. Also, I was not quite clear as to why they would be receiving amounts in respect of tax credits. They would presumably be receiving amounts in respect of tax credits that had been wrongly paid. If that is the purpose of subsection (c), I understand that. But, as this is about administration enforcement, I did not think it raised the broad issues the noble Lord was surprised I did not raise with him.
We shall come to the accountancy points a little later and on those we shall need to pursue the matter. I was simply puzzled as to why it was necessary to have
subsection (2), which, in order to raise the matter, I sought to delete, in order for the matter to operate correctly.
Lord McIntosh of Haringey: It was because the effect of these amendments taken together would call into question the whole way in which we propose to deal with the issue. If I had followed the noble Lord in taking a narrow and technical view, I should have been doing less than justice to the effect of his amendment.
As I said, Amendment No. 19 would prevent the Revenue paying tax credits out of the money it takes in. That would be madness. Money would come from the Revenue to the employer in order to pay tax credits while, at the same time, money was coming from the employer to the Revenue in payment of his PAYE and national insurance contributions obligations. That is why we are doing it by netting out and that is what Amendment No. 19 would make impossible.
Amendment No. 25 would require the Inland Revenue to apply to Parliament for the necessary money by way of a vote. As I explained, a much better way to do it is the way we actually propose; that is, to have the detailed accounts which the Inland Revenue has to produce every year and on which this would be a separate account. Paradoxically, Amendment No. 22 would remove the obligation on the Inland Revenue to reflect the money in its accounts. That is why I took the amendment more seriously than the noble Lord appears to take his own amendment.
Lord Higgins: I take the amendment perfectly seriously. However, I will need to consider carefully what the noble Lord has said and study his response. We are clearly somewhat at cross purposes here. It is perhaps a little late at night to pursue the matter in detail. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins moved Amendment No. 20:
The noble Lord said: This is rather an important amendment in contrast to the previous one. We are concerned here with the fact that the board's officials should be,
The noble Baroness has assured us that all this will be worked out by the Inland Revenue and that it will inform employers exactly how much to pay out as regards each individual. Indeed, the Revenue will do all the calculations, and so on, and the information will arrive on time so that the employer can take it into account and make the necessary payments.
In other parts of the Bill we come across a complicated system about netting it off, which means that the other receipts that the employer is receiving by way of national insurance contributions or, indeed, income tax are netted off against the tax credits to which some people will be entitled. One of the points which concerns us is whether in reality, given the recent problems with computers, it will be feasible for the Inland Revenue to carry out these functions. However, perhaps the Minister can tell us whether it is to be done on a 26-week basis rather than on a weekly basis; or, indeed, whether it is to be dealt with in some other time period.
Clearly, there will be a problem as regards small business, especially as regards cash flow. I know, for example, that the CBI and others are concerned about whether the Revenue will succeed in making these complicated adjustments and in informing companies of them on time. There is clearly a danger of delays and errors occurring which will impose a considerable cost on business.
Further, will the Minister confirm that the overall effects of making these calculations and asking employers to pay the relevant amounts to individuals will not have an adverse effect on cash flow, even though the matter is "netted off" as it were? I think I am right in saying that at the moment there is some benefit to the employer--however, the noble Lord has more practical experience of this than I--as regards the collection of NICs and tax because they have the use of the money before it is remitted. However, the effect of "netting" this off will nonetheless mean that, overall, the cash flow of companies will be worse than it is at present. Perhaps the noble Lord will confirm whether that is the case. Those are the main points which arise here. There are other points concerning cash flow which arise on later amendments and it may be more appropriate to pursue them when they arise. I beg to move.
Lord McIntosh of Haringey: I dread the thought of being once more at cross purposes with the noble Lord because what he describes as rather an important amendment is one which I believe is totally unnecessary. However, he has quite reasonably and properly used the amendment to give me an opportunity to explain how this measure will work. He asked me some specific questions on how we can be sure that any money will arrive on time and for reassurances with regard to the 26-week period and cash flows. I am happy to give those assurances.
As to the necessity for the amendment, the Bill already provides that responsibility for calculating the tax credit payable will be with the Inland Revenue from October 1999 onwards. Clause 2 transfers the functions of the DSS in relation to family credit and DWA to the Inland Revenue. So there can be no question of employers being asked to calculate the tax credits payable to their employees. Indeed, Clause 6(2)(a) makes clear that the Revenue will provide employers with notification of their employees' entitlement.
Let me explain how the scheme will work. From October 1999 a special unit of the Inland Revenue will assess all applications for WFTC and DPTC, making 26-week awards as appropriate and notifying applicants accordingly, just as the Benefits Agency currently does for family credit and DWA claims. This procedure will remain unchanged after April 2000 when employees start to receive their tax credits through the payroll.
From April 2000 the Revenue will continue to make assessments of WFTC and DPTC and will continue to pay the credits direct to self-employed and non-earning applicants. But, where the applicant is an employee, the Revenue will make initial payments direct and will notify the employer--giving enough notice for any payroll adjustments--when to start paying tax credit, how much to pay and when to stop. The notification that will be given will depend on how frequently the employee is paid. The employer will usually be expected to take responsibility for paying tax credits for weekly paid employees 14 days after a notification is sent by the Revenue for weekly paid employees and 42 days after a notification is sent by the Revenue in all other cases. Employer representatives have discussed this matter with the Inland Revenue at length and they are satisfied that these notice periods are adequate for all normal payroll cycles. Even where non-standard payroll cycles are used, it has not been possible to identify any cases where they will not be adequate. During the initial 14 or 42 day period the Inland Revenue will make direct payments. Therefore, that process will have no cash flow implications.
The start notification will include the daily rate of tax credit to be paid, together with a table of 1 to 31 multiples of the daily rate. So all the employers will have to do is read off from the table the amount of tax credit due, according to the number of days for which they are responsible in a pay period. Employers will simply be carrying out Revenue instructions and will not be responsible for assessing the level of the award.
The noble Lord asked me three questions. He asked me whether the payment would arrive on time. I think I have answered that. He asked me about the 26-week period. I think I have answered that. His third question was about cash flow. In around 90 per cent. of cases, as far as we can estimate, the cash flow implications are that, as the noble Lord suggested in his opening speech, there will be a netting off of some of the money due from the employer to the Revenue for PAYE and national insurance contributions.
The noble Lord was kind enough to remind the Committee that I was responsible for a payroll for nearly 30 years. I can tell him that that was the easy part. It is the VAT return that is the real nightmare for a small employer. Nevertheless, the
In the minority of cases where the PAYE and the NIC payments are not enough to cover the tax credit, payment will have to be made by the Revenue to the employer. There will be a responsibility on the employer to notify the Revenue of the amount that will have to be paid. We estimate--this again is the result of consultation--that, if a claim is made nine days before the payment date, the employer will get the money three days before the employment date. Those consulted and the Government consider that to be a reasonable bargain.
I hope that I have answered the detailed questions set out in the noble Lord's introduction of the amendment.
Page 3, line 13, at end insert ("and the Board's officials shall be responsible for calculating the tax credit due to individual employees and informing the relevant employers of the tax credit to which their employees are entitled")
"responsible for calculating the tax credit due to individual employees and informing the relevant employers of the tax credit to which their employees are entitled".
This reflects an undertaking which the noble Baroness gave at an earlier stage in saying that employers need not worry about working it out because they would be told precisely by the Inland Revenue how much was to be paid to individuals.
I have to confess that, originally, I did not quite understand the way in which the matter operates at present. In reality, I believe that both the previous and the new arrangements involve calculating the amount of what I would like to call benefit but what I am sure the
Government would term as "tax credit" to be paid on a 26-week basis rather than on a weekly basis. That will raise some further questions with regard to cash flow, and so on, as regards later amendments.
10.30 p.m.
Next Section
Back to Table of Contents
Lords Hansard Home Page