Select Committee on Economic Affairs Third Report



  8.1  We welcome the introduction of Stamp Duty Land Tax as a major opportunity to modernise the tax system relating to property transactions. However, we have heard the strength of the essentially unanimous views of our private sector witnesses urging that the tax would not be in a fit state to introduce on 1 December 2003. This has to be set against the confidence of the Inland Revenue witnesses that it would be ready in time. Against this background, we note in particular that some of the main provisions of the tax have already passed through the Committee stage of the Finance Bill in the House of Commons without being discussed or scrutinised.  [paragraph 4.13]

  8.2  We are aware of the very large task which this modernisation work involves. Given the weight of the different views we have heard, we recommend that the Government should review early in the Autumn of 2003 whether the tax can be got right in time. For our part, we should be concerned in particular if such a review were to indicate a danger that, if events were allowed to take their course, commercial transactions would be likely increasingly to be put at risk by the uncertainties surrounding the charging regime as 1 December 2003 approached.  [paragraph 4.14]

  8.3  In our view the power contained in Clause 112 is needed only because of the probable need under present plans to substitute a revised regime for lease duty for that in the Finance Bill. If the introduction of the tax were to be postponed, the need for it would disappear. Otherwise, provided that the regulations are published in good time and following adequate consultation, there can be a good case for secondary legislation if it is appropriately used. We recognise that, where it is necessary to tackle avoidance very quickly, which is one of the circumstances for which Clause 109 is designed, public consultation may not be appropriate In such cases, we believe its use should be kept to a minimum.  [paragraph 4.19]

  8.4  More generally, we are concerned by the extensive use of regulatory powers proposed under this Bill. We note that orders under Finance Acts are not customarily laid before this House and that order-making powers are not subject to scrutiny by our Select Committee on Delegated Powers and Regulatory Reform.[51] On the other hand, it is clear to us from the advice we have had from the Clerks[52] that the question of Commons financial privilege does not affect the ability of this House to debate financial or fiscal matters or to scrutinise them in Select Committees.  [paragraph 4.20]

  8.5  We took great comfort from the Revenue statement that in the vast majority of transactions there would be as much certainty as now. We recommend that this should be reflected in a formal procedure. In the interests of providing certainty wherever possible, we recommend that this procedure should provide that within 30 days of the notification of a transaction, the Revenue should inform the taxpayer either that it would not be making any enquiries or (and this would generally be in the more complex cases) that it wished to keep open the opportunity to make an enquiry in the remainder of the nine month period.  [paragraph 4.26]

  8.6  Otherwise, our concern is primarily that commercial transactions should not be impeded for lack of certainty about their taxation implications. Particularly in the early days of the tax, before either the Inland Revenue or practitioners have much experience of it, there will certainly be a case for reducing uncertainty so far as possible. We therefore recommend that the Revenue should consider whether some form of clearance procedure might be introduced, particularly in the light of the suggestion that taxpayers might well be prepared to pay towards the cost.  [paragraph 4.27]

  8.7  We believe that as much certainty as can practically be provided should be given in the case of leases for uncertain consideration. We do not ourselves presume to be competent to suggest how the outstanding issues should be resolved, but we are concerned with the uncertainty which any failure to resolve them very quickly, well before 1 December 2003, would have on the property market. This is an area to which the Autumn review of progress towards the introduction of the tax, which we have already suggested, should pay particular attention.  [paragraph 4.35]

  8.8  We are concerned by the level of uncertainty surrounding complex commercial transactions, especially where the time scale for consultation has been foreshortened by the break in the consultative process. We would not wish to make any recommendation which would limit the ability of the Inland Revenue to deter or counter tax avoidance. At the same time we are concerned that there should be no impediment to legitimate commercial transactions. It is essential therefore that the right balance is found, and sufficient time should be allowed to do this properly.  [paragraph 4.41]

  8.9  Several of the issues arising regarding disadvantaged areas relief are on the edge of, if not outside, our terms of reference. We can do little more therefore but to draw the points that were made to the attention of the Government and, through it as appropriate, to that of the European Commission. We welcome the Revenue's willingness to review the possibility of removing some of the uncertainty by fixing the liability on the position at the date of the ruling, and look forward to that happening.  [paragraph 4.48]

  8.10  We are concerned that the machinery provisions of the new tax should work well. Clearly the Inland Revenue must have all the information it needs expeditiously. At the same time proper regard has to be had to the particular requirements of the property market. The further consultation period should be used to ensure that an appropriate balance has been found, and that the compliance costs are kept to a reasonable minimum.  [paragraph 4.56]

  8.11  We welcome the assurances which we received about improvements in customer service. The proof will come in the light of experience, and we recommend that there should be regular monitoring of the extent to which returns and documents are lost, and can then be found. We also welcome the assurance that the Inland Revenue's right to treat a lost return or document as not having been delivered (Clause 82(2)) is being reconsidered.  [paragraph 4.57]

  8.12  The detailed commencement rules are an example of but one of the very many detailed points which need to be ironed out in the consultation in the weeks ahead. Along with the major points to which we have drawn attention, it provides further evidence of the very heavy consultative load to fit into the next few weeks or months, depending on whether or not the issue has to be settled, and if need be amended, in the current Finance Bill or whether it is a matter for regulations.  [paragraph 4.59]

  8.13  We conclude this section of our Report by restating our concern that the Government should carry out an Autumn 2003 review of whether there is sufficient time for the task to be properly done by 1 December 2003, while providing reasonable certainty for anyone currently planning or carrying out commercial transactions. In our view it is more important to find the right balance between collecting a proper amount of tax, curbing avoidance, reducing compliance costs, removing uncertainty, and maintaining the functioning of the property industry than that the tax is brought in on a particular day, right or wrong.  [paragraph 4.60]


  8.14  We recommend that consideration be given to creating an enhanced statutory safeguard for legitimate traders, which would ensure that the conclusions related to Clause 17 arrived at by the investigating officer are reviewed at Board level within the Department and by an external judicial authority before the power to require security is exercised. This two-stage review would precede the issue of the preliminary warning letter contemplated as an essential element of Departmental practice in operating the new power. Under the procedure which we envisage, the application, which should be approved by the Commissioners of Customs and Excise themselves, without power of delegation, should be on an ex parte basis. Before giving leave, the Chairman of the VAT and Duties Tribunal would have to be convinced by the HMCE case against the trader that the business was involved or complicit in the alleged fraud.  [paragraph 5.11]

  8.15  We accept, in the light of the evidence of officials, that none of the variants of the "reverse charge on supply" would work in the particular markets at which Clause 18 is aimed. We recognise that these markets are not "closed" and amenable to the tight degree of control that is available in the specialised markets such as gold and the metal exchange where such schemes have been adopted.  [paragraph 5.16]

  8.16  We recommend that consideration be given to providing that, before taking steps to hold a trader liable under the joint and several liability provisions of Clause 18, HMCE should be obliged to seek leave from a Chairman of the VAT and Duties Tribunal. The application, which should be approved by the Commissioners of Customs and Excise themselves, without power of delegation, should be on an ex parte basis. Before giving leave, the Tribunal Chairman would have to be convinced by the HMCE case against the trader that the business was involved or complicit in the alleged fraud.  [paragraph 5.21]

  8.17  Our view is that concerns expressed to us by witnesses about the creeping widening of the categories of goods or services specified by Treasury Order should be much allayed if the system of enhanced safeguards for the legitimate trader, which we have commended for consideration above, is adopted.  [paragraph 5.25]


  8.18  We concluded, in the light of what we had been told by the Inland Revenue, that it would not have been appropriate to offer a financial incentive to encourage large employers to switch more rapidly to electronic payment.  [paragraph 6.7]


  8.19  We therefore recommend that, subject to the views of the Liaison Committee, the Sub-Committee should be set up as soon as convenient in the new Parliamentary session to review the outcome, as it emerges, of the ongoing consultations on the present Finance Bill and the pre-legislative consultation leading to next year's Finance Bill, as well as considering the Bill itself once published.  [paragraph 7.7]

  8.20  We further recommend that the terms of reference of the Sub-Committee be broadened so as increase the scope of potential inquiry open to it because no issue of financial privilege arises.  [paragraph 7.8]

51   House of Lords Companion to Standing Orders 2003, page 103, para 6.32 and page 190, paras 9.46 & 9.47. Back

52   See para 3.1 and footnote 4. Back

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