Finance Bill

I am sure that the whole House will be just as pleased as me that the hon. Member for Chipping Barnet (Mrs. Villiers) has done her homework. She referred to outsourcing and back-office service companies. While there is an issue to address, I should put this in context. The Treasury must take all reasonable steps to ensure that tax and national insurance are paid. Apart from anything else, social justice requires that, as does the provision of public services to the people of this country on which the Government have such a good record. Those services must be paid for, so tax must be collected. It is entirely appropriate to clamp down on loopholes because we do not want to support tax dodgers. However, the loopholes must be plugged in a way that does not penalise unduly legitimate and compliant managed service company businesses that attempt to assist entrepreneurs by dealing with their administrative or accountancy needs—those are the back-office functions. Of course, the Treasury must always examine the impact in practice of the legislation that it implements. It must also ensure that people do not get away with dodging taxes, which has undoubtedly been happening in some sectors of the managed service company industry. Schedule 3 is somewhat controversial. Fear has been expressed that the provision might drive people from managed service companies to personal tax companies, which, paradoxically, might decrease the tax take because some people would try to avoid making national insurance payments. I have received representations from an established managed service company that rejoices in the name of No Longer Limited. The company offers a tax planning and administration service for contractors on a fixed or percentage fee, regardless of their IR35 status, and the self-employed who can join its limited liability partnership. Every contractor undertakes a full compliance check with the company. If that is successful, NLL pays tax and national insurance on its profits on its behalf into a quarterly self-assessment account and ensures that the due dates of 31 January and 31 July are met timeously. For contractors that are businesses in their own right, the alternative to the back-office functions provided by organisations such as No Longer Limited is to set up their own personal service company. Under the classic model for such a company, contractors pay themselves, as employees, a small salary—perhaps just the minimum wage—while the remainder is paid as a dividend, which avoids national insurance and cuts the tax take. That is not in the spirit of what I would like to see. NLL is owned by Mr. Colin Howell. Part of the purpose of his business is to ensure that there is full compliance and that the right tax bills are paid quickly. He tells me that the new law could have the perverse and unintended consequence that such back-office companies would become no longer viable, which would mean that No Longer Limited would become ““No Longer There””, which would lead to the loss of up to 40 jobs. It is clearly not for me or the House to adjudicate on such claims today, but I wanted to convey Mr. Howell’s representations. I understand that Mr. Howell will be seeking an exemption, given that that is allowed under proposed new section 61B(3) and (4). If he does that, Her Majesty’s Revenue and Customs officials will make a judgment with the full facts in front of them. It would be wholly inappropriate for me to ask my hon. Friend the Financial Secretary for a direction or a decision today—he would not give one; I would not seek one—but I would ask companies such as Mr. Howell’s to be given full consideration if and when they claim an exemption to ensure that the law does not result in rough justice. If Mr. Howell’s claims are correct, it would be likely, perversely, that the measure would result in a lower tax take and that jobs would be lost as companies moved away from managed service companies. In such circumstances, his firm would have to close down. I hope that my hon. Friend the Financial Secretary will reassure us about how back-office companies, in contradistinction to the legal and accountancy companies covered by the exemption under proposed new section 61B(3), would be able to obtain an exemption so that a company such as No Longer Limited would not have to close down because its business had migrated elsewhere. I stress that I do not want a decision on that company’s case. I am merely citing it as an example of a company providing back-office services that feels that it might be adversely affected by the Bill, yet unable to obtain an exemption. It would be most helpful if my hon. Friend would give us a rough indication of the exemption procedure.