Finance Bill

First, I shall discuss new clauses 5 and 19. New clause 5 is technically deficient. It is not clear how it is intended to work in conjunction with the provisions that are to be brought in by separate order. The intention is to delay the whole of part 7 until the report has been written and endorsed by Parliament, but that does not sit easily across these measures; the same applies to new clause 19. I want to say a little about part 7, which contains a number of administrative provisions, the majority of which come from the work of the review of powers, deterrents and safeguards. Other measures in part 7 include clauses relating to appeals, excise matters, funding bonds and measures under the avoidance disclosure rules and others. Those clauses are vital if the HMRC is to deliver the benefits set out in the O'Donnell review, including the closure of the tax gap and the modernisation of existing legislation. The importance of adequate safeguards has been recognised by the Government and the HMRC and the valuable views of representative bodies have been taken on board. In Committee, we spent seven hours on schedule 36 alone. I am not complaining about that; it is right that such an amount of time should have been spent on such important legislation. In addition to those safeguards in the primary legislation, further protection will be provided by regulations and guidance. Broadly, that is the main area of disagreement. It would be helpful to consider what the legislation actually includes. For compliance checks, schedule 36 alone includes 37 separate and identifiable safeguards. The levels and reductions for penalties for incorrect returns are now set in statute, rather than being in HMRC guidance to be left to the discretion of officers. On resolving disputes, clause 122 will introduce an optional statutory review of HMRC decisions. The amendment would delay that. Throughout our debates, the Opposition have repeatedly stated that all safeguards should be in primary legislation. I do not accept that, and I do not believe that the hon. Member for South-West Hertfordshire (Mr. Gauke) would if he were in my position; I hope that he will not be any time soon. Legislation cannot cover every conceivable scenario. Other forms of safeguard can be both flexible and a protection for the taxpayer. In deciding whether the HMRC is acting reasonably in any particular case, the courts will take account of its published guidance. As with last year's penalties clauses, there will be full and open consultation on the guidance. That approach was applauded last year. Work on producing guidance on compliance checks in formal disputes resolution, penalties, debt and unpacking containers will be completed well in advance of the legislation's coming into effect. Although it is true that we have not always been persuaded that further safeguards are necessary, additional safeguards were introduced in consultation before the Bill was introduced and in the course of our proceedings. The HMRC has been prepared to forgo certain benefits of alignment when respondents to consultation made a strong case for the retention of safeguards. For instance, we have retained the inquiry window for direct tax self-assessment cases and the evidence of facts rule for VAT. Following consultation, we also agreed that a penalty on a third party should apply only when that third party deliberately falsified or withheld information from a taxpayer. We removed a proposed penalty for failure to allow entry to premises unless there had been an independent external authorisation. During the parliamentary process itself, the Government have tabled further amendments ensuring that the power of entry and inspection does not extend to any part of premises used solely as a dwelling. Other than in cases involving the taxable supply of goods, we restricted the power to inspect business premises to those used by the person whose liability is being checked. I recognise the concerns that have been expressed about ensuring adequate safeguards, but such safeguards must provide real and effective protection for taxpayers, rather than merely create bureaucracy and delay. The balance is right in part 7. As I said, new clause 5 seeks to delay that implementation of part 7 until further reports. What could such reports add to the already extensive consultations and detailed debates in the House? No doubt, the hon. Member for South-West Hertfordshire will make the case in a moment. New clause 19 seeks to delay the implementation of part 7 until regulations containing a taxpayers charter have been approved by the House of Commons. Acceptance of that new clause would result in the additional safeguards in part 7 being delayed for another year—a somewhat perverse outcome, given the importance attached to safeguards. As the House will know, we are considering the introduction of a charter, which should bring many positive benefits, especially in improving the relationship between the HMRC, taxpayers and other customers. I want to put on record my gratitude to the representative bodies for the interest that they have shown in the subject, and particularly to the Chartered Institute of Taxation for the paper that it published in March. The consultation published on 19 June makes things clear. The terms of a charter should not be set out in legislation. That is not to devalue the charter, which is an important standard. Many taxpayers' rights are set out in tax legislation—for instance, the right to appeal against certain HMRC decisions. Others, however, are provided through non-statutory routes such as codes of practice and departmental practice. In addition, an array of non-tax legislation—the Human Rights Act 1998, data protection legislation, the Freedom of Information Act 2000 and the like—also governs the HMRC's relationship with taxpayers and claimants. A charter is intended to support that. The wording of an accessible and useful charter is not intended to be like that of legislation; it is meant to be a guide to the law. The use of statutory wording in a charter would compromise the intention to create a simple statement of the basic rights of taxpayers and other customers in their relationship with the HMRC. This is a large group of amendments, and I shall try to address quickly each of them in turn. Clause 112 forms part of a package of measures allowing the HMRC to check that taxpayers have met their obligation to pay, return and claim the correct amounts of tax. That package includes the power to require the production of documents and the power to inspect them. In essence, the clause reproduces the equivalent provisions from the former Inland Revenue and Customs and Excise. The clause consolidates the provisions that ensure that documents include electronic versions and allow HMRC officers access to computers holding information required for a tax check. The new provision also aligns and decriminalises the penalties that apply when a person obstructs an inspection of computer records or fails to provide reasonable assistance. Amendment No. 8 would not have any impact on the HMRC's ability to carry out checks on electronically held records. The existing provisions would continue in force until superseded by clause 112, but the amendment would leave in place the current unsatisfactory situation whereby a person could face a criminal charge for obstructing the exercise of the power or for failing to offer reasonable assistance under one provision, and a financial penalty under the other provision. I believe that it is better to align those now. The reports by Kieron Poynter and the Independent Police Complaints Commission following the loss of discs containing child benefit data have recently been published. Both reports make it clear that the HMRC did not give data security the priority and attention that it should have done. Those are strong criticisms that the department has taken on board. I am grateful to the IPCC and to Kieron Poynter for their thorough reports, and I fully accept all their recommendations. HMRC has already made progress on 39 of the 45 recommendations and has implemented 13 of them. The powers in clause 112 already exist and would continue to operate regardless of amendment No. 8. It would be unnecessary for another report to be undertaken by HM Treasury. What is needed is work to ensure that data security is a top priority, and the Poynter review acknowledges that that is already well under way. The amendment is therefore superfluous. Amendments Nos. 34 and 35 concern provisions for taxpayers and third parties to appeal against notices to see statutory records. The Bill already introduces a right of appeal against requests for supplementary information. That is new, as current legislation provides only a right of appeal against information requests made as part of a self-assessment inquiry. However, since taxpayers are required by law to keep certain records, it should not be onerous for them to provide them. A right of appeal would not be appropriate or effective. It is difficult to see what grounds for appeal would succeed. What is more, sadly, evidence from income tax self-assessment suggests that where such a right of appeal exists some non-compliant taxpayers exploit it by routinely appealing against all notices for even the most basic information so as to delay the proceedings. As I said, safeguards need to be effective. The power to require statutory records must be exercised for the purpose of checking a tax position and must be exercised reasonably. Those are better safeguards. I can understand the concerns, but the amendments would not achieve the protection hoped for and could do the opposite. I hope that they are not pressed to a Division. As I have said repeatedly in considering the HMRC's powers, I will keep this matter under close review to ensure that the new powers and the proposals in the Bill work in the way that is intended. Amendments Nos. 36 and 37 seek to prevent the HMRC from ever visiting or inspecting records at a taxpayer's home. The legislation currently prevents officers from visiting premises used solely as a home. The motives behind the amendments are wholly understandable but they fail to recognise the complexity of people's affairs in the 21st century. The amendments would prevent visits to, for example—I am not singling these groups out for any particular reason—dentists, doctors, hairdressers or carpenters. Hairdressers seem to feature in our discussions. I could go on, but I will not. I am talking about those who, for example, use one room in their house as a surgery, salon or workshop. The amendments could also affect the ability to inspect pubs, corner shops and other premises where the taxpayer lives on those premises. They would affect unacceptably the HMRC's ability to carry out its duty of checking that the right tax has been paid at the right time by all businesses. The problem of distinguishing between business premises and homes is not unique. It is faced by the rating authorities—we discussed whether their definitions could be used—by planning offices and by local authorities. In each situation, the detail of what is considered to be business premises is set out in guidance. HMRC has agreed that guidance is needed to set out the circumstances in which it is acceptable to visit a home used for business purposes. Assurances have already been given in Committee that that guidance will be written in consultation with representative bodies. Assurances have also been given that the homes of home workers and those occasionally working from home will not be treated as business premises. Amendment No. 38 appears to be attempting to restrict the times when the HMRC can specify the time and place of a visit to situations where the taxpayer does not agree a time and place. It is not clear that the amendment would work. If it did, it would apparently prevent HMRC officers from making a visit if the occupier agreed to a visit two years' hence. I will wait to hear about the detail of that proposal. Amendment No. 39 is a replica of an amendment that we discussed in Committee. Amendment No. 4 seeks to retain the general time limit for taxpayers' income tax claims at five years and 10 months. However, that would make it out of step with assessment time limits and with other claim time limits, which we are aligning at four years across taxes. We made progress on time limits in Committee, so I will not labour the points again. The new framework continues to deliver parity between taxpayers and the HMRC. Where tax has been underpaid as a result of a mistake, the HMRC will be able to assess that only within the new four-year period. Similarly, a taxpayer will be able to make a claim within four years. None the less, HMRC will still accept later claims where the taxpayer has a reasonable excuse, including where an error on the HMRC's part has led to the claim being made outside the time allowed or where a taxpayer has given clear notice of his or her intention to claim before the time limit expires. The HMRC and I recognise that pensioners and those on low incomes have very particular needs. The HMRC is working to understand them and to find ways to overcome barriers and raise awareness about the need for formal claims. The HMRC will work with taxpayer representatives, including the Low Incomes Tax Reform Group, to identify which groups of people are likely to be able to make claims, and the HMRC's publicity will target those groups to inform them of their rights to make claims and of the time limits. I have said it before in Committee and say it again today: I will keep the effectiveness of the HMRC's publicity and the planned PAYE system improvements under review to ensure that people are prepared for the new time limits from 1 April 2010. I will pause at this point, as before I turn to some of the other issues, it might be helpful to hear what the hon. Member for South-West Hertfordshire has to say.