Finance Bill

It is a pleasure to return to the issue of powers. As the Financial Secretary said, we debated the matter at some length in Committee. The time we spent was valuable, although I had not realised that we spent seven hours on schedule 36 alone. I suspect that I may have been responsible for quite a chunk of that time, but I do not think that I will be addressing the House at anything like that length this evening. The debate that we had in Committee was important. The Government's consultation and the proposals in the Bill provoked a considerable response, and there was a great deal of public interest. The professional bodies looked very closely at what the Minister said, in particular, to seek reassurance and a further understanding of what the measures involved. The debate was therefore a valuable and useful part of the Bill's passage; in many respects, the process worked as it should have done. I compliment the Financial Secretary on the way in which she has addressed this matter, attempting to deal with the issues in a constructive manner. There are times in the course of all debates, including on this Finance Bill, which is no exception, when the Opposition wish to highlight—““take pleasure in”” would be the wrong way of putting it—the fact that a Government have moved their position. We make accusations of U-turns, fiascos and humiliations—and rightly so with regard to some of the matters that we have debated today. However, on the subject of our discussion, the Government have moved for the best of reasons. There has been an intention to listen to the concerns of professional bodies and an attempt to allay them. We wish that the Government had gone further in some instances, which we shall discuss this evening, but I want to put it on record that the Government's approach has been sensible. Equally, I hope that the Financial Secretary agrees that our approach has been one of constructive opposition in trying to scrutinise the Government's actions and highlighting where we think they are wrong, but trying together to move the law in the right direction. The principal concern that the professional bodies raised is, at heart, simple. By and large, there is no objection to greater harmonisation of powers for different types of taxes. There are sometimes one-size-fits-all problems, but by and large, some harmonisation is recognised as beneficial. However, there is concern about balance regarding HMRC's powers and deterrents. They are mostly increasing and are perhaps advancing faster than the safeguards. What HMRC requires to collect tax efficiently and enforce tax law, and the safeguards for protecting the taxpayer, are out of sync to some extent. That point is at the heart of the concern expressed by the professional bodies, and we raised it on numerous occasions in Committee. Movement has occurred and the Government have taken a constructive approach. There has been movement on notice before inspections of businesses and on inspections of third party premises. The Financial Secretary made some helpful comments and provided clarification on issues such as set-off involving tax credits. An Opposition amendment was even accepted; it dealt with the length of time after which HMRC may serve an information notice on a deceased person's tax position. We are grateful to the Financial Secretary for agreeing to the amendment on the basis that it was common sense—as she said, it was a good amendment. That is not to say that there were not many other good amendments, which were not accepted, but we take what we can. The Government have also promised to keep matters under review—the provisions on powers, and especially the culture change in HMRC with regard to customer service and improving the taxpayer's experience. Other specific issues to be kept under review include professional privilege, the meaning of ““reasonable excuse”” in the context of penalties and, as the Financial Secretary mentioned this evening, publicity for tax reclaims. That is important. However, we have also heard a great deal—we heard it again tonight—about the way in which many issues that we have raised will be addressed in guidance. The Financial Secretary said that we argued that everything needs to be in primary legislation. Yes, we argued that more than we currently have should be in primary legislation. Oppositions tend to argue that regulations should be made by the affirmative rather than the negative procedure, although there were circumstances in which we did not adopt that position. There are times when it is appropriate for HMRC to use guidance because it gives greater flexibility, which can be necessary. Guidance will be used for a list of matters. However, the thinking behind new clause 5 is that we could not examine the guidance or make an informed decision about whether the balance that I considered a moment or two ago was being struck. We have to take it on trust that, when the guidance is produced, following consultation with professional bodies and so on, that balance has been achieved. Let me briefly consider some of the issues with which guidance will deal—the Financial Secretary also mentioned some. Sometimes there will be clear-cut cases of what constitutes a business premises and what constitutes a private home, but at other times, they will be borderline. Guidance will provide the answer to that and to what constitutes a business activity. It will also cover the information that should be provided to the taxpayer when HMRC visits a premises. There will be a code for unannounced visits and greater detail about what constitutes statutory records. There is also the tribunal system. The Financial Secretary said that the Ministry of Justice was examining that matter and that a Finance Bill could not tackle it. We considered reporting scheme reference numbers and HMRC's disclosure rules. There is also HMRC's policy on set-off. One could take each item and present an argument about whether it should be dealt with in primary legislation, regulation or guidance. It is not my purpose to pursue those arguments, but to emphasise that, even if we accept the Government's case that those matters should be tackled through guidance, Parliament is considering the subject without full knowledge of that guidance. The Government have worked constructively, but to some extent they have done that because of our parliamentary proceedings, which focus the mind of Ministers, their advisers, professional groups, the Opposition and Parliament as a whole. Parliamentary involvement means that we do not simply drift into accepting a set of provisions that do not entirely satisfy the wider business community, taxpayers and so on. I said at the outset that the process of considering the Finance Bill had been valuable and useful for the provisions on HMRC powers. Ministers have been forced to examine those powers closely and defend them. Doubtless, the Financial Secretary has questioned officials and forced them to justify the provisions. That is healthy. New clause 5 would grant an opportunity—perhaps not on the same scale as the Finance Bill; we had a good four or five sessions on the powers—for Parliament to revisit part 7 and all the various disparate issues that I have mentioned before it comes into force. At that point, the Treasury would have to prepare and lay before the House of Commons a report setting out the safeguards available to the taxpayer and third parties in respect of HMRC powers in part 7. The Financial Secretary will then have to sit down with officials and see whether the balance has been achieved and whether the guidance provides the proper protection, knowing that she will have to appear before members of a committee who will not only question and scrutinise, but receive support and guidance from professional bodies. Again, I appreciate that that would be hard work for busy Ministers and also for Opposition spokesmen, but it would be a useful exercise ensuring that when we come to the end of the process, the warm words, and the undertakings that we have heard from the Financial Secretary, which I do not doubt for a moment, are delivered in practice. That is the thinking behind new clause 5. We find that a persuasive argument, and I should like to give notice that we intend to press new clause 5 to a vote. Briefly, new clause 19 deals with the taxpayers' charter, which is advocated by the hon. Member for Taunton (Mr. Browne), who will no doubt speak on the matter. I do not wish to spend a great deal of time on it, but it would be fair to say that the thinking behind new clause 19 is similar to the thinking behind new clause 5, so obviously we have a great of sympathy for it. Let me turn to our amendments, to which the Minister referred. Amendments Nos. 34 and 35 relate to the right to appeal against taxpayer notices. Paragraph 29 of schedule 36 gives taxpayers and third parties a right of appeal to the first-tier tribunal against an information notice or third party notice. However, there is no right of appeal if the notice relates to a taxpayer's statutory records. The Financial Secretary made the point that given that there are circumstances in which businesses are required to keep records, they should therefore have to disclose them. That is a fair point, but our concern—the Institute of Chartered Accountants has highlighted this, too—is that there is sometimes a grey area between business records and personal records. In our debate in the Public Bill Committee, the Financial Secretary referred to a hairdresser's appointment diary—as she said, many of her analogies and examples involved hairdressers—and that was helpful. A hairdresser's appointment diary is clearly a business record. That is not in dispute. However, many people will keep a diary that contains some business-related entries, but a majority of personal entries. They may take a different view from an HMRC official on that personal diary, which by its nature will contain personal information that an individual would, for whatever reason, not want to fall into the hands of a third party. What is that taxpayer to do? They have no ability under the Bill as drafted to appeal to a third party when there is a disagreement. The purpose behind amendments Nos. 34 and 35 is to address that issue. One way of dealing with the problem that would address my concerns, and perhaps those of the Financial Secretary, too, would be to give a right of appeal purely on the basis of whether the document in question is a statutory record. The Financial Secretary said that there was a danger of delays and that people might use an appeal mechanism to delay unduly the progress of an HMRC inquiry. However, we should remember that the tribunal will have the power to impose costs in the event of determining that any such delay is vexatious. I therefore question whether the Financial Secretary's argument is necessarily that persuasive. Amendments Nos. 36 and 37 relate to paragraph 10 of schedule 36, which deals with the power to inspect business premises. The issue here is whether the premises are used solely as a dwelling, in which case the powers are not applicable, or whether, as we argued in Committee, the provisions could be broadened to include premises that are used in whole or in part as a dwelling. In Committee, the hon. Member for Dundee, East (Stewart Hosie)—he is here now, so perhaps he will speak on this point—provided the useful example of a musician taking a booking. When a musician takes a booking, they will not have one room in the premises that is used for business purposes, to which HMRC could have access, thus leaving the rest of the house—the private dwelling—untouched. Rather, it is likely that a phone call would be received in a living room, the study or a bedroom, which would therefore be being used, at least in part, for business purposes. There is clearly some sensitivity to the issue, which the Government recognise, because they already accept that paragraph 10 of schedule 36 should not apply to premises that are used solely as a dwelling. There is clearly agreement on that. However, the exemption in paragraph 10 would appear to be largely ineffective for those people—I suspect that this is a large number of people, not just musicians—who do some work from home, such as making phone calls or working on a computer. With regard to those circumstances, that sensitivity, which the Government accept in paragraph 10, does not appear to have been addressed. I would therefore be grateful if the Financial Secretary addressed that concern. If there is some sensitivity towards dwellings, what is the reason for it; and, given that explanation, how does she justify the narrow exemption in paragraph 10? Let me turn to amendments Nos. 38 and 39. As the Bill is drafted, where HMRC wishes to inspect a premises, it must either agree a time with the occupier, give at least seven days' notice—I acknowledge the fact that the Government moved from 24 hours' notice, which we welcome—or be authorised by an authorised officer. That third leg is important and relates to combating fraud, although that is not the concern in this context. Amendment No. 38 would mean that the notice period would be triggered only if the officer had sought to reach an agreement with the taxpayer. The concern, which has also been raised by the Institute of Chartered Accountants, is that although there is provision that there should be agreement—the Financial Secretary said in the Public Bill Committee that she anticipates that, as a rule, HMRC will seek to reach an agreement with the taxpayer—that could, strictly speaking, simply be ignored by HMRC. HMRC could immediately start counting down the clock towards the seven days' notice without having first attempted to reach an agreement. Amendment No. 38 attempts to address that problem. I have some sympathy with the Minister's view that the amendment's drafting is not as clear as it might be, but its intention is to ensure that the first step is the reaching of an agreement. If that cannot be achieved, the clock will start ticking towards seven days or, as we argue in amendment No. 39, towards 14 days. In Committee, we debated how many days it should be, but there was an element of ““how long is a piece of string?”” to our discussions. The reason behind our proposing 14 days is that people often go on holiday for up to a fortnight, and they should not have to come back to find HMRC on their doorstep. Fourteen days is therefore more reasonable. We are not talking about combating fraud or about the equivalent of a dawn raid. I recognise that there are times when HMRC needs the power to move quickly and to surprise a taxpayer whom it suspects of fraud, but we are not talking about those circumstances here. I therefore believe that 14 days—as opposed to seven days—is entirely reasonable. Before I deal with amendment No. 4, I should like to say a few words about Government new clause 16 and its consequential amendments. We do not have any particular problems with the new clause, although we wonder why we are getting a new clause at this stage. To be fair, however, the explanatory notes state that this is as a consequence of the Commissioners of Revenue and Customs v. Midlands Co-operative Society case, which was determined in April. The case related to the right to make a claim for overpaid VAT being capable of being transferred from one person to another, and to how set-off could be avoided in such circumstances. I would be grateful if the Minister told us what financial risk might be at stake in those circumstances, although she might not have the figures to hand. I do not know what scale is applied in claims for overpaid VAT, or other taxes, where an amount is set off, but presumably that is the amount that could be at risk. If she enlightened the House on that point, I would be grateful. Theoretically, the transferee of a VAT claim could be entirely innocent. In the circumstances envisaged in new clause 16, the set-off could be made against the transferee as though it were against the transferor. However, what remedy would be available to a transferee who had acquired a VAT claim in all innocence? Those circumstances might be unlikely, but I would like to know whether a motive test, which often is incorporated into measures to tackle avoidance, was considered. I must reiterate some of the concerns about the set-off provisions. We have expressed our concern that set-off might occur when it is not in the best interests of taxpayers, and that perhaps it should be achieved only with the agreement of taxpayers. In particular, we have asked what would happen in an ongoing dispute between HMRC and a taxpayer and HMRC sought to make use of its powers on set-off. There are further issues relating to set-off, and although we have no specific objections to the new clause we have one or two queries. Amendment No. 4 deals with reclaiming overpaid tax, which we debated in Committee—albeit fairly briefly, given the nature of the issue. The Low Income Tax Reform Group—LITRG—has been active in this regard, and I was pleased to hear the Minister say that she is working with the group to address the matter. Paragraph 12 of schedule 39 will reduce the time limit for reclaiming overpaid tax from five years and 10 months to four years. Many people on low incomes, especially pensioners, overpay tax and are not aware of their right to reclaim it. LITRG has highlighted three situations in which this tends to happen. The first is when tax is deducted at source from bank or building society interest at a higher rate than that at which the depositor is liable. The second is when older people are not given the right age-related allowances—we have heard plenty of anecdotal evidence about that—and the third involves incorrect PAYE codes being given to people with multiple income sources, such as more than one pension. LITRG has criticised HMRC's efforts to highlight the issue of overpaid tax. It has been particularly critical of the fact that the number of leaflets and other paper products produced by HMRC has diminished over the years, and of the fact that there has never been a take-up campaign for the blind person's allowance. Many people assume that one has to be blind to claim it, but that is not the case. The group also says that these matters could be resolved if HMRC carried out regular matching of PAYE records and established an annual routine of contacting all those whom it had identified as due for a repayment. This is an important issue. The organisation Tax Help for Older People has conducted a survey of recent claims for back tax. It found that 44 per cent. of low-income pensioners who had had tax repayments had been entitled for six years or more. The Bill states that the rights of those low-income pensioners would be reduced, and that they would be able to claim only for four years. In Committee, I referred to the pensioner tax-back project, which, in 2005, repaid 50,000 pensioners some £20 million. It is interesting to note the comment by Robin Williamson of LITRG. In an e-mail to me, he described that as being merely the ““tip of an iceberg””. In Committee, the Government's position was that there would be a one-way flow if we changed the arrangement, and that the period allowed for reclaiming tax would be greater than the period available to HMRC for assessment. It was stated that there was a need for symmetry. Previously, there was symmetry in relation to the period of five years and 10 months, or of six years, and that has been reduced. Taxpayers cannot be expected to possess the same knowledge of their tax position as a trained Revenue officer. There is an imbalance between the knowledge and expertise of HMRC and some taxpayers, particularly the low paid and the elderly. That problem might persist and even intensify, given that the 10p savings rate will continue although the 10p income tax rate has been abolished. We will therefore press amendment No. 4 to a Division. We have had constructive debates, but the point remains that the balance may not be quite right. We seek further reassurance from the Minister—we have already received much reassurance from her—particularly on the specific issue of tax reclaims for the low paid. We also seek to provide Parliament with an opportunity to debate these issues once it has had the benefit of seeing the guidance and of assessing how the promised change in HMRC culture has worked. If we do that, we will have a regime that will stand the test of time and this fundamental reform of HMRC's powers will be a success.