Finance Bill

I rise to speak in favour of new clause 5. I originally had no intention of tabling such a new clause until we had the debate upstairs on clauses 66 and, more importantly, 67. Both of those clauses rightly seek to outlaw the highly contrived tax avoidance schemes that the Minister described in some detail at the time. That was the right thing to do. Interestingly, the debate on clause 67 almost completely ignored its content and revolved around the issue of principle of retrospective legislation. In general terms, I oppose retrospective legislation, especially when it comes to the tax code, because it delivers uncertainty, but I do recognise that from time to time it might be necessary. One of the reasons why retrospective legislation is necessary when it comes to clamping down on contrived tax avoidance schemes did not become clear until after the debate in Committee. Let me explain. The process that is followed in such schemes is that tax avoidance schemes are developed by promoters, they commence operating and only then, post-commencement, are they notified to the HMRC, which can—and sometimes does—outlaw the practices and introduce retrospective changes to the law to facilitate that. In the case of clause 66, the scheme was effectively outlawed within a week or so of the Revenue's being notified of it. The Government can act very quickly, but not always, and it can take some time—perhaps a year—to introduce the necessary retrospective legislation. That is precisely what happened in the instances that we discussed in Committee. It struck me as somewhat peculiar that such schemes were not checked by the Revenue in advance of their commencement to allow the commissioners to rule on their legality or otherwise or even to suggest, even if they were legal, that they were likely to be outlawed quickly because they were simply going to be tax avoidance schemes. I was very pleased, when we probed the Minister, to get his reply. I asked whether he could""confirm that promoters are able to seek confirmation of the schemes in advance"" and the answer was:""Promoters can seek that clearance as well. They are required to disclose, but they can seek clearance if they wish."––[Official Report, Finance Public Bill Committee, 16 June 2009; c. 431.]" However, it was not until two days later that the Minister rather graciously corrected what he had said. His letter said:""In both cases, the correct answer should have been"—" I shall read out both paragraphs for the avoidance of any doubt. They read:""HMRC offers a clearance service to businesses covering the tax implications of commercial transactions"—" I do think that there should have been more commas in this sentence—""where there is material uncertainty as to the tax outcome and the issue is of commercial significance to the business. Under the clearance regime HMRC will not give advice, or comment on, tax avoidance schemes.""In addition to the clearance service for business, HMRC offers a written…service to personal tax customers covering completed transactions where the correct tax treatment is in doubt or where guidance is needed on HMRC's interpretation of recently passed law or its application to a specific proposed transaction, where there is genuine uncertainty. This written advice service does not cover arrangements where tax avoidance is an issue. The scope and terms on which this service is offered is set out in Code of Practice 10."" That is extremely clear, but the implication of that answer is that the Finance Bill, unamended, would perpetuate the status quo, which is that schemes can be developed, promoted and commenced, people can buy into them or use them and they are then notified to the HMRC, outlawed and made subject to retrospective changes. That all risks uncertainty in the tax code, which none of us wants to see, and a potential loss of revenue yield, I am certain. Most importantly, it risks individuals taking tax or financial planning advice or action, thinking that they are doing the right thing and that they are behaving wholly within the law, and finding that they are then subject to retrospective changes to a law that they had no intention of breaking. It would be much simpler to allow promoters to clear schemes in advance to ensure that if they were illegal, or likely to be outlawed, they simply would not be promoted. That would give us certainty in the tax code and protect those individuals who think they are doing the right thing and end up being subject to retrospective legislation.