Clause 24 - Introductory
Finance Bill
10:15 am
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
The clause determines the scope of civil penalties for those who fail to keep their obligations under national and EU Customs laws or who evade certain types of Customs duties or import VAT. It also defines key terms for this part of the Bill, which includes clauses through to clause 41. The date at which the changes will come into operation will be set out in a Treasury order to be laid in the autumn.
Civil penalties are being introduced to encourage businesses to comply better with their legal
obligations. They will help to create fairer competition for all importers and exporters by specifically targeting non-compliant businesses that, by cutting corners, can gain a competitive advantage over businesses that fully meet their legal obligations.
At present, most infringements of Customs laws are classified as criminal offences. Many are relatively minor and are not penalised because to do so by way of criminal prosecution would be disproportionate and a poor use of court and Customs time. Introducing civil penalties will allow a more appropriate response to many breaches of the law and will provide a necessary sanction against non-compliant businesses that have hitherto been able to ignore the rules, largely without fear of punishment.
Customs already operates similar civil regimes for domestic VAT and excise. It is difficult to come by data, but I believe that the significant data that we have from the operation of VAT give an indication of the potential effect of this set of clauses and this reform. Prior to the introduction of a civil sanction, only 68 per cent. of declarations and payments of domestic VAT were received on time. With the introduction of a default surcharge, the compliance rate immediately jumped to 77 per cent. and has continued to rise to its current level of 87 per cent.
There will be two types of penalty under the Bill. The evasion penalty will be used as an alternative to prosecution in less serious cases of evasion. However, it is not a substitute for prosecution. Businesses or individuals who evade or try to evade duties or taxes will continue to be penalised either through a civil evasion penalty or, if appropriate, through criminal prosecution. Let me make it clear that the Government are not going soft on evaders or criminals. Customs civil penalties will not apply to prohibited and restricted goods such as drugs and firearms, or goods liable to excise duty, such as cigarettes and alcohol. The current sanctions applied to those infringements will remain. The introduction of a civil evasion penalty for evasion of Customs duties will enable Customs to investigate and deal with more cases of fraud because of to the streamlined procedures that apply.
A second penalty is being introduced to deal with general non-compliance where evasion is not involved. It will be used in cases of failure to comply with legal requirements and obligations, such as a business that makes persistent errors in import declarations. The aim is to encourage compliance by those who currently fail to discharge their obligations correctly. In targeting the non-compliant, Customs will help to ensure that already compliant businesses are not placed at a commercial disadvantage by non-compliant competitors.
In developing the proposals, we have worked closely with a sub-group of the joint Customs consultative committee for well over a year. That group comprises interested parties from throughout the international trade sector, representing agents, importers, exporters, freight forwarders and representatives from the Law Society and the Confederation of British Industry. Throughout the
process, they have been supportive of the introduction of a civil penalty regime. They view the introduction of penalties as a long overdue, necessary measure to level the playing field for compliant operators and to remove the disproportionate—albeit increasingly remote—threat of prosecution for very minor contraventions of the law.
The hon. Member for Eddisbury will appreciate that the trade is naturally concerned about how the regime will operate in practice. Therefore, we have exposed drafts of the legislation and our own internal guidance to the group. We have listened to its concerns and, where appropriate, taken suggestions on board. We continue to liaise and consult on some aspects of the regime. I am committed to exposing draft secondary legislation to the trade during the summer before finalising its structure. I also propose to expose our training programme to the trade through the group to ensure that the right messages are being transmitted to our operational staff. With those comments, and the reassertion that the introduction of civil penalties as a new regime and a reform has broad support from the trade, I commend the clause to the Committee.