Clause 22 - Use of stock in trade cars for consideration
Finance Bill
10:00 am
Mr Mark Prisk (Shadow Minister, Economic Affairs; Hertford and Stortford, Conservative)
We skate gently from gas and electricity to motor vehicles.
As I understand it, clause 22 changes the basis for valuing the taxable benefit of the private use of motor dealers' demonstrator cars and other cars that are in the ownership of a particular enterprise. I have three areas of concern and they reflect discussions with those who are affected. I have talked with representatives of the Society of Motor Manufacturers and Traders and I have listened to their concerns. It has become clear that the alleged avoidance method—the nominal valuation—is not something that they reported as being used by the society's member companies. Clearly, somebody must be using it, or the Government would not be alleging that there is avoidance.
I also understand that an estimated £5 million of additional revenue is anticipated from the closing of the alleged loophole. What studies have been made of who is engaging in the avoidance and what proportion of the market it represents? If the leading trade bodies are unaware of that particular approach, one wonders what is the evidence for the basis of the clause.
The experts in the field have asked whether the nominal value would have the effect of avoiding a significant VAT charge, as it is alleged. On subsection (2), the Chartered Institute of Taxation, which is a leader in this field, said:
''We are not altogether convinced that a nominal value (the sum of £1 for two years' use is cited . . . ) would in normal circumstances have the desired consequence of avoiding a significant VAT charge.''
It then went on to cite the case of the European Commission and France. It is not often that one hears those two litigants involved in the same thing, but it is a mild pleasure. I would like the Minister to respond to that particular case, because it was applied in UK law terms in the case of Customs and Excise commissioners and the Yarburgh Children's Trust.
The essence of the matter is whether the nominal value approach will secure the significant reduction in the VAT that is argued. I am sure that the Minister will be able to respond to that, but I am not sure whether he will be willing to. I hope that he will. I confess that it is not a case with which I am intimately familiar, but it is important. If the leading experts in the tax field question whether the effect of the clause is as stated, it is important that we understand what the Government's response is.
Lastly, there is the question of the definition of open market value. The proposal is to base it on price charge by comparing it to private rental businesses. Even someone who is not an expert in that particular field, such as myself, will understand that it is difficult to make a direct comparison between the typical contractual arrangements in the open market of car
rental businesses and an employee who is making the occasional use of a demonstrator vehicle of their employers' ownership. If you were an employee who used a demonstrator car there would be restrictions that are not applicable in the former case. The car would be required to be available on the forecourt first thing every morning, and perhaps throughout the day. More importantly, there would be a constraint on the mileage useable by that individual; that is not a condition that most car rental businesses impose. There would also be a difference between the vehicle condition required by the employee of the car dealership and that required by the person renting a vehicle.
All those aspects affect value. They are different from the conditions of a private rental business and they change the open market value. The essence of my point is the concept of free use. Will the Minister explain the basis of open market value that the Government are applying here? Do the Government accept that making this direct comparison in value terms might not be appropriate? There are other forms; I draw the Committee's attention to that of the full cost of providing service, where the concept of free use is appropriate.