Clause 19
Finance (No. 2) Bill
2:45 pm
David Gauke (South West Hertfordshire, Conservative)
We are all learning something this afternoon.
Before returning to the specific details of the clause, I should like to consider the general context of the measures taken by the Government with regard to dealing with MTIC.
The Paymaster General was a little bit dismissive about the issue of innocent bystanders. I should like to give one example of an innocent bystander, a constituent of mine, who came to my surgery to complain that he wished to establish a company importing electronic goods—I have no reason to doubt his honesty and sincerity—but was finding it difficult to open a bank account, because of the pressures that appear to be put upon banks to identify MTIC fraud and deal with it. That may be right, but there appears to be a difficulty for businesses in a particular area. I should be interested to know whether the clause would have any impact on that.
My hon. Friend asked the Paymaster General to elaborate on the general strategy for dealing with MTIC. I suspect that one issue that the Paymaster General will mention is new security procedures for obtaining VAT registration. I wish to quote from an e-mail that was sent to me, which has been circulating around several law firms on that point. It states:
“The new security procedures do not start until HMRC is satisfied that it has all the necessary information to support a registration application, so that it can allocate an effective date of registration. It is at that point that the papers are sent to a new team in HMRC who will carry out the new checks. They may take less than eight extra weeks but currently that is how long they are taking.
This means that the time it might take to get a VAT registration is really open-ended. I have an application in”—
this is from a specific lawyer—
“that was made on 16 February 2006. It was agreed on 18 April but might now take a further eight weeks. That will be17.5 weeks.
This is an appalling lack of service in the guise of protecting the taxpayer from fraudulent businesses but there is very little that we can do about it”.
The e-mail goes on:
“It has been suggested to me by HMRC that this is the result of a chronic absence of resources and that any external pressure to improve things would be welcomed”.
I take the opportunity to exert some external pressure on the Paymaster General because if we are to try to tackle VAT fraud—we all welcome such action—it is important that it is not done in a way that will make the life of innocent businesses much more difficult. The HMRC attempted to take the further step of refusing to pay out to companies that were claiming VAT when there was a suspicion or, indeed, proof of carousel fraud occurring. I refer to the Optigen and the Bond House cases, in which neither of the claimants had been convicted of any offences or fraud. From what the Paymaster General said earlier, I can see what her attitude would be to the companies, but perhaps I should not spend too much time on that. The companies were not convicted of fraud, but there was a fraudulent element somewhere within the carousel. The ECJ determined that it was not reasonable or legal for the Government to do that. That decision has had an impact on the Government and I accept some sympathy for them on that specific point because the strategy was impacted by the ECJ.
Is it possible to estimate the cost to HMRC of the judgment and the fact that the strategy could not be pursued? I ask that in the context of a report in the Financial Times on 5 May which stated that the High Court has granted permission to 150 companies to bring a class action in respect of the matter. Does the Treasury have a feeling of what the overall cost would be?
I presume that legal advice was obtained by the Treasury and HMRC. I see the Paymaster General waving a piece of paper, so presumably it would be in compliance with European law and the VAT directives to refuse to pay out the VAT claims to the various companies? Clearly, the legal advice was at variance with the judgment of the ECJ. That appears to be a theme that comes up fairly frequently.
The hon. Member for Falmouth and Camborne has already dealt with certain matters, but I had wanted to ask about the £1,000 disregard, and whether there is any flexibility with regard to that.
My next point concerns new section 55A(6), andin particular the fact that it states that in the circumstances in which the reverse charge applies, it is for the recipient, on the supplier’s behalf, to account for and pay tax on the supply, and not for the supplier. The words “on the supplier’s behalf” suggest some kind of agency arrangement. I should be grateful for further clarification. In circumstances in which the recipient fails or is unable to pay the tax for whatever reason, is there any ongoing liability for the supplier? Looking at subsection (7), it would appear not, because it refers to the relevant enforcement provisions that apply for the purposes of the section to any person required under subsection (6) to account for and pay any VAT as if that VAT were VAT on supply made by him. That is referring to the recipient. However, it is not followed by words that one might expect, such as “and not for the supplier”. I think that, taken as a whole, the clause means that in the circumstances that I describe the supplier has no responsibility. However, I should be grateful for the Paymaster General’s comments.
My next comment echoes a point that was made by the hon. Member for Falmouth and Camborne on subsection (6)(c)—the test that a
“recipient is a taxable person at that time, and is supplied in connection with the carrying on by him of any business”.
Those are potentially difficult things to check. One would assume that in relation to
“a taxable person at that time”,
one could check whether the person in question had a VAT registration number. However, given that a lot of the problems are caused by the fraudulent use of VAT registration numbers, that could be a difficult test. As for the second element, supply
“in connection with the carrying on by him of any business”,
I should be grateful to know the Paymaster General’s view on whether that would cause any particular difficulty. If it is an impossible proof, we could face legal difficulties.
My final point concerns subsection (9), which refers to the power that the Government will have to specify the goods to which the section will apply. There are two contradictory points that might be made about that. The first is that carousel fraud could apply to anything, and it could be that the Treasury will determine which goods will apply and the fraudsters will simply move on to another type of goods. Then there will have to be a further amendment and the fraudsters will move on again, so the measure will continually expand. There is, admittedly, a contrary argument, which is that the powers are broad and there is potential for abuse. Were the Government so minded, they could determine that almost any product could fall within the section and the reverse charge would apply. I acknowledge that there are contradictory pressures, but I should be grateful to hear about the Government’s attitude and whether the Paymaster General recognises that there are concerns in this area.