Clause 6 - Disclosure of value added tax avoidance schemes
Finance Bill
11:00 am
Richard Spring (Shadow Minister, Treasury; West Suffolk, Conservative)
This measure extends the scope of the disclosure regime to situations in which the VAT advantage does not affect the taxpayer's VAT return—for example, because the VAT relates to exempt supplies and the scheme is intended to reduce the amount of irrecoverable VAT that is effectively a straight cost to the business. The definition is also extended to cover a reduction in the amount of VAT incurred by non-taxable persons. That will bring offshore arrangements that were not previously caught by it within the scope of the disclosure regime. That, of course, will mean an increased compliance burden for affected taxpayers.
It is interesting that the VAT disclosure regime is continuing to request the disclosure of schemes, but no action is being taken to introduce any anti-avoidance legislation in response. That may be because there is no possibility of amending UK legislation within the European Union directive or because Her Majesty's Customs and Excise is awaiting the outcome of certain European Court of Justice cases to determine whether it has sufficient grounds to introduce anti-avoidance legislation. I should like some clarification on that point, the theme of which will consistently run through our proceedings.
One of the more contentious issues arising from the redefinition of a tax advantage is that under the existing rules only taxable persons are required to notify a scheme when a tax advantage arises. Therefore, the onus is placed on the supplier to notify HMRC when a recipient of the tax advantage is not registered for VAT. That may not be possible if transactions pass through several third party companies before the end recipient benefits. Again, additional burdens are placed on legitimate businesses.
There is a lack of Government activity on disclosed VAT avoidance schemes. At HMRC's large business forum in May, it indicated that it had received details of more than 700 VAT avoidance schemes. The Government have not sought to close down any of those in this or the previous Finance Bill. On Second Reading of the Finance Bill, the Paymaster General cast doubt on that number of 700, which had been raised by my hon. Friend the Member for Runnymede and Weybridge. Yet the statistic is there for all to see in an Inland Revenue presentation on the Inland Revenue website: 729 VAT schemes have been disclosed.
In the same large business forum, HMRC debated the tax gap—that is, the tax not collected due to non-compliance, defined to include tax avoidance. The Government's apparent inaction appears to be fuelling the tax gap. It is possible that concerns about EU law are once again preventing the Government from closing down some of the VAT avoidance schemes. If the Government are not going to use the VAT disclosure scheme to close down avoidance, should not those rules be reduced, to remove, at least, the compliance burden on business and enable HMRC to concentrate on more fulfilling matters?
I ask one final question. Why are the Government not using the information gathered under the 700-plus schemes to take action to shut down the tax gap?