Clause 8 - Meaning of ''applicable year of assessment'' in section 7
Finance Bill
12:30 pm
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
I welcome the Economic Secretary's remarks, and I welcome the flexibility given to the taxpayer to defer assessment by a year; that is a sensible measure. We all know what we are trying to do under this clause. The problem, as is so often the case with tax, is that it is easy to announce in one sentence what the Government want to achieve—namely that no one should pay a higher rate of tax than they otherwise would have paid simply because they got a lump sum payment. However, it is much more difficult to translate that into reams of written words that give effect to the measure.
I do not wish to rehearse an argument that we have already had, but as the Economic Secretary said, the applicable year of assessment is the year of assessment in which the first benefit payment day falls. Without necessarily making the case for keeping open the options for partial deferment—although that would be a beneficial outcome of what I am about to suggest—one is compelled to ask why the year of assessment is not the year in which the lump sum is paid. That year, or indeed the following year by election, would seem to be the more obvious year of assessment. Why do we have this rather tortuous mechanism under which the year of assessment is the year in which the pension is paid, not the one in which the lump sum is paid, or when the first benefit payment date for the pension falls, rather than the day on which the lump sum is paid? That gives rise to a concern about clause 8(8), which says:
''For the purposes of determining the applicable year of assessment, it does not matter when the lump sum is actually paid'',
and also a concern about clause 7(1). I should be pleased if the Economic Secretary would rule out the possibility that someone could be assessed to tax in a period of assessment on a lump sum that they had not received, and that a pensioner could find that they were presented with an assessment to tax in respect of what could be four or five years' deferred pension—quite a lot of money—that they had not received: a tax bill which they therefore had no way of paying. Such a situation could arise, for example, if somebody opted to defer their pension for four years and at the end of the four-year period the ''first benefit payment day'' fell in that period. That person would, on that day, become liable to pay the tax on the lump sum, but what if the Department for Work and Pensions could not find them? What if they had moved home or disappeared?
We know that the Treasury has difficulty tracing people and paying them the right amounts of money. It is not inconceivable, as any hon. Member will recognise—and even a brand new Member will have had enough post so far to recognise—that people do not always get the payments that they are meant to get from the Government when they are meant to get them. Is it not possible that elderly and vulnerable people may suddenly be presented with a bill for a tax liability that they cannot pay, because they have not had the lump sum in question, which is presumably accruing interest due to HMRC? That is a problem.