(Except clauses 1,3,7,8,12,20,21,25,67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 27
Finance Bill
9:00 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
But in the eyes of the CIOT the concerns were none the less dismissed. The CIOT continued that it was also unhappy with
“the assertion that the position can be clarified through guidance. There is no reference in the legislation to either the statement of principle or the guidance and, therefore, no guarantee that the legislation will be interpreted in this context. Furthermore, guidance has no statutory authority and can be changed without consulting Parliament. A taxpayer can only challenge it through judicial review. As such, the enactment of the legislation as it stands represents an unacceptable delegation to HMRC of the power of the legislative.”
Its budget briefing amplified its concern, stating:
“We consider that guidance notes are a poor substitute for proper legislation, especially where the guidance notes correct flaws in the legislation. We appreciate that some guidance notes will always be necessary in order to avoid immense Finance Acts.”
I suppose that some people might appreciate less immense Finance Acts. The briefing goes on to state:
“Such guidance should tie in and complement the legislation, rather than ‘untax’ it.”
Therefore, we have a set of guidance notes that narrows the scope of the legislation as it is drafted. However, would it not be better to have more tightly defined legislation that gives taxpayers greater certainty about what falls within and without the scope of the clause?
In its representations, the Institute of Chartered Accountants states:
“Taxpayers should be taxed on the basis of clear legislation.”
It continues:
“In the absence of a clearance procedure, it is not right to produce deficient legislation that appears to catch many more transactions than intended, on the basis that such transactions can then be taken out by way of HMRC guidance. HMRC guidance has no statutory authority and cannot be taken into consideration in court.”
That is bad enough, but given that guidance notes are so important, it would be helpful if they were clear and reflected some principles. Again, however, the CIOT expresses concern about the clarity of the notes. In one of the examples in the revised guidance notes, the CIOT wrote to HMRC saying that
“we agree that these situations should not be caught by the legislation, but we cannot see that the conclusion that they are not caught is justified from an analysis of the legislation, or indeed, that this view is constantly reflected in some of the later examples in the revised guidance.”
The letter goes on to make the statement:
“The guidance lacks a consistent logic that can be applied to determine when the legislation applies and when it does not. There appears to be an unwritten test, whereby a situation is caught if it crosses the boundary between what is considered by HMRC to be acceptable and unacceptable behaviour. This causes great uncertainty for the taxpayers.”
At a later stage, I will quote from the principles underpinning the guidance to highlight why the CIOT might make such comments about the uncertainty and lack of clarity in the guidance. With that in mind, I have tabled four groups of amendments to increase the protection that is available to taxpayers and to give greater clarity to the Bill. That will give taxpayers and advisers a much clearer idea about the transactions that are caught both inside and outside the scope of those rules.
Amendment No. 31 would insert in clause 27 a new section 16A. It states, in line with the approach adopted by the tax law rewrite project, that there should be an introduction to the new legislation at the start of the clause to set out the purpose and rationale behind the changes. The amendment seeks to set out that purpose in subsection(1) and make explicit reference in subsection(2) to the principles that were set out by the HMRC at the time of the pre-Budget report.
We would like all the amendments to be accepted by the Government. I do not know whether the Economic Secretary or the Finance Secretary will reply. The Economic Secretary may be full of generosity in the light of last night’s news and accept all of the amendments with alacrity and without any questioning. It is important to say that all the amendments in the different groups should form part of the package to give much clearer signals to taxpayers.
If Amendment No. 31 is accepted in isolation, it would be contradict the rather sweeping terms of the rest of the clause. It may well be of some assistance to ensure that courts and tribunals interpret legislation purposively, thus limiting the full rigour of the legislation as it currently applies. Amendment No. 31 would narrow the interpretation of the clause to ensure that transactions, in which a loss is deliberately usedto offset a gain—such as in the example I gave earlier—would not be caught, but transactions that include more aggressive tax planning schemes would be. I commend the amendments to the Committee.