Schedule 36
Finance Bill
3:15 pm

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I beg to move amendment No. 162, in schedule 36, page 352, line 6, after ‘An’, insert ‘authorised’.

Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss the following amendments: No. 163, in schedule 36, page 352, line 14, after ‘An’, insert ‘authorised’.

No. 164, in schedule 36, page 352, line 18, after ‘is’, insert ‘in that person’s possession and’.

No. 170, in schedule 36, page 356, line 36, leave out from ‘(b)’ to ‘a’.

No. 171, in schedule 36, page 356, line 39, at end insert—

‘(2A) A taxpayer to whom a third party notice relates may also request a copy of the document, and an officer of Revenue and Customs must comply with such a request without charge.’.

No. 172, in schedule 36, page 357, line 3, at end insert ‘and any consequential losses suffered.’.

No. 183, in schedule 36, page 370, line 14, leave out from ‘who’ to end of line 15 and insert

‘holds the position of Inspector of Taxes within Revenue and Customs.’.

No. 263, in schedule 36, page 362, line 24, at end insert

‘and of the company or companies that the Officer believes are subsidiary undertakings and the notice shall be taken as relating only to the companies so specified’.

No. 268, in schedule 36, page 370, line 15, at end insert—

‘(2) The Commissioners shall publish—

(a) the criteria by which they determine who should be authorised for any particular provision, and

(b) for each provision requiring an authorised officer, the names of all officers who are so authorised.’.

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I tabled the first seven of the nine amendments that you read out, Sir Nicholas. I will not reheat the broad principles of the debate with every group of amendments. [Interruption.] There has just been a sedentary intervention about the interest being shown by my colleagues in these proceedings. Meanwhile, huge numbers of Labour MPs are walking out of the room who seem to pop in periodically only when we need some useful idiots to prop up the Government. [Interruption.]

Nicholas Winterton (Macclesfield, Conservative)

Order. We have had a wonderfully sensible debate this afternoon and I am sure that it will continue. We can get a little bit more invigorated, but hopefully it will be totally in accordance with the content of the amendments.

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I am grateful for your guidance, Sir Nicholas, and for the audience that I have before me, diminished though it is, since the vote took place, on the Opposition Benches. Let me run through the amendments. They are all quite specific, but if they are seen in isolation, their purpose can be hard to understand. I will explain briefly what each of the seven is trying to achieve. Amendment No. 162 restricts the power to a senior officer who is able to undertake the inspections. Currently, the inspection can be authorised by any HMRC employee, including those at quite a junior level. The purpose of the amendment is to put a floor under the seniority of the inspector so that there is some reassurance that the powers are exercised by someone with the appropriate level of authority and experience.

Amendment No. 163 effectively covers the same points, and there is nothing extra that I need to say. The point of amendment No. 164 is that a third party should not be expected to provide a document to which they have no access. As currently drafted, paragraph 2 says that if information or documents are “reasonably required”, they must be provided by the third party. However, that does not account for the likely situation in which the third party does not have access to the documents that HMRC wants. In that case, the amendment proposes to ensure that the person is not liable to produce a document that they do not possess.

Amendment No. 170 says that a person should rightly have full access to copies of their own documents. This amendment would delete part of paragraph 14(2)(b) so that a person does not have to “reasonably” require a copy of their own document before they are granted one. I apologise to the Committee if I slightly garbled my words. At the moment, there is a threshold that the person has to overcome of “reasonably” requiring a copy of their own document if they are to be given that document by HMRC. Amendment No. 170 seeks to delete that requirement.

Amendment No. 171 allows the taxpayer access to a document when it is given by a third party if it concerns them. The amendment proposes to insert additional sub-paragraph (2A), so that if a third party has obtained documents from HMRC when someone’s tax record is inspected, the taxpayer has a right to obtain a free copy of those documents. Amendment No. 172 is designed to compensate business losses arising from HMRC errors. That is an important point that would concern some businesses in some circumstances. Currently paragraph 14(4) provides for compensation to be made to replace documents lost by HMRC. However, as the Institute of Chartered Accountants has pointed out, it would not cover instances in which negligent behaviour by the HMRC resulted in the business losing revenue. The amendment requires HMRC to compensate for any “consequential losses suffered”, so it covers not just the documentation itself but the knock-on effects resulting from the actions of HMRC. Amendment No. 183 also covers the point about an authorised officer that I raised in earlier amendments.

Therefore, the overall theme of the amendments in this group is about trying to tighten and strengthen the powers of the individual citizen in their dealings with HMRC. For example, the amendments require HMRC to engage with them at a senior level, and make requirements about the documentation to which the citizen has access. Finally, they ensure that HMRC’s behaviour does not impact in a way that is unfair or disadvantageous to that individual or business. For example, they ensure that the individual or business does not lose out financially as a result of the Government’s enforcement actions. It is, of course, right and appropriate that HMRC and the Government should seek to take and collect the taxes owed to them, but the individual citizen or company has rights in their interactions with the state. My intention is to protect those rights as far as possible.

Mark Field (Cities of London and Westminster, Conservative)

The hon. Gentleman makes an important point in his amendments, particularly in pointing out the need to create a level playing field between the individual and the state. In so far as the state wishes to take upon itself particular powers through any of its  agencies—in this case, HMRC—it is fair that the individual, too, should be able to benefit at a similar level. In this provision, we are considering the power to exact money from either a sole trader or a company, and there should be a balance.

I suspect that I am about to pre-empt what the Minister is going to say about the nature of the compensation that the hon. Member for Taunton has in mind, but I fully appreciate that unfettered economic loss, particularly for acts of tortious negligence, would be against public policy. That has been the case in the past and will be so in future. Although the level of compensation that the hon. Gentleman has in mind would be a step too far, that does not detract in any way from the importance of ensuring that we do not trample over individual rights, particularly those of small companies or sole traders, as the hon. Gentleman suggests in his amendment.

I hope that the Minister will consider this matter. I suspect that she will not be happy about the notion of unlimited economic loss in respect of the financial compensation is proposed in the amendment, but the hon. Gentleman makes an important point. All too often, an increasingly all-powerful HMRC is pitting its powers against the individual, and we need the balance to which the Minister referred earlier, albeit in a different context.

David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

I shall speak briefly on the Liberal Democrat amendments and on those that I tabled with my hon. Friends. Amendments Nos. 162, 163 and 164 relate to paragraphs 1 and 2 of schedule 356, which are important because they contain provisions relating to the power to obtain documents from a taxpayer and from a third party. Although paragraphs 1 and 2 are widely drawn, as long as paragraph 3, which relates to the next group of amendments—I shall not go into it in any detail at all at this point—is adequately drafted, we broadly accept them.

The hon. Member for Taunton made an interesting point about the authorised officer. In schedule 36, and in other schedules, there is concern that sometimes powers are too widely dispersed within HMRC. Those powers need to be vested in people with sufficient seniority, training and expertise so that particular points may be addressed. That is the purpose behind amendments Nos. 162 and 163. If those amendments are to work, the definition of “authorised officer in paragraph 57 needs to be tightened, because at the moment an authorised officer is simply someone who is authorised by the commissioners. That is an incredibly broad definition—anybody could be authorised by the commissioners. I suspect that we could have a re-run of the debate on guidance, although I do not want to do so. Will the Financial Secretary provide clarification about who an authorised person will be and what level of training and expertise will be expected of them?

The Conservatives and the Liberal Democrats have sought to tighten the definition of an authorised officer in different ways. Liberal Democrat amendment No. 183 states that an authorised officer should be an inspector of taxes. Conservative amendment No. 268 would create a list of criteria for authorised officers for particular provisions. Under our proposal, somebody might be  authorised for one power but not another, depending on their expertise and training in each field. It also states that their name should be published, which is a more accountable way of doing things. I suspect that the Financial Secretary will outline some of the practical difficulties with that proposal, which I have tabled in a slightly probing manner. However, the definition needs to be tightened, as the definition in paragraph 57 is too broad, as authorised officers who are simply authorised by the commissioners will not provide the necessary reassurance to taxpayers and third parties.

I will say a brief word about Liberal Democrat amendment No. 164, which relates to documents in the possession of third parties. I think that the Financial Secretary will make the same point, but I do not think that the provision is necessary. Paragraph 16 states:

“An information notice only requires a person to produce a document if it is in the person’s possession or power.”

Paragraph 6 defines an information notice as including anything under paragraphs 1 and 2. Unless the Financial Secretary corrects me, I do not think that amendment No. 164 is necessary.

Three Liberal Democrat amendments have been tabled to paragraph 14, which deals with the power to remove documents, and I am sympathetic to two of them, which make the point that if a document is removed, the person who produced the document may request a copy of it. I do not think that there is a need to qualify that by saying that it must be “reasonably required”. On amendment No. 171, I am sympathetic to the proposal that the taxpayer to whom the third party notice applies may receive, by request, a copy of the relevant document. I agree with my hon. Friend the Member for Cities of London and Westminster, with regard to consequential loss, that this is usually resisted by Governments in such circumstances for understandable reasons. It would put the taxpayer in a difficult position, so I do not support it.

I will make one further point about paragraph 14, which is slightly broader, and to which three amendments have been tabled. The explanatory notes state that paragraph 14

“does not amount to a power to seize documents.”

Looking at paragraph 14, that seems to be precisely what it is. Will the Financial Secretary explain why paragraph 14 does not provide a power to seize documents?

Stewart Hosie (Spokesperson (Economy; Home Affairs; Treasury; Women); Dundee East, Scottish National Party)

I have a question about documents produced or inspected that an officer may remove or retain for a reasonable period. An investigation could be concerned with transactions made with particular bank accounts that the Revenue believes to have been opened for some reason. If the proof of identity given to open the bank account is a passport or a driving license essential for running the business, could those documents be legitimately removed and, if so, for how long? This issue does not relate to being given a copy of one’s documents. Perhaps the Revenue would take a copy and allow the original to be retained because it is important for business reasons. I would like some clarity on that, because although such information might appear in the guidelines, it is not in the Bill, which could cause significant difficulties.

Nicholas Winterton (Macclesfield, Conservative)

I call the Financial Secretary to reply. I am sure we will get the answer to the last question.

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

Thank you, Sir Nicholas, I will do my best to do so.

Amendments Nos. 162, 163, 183 and 268 refer to the term “authorised officer” as a way of limiting who should exercise the powers contained in schedule 36. Taken together, the amendments would mean that all officers using the powers would have to be authorised inspectors of taxes and their names would have to be published.

I entirely accept that it is important to consider who should use the powers and how taxpayers can be assured that those HMRC officers who do so are suitably trained. Requesting information or documents to check a tax position is the bread and butter of the work of thousands of officers in compliance units in HMRC. The Department’s care and management responsibilities already require the assurance that officers are appropriately trained for the work that they do. A general authorisation requirement, particularly one using an outdated and inappropriate label, such as “inspector of taxes”, would simply create bureaucracy without providing any real additional safeguard.

Instead, schedule 36 differentiates the more intrusive powers, such as the power to visit business premises without prior warning, and states that those powers should be exercised only by officers authorised by HMRC commissioners who have had specific training. In that way, the law differentiates which officer may use which power, depending on the intrusiveness of that power. That is a more sensible and effective safeguard.

Two further points are relevant in relation to that. HMRC is already planning a major programme of training and guidance for this package, and publishing a list of authorised officers’ names would be potentially dangerous. Officers of HMRC engage in investigations that can be highly sensitive and I am sure that hon. Members have a mind to the need to protect the identities of individuals in those circumstances. However, quite rightly, there are concerns and reassurance needs to be provided. I would like to make it clear and put on the record just how seriously authorisation levels will be taken. As I have outlined, authorised officers will have an appropriate level of seniority, on which HMRC will consult, and they will have proper training.

Amendment No. 164 would restrict the power to obtain information or documents from a third party to those in their possession. That restriction already exists in relation to documents, but information is different—it includes explanations of facts or may involve creating a document. The concept of power and possession does not work in this case.

Amendment No. 170 would require HMRC to provide copies of all documents taken—and this brings me to the point made by a number of hon. Members, in particular that made by the hon. Member for Dundee, East—if requested to do so, rather than those that might be reasonably required. It is HMRC’s duty to administer the tax system in an efficient way and, in many cases, providing copies will not be a problem. I cannot imagine that there would be any problem with the sorts of documents that the hon. Gentleman has rightly mentioned. It would be completely unreasonable not to comply with such requests. However, there might be instances in which the request is vexatious or unnecessary.  For example, it would be costly and cumbersome for HMRC to have to copy a full set of books and records for a closed year when HMRC needs only to review them for a short period.

Amendment No. 171 would require HMRC to give the taxpayer a copy of any document obtained from a third party. Information from third parties is a hugely important way for HMRC to establish the facts, particularly where the taxpayer is evasive or obstructive—that is remarkable, but it happens. Giving copies of all third-party documents to the taxpayer would undermine the ability of HMRC to investigate effectively, particularly in the more serious cases. It may also create confidentiality issues for the third party.

Amendment No. 172 suggests a requirement on HMRC to compensate the owner of a document for consequential losses, if HMRC loses or damages the document. I am grateful for the helpful comments made by the hon. Member for South-West Hertfordshire. The schedule already requires the Department to pay expenses reasonably incurred in replacing or repairing a lost document. That is sufficient recompense. HMRC officers take care to keep taxpayers’ documents safe. The hon. Gentleman asked what would happen if damage were caused during an inspection as a result of a negligent act by an officer. Where a document is damaged, the rules on reimbursing the costs of replacing that document would apply, and normal consideration would apply in other circumstances. That is not unusual; HMRC has been doing it for many years.

Amendment No. 263 would, if it were carried, seriously undermine the effectiveness of the improved approach to checking groups of companies, which has been welcomed in consultation.

David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

Rather to my embarrassment, I am not sure whether I mentioned or explained amendment No. 263. It was wise of the Financial Secretary to do that, because I was going to intervene on that point. However, paragraph 33, without being amended, essentially will require a third party to provide information about all the subsidiary undertakings and the parent undertaking, even if it does not necessarily have that information. If we are talking about a bank or an accountant that is advising the parent undertaking, they might not necessarily know all the subsidiary undertakings. However, that appears to be the obligation under paragraph 33. I will be happily reassured, but if I have understood correctly, the requirement seems to be unreasonable.

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

The process by which documents and information are to be provided to HMRC is changing as a result of the reforms that we are making. For example, the documents that the hon. Member for Dundee, East mentioned, such as driving licences, would have to be provided as a result of an information request. HMRC would have to apply a formal procedure. It is possible for that to be challenged, and for a taxpayer in those circumstances to question why a particular document is requested. The context in which such documents are made available to HMRC is being changed. For some taxpayers who have dealt with certain parts of the tax system under HMRC, the new system will feel more intrusive, but my expectation is that the application of the new powers by HMRC will be done and carried forward in a completely reasonable way,  which should be able to be justified at every step. We are providing safeguards so that taxpayers can challenge the process.

I was asked about the difference between removing documents and seizing them. The power allows an officer to take away, where necessary, a document that he has looked at as part of his visit. That power already exists for both VAT and PAYE, so it is not something that HMRC has to do often. Sometimes, however, there is a risk that during a visit an HMRC officer will see a document that contains vital evidence. That contrasts with the seizure powers, which have the feel of a dawn raid. That is not what this power is about, and I appreciate the spirit with which the issue was raised.

An officer would be able to remove the document if it seemed necessary to do so. That might be when there was a risk that the document could be concealed or destroyed later or when more detailed consideration might be needed. As for the reasonable conduct of the officer in carrying out such an inspection, it would be necessary for the staff to be supported with proper training so that appropriate powers are used in the right circumstances.

I have a final comment on the third party and the scope of amendment No. 263. The third party will have to provide replies to the specific questions only if they relate to particular subsidiaries. That will be made clear in the questions that are asked. I hope that I have dealt broadly with the concerns that have been expressed. The amendment would undermine the effectiveness of the measure.

Paragraph 33 provides a streamlined approach to checking groups that, among other things, removes the need to include the names of all subsidiary companies, of which there could be hundreds, as I am sure the hon. Gentleman knows, on information notices to third parties. His amendment would reintroduce a requirement that would increase the administrative burden on both taxpayers and HMRC. Indeed, it would negate many of the hoped-for benefits.

It has been suggested that we cannot trust HMRC’s view of what is reasonable. Legislation requires its checking to be reasonable. It is not possible for the law to define what is reasonable, as that varies from situation to situation. Ultimately, the courts will make final decisions about what is reasonable. However, it is possible to give more certainty by using guidance to set out examples of what is reasonable and what is not. There is a general duty on any public body, including HMRC, to act reasonably.

The civil service code also requires officers to behave sensitively in their dealings with the public. Those messages will no doubt be reinforced in the forthcoming taxpayers charter. I am pleased to see HMRC making progress on its development. One of the first things that I did in respect of HMRC was to suggest that we might start to call those who come into contact with it “customers”. There was a severe intake of breath. “Nobody wants to  be a customer of the tax authority, Minister”, I was told. However, I believe that it is right and proper that we have the concept of customer care when dealing with people who interact with HMRC, the vast majority of whom comply thoroughly and want to comply with their tax liabilities.

I hope that I have demonstrated, in my brief response to the amendments, that great care has been taken to ensure taxpayer safeguards are woven into the fabric of the package. I believe that we have arrived at the right balance between individual liberties and giving HMRC effective powers to do its difficult and occasionally dangerous job. The amendments are therefore unnecessary. I hope that they will not be pressed.

David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

I am grateful for the clarification and further explanation of paragraph 33, which was helpful. I am still not entirely convinced by the Minister’s argument, but I will not press my amendment to a vote. The position is similar with paragraph 14, although I note that—I think for the first time—she used the argument that the powers already exist for VAT and PAYE. Here we have our first explicit example of a case of levelling up. None the less, her comments were helpful. I will not be pressing that amendment to a vote, or the amendment on paragraph 57, on authorised persons, although I still think that there is an issue here. The Minister went some of the way, but perhaps during the debate she will go further about the emphasis on training and ensuring that the right staff, with the right experience and expertise, are in the positions of responsibility. I take the point that a lot of this is done by a lot of people, but that is an important point. I will not press any of my amendments.

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I am grateful to the Minister for her constructive and detailed response to that series of amendments. My only observation is that a reasonable case can be made in every instance for granting greater powers to HMRC. However, in my three years as a Member of the House, we have had endless items of legislation before us, of which this is only one, where the state has increased its powers at the expense of the individual citizen. If I recall correctly, I have yet to have the opportunity to vote on a single instance when the individual citizen’s powers have been extended at the expense of the state. Nevertheless, that is the background within which we all operate. I do not wish to press any of the amendments to a Division this evening. I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Macclesfield, Conservative)

May I wish all members of the Committee an enjoyable and eventful, but restful, weekend? I will see you back next week on Tuesday, at 10.30 in the morning.

Further consideration adjourned—[Mr. Blizzard.]