Schedule 37
Finance Bill
7:00 pm

Record-keeping

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

I beg to move amendment No. 294, in schedule 37, page 376, line 30, after ‘regulations’, insert

‘made under paragraph 2(3A) and (3B) of Schedule 11 to the Value Added Tax Act 1994 or such other specific provisions as Parliament may from time to time determine’.

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Nicholas Winterton (Macclesfield, Conservative)

With this it will be convenient to discuss the following amendments:

No. 191, in schedule 37, page 377, line 9, leave out from ‘cases’ to end of line 13.

No. 275, in schedule 37, page 377, line 13, at end insert—

‘(5D) Regulations under subsection (3A) may not be made unless a draft of them has been laid before, and approved by resolution of, the House of Commons.’.

No. 276, in schedule 37, page 377, line 42, at end insert—

‘(6A) Regulations under sub-paragraph (2A) may not be made unless a draft of them has been laid before, and approved by resolution of, the House of Commons.’.

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

Thank you, Sir Nicholas, for your guidance. I shall try to present my comments on the four amendments in as brisk and workmanlike a manner as possible.

Schedule 37 is about record-keeping requirements. Amendment No. 294 relates to the provisions contained in paragraph 2(4), which allow commissioners for HMRC to make regulations specifying additional records and supporting documents that are to be kept and preserved. The concern that we have—this will run through my comments on the other amendments—is whether Parliament is surrendering too much power in the circumstances.

The concern in respect of paragraph 2(4) is that if powers are given to make regulations to impose enhanced record-keeping requirements, those powers should be limited. I believe that the intention behind the powers is to have enhanced record-keeping requirements relating to missing trader intra-Community fraud, which is an important issue. We do not for a moment want to impede the Government’s desire to tackle MTIC fraud. However, if that is the concern, the provisions should be limited to that area. Hence, amendment No. 294, which was proposed by the Institute of Chartered Accountants, would make the additional requirements that may be produced through regulation more specific. In essence, it would limit them to VAT matters.

Amendment No. 191 was tabled by the Liberal Democrats, and I have no doubt that the hon. Member for Taunton will speak on it. We are sympathetic to it because it would address the power that schedule 37 gives HMRC to

“make provision by reference to things specified in a notice published by...Her Majesty’s Revenue and Customs in accordance with the regulations”.

We are discussing regulations that will not be made by Parliament, whether through affirmative or negative resolution, but, as far as one can see, simply through guidance produced by HMRC. There will be no opportunity for Parliament to scrutinise them in those circumstances.

There is also a practical concern for taxpayers who are seeking to comply with their record-keeping requirements. Where those requirements are changed simply in relation to HMRC guidance, it will be increasingly difficult for taxpayers and professional advisers to monitor what those changes might be, so this is not purely about parliamentary accountability. The Minister may be able to address those concerns.

A practical point must be borne in mind. Amendments Nos. 275 and 276 relate to further powers under schedule 37 and both would require a resolution to be made under the affirmative procedure. During this debate, we have not taken a dogmatic approach on whether affirmative or negative resolution should be in place, but we would like to test the Government’s position on those matters. We look forward to hearing what the Minister says.

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

Amendment No. 191 is in my name and that of my hon. Friends. We are concerned that the provisions in schedule 37 provide too much power for HMRC. For example, paragraph 2 allows HMRC to make regulations, but for reasons of certainty and scrutiny that should be done by Parliament. Without the amendment, the provision would amount to tertiary legislation. The Institute of Chartered Accountants in England and Wales, among other bodies, has indicated that that would allow HMRC guidance booklets to be considered as legislation, creating great uncertainty for the taxpayer, who will not reasonably be able to keep up with the rules that they need to abide by. We are concerned about that. I should be grateful for any reassurances that the Minister can provide.

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

It might be worth talking briefly about schedule 37 generally, so that my response to the amendments is in context. The schedule aligns existing record-keeping rules for the main taxes: income tax, corporation tax, capital gains tax and VAT. Those rules have been the subject of extensive consultation, including draft guidance.

Records are essential both for taxpayers to make accurate returns and claims and for HMRC to be able to check those. Where there is poor record keeping, errors often follow. Therefore it is right that HMRC works to promote good record keeping. However, the overall aim of the schedule is not to add to what currently happens. We need to align and clarify the rules across the main taxes as HMRC moves, increasingly, to new ways of working across taxes. Representative bodies told us that taxpayers need clarity, but that they do not want HMRC to tell them exactly what records to keep. Instead, taxpayers should usually decide what to keep in the light of their own circumstances. It does not matter if the records are kept in a shoebox, so long as they are complete.

Some people worry that HMRC’s expectations on record keeping are unrealistic, particularly for small businesses. The hon. Member for South-West Hertfordshire is right: guidance will address that matter and consultation with the main representative bodies will be invaluable in ensuring that the guidance is both user-friendly and realistic.

I have been listening to the representations made by both hon. Gentleman, They both mentioned the Institute of Chartered Accountants and I have noted what they said about its views. The guidance published with the consultation was produced early and welcomed by many. It is not always possible to consult in advance, but on this occasion HMRC worked hard to do so. The fact that it did so, and the way that it responded to representations, has been welcomed.

The amendments concern the power to make regulations on keeping records. HMRC will be able to specify what does and does not need to be kept. That can be a useful way of providing clarity and can act as a taxpayer safeguard. There is no immediate need to make regulations to give that added clarity. We took the view that it was sensible to take the power now, against any future need, particularly as we expect such needs to be identified in the course of consultation on the guidance and that, if draft regulations are needed, they will be published in advance to allow representative bodies to make clear their views.

Amendment No. 294 is an attempt to narrow the regulation-making power in the way described. I say to the hon. Member for South-West Hertfordshire that it seemed to us that that was a difficult way of doing it—linking the power to an existing power in an Act about a different tax. We thought that if we were amending it in that way, a more conventional route would have been to amend section 12B. The amendment would negate the whole point of the attempt to align the record-keeping requirements across taxes. It would also mean that HMRC would be unable to provide clarity on what records did not need to be kept, which is why guidance would be appropriate. It would add unwelcome complexity, and there is concern about whether it would provide effective future proofing, which is partly what the hon. Gentleman is seeking to provide.

Amendment No. 191 would remove one instance of the power to make tertiary legislation. That power allows HMRC to use public notices to supplement regulations and to specify records. It means that HMRC can make decisions on routine administrative matters rather than taking up parliamentary time. That may alarm some people, but that flexibility allows HMRC to respond quickly to changes and it is already a familiar feature in VAT. Regulations must be laid before HMRC can specify by notice. The amendment would perpetuate differences between taxes. It would hamper the alignment that is integral to the merged HMRC. It makes sense to align here, particularly as the same records are relevant for several different taxes.

Finally, I turn to amendments Nos. 275 and 276. The normal protocol for tax is to use the negative resolution procedure for regulations that deal with routine administrative matters. Affirmative resolution is usually reserved for more contentious matters or those that directly affect the amount of tax due—for example, changing a VAT rating. The existing VAT regulations that specify records are made under the negative resolution procedure. Using the affirmative procedure for any of those provisions would be contrary to the normal practice for tax matters.

I note the concern expressed, and I am in regular conversation with the Institute of Chartered Accountants. I believe that the amendments are unnecessary, although I want to keep the matter under review, particularly if the guidance proves later to be controversial.

7:15 pm
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David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

I acknowledge the Minister’s comments on amendments Nos. 275 and 276, so I shall not press them. I was interested to hear what the hon. Member for Taunton had to say about amendment No. 191. I am still not entirely convinced by the Government’s position on the matter, based on parliamentary scrutiny and practicality, but there we are.

I note the Minister’s concern that amendment No. 294 would hamper the direction that the Government want to take on greater harmonisation and alignment. That shows up one of the tensions that exist within any alignment or harmonisation project. There are certain aspects for which the Government may seek special rules—for example, relating to VAT, as it is subject to fraud, and regulations would need to be in place requiring particular documents to be kept as a consequence.

I am not sure whether the Minister is saying that including the provisions of the amendment in the Bill would hamper that or whether there would be flexibility within the system to make specific record-keeping requirements that would essentially apply to a particular tax because they were seeking to tackle a particular tax fraud. I acknowledge that, although I am not entirely convinced by that position. However, I shall not press it to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment No. 192, in schedule 37, page 377, line 31, leave out ‘in writing’.

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Nicholas Winterton (Macclesfield, Conservative)

With this, it will be convenient to discuss the following amendments: No. 295, in schedule 37, page 377, line 31, after ‘writing’, insert

‘in relation to a particular taxpayer’.

No. 193, in schedule 37, page 377, line 32, at end insert

‘and received in writing by each taxpayer to whom the duty under sub-paragraph (1) applies.’.

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

Amendments Nos. 192 and 193 come as a joint package. Both have the intention of ensuring that the individual taxpayer is notified by HMRC and that a general release by HMRC is not sufficient. If I may slightly expand, the belief that underlies both amendments is that exemptions and conditions provided for should be addressed to the individual taxpayer to whom they apply. That would prevent HMRC from being allowed to use any written form available, for example even a press release, to create limitations on the discharge of duty.

The amendments would also require the conditions and exemptions to be received by the taxpayer. As the legislation currently stands, HMRC is only obliged literally to write them down. If a taxpayer is required to follow the rules, the view of our party is that HMRC should ensure that the taxpayer first be provided with the rules and regulations that they are required to comply with.

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Nicholas Winterton (Macclesfield, Conservative)

Ideally succinct. I thank the hon. Gentleman.

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

Essentially, amendment No. 295 does what amendments Nos. 192 and 193 jointly do. The arguments have been expressed by the hon. Member for Taunton. The Institute of Chartered Accountants noted, with regard to paragraph 3 of schedule 37, that it seems to give HMRC wide-ranging powers to create a statutory condition by means of, for example, a press release. Again, that raises an issue not only of accountability but of practicality: not every taxpayer——I dare say not even every professional adviser——will be watching every HMRC press release as closely as possible. In the circumstances, it would be preferable if this power was used specifically for specific taxpayers rather than applying generally. Therefore, we are most sympathetic to the Liberal Democrats’ amendments and we seek the Government’s views on our amendment No. 295.

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

This draft of the legislation aligns the rules in this area. It does away with the need for prior approval for VAT, but that is balanced by the power to set conditions about what is acceptable. I have heard what has been said about press releases and will deal with that directly. However, the only conditions that HMRC expects to specify by this route are the current high-level ones, which allow preservation of records by any method as long as it captures all the information needed for a tax return. The information needs to be available in a legible form.

It is important that I take the opportunity to put on record that these conditions will not be in a press release. A press release is a temporary format. It is very important that the conditions be highlighted in a public notice, and these conditions are fundamental. It is quite right that they need to be publicised to all taxpayers. If these amendments were made, HMRC could not put the conditions in a notice. Instead, it would have to write to each individual taxpayer to set them out. Hon. Members will agree that that would be hugely resource-intensive and help no one. Therefore, although I acknowledge that there is a genuine worry behind the amendments, I hope that I have been able to address that concern in my response and that the amendments will not be pressed to a Division at this late stage.

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

The Minister has gone some way to addressing those points and I hope that she will continue to be vigilant in the way that she instructs both her Department and HMRC on the need to ensure that those who are required to comply with the law know what the law is that they are being required to comply with.

On that basis and in the spirit of the mood of the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 37 agreed to.