Accounting for and Payment of Tax

Clause 30 – in the House of Commons at 12:00 am on 12th July 1972.

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Photo of Mr David Mitchell Mr David Mitchell , Basingstoke 12:00 am, 12th July 1972

I beg to move Amendment No. 195, in page 20, line 21, at end insert: 'In respect of goods of £15 or less in value the regulations shall not provide for a tax invoice to show value-added tax as a separate item'

Photo of Mr Edward Mallalieu Mr Edward Mallalieu , Brigg

With this we can conveniently discuss the following Amendments:

No. 196, in line 21, at end insert: 'In respect of goods of £25 or less in value the regulations shall not provide for a tax invoice to show value-added tax as a separate item'.

No. 197, in line 21, at end insert: 'In respect of goods to the value of £20 or less the regulations shall not provide for a tax invoice to show value-added tax as a separate item'.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I do not want to take much of the time of the House—[Interruption.] But, cashing in on the popularity which I seem to have engendered with that remark, may I say that in Committee we had a clear indication from the Financial Secretary that he was thinking of making invoices to the value of £10 or less in a more simple form, not having to show VAT as a separate item. I have a letter from the hon. Gentleman in which he says: For small transactions up to £10 in value a less detailed form of tax invoice will be acceptable and this will not need to show the tax amount separately We did not, however, have any discussion on the question—why £10? The Small Business Association is anxious that this should be aired because it is felt that a large number of shopkeepers will have to take on a lot of clerical assistants to deal with individual itemised value added tax invoices, and it is thought that a figure of £15 or £20 or £25 would better enable a large number of transactions to be carried through without increasing the added clerical work involved. I am sure that this is so straightforward that the Financial Secretary will be anxious to accept one of these Amendments. I have, therefore, given him the choice of three.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I will not take much of the time of the House either.

The object of the Amendments, which are alternatives, is to provide that a taxable person cannot be required by regulations to issue a tax invoice—that is, a document which shows tax chargeable as a separate item—for a supply of goods of a value not exceeding one of several suggested amounts. The Amendments do not mention supplies of services, but this omission is probably unintentional.

One effect of the Amendments would be to increase the possibility that traders would make mistakes when claiming deduction of input tax, since they would have to work out for themselves the amounts of tax included in the overall prices charged by their suppliers for these small consignments. This will be a simple calculation if the standard rate of tax is 10 per cent. but could be much more difficult with a different rate. I will not provoke the House by suggesting which direction the rates might go under this Government and which direction they might go under the Labour Government. Mistakes could result in losses by the Exchequer or by taxable persons.

Another, and potentially more serious, effect would be to limit the Crown's power to recover tax from a person who issues a false or incorrect invoice, since Clause 33(2) applies only where an invoice shows tax as a separate amount.

A registered taxable person will normally have to issue a tax invoice for each taxable supply, other than a zero-rated supply, that he makes to another taxable person, and to keep a copy of the invoice. These invoices will provide evidence of the tax payable by the supplier, as shown on his tax returns, and supporting evidence for the recipient's claim for deduction of input tax. It is essential that, except for small transactions, they should show clearly the amount of tax chargeable, so that the receipient will deduct neither more nor less than that amount.

A simplified system has been devised for retailers and other persons who mostly supply goods or services direct to the public and who do not normally issue invoices. They will not be required to issue tax invoices at all for supplies to the general public and even for supplies that they make to taxable businesses they will be allowed to issue less detailed tax invoices than the normal ones if the value of the transaction is £10 or less. Such invoices will not need to show the tax charge separately and the retailer will not have to keep copies of them. Restricting the issue of such invoices to supplies of a value not exceeding £10 limits the risks involved in any departure from that full invoicing requirements.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I beg to move Amendment, No. 114, in page 29, line 29, leave out subsection (2) and insert: '(2) An appeal under this section shall not be entertained unless the appellant has made all the returns which he was required to make under section 30(2) of this Act and has paid the amounts shown in those returns as payable by him.(3) Where the appeal is against a decision with respect to any of the matters mentioned in paragraph (b) or (c) of subsection (1) of this section it shall not be entertained unless—

  1. (a) the amount which the Commissioners have determined to be payable as tax has been paid or deposited with them; or
  2. (b) on being satisfied that the appellant would otherwise suffer hardship the Commissioners agree or the value-added tax tribunal decides that it should be entertained notwithstanding that that amount has not been so paid or deposited.
(4) Where on an appeal under this section it is found—
  1. (a) that the whole or part of any amount paid or deposited in pursuance of subsection (3) of this section is not due; or
  2. (b) that the whole or part of any amount due to the appellant under section 3(2) of this Act has not been paid; so much of that amount as is found not to be due or not to have been paid shall be repaid (or, as the case may be, paid) with interest at such rate as the value-added tax tribunal may determine; and where the appeal has been entertained notwithstanding that an amount determined by the Commissioners to be payable as tax has not been paid or deposited and it is found on the appeal that that amount is due the tribunal may, if it thinks fit, direct that that amount shall be paid with interest at such rate as may be specified in the direction'.
We have given great care and attention to the enforcement provisions and have thought to take into account in our deliberations the representations which have been made to us in many quarters, and, indeed, particularly in Committee upstairs.

This Amendment, which is concerned with the deposit of tax, is in response to the representations made particularly in Committee. I do not wish to detain the House for long, but I should stress that the Amendment is important and a radical departure from the position when the Bill went into Committee and as it now stands.

The particular points which impressed my hon. Friends and myself in Committee upstairs were made by my hon. Friends the Members for Basingstoke (Mr. David Mitchell) and Dartford (Mr. Trew) and others on the effect that the operation of the Clause, if unamended, might have on those who would suffer hardship as a result of having to pay the tax because it had an adverse effect on their cash flow. Indeed, it was suggested that in certain circumstances someone called upon to pay the deposit of the tax might be put out of business and thereby suffer hardship. We were anxious to meet this point about hardship, but there are other subsidiary points to which I shall turn later. I think on this occasion the House would probably wish me to outline rapidly exactly what the Amendment does.

The Amendment alters and limits the existing pre-condition of prior deposit of tax as assessed by the Commissioners before an appeal can be entertained by a VAT tribunal.

First, it provides explicitly that no appeal will be entertained unless the appellant is up to date with his tax returns and has paid the tax declared in those returns. I think that is reasonable.

Secondly, however, it restricts the existing requirement of deposit of disputed tax to cases falling within Clause 40(1)(b) and (c) only—that is, appeals against assessments and against liability or valuation decisions.

Thirdly, it makes provision for the deposit of disputed tax to be waived even in these cases if either the Commissioners or the tribunal accept that the appellant would otherwise suffer hardship.

The point I am making is two-fold. First, whereas in subsection (1) there is a long list of (a), (b), and so on, right down the line, it will now apply within the terms of the Amendment in the case of only subsection (l)(b) and (c). There is a minor point on subsection (3) with which I do not think I need weary the House now.

Secondly, if hardship can be shown, it may be considered by the Commissioners who, if they feel there is hardship, can waive it, and that is the end of the matter. If they decide not to waive it on grounds of hardship there will be a right of appeal to the tribunal.

As a corollary to that, the Amendment alters the existing provisions on interest by giving the tribunal discretion to direct that in cases where deposit of tax in dispute has been waived, but the disputed tax found to be due, it should be paid with interest, and this again is reasonable. The existing provision that tax paid or deposited but found not to be due should be repaid with interest is also amplified to make it clear that similar treatment will be given to refunds of tax which have been withheld pending appeal and which are found on appeal to be justified. The Amendment is the outcome of the consideration which we have given to the matter since it was raised in Committee.

The Committee recognised that deterrents against frivolous appeals were necessary, but there was considerable support for the view that we should avoid hardship, and the Amendment effectively strikes a balance between those two considerations. It removes the deposit requirement altogether in a number of cases, and for others there is this appeal provision. We believe that it will provide protection against a flood of unjustified appeals, launched solely to postpone payment of tax, which would seriously overload the new tribunal organisation, slow down the collection of tax and also slow down the rate at which decisions are made by the tribunals. The purpose of these tribunals is to give speedy decisions. This was the point which we explained in Committee we were particularly anxious to cover, and we believe that the Clause will be an important help in that regard.

I do not think that the House would wish me to go over the precedents of Inland Revenue provisions or purchase tax legislation, but if I might detain the House for a few moments more I want to cover an important point made by my hon. Friend the Member for Horsham (Mr. Hordern). It is what I think one might call the "thin end of the wedge" point. My hon. Friend felt that if we were to take to the power which we are proposing to take in this Clause, even with the provisions covered in the Amendment, it might be the thin end of the wedge in Inland Revenue cases. He expressed concern that this might be the position. This arises, in part, from the fact that I emphasised the extent to which there were delays in Inland Revenue cases and how we were anxious to avoid a similar situation with VAT.

During the Committee debate on subsection (2) my hon. Friend the Member for Horsham expressed those fears and foresaw that a later Government might say that the VAT tribunals are not very different from the panels of General Commissioners who form the appellate bodies for income tax, corporation tax and capital gains tax. If, my hon. Friend suggested, a later Government saw some degree of similarity—which he did not think was inconceivable—they might be prompted to legislate to require that a person who appeals against say, an income tax assessment should be required to deposit the whole of the tax charged in the assessment before his appeal became valid. At present he need pay at this point only the tax not in dispute.

I give my hon. Friend and any other hon. Member who have similar apprehensions an assurance that this Government will not introduce legislation in this sense, and I do not believe that any later Government would reach the conclusion that it would be reasonable to take this course to solve the problem which undoubtedly arises in the administration of income tax and other appeals of the kind that I have mentioned.

As I said in Committee, there are more than 750,000 appeals listed for hearing each year before the General Commissioners, and of these all but a handful arise from delay. But whatever is the right solution to this problem, it cannot be the same as that set out in subsection (2) which I am asking the House to amend. The taxes with which the General Commissioners deal are annual taxes, and although it is not always possible to attain it, the aim must be to clear each year's tax before the next year's tax is due. VAT is payable quarterly, and if we did not take the course in subsection (2) succeeding sums would become due before the appeal was settled, and by this means a considerable sum could accumulate.

I thought it right to give that assurance to my hon. Friend and others who have expressed fears about the relationship between the indirect and direct tax systems and the position of Customs and Excise and the Inland Revenue. I am sure that the Amendment will commend itself to the House.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The Financial Secretary knows that we are far from happy with the whole of these enforcement provisions and appeals, but this Amendment is an improvement. For that reason we are happy to accept it. If we had time I might have wanted to pursue a little further the point he was making about "the thin end of the wedge" argument on the question of appeals to the Com- missioners on income tax and corporation tax, because it is my experience that the vast majority of those are simply appeals against estimated assessments and they are estimated assessments raised simply because the accounts had not been submitted and are largely meaningless.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

Many minds will be set at rest by the assurances my hon. Friend has given and I am grateful for them.

Photo of Sir Ian Percival Sir Ian Percival , Southport

The Clause will be much better when amended as proposed. My sole purpose in speaking is to place two matters on record. The first is that I do not think that we have got the balance quite right. Practically all the relevant cases are covered by paragraphs (b) and (c). In those cases all the tax, even that in dispute, has to be paid as a condition of proceeding with the appeal although there is now a procedure under which the amount may be remitted. We should get nearer to what I regard as the right principle, if we did it slightly the other way round and said that only the tax not in issue has to be paid, but giving power, either to the Commissioners, subject to the right of appeal to the tribunal, or to the tribunal, to say that in particular cases even the tax in dispute should be paid—in other words, giving a power to impose conditions rather than making those conditions apply by law. These are matters which I will go on discussing with my hon. and right hon. Friends during the year before any of this comes into operation.

The second point is that I am glad that my hon. Friend has made it perfectly clear that this is not to be a precedent. One of the arguments used against altering this Clause has been that there is a respectable precedent for it in the Purchase Tax Act. I am glad that my hon. Friends have departed from that and have not insisted that it is a precedent which should be followed, and have been willing to change.

I want to put on record my views about this point because we are doing something which is a departure from past precedent, which affects anything from 1 million to 2 million people. That might easily be quoted as a precedent. In this case this is something that is being done after full debate in the House and the country, whereas the similar provision in the Purchase Tax Act was introduced, I think, during the war and probably without anyone noticing it. Certainly I do not think it was noticed in the legal profession.

I am glad to hear my hon. Friend place it on record that this is not intended to be a precedent. Subject to those two comments, I welcome this Amendment, which represents a substantial shift from the original position. It is one for which we should be grateful.

Photo of Mr Peter Trew Mr Peter Trew , Dartford

As one of those who in Committee referred to the question of hardship I am grateful to my hon. Friend for the lengths to which he has gone to meet the case. If in practice he finds that tribunals become overloaded, I hope that he will not relent on the hardships provisions but will increase the number of tribunals.

Amendment agreed to.