Having moved so rapidly, we come now to VAT. I think it is only fair to say that that subject will need to be considered in a little more detail, because there are a number of points to be made.
I shall be economical in introducing the amendments, and it may be helpful if I deal with amendment No. 1 first, and then amendments Nos. 84 and 85. The clause is intended to enable Customs and Excise to require the deposit of a security from a business involved in the VAT supply chain, the operation of which places the revenue at risk. That provision is intended to come into effect on 10 April, and it also includes a provision for Customs and Excise to accept evidence, other than that contained in documents, to support a claim to deduct input tax. It is that second evidentiary point to which amendments Nos. 84 and 85 are addressed.
Amendment No. 1 would add a further provision. The clause raises issues of concern as to the general balance—this is an important constitutional issue, and one of general rights—between achieving the aim of protecting Customs and the revenue it is able to raise, and preserving the rights of individual taxpayers. It goes further than the existing provisions, in that it extends to supplies to the taxable person and supplies by other persons. The key point is that the clause places no limitations on Customs and Excise, as the security provisions can be invoked whenever it thinks it necessary for the protection of revenue.
The provisions could be onerous, particularly for newly formed businesses. It has been noticeable throughout the consideration of clauses by the whole House during the past few days that that sector of our economy has exercised hon. Members from all parties. It is an important point, and the hon. Member for Sheffield, Heeley (Ms Munn) made a very clear speech about small businesses in her constituency. The provision is particularly onerous for newly formed business. That is why we have tabled the amendments, which I hope the Economic Secretary will find appropriate and proportionate, and will accept as the solution to the problem.
There should be a right of recovery from third parties if VAT on supplies by them is collected through enforcement of the security. That logic
reflects what I believe was in the minds of the draftsmen. I do not think that we are asking for something beyond what they have contemplated, but it is not in the Bill. Very revealingly and helpfully, in that it discloses the mind of the Government and those who have sought to put their instructions into words, there is such a reference is in paragraph 1 of the explanatory notes on the clause:
''This clause extends the powers that Customs and Excise currently have to require the provision of security where it is considered that a business is associated with other businesses whose pattern of trading poses a real threat to the proper collection of VAT.''
The reference to associated businesses in the explanatory notes should be reflected in the clause. That does not seem to be asking too much or doing anything other than making the clause clear.
Amendment No. 1 would also ensure that there are limitations to the circumstances in which the provisions can be applied. It is not as though I am raising this point for the sake of it. I have received representations on the matter from the most respected institutions. Those bodies take a deep interest in such affairs, and have a wide collective client base, which is aware of what the measure means on the ground. The Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation and the Institute of Indirect Taxation have all written in stronger terms than I have used to the Economic Secretary and in the amendments. Some of those bodies would have had the clause struck from the Bill on the basis that it represents a serious potential problem.
For the sake of the Committee's efficiency, I shall refrain from reading out the Law Society's long brief, which I commend to those who are concerned about the matter. As Members of Parliament, we are all concerned to protect the interests of our constituents as citizens and taxpayers, which is part of our duty in examining all provisions in legislation proposed by Governments of all colours. It is also obviously our duty to examine the Government's proposals in order to protect the revenue that they can raise.
Subsection (2) broadens the powers of Customs of Excise to require the production of documents ''or other information'', which may give rise to unreasonable, irrelevant or inappropriate requests for information that have no direct bearing on the transaction with which the inquiry is concerned.
Amendment No. 1 addresses the important point about an appropriate, proportionate and fair settlement. Above all, we should seek to enshrine in statute a sense of justice on which taxpayers, citizens and constituents can properly rely without concern and doubt that there may be a clause that enables Customs and Excise to act inappropriately—I am not suggesting that it will. The taxpayer should not be subject to the enormous concern, worry and expense of having to prove their position in the civil courts at a cost risk. Putting a benchmark in statute would set the standard that we expect, which is why amendment No. 1 seeks to address that point.
If, much against my hope and expectations, the Government are not minded to accept the amendment,
given that the group of amendments clearly and sensibly relates to one clause, I shall seek recognition that amendment No. 1 deals with a slightly separate point from amendments Nos. 84 and 85. Under your guidance, Mr. McWilliam, I may want to vote separately on amendment No. 1 and to take amendments Nos. 84 and 85 together.
The next problem with the clause is the requirement for evidence and security. The issues on subsections (2) and (3) are not very different from those in the existing provisions. I want to make it clear that the clause has been genuinely thought through and filleted to establish where the problem lies. I do not seek to amend subsections (2) and (3), which are part of the intended tightening up by Her Majesty's Customs and Excise of input VAT refunds to traders who do not hold VAT invoices. That is made clear in the consultation paper ''VAT Strategy: Input tax deduction without a valid VAT invoice'', which was published in April 2003. Customs and Excise intends to be tougher on computers and associated equipment, telephones and associated equipment, alcohol and road fuel rather than on other goods and services, which is not objectionable.
Subsections (4), (5), (6) and (7) are an entirely different matter and give rise to real concerns. In addition to the concerns that we have outlined, which we have sought to address through amendment No. 1, there are the problems addressed by amendments Nos. 84 and 85.
Ever since VAT was introduced, Her Majesty's Customs and Excise has had the right to demand security from a supplier for his future output VAT liabilities—he has a limited right of appeal against that—or in case input of VAT refunds are incorrectly made to him. The security is normally a cash deposit or bank guarantee.
I sought with sleepless effort to distil the serious issue contained in the pages of representations that I have received, but I thought it might be easier for hon. Members to follow my argument if I referred to parties A, B and C. For those who like drawing diagrams, this may be the moment. The new provisions state that if A makes supplies to B and B makes supplies to C, B can be required to give security not only for any VAT that becomes due from him to Customs and Excise, but for any VAT that becomes due from A or C. There is no restriction to goods or services of any particular sort. Customs and Excise must show under subsection (7) that there has been or is likely to be some evasion or attempted evasion of VAT in relation to some goods or services supplied to or by B. That might have been at any time in the past, it might have been trivial and it might not have been by B. Enforcement of the security is not restricted to VAT on supplies when there has been or is likely to be evasion.
That is extraordinarily widely drafted and could impose a crippling—I am not using the word lightly—obligation on small businesses for VAT liabilities that are essentially not their own. The provisions should be deleted. Under existing legislation, Customs and Excise can demand security from A or C for their
own output VAT liabilities. If A or C find it difficult to come up with that security, B can help them out if he believes that it is in his commercial interest to do so. That is why our amendments Nos. 84 and 85 would omit subsections (4), (5) and (7).
I have done my best to explain the issue clearly in a complex but important area involving taxpayers' rights versus the state's interests. We could be discussing a more fundamental interface of the interests and duties that we, as Members of Parliament, must tackle.