The clause determines the scope of civil penalties for those who fail to keep their obligations under national and EU Customs laws or who evade certain types of Customs duties or import VAT. It also defines key terms for this part of the Bill, which includes clauses through to clause 41. The date at which the changes will come into operation will be set out in a Treasury order to be laid in the autumn.
Civil penalties are being introduced to encourage businesses to comply better with their legal
obligations. They will help to create fairer competition for all importers and exporters by specifically targeting non-compliant businesses that, by cutting corners, can gain a competitive advantage over businesses that fully meet their legal obligations.
At present, most infringements of Customs laws are classified as criminal offences. Many are relatively minor and are not penalised because to do so by way of criminal prosecution would be disproportionate and a poor use of court and Customs time. Introducing civil penalties will allow a more appropriate response to many breaches of the law and will provide a necessary sanction against non-compliant businesses that have hitherto been able to ignore the rules, largely without fear of punishment.
Customs already operates similar civil regimes for domestic VAT and excise. It is difficult to come by data, but I believe that the significant data that we have from the operation of VAT give an indication of the potential effect of this set of clauses and this reform. Prior to the introduction of a civil sanction, only 68 per cent. of declarations and payments of domestic VAT were received on time. With the introduction of a default surcharge, the compliance rate immediately jumped to 77 per cent. and has continued to rise to its current level of 87 per cent.
There will be two types of penalty under the Bill. The evasion penalty will be used as an alternative to prosecution in less serious cases of evasion. However, it is not a substitute for prosecution. Businesses or individuals who evade or try to evade duties or taxes will continue to be penalised either through a civil evasion penalty or, if appropriate, through criminal prosecution. Let me make it clear that the Government are not going soft on evaders or criminals. Customs civil penalties will not apply to prohibited and restricted goods such as drugs and firearms, or goods liable to excise duty, such as cigarettes and alcohol. The current sanctions applied to those infringements will remain. The introduction of a civil evasion penalty for evasion of Customs duties will enable Customs to investigate and deal with more cases of fraud because of to the streamlined procedures that apply.
A second penalty is being introduced to deal with general non-compliance where evasion is not involved. It will be used in cases of failure to comply with legal requirements and obligations, such as a business that makes persistent errors in import declarations. The aim is to encourage compliance by those who currently fail to discharge their obligations correctly. In targeting the non-compliant, Customs will help to ensure that already compliant businesses are not placed at a commercial disadvantage by non-compliant competitors.
In developing the proposals, we have worked closely with a sub-group of the joint Customs consultative committee for well over a year. That group comprises interested parties from throughout the international trade sector, representing agents, importers, exporters, freight forwarders and representatives from the Law Society and the Confederation of British Industry. Throughout the
process, they have been supportive of the introduction of a civil penalty regime. They view the introduction of penalties as a long overdue, necessary measure to level the playing field for compliant operators and to remove the disproportionate—albeit increasingly remote—threat of prosecution for very minor contraventions of the law.
The hon. Member for Eddisbury will appreciate that the trade is naturally concerned about how the regime will operate in practice. Therefore, we have exposed drafts of the legislation and our own internal guidance to the group. We have listened to its concerns and, where appropriate, taken suggestions on board. We continue to liaise and consult on some aspects of the regime. I am committed to exposing draft secondary legislation to the trade during the summer before finalising its structure. I also propose to expose our training programme to the trade through the group to ensure that the right messages are being transmitted to our operational staff. With those comments, and the reassertion that the introduction of civil penalties as a new regime and a reform has broad support from the trade, I commend the clause to the Committee.
I thank the Minister for laying out a helpful introduction to clauses 24 to 41, which is appropriate as clause 24 is the introductory clause of part 3. That has helped to clarify several points, and it is particularly helpful to have a report on how the consultation process has been engaged.
As was described, the general background to the clause, and the others in part 3, is the wish to bring civil penalties for the evasion of Customs duties as an alternative to criminal sanctions. My party regards it as sensible to approve of a step that provides for civil penalties to increase compliance with the rules rather than leaving criminal sanctions as the only option. That sets the scene for where we are coming from in relation to clauses 24 to 41. Notwithstanding the welcome for the civil regime, the test that I have applied in preparation for the debate is how the clause shifts the burden on the taxpayer. Has the burden been shifted in such a way as to be onerous in a way that raises questions or cannot be sustained? We have tested the possible fairness or the burden of the provision.
The Institute of Chartered Accountants in England and Wales is well aware of the problems faced by Customs and Excise in the management and control of certain movements of goods, and it understands the logic behind the introduction of the provisions. It is concerned about the way in which the clauses have been drafted and about whether the proposals meet the requirements of human rights legislation. To that end, we need to explore some of the issues. I note that the frontispiece of the Bill states:
In my view the provisions of the Finance Bill are compatible with the Convention rights.''
Clearly, that is an important and serious statement. Parliament has every right to rely on it—that is how it is intended.
The institute raised the matter as a potential issue and we have focused some of our concerns on it. I hope that during the debate on this and following clauses we can establish whether the institute's concerns are genuinely well founded. The Minister might need to reflect on a number of points.
It was pointed out to me earlier that I inadvertently addressed you incorrectly, Sir Nicholas. May I take this opportunity to apologise?
Briefly, I share the concerns raised by the hon. Member for Eddisbury. I received the same briefing from the Institute of Chartered Accountants in England and Wales. Although it seems a sensible reform to introduce the civil remedies, the institute expressed concern that the absence of due process with a civil remedy could give rise to numerous appeals, which could result in the setting aside of the penalty, thereby potentially reducing the efficacy of the civil remedies. I should be grateful if the Minister would deal in his response with the concern that the system could be clogged up because of the process of appeals, as well as with concerns about human rights. If due process is denied, a person could end up paying a penalty that is effectively criminal in its proportions, but that person would not have the protections that citizens have when faced with a criminal charge.
I am grateful to the hon. Member for Eddisbury for his general approach in saying that the reform is sensible. Both he and the hon. Member for North Norfolk raised the question, which they had been briefed on, of whether the measure conforms with human rights legislation. Our view, and the view of parliamentary counsel, is that it does. Cases of evasion through dishonesty, which are dealt with under clause 25, are classified as criminal charges under the European convention on human rights. That classification entitles the taxpayer to the safeguards provided for in article 6(2) and (3) of the convention. It does not make the case a criminal case in UK law, however, and the Police and Criminal Evidence Act 1984 does not automatically apply. The procedures to be adopted when investigating cases under clause 25 are being modelled on those used in the VAT civil evasion penalty regime, which have been found by the independent VAT and duties tribunal to be human rights compliant.
On safeguards in what it is important to remember is a civil, not a criminal regime, under our set of proposals, when liability to penalty is first established, except when over £10,000 in duty has been undeclared, action will always be confined to a warning letter advising of the contravention and informing the taxpayer that future performance will be formally monitored over two years. Should similar contraventions occur during that period, a penalty may be imposed. As a further safeguard, the decision to issue a warning letter can be appealed about to a tribunal.
I hope that members of the Committee will accept the clause.
Question put and agreed to.
Clause 24 ordered to stand part of the Bill.