Clause 19 - Face-value vouchers

Finance Bill – in a Public Bill Committee at 8:55 am on 20th May 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of John Healey John Healey The Economic Secretary to the Treasury

Members of the Committee will recall that in the 2002 Budget we set out an important package of measures to tackle VAT avoidance, and we have made strides since then in reforming the VAT system to prevent abuse and revenue leakage.

As part of that package of measures we announced that, after consultation on the details, we would legislate at the earliest possible opportunity to stop revenue leaks resulting from loopholes in the VAT treatment of face-value vouchers. We do so now in clause 19. By face-value vouchers I mean vouchers, cards and the like that can be exchanged for goods and services, the most common examples of which are gift vouchers and telephone cards.

I can give the Committee a practical example of the problem. Under the old VAT rules, if the issuer of a voucher with a face value of £10 sold it to a retailer for £8, we would collect the VAT not on the £10 for which it was sold on to the customer but only on the £8 for which it was sold to the retailer. In effect, the retailer's mark-up of £2 was VAT-free. That loophole was also being used for avoidance purposes, because some businesses were selling face-value vouchers to associated companies at an artificially large discount. The vouchers were then sold on to customers at the full price, with the businesses having to account for VAT only on the original, small, discounted price.

As with other revenue leakage and avoidance, two concerns arise. First, the taxpayer has a right to expect us to collect all the VAT due on the purchase of goods and services; and secondly, businesses have the right to expect fair competition, instead of seeing other businesses gain an unfair advantage by artificially reducing their VAT bills. Therefore, we are legislating in clause 19 and schedule 1 to close that loophole.

Intermediate suppliers such as the retailer or the associated company in the examples that I have given will be required to account for VAT on the full amount for which they sell face-value vouchers on to their customers. Consumers will not have to pay more. A £10 voucher will still buy £10-worth of goods or services.

It may be helpful if I draw the Committee's attention to two specific aspects. First, the clause includes a provision to tackle the specific avoidance scheme whereby a voucher is provided alongside other

goods or services to reduce the taxable value of the sale. Secondly, I want to reassure the Committee that the VAT-free status of certain goods and services has not been altered by the changes. Postage stamps, for instance, are unaffected. We have also ensured that, if vouchers are exchanged for zero-rated goods such as books, the VAT liability of those vouchers may be adjusted accordingly.

The changes follow the original Budget 2002 announcement and the consultation with affected businesses that followed. In the technical operation we aim to ensure that the benefits of the changes are proportionate to the costs that they impose on the businesses. I believe that the changes are proportionate and further show our commitment to tackling revenue losses in the VAT system. I therefore commend the clause to the Committee.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I thank the Minister for setting out the background to the clause, with which he will note that schedule 1 is coupled. I was proposing to take the amendments to schedule 1 separately, if that is called, but I am happy to take them together, if that is your wish, Sir Nicholas.

The Chairman indicated assent.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am clearly being encouraged to proceed with the amendments to schedule 1. The stand part debate on clause 19 will be wrapped up into my discussion of the amendments to schedule 1.

This is a complicated subject, with quite a history. As the Economic Secretary says, a company such as Marks & Spencer may sell a gift voucher to a customer for £10 with a face value of £10. However, members of the Committee will be aware that it sometimes sells such vouchers at a discount to another business, which will then sell them on at the face-value price or even give them away. For example, M&S might sell to the intermediary business a £10 gift voucher for £9. I dare say that we have all had offers through the post in which an M&S voucher is part of the deal if we are tempted by the products or services on offer in the envelope—never a wise move.

Under the old law, M&S had no VAT charge when it issued the voucher. When the voucher was redeemed for £10-worth of goods or services, M&S would be liable to VAT on only the amount for which it had sold the voucher. Therefore, it would be only £9 if the voucher had been sold for £9. The intermediary's profit of £1 escaped VAT. I am sure that the Economic Secretary will correct me if that analysis is erroneous, but I believe that that is how the scheme has worked.

Some businesses—presumably not M&S—were abusing the system by issuing vouchers to an associated intermediary at a big discount; for example, selling a £10 voucher for £6. The intermediary would sell it on for £10 to an ultimate recipient, who would use it to acquire goods or services worth £10, but VAT was only ever collected on £6.

As the Economic Secretary said, Customs and Excise issued a consultation paper entitled ''Modernising the VAT Treatment of Face Value

Vouchers'' in June 2002, which ventilated various ways in which the problem might be tackled. I hope that the question of what changes were made to the Government's original proposals as a result of the consultation will not be contentious, not least because it appears that there may be some technical difficulties, which I shall discuss as I now come on to specific amendments to address the problems that I have identified. It is important to understand where the Government started and where they ended up as a result of consultation.

The Government have chosen not to levy VAT on the issuer at the time of issue. I shall call the issuer party A. We may keep M&S in mind, but I would not want it to feel that I was touting it, particularly as it has announced better recovering profits this morning. The intermediary, or party B, must pay VAT on the £10 when it sells the voucher on, and party A would be liable to VAT on £6 when the voucher is redeemed—so far, so clear. That is achieved by paragraphs 4 and 6 of new schedule 10A, which will be added to the Value Added Tax Act 1994 by schedule 1 of the Bill.

Of course, that would be overkill, because Customs would collect VAT on £16. The missing piece of the jigsaw is that party B is meant to be able to deduct input VAT as if—those two words are very important—party A's sale of the voucher to it were standard rated. Such a provision is not in the Bill at present, although presumably the Government intend to introduce it. By that, I pray in aid paragraph 5 of VAT information sheet 03/03 entitled ''What is the position with regard to input tax recovery?'', which was published at the time of the Budget. It states:

''Intermediate suppliers will be entitled to recover input tax, subject to the normal requirements. The liability of the sale is deemed''

—hence, the importance of the phrase ''as if'' that I used earlier—

''to equate to the underlying supply of goods or services. If it is known that the FVV''

—the face-value voucher—

''has been redeemed for zero-rated goods or services then the intermediate supplier can make an adjustment to both the output tax and the input tax to reflect the liability of the final supply. Adjustments can be based on retail scheme percentages or other overarching calculations rather than tracking individual FVV.''

Note 5 of the document goes on to say:

''Where an intermediate supplier is purchasing an FVV from the issuer who takes on the obligation to accept it, and is not required to account for VAT until the FVV is redeemed, the intermediate supplier may treat the amount of VAT that will be due on the supply as their input tax at the time the purchase is made.''

Finally, note 5 says:

''It is suggested that the issuer should produce an invoice to facilitate an intermediate purchaser's input tax recovery. However, to ensure the issuer does not account for output tax on this invoice (because issuers who undertake to redeem the voucher do not have to account for VAT until the voucher is redeemed) it is suggested that the invoice is annotated with the following wording, 'the issuer of the voucher will account for output tax under the face value voucher provisions introduced in Budget 2003'.''

The best way to tackle the problem seems to be to ensure that that wording appears in the Bill—which will become statute if the Government get their way—through amendment No. 89. That amendment

specifically addresses that point, giving intent to what the Government have set out in their information sheet: that VAT is levied on £10 and £6. Importantly, amendment No. 89 also enables recovery of VAT on the £6. The legislation would therefore give the necessary clarity and a demonstration in law of what is already in note 5 of the VAT information sheet.

Such a measure is supported not only by the Chartered Institute of Taxation but in more direct terms by the Institute of Indirect Tax and the Institute of Chartered Accountants in England and Wales. The Institute of Indirect Tax put it in slightly more blunt terms, saying:

''This is another instance of Customs seeking to collect tax from an innocent third party where they cannot collect it from the person who actually owes it. Paragraphs 3(3) and 4(4) of the new Schedule 10A, introduced by Schedule 1, hold the issuer of a voucher—such as a record token or a phone card—or any intermediate purchaser, liable for payment of the VAT on the supply of the goods or services made by a third party against the voucher.''

Although that institute has identified the problem, it has not identified a solution, which is what amendment No. 89 is intended to do.

The Institute of Chartered Accountants in England and Wales says:

''We believe that the proposed treatment of face-value vouchers in new Schedule 10A ,VATA 1994 is not appropriate. This is because it fails to recognise the true nature of such vouchers as a means of payment for goods or services which are VAT-exempt. The proposals are also likely to impose an unfair liability by requiring the issuer of such vouchers to bear any tax not accounted for by some other person supplying goods or services paid for by their use. This could well be outside the issuer's control''.

The Institute of Chartered Accountants then makes the point that that

''may be an infringement of human rights.''

Finally, it adds:

''The proposals are likely also to result in more tax being collected than is properly due. In many cases where vouchers are used to obtain goods or services chargeable at the zero or lower rate of VAT the proposals will result in tax being due at the standard rate on vouchers supplied through intermediaries. This would appear to breach the fundamental principle of VAT that the tax collected in relation to a particular supply of goods or services should be proportionate to the value of that supply.''

The Minister referred to the Government's view that they are proposing a proportionate position. Clearly that is disputed by those whom the Government sought to consult. That is why I earlier put a question about the changes in what the Government originally proposed and the adjustment made in the light of that consultation. That is an important part of the argument.

Amendment No. 90 relates to another matter arising under clause 19 and schedule 1. Organisations such as Book Tokens Ltd., which have a central issuer that is not a retailer so cannot itself redeem the vouchers, are catered for by paragraph 3 of new schedule 10A. There is essentially no change to the present law. However, certain types of voucher—Marks & Spencer vouchers are presumably an example—may be redeemed for a zero-rated item, such as food. Such a situation is catered for by paragraph 6 of new schedule 10A. If the situation arises, there is retrospective adjustment to B's position. However, implementing the practice could be quite

tiresome if A and B were independent parties, which certainly challenges what the Economic Secretary said in his opening remarks about introducing measures that were ''proportionate to the costs'' to businesses. If A and B were independent parties, the practice would be burdensome.

A flaw in the new provisions is that they could upset existing contractual arrangements. Amendment No. 90 relates to that point. Under paragraph 4 of schedule 1, the new law applies only to vouchers issued on or after 9 April 2003. However, party B, the intermediary, might, before that date, have entered into a contract with party A to buy vouchers in the future for fixed prices. In such a case, B will find that instead of making a profit of £1 when he buys a voucher for £9 and sells it for £10, he will make a profit of 85p after meeting the VAT on the £1. That is why an amendment should provide that, where the parties are independent, the new law does not apply to vouchers issued pursuant to contracts made before 9 April.

Those are the explanations for what I hope are perceived as carefully considered and constructive amendments. Together with those who help and advise me, I arrived at the amendments as a result of many representations, some of which criticised the clause in robust terms. Recognising the Government's arguments, I have tried to find a genuine technical solution and achieve the necessary clarification and balancing of the issues. I hope that the Government will accept the amendments.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield 9:15 am, 20th May 2003

I have to say to the hon. Gentleman that they cannot do that at this moment, because the amendments will be dealt with in a subsequent debate. The Question before us is whether clause 19 should stand part of the Bill. I have allowed the Opposition spokesman to make considerable reference to amendments that relate to schedule 1, but if the Opposition want to vote on those amendments, they will have to wait until the relevant stage. I must say that when we move to schedule 1, I trust that only brief reference will be made to the amendments that I have allowed to be covered under clause 19.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

We understand entirely the concerns that have induced the Government to introduce the proposals in the clause and schedule 1. The Economic Secretary clearly set out the case for taking action. We understand that, under the existing legislation, tax losses arose in some circumstances when intermediate suppliers sold face-value vouchers. It therefore seems sensible of the Government to introduce measures to tackle that. However, we share many of the concerns set out by the hon. Member for Eddisbury (Mr. O'Brien), and we support the amendments, which we will debate in greater detail later.

As the hon. Gentleman mentioned, there seems to be a certain overlap between the debate on clause 19 and the debates that we had the other day on clauses 17 and 18. Given the lack of time, I do not want to put us into reverse and revisit those debates. As the hon. Gentleman mentioned when he cited the comment of

the Institute of Indirect Taxation, this is another instance of Customs possibly seeking to collect tax from an innocent third party when it cannot collect it from the person who actually owes it. The Economic Secretary will be aware that the Chartered Institute of Taxation, the Institute of Chartered Accountants and the Institute of Indirect Taxation have expressed several concerns about the clause. The hon. Member for Eddisbury set out those concerns clearly, and I will not go over the ground that he covered. The Chartered Institute of Taxation questions whether the Government's measures are consonant with the sixth VAT directive. I would be grateful if the Economic Secretary indicated whether he thinks that the measures are consonant with that directive and whether he received specific advice on the point.

More broadly, the Institute of Chartered Accountants sums up the major criticism of the clause when it raises the issue of fairness. It states:

''The proposals are also likely to impose an unfair liability by requiring the issuer of such vouchers to bear any tax not accounted for by some other person'',

and that takes us back to our debates on clauses 17 and 18.

The hon. Member for Eddisbury also discussed the substantive issue of fairness in relation to face-value vouchers, which are used in payment for a wide variety of goods on which VAT levels may be varied—zero or lower rate VAT or standard rate VAT. There is concern about whether the way in which the Government intend to deal with the issue will breach the fundamental principle of VAT, which is that the tax collected in relation to a particular supply of goods or services should be proportionate to the value of that supply.

The hon. Member for Eddisbury has introduced some fairly sensible proposals and amendments. We hope that the Economic Secretary can respond to them.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

I congratulate my hon. Friend the Member for Eddisbury on his clear explanation of the problem. Although double taxation should obviously be avoided, given that an issuer does not charge VAT on the supply of face-value vouchers to an intermediary, it is difficult to find a legal basis for an input tax deduction by an intermediary. It is questionable whether VAT charged on the supply of goods and services should be regarded as an input tax of the intermediary who purchased the face-value vouchers. I therefore support amendment No. 89, which would address that situation.

It is worth noting that the Chartered Institute of Taxation considered it ''extraordinary'' that such important matters—input tax deduction and invoicing—will be dealt with on an extra-statutory basis. It suggests that both input tax deduction and invoicing should be dealt with in statute, and I agree.

Photo of John Baron John Baron Conservative, Billericay

I shall briefly concentrate on two issues, both of which have been touched on, but both of which bear dwelling on. The

first relates to the unfairness of the scheme and the second its practical implications.

On unfairness, the clause is another instance of Customs and Excise seeking to collect tax from an innocent third party when it cannot collect it from the person who owes it. Paragraphs 3(3) and 4(4) of schedule 10A to the Value Added Tax Act 1994, which is introduced by schedule 1, hold the issuer of a voucher, such as a record token or a phone card, or any intermediate purchaser liable to pay the VAT on the supply of goods or services made by a third party against the voucher. Several Members have discussed that issue, which is clear. The provision is unreasonable if the failure to account for the tax is outside the issuer's control or influence. I ask the Economic Secretary to give that some thought because it will have practical implications for the commercial world.

I shall dwell for a second on the practical difficulties of the clause, and I would welcome the Economic Secretary's thoughts on them. Practical difficulties arise in connection with the charge to tax under paragraph 6(5) of new schedule 10A in respect of the face-value vouchers specified in paragraphs 4(4) and 6(2). It is important that the consideration for the supply is apportioned on a fair and reasonable basis between exempt, zero-rated, reduced-rated and standard-rated elements.

Such a fair and reasonable basis would reflect the sales mix of the persons who eventually redeem the vouchers for goods or services, and it should take into account any difference in the mix of cash sales and voucher exchange sales. It is unclear from the clause how the person supplying the voucher is supposed to arrive at even an approximation of the mix, and I would welcome some explanation from the Economic Secretary as to how the clause would deal with that issue.

Photo of Michael Jack Michael Jack Conservative, Fylde

I rise briefly to support the comments that have been made and to pay tribute to my hon. Friend the Member for Eddisbury on the way that he introduced our views. I, too, am concerned that the proper level of VAT be collected for those who have a liability. Once again we seem, as the hon. Member for Yeovil (Mr. Laws) suggested, to be replicating the line of argument that we had on for clauses 17 and 18. In that case, the Economic Secretary was able to demonstrate some real-world examples of where such fraud had been perpetrated, from the fields of telecommunications, computers and chips. However, so far the Economic Secretary has given us a theoretical construct with no practical examples.

I am concerned about how the measure will work where one has face-value vouchers. How would it work, for example, if the Virgin group, which has interests in zero-rated services such as transport and full VAT services such as selling music CDs, were to do a deal with the Kellogg's company and put vouchers on the back of Corn Flakes packets which could be redeemed against any products sold by the Virgin group? Will the Economic Secretary tell us whether that problem exists in other parts of the European Union covered by the sixth VAT directive? If it does, how is it dealt with abroad? If not, why does

the United Kingdom appear to be unique as far as that problem is concerned?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I explained the purpose of clause 19 in my earlier remarks. This is no trivial issue. Hon. Members have talked about a sense of proportion. The total revenue loss this year is estimated through a combination of leakage and avoidance to be around £105 million.

Photo of Michael Jack Michael Jack Conservative, Fylde

To put the £105 million in perspective, will the Economic Secretary tell us how much VAT is collected in those areas where the proper rate has been paid?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I was not seeking to make a point about the proportion, but the total revenue lost from VAT as a direct result of the existing loophole in legislation, which clause 19 and the associated schedule will plug.

As with other forms of revenue leakage and avoidance, the concerns that I have explained are twofold. First, the taxpayer has a right to expect the Government to collect what is due on the purchase of goods and services. Secondly, business has a right to expect that we shall prevent others from gaining an unfair advantage by reducing their tax and VAT bills. The Opposition amendments to schedule 1 reflect genuine concerns that have been expressed in some quarters. They were well argued and are well intentioned, but they are ultimately unnecessary and, to a degree, misguided.

Amendment No. 89 would specify that an intermediate supplier is entitled to claim input tax on the supply of vouchers to him by an issuer who redeems the voucher. I assure the hon. Member for Eddisbury and other hon. Members that that is our intention. Intermediate suppliers of face-value vouchers are already entitled to reclaim VAT paid on the purchase of the vouchers, and it is unnecessary to complicate the legislation further.

The hon. Member for Eddisbury suggested that that might be overkill and asked whether a second party can reclaim VAT. The answer is yes. It is not overkill because the second party will sell the voucher for more than it was purchased for. That will have the effect that we intend of being able to tax appropriately the mark-up on the transaction.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon 9:30 am, 20th May 2003

The Minister keeps referring to our amendments being unnecessary. Our intention is to elaborate on what the Minister proposes to clarify and to react so that there is less chance of further upset and avoidance.

Photo of John Healey John Healey The Economic Secretary to the Treasury

I entirely accept that that may be part of the reason, and it is a proper reason for debate in Standing Committee. I do not want the hon. Gentleman to misunderstand me. I am not discouraging him from tabling or speaking to such amendments or properly probing me as the Minister responsible for this part of the Bill.

Amendment No. 90 would delay the effects of the new legislation, but the change was well trailed during the consultation process, which began last June. Nevertheless, I recognise that some businesses are

experiencing difficulties with the transition to the new arrangements, and Customs and Excise is working with the firms affected to help them through that. We aim to publish detailed guidance by the end of May.

Photo of Michael Jack Michael Jack Conservative, Fylde

In the light of that helpful observation, may I ask the Minister if he will undertake to write to the bodies that have made representations to the Committee explaining his position, so that, even at this late stage, they may have the chance further to consider his views and, if necessary, to comment before the Bill is enacted?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I am confident that the businesses affected are already in close contact with Customs and Excise officials, but I shall be happy to arrange for our officials to ensure that those who are affected have a copy of our proceedings in which they will be able to read the points made by the right hon. Gentleman and his hon. Friends and any points that I make in response. I hope that that covers the point that he is concerned about.

On the specific concerns of the hon. Member for Eddisbury, although amendment No. 90 seeks to address the loss of VAT through increased opportunity for avoidance during the period of delay, avoidance is not the only source of revenue loss to the public purse. VAT to the order of £30 million will be lost through leakage on legitimate sales of vouchers during that period. That revenue would have to be found from elsewhere.

The hon. Gentleman asked about the consultation period dating back to the original announcement in the pre-Budget report 2001 and the confirmation of our plans in the 2002 Budget. The consultation has helped us to refine our thinking considerably, as we have gone along. The main change is to move from seeing sales by intermediate suppliers as a standard-rated sale of goods to a supply of services. That is important, because it give intermediary sales the flexibility to reflect zero-rated supplies—for books, for instance.

It is worth reminding the Committee of the genesis of the clause and schedule. There was an announcement in the pre-Budget report of 2001 and confirmation in the Budget of 2002 that we would consult businesses that could be affected, a consultation paper was issued in June 2002 running through to the end of October 2002, and on Budget day 2003 an information sheet, to which the hon. Member for Eddisbury has referred, was published alongside a summary of responses to the consultation. In addition, as a result of detailed discussions between Customs officers and many businesses and representative organisations, detailed guidance is in the pipeline, and we aim to publish it by the end of this month.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

The Economic Secretary has referred to the consultation that the Government have undertaken in respect of the proposed changes. Why did he not mention and analyse the consultation in his opening remarks? Did issues emerge from it that he does not want to address? It seems strange.

Photo of John Healey John Healey The Economic Secretary to the Treasury

In my opening remarks, I gave an explanation that I felt was succinct and helpful to the

Committee. I am elaborating on it now in response to points raised genuinely and properly by Opposition Members. I hope that that combination and the sum total of our discussions will adequately deal with the points that the hon. Gentleman and others may be concerned about.

The hon. Member for Eddisbury asked about the issuing of a VAT invoice to an intermediate supplier and the question of annotation. I confirm that we will need to issue a VAT invoice to the intermediate supplier when supplying face-value vouchers to them. If they wish, issuers can annotate those invoices to avoid confusing other VAT accounting procedures. In other words, the annotation is purely a suggestion to aid the identification of invoices. It is not compulsory.

The hon. Members for Yeovil and for Billericay (Mr. Baron) were worried about the collection of tax from innocent third parties, and the hon. Member for Huntingdon (Mr. Djanogly) urged me to give the matter further thought. We are giving it careful thought in the production of the more detailed guidance. The arrangements that we propose are intended to simplify accounting procedures and guard against tax avoidance schemes. Customs will publish a statement of practice detailing when VAT would be collected from the third party. There is no intention to collect from anyone VAT that is not due from them.

Concerns were also raised about another party's liability. Such a liability will arise only in the event of identified tax avoidance, where a trader deliberately sets up another company to supply goods or services and that company has no intention of accounting for VAT on the amount that it receives from the initial supplier of the voucher.

The hon. Member for Huntingdon asked about the use of extra-statutory concessions in implementing the provisions. Extra-statutory concessions are not required. What will be required is an agreement of the procedures to be used by the business and its appointed Customs officer, which is normal in VAT assurance work, as he will know. That happens in many other cases, such as partial exemption agreements and retail schemes.

Photo of John Baron John Baron Conservative, Billericay

Will the Economic Secretary elaborate on an earlier point? The fact remains that Customs and Excise will be seeking to collect tax from a potentially innocent third party where it cannot collect it from the person who actually owes it. I did not detect anything in the Economic Secretary's remarks to contradict that. Will he elaborate on that unfair aspect?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I have tried to explain why we do not believe that that is unfair and that we will look to collect tax only where it is due.

On the question of comparative regimes in other European Union states, raised by the right hon. Member for Fylde (Mr. Jack), the majority of other member states account for tax on the sale of the voucher. They do not permit the cash-flow advantage currently found in the UK, where VAT is accounted

for only on use. The right hon. Gentleman may be encouraged to hear that the European Commission has not come to a definitive view on the correct treatment of vouchers beyond the fact that tax must be collected.

That leads me to the point raised by the hon. Member for Yeovil on consistency with the sixth directive. As he would expect, this measure has been fully cleared through the Council. It is entirely consistent with the sixth directive. Specifically, it complies with article 2 of the first directive, which states that tax is due on what the consumer pays. There is no infringement of the Human Rights Act 1998 as this measure collects VAT, as I have said, only where it is due.

I recognise and welcome the understanding that the hon. Members for Yeovil and for Eddisbury have displayed of the concerns that lie behind the clause. I am glad that they accept, by implication, that measures are needed to tackle such tax losses. On the basis of my explanation, I hope that they will reconsider and agree not to press the amendment. Otherwise, I shall ask my hon. Friends to reject it and support the clause as it stands.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am grateful to the Economic Secretary for having taken the time to address the difficulties that we have identified. I believe that Committee members are as one in agreeing that any revenue loss amounting to £105 million is a serious matter. None of us seeks to prevent the Revenue from being able to collect its due revenue in a proper manner. It is therefore right to say—I note that the hon. Member for Yeovil also said this—that both sides of the Committee more than imply that these measures are necessary; they say explicitly that they are required.

One part of the Economic Secretary's response to our amendments was interesting. It is of some comfort that the representations made by the industry in the consultation have meant that sales by intermediaries have been moved from the standard rating for the supply of goods to that for the supply of services, thus enabling flexibility, but that has not directly dealt with the difficulty that resulted in our moving amendment No. 89.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Order. I must say that the hon. Gentleman has not moved amendment No. 89; that will come later when we debate schedule 1.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am most grateful to you for ensuring that I keep on the technical straight and narrow in terms of procedure, Sir Nicholas. As you are Chairman of the Procedure Committee, I would expect no less.

Amendment No. 89, which it is clear that I shall move, is well intended. I have listened carefully to what the Economic Secretary had to say. He said that it is not the Government's intent to collect VAT from anyone where it is not due, given that the annotation cited in paragraph 5 of the note from the VAT information sheet 03/03 is not compulsory. The clear intent, which both the representations that we have received and our own analysis suggest is right, is set out in paragraph 5, and there seems to be no countervailing argument to convince me why it

should not appear in the Bill. Therefore, I shall in due course urge my colleagues to press amendment No. 89 to a vote.

As far as amendment No. 90 is concerned, I was interested to note that the Economic Secretary thought that the amendment would result in a loss of £30 million. If that were to prove to be true, we would not want to be party to it. Following the points ably put by my right hon. Friend the Member for Fylde on whether the Economic Secretary should write to all the bodies and institutes who have given advice, I would certainly urge him to do so.

The Economic Secretary claims that all the businesses that may be affected are already in touch with Customs and Excise. Given that contracts are in train, there may be some who would be affected, however much consultation took place in earlier months. That should be advertised widely, and we need the Economic Secretary's assurance that that will be properly and thoroughly addressed. On the basis that I hope that the Economic Secretary will be able to give that reassurance, I would not press amendment No. 90. At this stage, however, I have not been convinced that we should not press amendment No. 89 to a vote.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.