Clause 292 - Duties of promoter

Finance Bill – in a Public Bill Committee at 5:30 pm on 22nd June 2004.

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Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

With this it will be convenient to discuss the following:

Government amendments Nos. 558 to 560.

Amendment No. 4, in

clause 292, page 242, line 19, at end insert

'and shall, to the extent, that he is aware of the existence of any other person who is a promoter in relation to the same notifiable arrangements, deliver a copy of the prescribed information to such other person in the prescribed manner.'.

Government amendments Nos. 561, 562 and 564 to 566.

Amendment No. 6, in

clause 297, page 243, line 33, leave out from 'promoter' to end of line 35.

Government amendments Nos. 567 and 568.

Government new clause 22—Power of Board to specify form and manner in which information is provided under Part 7.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

The clause deals with the duties of a promoter and when and how they are carried out.

Together with clause 293, which deals with non-UK advisers, it provides an outline of the requirements. The time limit imposed is prescribed in the regulations as five days. We feel that such a limit is tight but manageable for mass-marketed pre-packaged schemes, which should be the main objective. However, the time limit causes concern for advice flowing from the normal adviser-client relationship. In particular, it takes no account of the practicalities of business organisation: the need to confirm details, agree with colleagues, exact interpretation, confirm with clients that something has gone through, and so on. That is assuming that the trigger point can be satisfactorily identified in what is often a continuous flow of discussion and information against a tight time scale imposed by business pressures.

While requiring disclosure in five days by promoters, the Inland Revenue is allowed 30 days to register the item and return with a number for the scheme. We can understand and accept the Revenue's wish to have a five-day time scale for the notification of schemes of the type that they want to tackle. However, to impose the time limit on general business relationships shows a lack of appreciation of the practicalities of business. A notification period of 30 days is the minimum that would be acceptable and practical for such disclosures.

It is difficult to propose an amendment to the Finance Bill because a two-stage approach is needed: notification for the pre-packaged scheme should be within five days, but the notification period for more general advice should be 30 days. That would require a rewriting of clause 292. However, I hope that the Minister will give us some comfort that five days is fine for the pre-packaged product ready to be marketed, but that there they may be leeway for individual cases.

Amendment No. 4 is designed to ensure that, if there is more than one promoter, each promoter obliged to make a report keeps other promoters involved so that they know that they are not required to do so.

Amendment No. 6 relates to clause 297. The reporting obligation relates to arrangements falling within certain designated categories that the Treasury believes could give rise to tax advantages. There is no requirement on the Treasury, in making such a designation, to show that tax advantages arise from the arrangements. Therefore, it is surely inappropriate for taxpayers to be required to identify the nature and timing of tax advantages. That also creates an unnecessary additional compliance burden. Once the Revenue has been informed of the existence of arrangements, it will be able to determine the tax advantages flowing from them.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The group of amendments covers several different issues. As the hon. Gentleman explained, amendment No. 368 would allow promoters a minimum period of 30 days to provide the Inland Revenue with the information relating to any notifiable proposal. The detailed rules and several of the practical issues, including this one, are set out in regulations, and I touched on that in the debate on amendments to clause 290.

The consultation on the draft regulations has not concluded and I do not wish to prejudge its outcome, but I am not aware of any persuasive argument for allowing longer than five days, except in the early days of the new regime, and I have already dealt with that.

The promoters will already have the information that the Revenue requires at the time that they sell or market the scheme, so they should be able to comply. They know what the schemes are, and to market them they must know what they are about, so I do not know why five days is considered unreasonable. They can get schemes into operation in less than five days in order to duck under legislation being introduced at the end of the financial year, so they can certainly manage it in the situation under discussion.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I entirely agree that five days is perfectly practical for schemes being marketed. The issue is the grey territory, where as I mentioned there may be an obligation in takeover or active business situations. In those situations, five days is not practical.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

With respect to the hon. Gentleman, the promoters either know that they are selling a scheme or they do not. They either know the contents of the scheme that they are recommending or they do not. If they know, they should disclose it, and if they do not, they should not be recommending it.

The hon. Gentleman mentions a grey area. Schemes are amended as they are tried out on the market, and they can be refined as advice is subsequently given. He has not made any case for why the promoter cannot comply with the Revenue within five days but can give speedy advice to clients. The disclosure requires the same compliance.

I am not attracted to increasing the time limit to 30 days. It would seriously undermine the effectiveness of the disclosure rules. We are discussing highly sophisticated, specialised and able groups of professionals, and five days is not a hurdle to them.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

The Paymaster General has talked about highly professional and able people, but they have a right to know where they stand as well. Have I understood her correctly? Does a proposal becomes notifiable when it is sold or when it is marketed to the public?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

We are not talking about a general anti-avoidance regulation, but about disclosure of information to the Inland Revenue. The promoters will have the information that is required by the Revenue at the time they market or sell the scheme, so they should be able to comply with the five days. I have no intention of going back over my rather long contribution on clause 290, where I specifically set out the issues relating to the regulations.

No case has been made for 30 days. People would prefer it, but it opens up a window that would make the operation of these rules intolerable.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The hon. Member for Arundel and South Downs has moved his amendment. If I can respond to that and his other amendments, the hon. Member for Torridge and West Devon can then make his point and of course I shall come back to him.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. It may assist members of the Committee if I remind them that I said when I was allowing the debate to go particularly wide on clause 290 that that clause encompassed all this group of clauses. I caution the Committee that, if hon. Members, having had the latitude that I have given them, insist on making arguments that have already been made, I shall have to take that into consideration when I make a judgment about tedious repetition.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I understand that amendment No. 4 addresses the situation where a number of people are promoters of a particular scheme by requiring the promoter who notifies the Revenue to copy that notification to all other promoters. The purpose is to enable those other promoters to be satisfied that their duty to disclose details of those arrangements has been discharged by the notification.

The amendment does not achieve that purpose, as it applies only to the disclosure of the notifiable arrangement. The Government expect the majority of disclosures to be made in respect of notifiable proposals, which are likely to involve more than one promoter. Therefore, the amendment would not ensure that other promoters knew when the disclosure requirement in respect of the notifiable proposal had been complied with. It would simply impose another compliance burden on some promoters in certain circumstances.

The Government recognise that there are concerns about the way in which the disclosure rules apply where there are multiple promoters for one scheme, and I have outlined some of the steps that will be taken to address those concerns. I shall not try your patience, Mr. McWilliam, by going over the steps again, but they will be included in the revised regulations, to which I referred in the debate on clause 290. The changes will ensure that only those at the heart of the scheme or arrangement are treated as the promoters. I hope that that deals with the points raised by the hon. Member for Arundel and South Downs. I am happy to offer, even before he asks me, to write to him to reiterate the points that I made on clause 290 and to say why that would be the case, instead of repeating it now.

Taxpayers who use the notifiable schemes are required by clause 297 as part of their normal tax return to provide the Revenue with the scheme number, and they must also disclose when they expect the tax advantage relating from the notifiable arrangements to arise. Amendment No. 6 would remove the latter obligation, but by doing so it would lead to unnecessary inquiries into the taxpayers' tax returns. Again, I can see the hon. Gentleman's motivation, but the amendment could increase inquiries, and we should avoid that.

Clause 297 also requires taxpayers to put the number on their tax return every year until any tax advantage arising from the scheme has been exhausted. The aim is to enable the Revenue to see in which year or years there is tax at risk. The Revenue will want to consider making inquiries into taxpayers'

tax returns for these years, in accordance with the normal risk assessments.

The amendment would deny the Revenue that information—I hope that I will be forgiven for again stretching beyond the clause by referring to such powers. That would cause the Revenue to commence inquiries in some cases when no tax was at risk. That would not only be a waste of Revenue time but create additional and unnecessary compliance burdens for the taxpayer for all the reasons that we have previously discussed with regard to these clauses.

The Government are of the view that those who use the schemes at which the rules are aimed will have no difficulty in knowing the time when the tax advantage arises, either because the promoter will tell them, or because they will have designed the scheme themselves.

I turn to the Government amendments grouped here, apart from Government amendment No. 559. Those amendments deal with the power to prescribe in regulations the form and manner in which the information about notifiable schemes is provided to the Revenue. They address two points. First, an inconsistency in the language has raised questions as to whether it means different things in different places. For example, clauses 292, 293 and 294 refer to information ''in the prescribed manner'', but clause 296 refers to ''the prescribed form'' alone. Meanwhile, clause 297 refers to

''the prescribed form and manner'',

and to

''the prescribed time or times''.

We concede that that could lead to uncertainty. Therefore, the amendments tidy things up by using standard wording.

Secondly, as it is currently drafted, the legislation requires Revenue forms on which disclosure is to be made to be prescribed in regulations. It would be inappropriate for Parliament to introduce a new statutory instrument each time the Revenue wishes to make a minor change to the form. Accordingly, these amendments remove the power of the Board of Inland Revenue to prescribe the form and manner of disclosures in regulations and replace it with a power to specify the form and manner through the Revenue's normal administrative processes.

Parliamentary draftsmen have inserted a new clause, rather than an amendment to the existing clause. I am advised that it would be inappropriate to include it in any existing clauses. I would be happy to share the reasons why with the Committee but, for time's sake, I think we are all prepared to accept the wisdom of parliamentary counsel on this issue.

It is important to recognise that these amendments together with the new clause do not give the Board any new power. Any change in the content of the form affecting the information to be disclosed will continue to require new regulations.

Government amendment No. 559 makes a drafting change to ensure that there is no inconsistency in language between clauses 292 and 295. The duties of a promoter are described in clause 292. As currently drafted, it refers to ''proposed arrangements'', which is

a term that is not defined and does not appear elsewhere in the clauses. During consultation, the Revenue received representations that the use of the term creates confusion and the amendment therefore removes that reference and replaces it with

''notifiable arrangements implementing the notifiable proposal''.

That makes the language consistent with that in clause 295(1), which refers to ''notifable arrangements'' and to ''notifiable proposal''. Both of those terms are defined in clause 290.

As a result of those concluding remarks, I hope that the hon. Member for Arundel and South Downs will accept that his proposed amendments do not achieve the effect that he desires and that at present no convincing argument has been advanced as to why five days should not remain the period in the legislation. I entirely accept that some have expressed a preference for a longer period, but that is not justified. I, therefore, ask him to consider his position on that and I commend the Government amendments to the Committee.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 5:45 pm, 22nd June 2004

The Government amendments have been ably explained by the Paymaster General. As I understand them, they are mostly a tidying-up exercise. Amendments Nos. 4 and 6 are not so much about that. We have already dealt with amendment No. 3 under clause 291. For obvious, reasons amendment No. 5 was not selected, because it can be dealt with by a stand part debate on clause 294. My understanding is that, as a general indication, the lower the amendment number, the earlier it was tabled. That does not necessarily mean that amendment No. 4 was the fourth that was tabled, but there is a strong tendency that a low amendment number indicates an amendment that was tabled early. As I understand it, they are batched together. This is putting a slight gloss on it, but that suggests to me that four of the top six amendments—

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. May I assist the hon. Gentleman? Amendments are numbered as they come in. They are grouped as they occur in the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

They are grouped as they occur in the Bill, of course. It is the numbering to which I refer. It is putting a slight gloss on the matter, but I think that four of the first six Conservative amendments deal with part 7 and are designed to make life easier for those who wish to run tax-avoidance schemes. I think that that is very telling.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

The hon. Gentleman might be pleased to know that they were amendments that were suggested by Mr. Edward Troup, who is now working for the Treasury, on the ground that he felt that the Government's proposals were unsatisfactory from a legal point of view. They were tabled early because he knew that he was changing jobs and that he needed to table them in good time.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I stand to be corrected but I do not think that Edward Troup tabled the amendments. That was done by hon. Members.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I will take that back, because I do not know whether it was true. However, I asked Mr. Troup to sort out the amendments early.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I think that that ably reinforces my point and I am grateful to the hon. Gentleman. Which amendments did he seek to be tabled early? The very ones that make life easier for tax avoiders. I rest my case.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I think that the hon. Gentleman raised an extremely unfair issue. Let me put the record straight lest there be misunderstanding. I consulted Edward Troup upfront about the measures relating to VAT and those relating to the clauses that we are discussing. I was unable to speak to him subsequently, because he advised me that he had changed his job. Therefore, I mis-stated what I said earlier.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am sure that the hon. Gentleman would agree that anyone who works for the Government will be ensuring that the Government's policy is delivered, and will be in agreement with that.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I am sure what the Paymaster General has said is correct, but there are some technical issues to be dealt with. She has said that the point raised by amendment No. 4 is being dealt with in regulations. Therefore, we are at one. With regard to amendment No. 6, she said that she entirely understood the motivation and that, while the amendment did not actually work, she realised the thinking behind it. Neither of those amendments attempt to gain advantage for those seeking to avoid tax, nor do they achieve any. I think that the hon. Member for Wolverhampton, South-West has got his motivation wrong.

The Paymaster General resisted amendment No. 368, talking about avoidance schemes that are being promoted. If that is what these clauses are about, I have no disagreement with her. That has been the issue throughout. If we are essentially talking about avoidance schemes that are being promoted, we are on common ground. There is no problem reporting them within five days. The simple issue that I raise again is that it seems to me and to many others that the clauses and regulations, as they stand, include bespoke tax advice for situations such as takeovers. Things move around the whole time in such situations, where no one is concerned with pre-packaged schemes. The Paymaster General may appreciate that there are potential problems. If she is in effect confirming that we are talking about pre-packaged schemes, my case disappears. If she definitely wants the arrangements to continue potentially to encompass wide situations of tax structuring in relation to commercial activities, I will ask her to rethink as she works on the regulations, because the five-day period is impractical.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

The hon. Gentleman will have heard my intervention apropos amendment No. 368. Does not he agree that there could in some circumstances be a promoter who is unaware that the arrangements are for tax avoidance, or that the transaction concerned forms part of tax-avoidance arrangements, and that, in those circumstances, there should not be a liability on such a person?

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

Everyone knows when they are promoting tax-avoidance schemes. When lawyers and accountants give tax advice for takeovers and other commercial arrangements, we are into what I describe

as grey territory. The whole debate throughout these clauses has been on where one draws the line, and I believe that that will be the problem with these provisions. One risks either a welter of reporting because advisers will want to ensure that they are not criticised for not reporting what they should have reported, and then the Revenue team will have an impossible burden to deal with; or, as we have argued, a greater filtering and sharpening up that leaves these clauses essentially concerned with tax-avoidance schemes that are promoted as such. If that is the name of the game, it is relatively straightforward, but it is because of the continuing greyness about how far into tax planning the reporting requirements go that both amendment No. 368 and the point made by the hon. Member for Torridge and West Devon arise.

If someone is advising the board of Marks and Spencer on the present takeover situation, and that advice includes tax issues—their advice on tax would be bound to include advice as to how to minimise tax—is that required to be reported?

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs) 6:00 pm, 22nd June 2004

I am trying to think of a practical example to demonstrate what I said earlier. The Paymaster General has an amused look, but I am going to do my best. It could be that someone giving detailed corporate tax advice as a specialist gives a corporate plan, perhaps to comply with stock exchange regulations, and the plan is used and taken to tax specialists. There is such a level of expertise and specialisation in such matters regarding stock exchange rules, corporation and company law and tax law that a line must be drawn somewhere. I hope that the hon. Gentleman agrees that it is for the Paymaster General to ensure that the person who has to make the notification should be aware of the tax aspects of the case, and should be involved in dealing with them.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I thank the hon. Gentleman for that explanation, with which I agree. I accept that the Paymaster General has said things today that filter—I think that is the word she used—what is to be required quite significantly, but, at the risk of becoming repetitive, I must say that all the lawyers and accountants to whom I have spoken are concerned about where the boundary will be drawn.

As I have said three times already: my strongest advice, as the Government finish the regulations, is to focus on what the Paymaster General says—that where schemes are being promoted, everyone knows entirely what they are doing and will have no difficulty in reporting in good time.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Let us be clear. The hon. Gentleman is talking about amendment No. 368, which does not raise any of those issues. It raises only the issue of whether the period for notifying should be five or 30 days. I made the point that the promoter will know the relevant information at five days and at 30 days, so the period will be five days. He cannot seriously suggest that an adviser would give professional advice to a company without knowing

what they were advising. That is simply incomprehensible.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

The Paymaster General is being rather unfair, in that, in speaking to the amendment I made the point that if my point is taken, what is needed is a wider redraft of the clause that leaves a period of five days for promoters of schemes, and a more reasonable period for bespoke tax advice about deals. I also explained in some detail, and perhaps at too great length, the process of tax advice in a commercial deal takeover situation, and how it is completely different from the situations that she describes. This is not a huge point, but realistically, it will be difficult to get reports in within five days if accountants and lawyers giving advice in takeover situations think that they ought to report some tax structuring. I hope, from what she has said, that she is not expecting reports in those situations.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Can I just refer the hon. Gentleman to what I said about the revised regulations to be published and the exclusions from the definition of promoter? That deals with the question that the hon. Member for Torridge and West Devon raised about the separation of advice when dealing with company law aspects of a scheme as opposed to tax.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I am afraid that there is still a lack of clarity in a very simple area, which lies at the heart of concerns about the clauses. Unless the regulations filter rather more, there will be great problems, misunderstandings and concerns, not over the marketing of packaged schemes, if they continue to exist, but over tax advice on commercial deals. I am sure that the Paymaster General must appreciate that very simple point, and I will not repeat it ad nauseam. I do not find her language quite sharp or clear enough, but I hope that she is saying, in everyday language, that the arrangements are intended to apply to promoters and not to tax advice in the normal course of business or takeover activities. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 558, in

clause 292, page 242, line 7, leave out 'in the prescribed manner'.

No. 559, in

clause 292, page 242, line 13, leave out 'the proposed arrangements' and insert

'notifiable arrangements implementing the notifiable proposal'.

No. 560, in

clause 292, page 242, line 16, leave out 'in the prescribed manner'.—[Dawn Primarolo.]

Clause 292, as amended, ordered to stand part of the Bill.