Clause 1 - Goods subject to warehousing regime: place of acquisition or supply

Finance Bill – in a Public Bill Committee at 10:30 am on 21 June 2005.

Alert me about debates like this

Photo of Richard Spring Richard Spring Shadow Minister, Treasury 10:30, 21 June 2005

I beg to move amendment No. 60, in clause 1, page 1, line 7, at end add—  

'(1B) The circumstances which may be prescribed in subsection (1A) shall be limited to those where goods are sold by taxable persons to non-registered persons within the United Kingdom.'.

I hope that the Paymaster General will find this minor amendment quite helpful. The regulations could be interpreted as being unnecessarily wide and the amendment would merely to compel them to be limited to the tax planning that the clause intends to prevent and any derivations of that planning that may follow the proposed regulations.

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

The VAT-free trading of goods within a customs warehouse is a valuable trade facilitation measure that is enjoyed by hundreds of UK businesses. Unfortunately, it has been subject to an abuse by a small number of traders. Therefore, new section 18(1A) of the Value Added Tax Act 1994 will provide Her Majesty's Revenue and Customs with the power to specify circumstances in which the relief from VAT afforded to transactions in a customs warehouse will not apply.

I understand the intention behind the amendment: the hon. Gentleman is trying to protect the overwhelming majority of businesses that benefit from the relief as intended. However, the amendment is not necessary because they are already protected. The Government recognise the value of section 18(1) of the 1994 Act and what it provides. They have no wish to limit its availability, except in cases where the relief is being abused. The relief will continue to be available to compliant taxpayers.

The problem with the amendment as drafted is that it would allow those few taxpayers to circumvent the clause. All that any taxpayer would need to do to abuse the relief is use a business that trades wholly in a warehouse. Such a business is not a taxable person within the meaning of the 1994 Act by virtue of section 18(1). Any supplies made by such a person would not therefore be caught by the proposed amendment. To catch such cases is the specific purpose of the measure.

I considered this issue carefully because of the importance of the warehouse arrangements in the clause. Responsible and compliant taxpayers should not be affected in any way, but it is necessary to ensure that we catch the taxpayers who are trying to get around the rules. A reasonably large amount of money—£25 million—is involved. Perhaps the hon. Member for West Suffolk will be satisfied and withdraw his amendment if I say that I share his concern that the compliant taxpayer should not face additional challenges; however, I do not believe that they will do so under the clause. I am more than happy to give an assurance, as I do on all anti-avoidance measures, to keep the issue under careful review.

The Government proposals are based on schemes that we have seen and challenges that have been made. I assure the hon. Gentleman that, unfortunately, his amendment would enable a taxpayer to circumvent our intention. I hope that, having probed the Government's intention, the hon. Gentleman will agree to withdraw his amendment. If he does not, I shall ask my hon. Friends to oppose it.  

Photo of Richard Spring Richard Spring Shadow Minister, Treasury 10:45, 21 June 2005

I am grateful to the Paymaster General for her reassurances. I think that the definition is too wide, but I accept her assurance that she will keep the matter under review. I do not wish to press the issue any further and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.