Clause 26

Finance (No. 2) Bill – in a Public Bill Committee at 7:45 pm on 26th October 2010.

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Photo of David Hanson David Hanson Shadow Minister (Treasury) 7:45 pm, 26th October 2010

I beg to move amendment 17, in clause 26, page 19, line 9, at end insert ‘subject to 12 weeks notice’.

Photo of Martin Caton Martin Caton Labour, Gower

With this it will be convenient to discuss amendment 18, in clause 26, page 19, line 26, at end add—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I will sound like a tired record by the end of the evening, because this point is similar to those that we have made about previous amendments. Before clause 26 is implemented, it should be subject to 12 weeks’ notice, which is a random figure plucked from the air to test the Minister as to how, when and under what circumstances he will advance the measures in the clause.

We want to ascertain what notice individuals will receive, how that notice will be delivered by the appropriate authorities in the Treasury, and how that will work in practice. I expect that the Minister will say more or less what he has said before, but that will be worth while in order to put it on the record for future discussions.

Amendment 18 is slightly different, because it contains the provision that the clause

“shall be subject to formal review within 12 months of the date of Royal Assent to the Finance Act (No. 3) Act 2010.”

Believe it or not, the Finance (No. 2) Bill will become the Finance (No. 3) Act when it receives Royal Assent, which new members of the Committee may find confusing. Within 12 months of Royal Assent, we would like a formal review of the operations of the clause under the proposals in amendment 18. Again, it is a testing amendment; I have received representations from, among others, the Chartered Institute of Taxation, which has  expressed concern that the new provisions will affect smaller businesses disproportionately. I know that Members from all parts of the House want to avoid that.

I am happy for the Minister to outline to the Committee the reasons why he believes that the provisions will not bear down on smaller businesses, and to answer the concerns raised by the Chartered Institute of Taxation. Alternatively, he can accept amendment 18 and agree to review the situation after 12 months so that if problems are perceived with the penalties charged and the effect on companies that have to pay, the system can be examined and formally reviewed by the Treasury.

That is in contrast to the informal reviews that undoubtedly take place regularly. Either way, my purpose in tabling the amendment was to give the Minister an opportunity to allay the fears of the Chartered Institute of Taxation, either now or 12 months after Royal Assent.

Photo of David Gauke David Gauke The Exchequer Secretary

I am grateful to the right hon. Gentleman for allowing me the opportunity to consider two amendments to clause 26. Amendment 17 is identical to amendment 19 to clause 25, which we have debated. I will not use the response “I refer the right hon. Gentleman to the answer that I gave some moments ago”, but I will give him a proper answer.

As I said, HMRC has a procedure in place to provide notice of changes of the kind proposed in the clause. The publication in advance of draft appointed day orders on the HMRC website provides taxpayers and advisers with time to adjust and certainty about HMRC’s actions. That practice, introduced by Jane Kennedy in 2008 when she was Financial Secretary to the Treasury, has been welcomed by interest groups.

Amendment 18 seeks to make the provisions in clause 26 subject to a formal review 12 months after Royal Assent. The clause completes the alignment of late filing penalties across all taxes and duties administered by HMRC by including the remaining indirect taxes and excise duties in the new late filing penalty framework that legislated for direct taxes last year. It is important to remind the Committee that all new policy measures are subject to a formal evaluation process within three years and that that requirement will apply to the changes within the clause.

HMRC is committed to reviewing the policies that it implements. An implementation oversight forum with a majority of external members was established by the previous Government to consider the changes brought about after the review of powers, deterrents and safeguards.  The forum assessed whether the changes were in line with the undertakings given to Parliament and found that the first year of implementation of the new powers had been a success. It is worth quoting Andrew Hubbard, president of the Chartered Institute of Taxation and a member of the forum, who said that some of

“the early concerns about excessive and inappropriate use of the powers by HMRC have not proved to be correct… HMRC have kept to their promises and assurances about how the powers would be used”.

The new provisions in clause 26 were designed after an extensive consultative process, and the measure has been subject to three consultations since August 2008. HMRC intends to continue that collaborative approach in measuring the effectiveness of the new penalties. It would be somewhat odd to provide for such a review but not to allow for a review of the changes introduced by the right hon. Member for East Ham (Stephen Timms) last year.

The right hon. Member for Delyn alluded to CIOT comments about the concern that the fixed penalties were too high for frequent filing obligations and that that could lead to disproportionate penalties. We have considered the rates for fixed penalties carefully and agree that we do not wish disproportionate penalties to arise. That is why HMRC responded to concerns raised during the consultation by reducing the maximum fixed penalty for monthly filing from £400 to £200.

HMRC is monitoring closely implementation of the new penalty provisions. I am pleased to report to the Committee that since introduction in April 2010, the early results on the improvement of employers’ payment of pay-as-you-earn have been encouraging. HMRC will continue to work closely with private sector representatives on the implementation of late filing and late payment penalties. Given those comments and assurances, I hope that the right hon. Gentleman will withdraw his amendment.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to the Minister for his comments. He has effectively answered the points raised. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Ordered, That further consideration be now adjourned. —(Mr Goodwill.)

Adjourned till Thursday 28 October at Nine o’clock.