The clause describes the circumstances in which new businesses may be tempted to pursue avoidance arrangements, and essentially it warns them off doing so. It is a strange clause, and I have never seen one drafted in such terms before: is it a standard form? It simply states that anybody who is considering doing anything that may avoid compliance with the rules on these arrangements needs to beware. The clause lacks clarity, which makes me slightly anxious. The Bill does not specify whether a court or HMRC will be the judge of what is, or is not, an avoidance arrangement. Who will be the defining arbiter in such cases?
I am also concerned that a business could inadvertently fall foul of the clause and that its activities could be interpreted as avoidance if it picks up a trade where another company has left a patch of business behind. As my right hon. Friend the Member for Delyn described in an earlier debate, specific arrangements prevent one person from picking up a trade that has been left behind by a former partner. In circumstances around the edges, I worry about the inadvertent consequences for businesses.
The issue of businesses that are undertaken through a franchise arrangement is not properly described in the legislation or explanatory notes. A new start-up business may seem an easy concept to imagine, but many firms purchase a franchise as a way of starting up their entrepreneurial career. One need only look at websites advertising the sale of franchises to see the sort of business opportunities that are available to new start-ups. The other day, I googled retail and food franchises, and there were franchises for sale for Burger King, McDonald’s, Smoothie Fresh, Shakey’s and Perfect Pizza—should any hon. Members wish to start up a new business in that line of work. It occurred to me that there is a risk for a new start-up entrepreneur who may go down the franchise route and fall foul of circumstances in which the business could be described as an existing line of business and, therefore, it may not be classified as a new start-up. I would be grateful if the Minister could address the scenarios relating to franchises, because that issue has not yet been elaborated on in the explanatory notes or in the legislation.
I am grateful to the hon. Gentleman for raising questions about anti-avoidance strategy. It is important, given the reasonably valuable relief available here, that we take measures to prevent avoidance activity.
The hon. Gentleman queries the type of clause and its mention of “main purpose”, which is essentially a test of whether the arrangement is artificial. During his sabbatical from the House, it became increasingly common for clauses along these lines, which ask what the main purpose of the activity was—if it was avoidance, that activity would be ineffective—and the clause is therefore not particularly unusual. It is right that we prevent the situation where a person enters into artificial transactions that are aimed primarily at qualifying for the holiday rather than genuinely carrying on a business. If we did not do so, the cost could be considerable without achieving any of our policy objectives. We hope that we do not have to use it at all, but we recognise that this relief is valuable, and we need to ensure that it is targeted in the normal way. If we need to use it, we are likely to discover that through normal compliance activity.
The hon. Gentleman asked about a right of appeal. There is a right of appeal to an independent tribunal, if the business does not agree with HMRC’s decision. I note that he has been looking at websites for Burger King franchises and so on, and I am sorry if that indicates that the hon. Gentleman is making another career change. Although not everything has gone as well as he might have liked over the past few months, that would be a pity and a great loss to the House. I can assure him, however, that if a genuinely new business is set up under a franchise it would count as a new business for the purposes of the holiday. I hope that my remarks satisfy the hon. Gentleman and that they will dissuade him from setting up a Burger King, whether it is in Nottingham or elsewhere.
Obviously, in all legislation to do with taxation in a broad sense, anti-avoidance is an important component. It crossed my mind that trying to avoid tax cuts would be peculiar, but this is obviously about avoiding excessive claims. It emphasises the importance of proper record keeping, so that small employers do not inadvertently, or possibly deliberately, claim more cuts than they are entitled to. We debated the problem of part-time employees in a previous sitting, and one can imagine all sorts of complications at local level with companies starting up, closing down and starting up again. That happens frequently in the small business field, particularly in construction, as I know from my own constituency. Again, precise records need to be kept so that there is no doubt and so that small business people do not fall into a trap where they might be prosecuted for tax avoidance.