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

It is a pleasure to be back in Committee this morning. We made good progress during the last sitting, and I hope we can do so again today because there are some very important issues to discuss.

It may therefore seem rather strange to take a stand on this clause, which on the face of it appears fairly straightforward and provides for overpayments and top-up payments to be repaid to HMRC. The clause states:

“If—

(a) an amount is paid to a charity under section 1, and

(b) the charity was not, or has ceased to be, entitled to it (because of section 2(3), 3(2), 4 or 9, or otherwise), the amount must be paid to HMRC.”.

The Opposition are not suggesting that an amount paid to which the recipient was not entitled should not be repaid, but I want to ask the Minister a number of questions. How, for example, is it anticipated that such overpayments will be collected from the charity in question? Will the Minister also explain the issues that may arise for individual board members or trustees of particular charities if such amounts have to be repaid?

Are there circumstances in which HMRC would not seek to reclaim overpayments, and they would be written off? The Bill as drafted does not seem to provide for that possibility. In the case of child maintenance, for example, there are circumstances where, with the best will in the world, the Government might decide that it is impossible to reclaim the outstanding amount, or that doing so would cost more than the amount itself. However, there is no provision in the Bill before us to write off such an amount in such circumstances. Therefore, it would help if the Minister could provide an explanation, or if he told us that this issue will be dealt with in yet another set of guidance. I am beginning to think that if charities had a pound for every word of the guidance,  we would rapidly be approaching the cap that has been set on the amount of top-up payments to be made under the Bill.

Also, is there going to be a link in terms of gift aid payments? For example, where such a payment has been made, rather than reclaiming it or having that sum paid back, HMRC has the option of taking back from gift aid payments that would be payable to the charity at some point in the future. It would be helpful if the Minister responded to those points.

Perhaps it would help if the Minister considered an imaginary but nevertheless plausible example: if the Second Bromsgrove Scouts made a claim and HMRC demanded it back. In what circumstances would they have to pay it back? In what circumstances would the payment, wrongly delivered, be written off?

My hon. Friend puts in straightforward language exactly the type of questions that the Minister should answer. We have had a great deal of discussion about the Bromsgrove Scouts, and this typifies the kind of situation that many charities and small organisations throughout the country would be concerned about. People rightly worry about the powers of HMRC, about getting on the wrong side of that organisation. No one is suggesting that there will circumstances in which people should not pay money back if payments have been made inappropriately or they were not entitled to those payments. However, in the real world of small charitable organisations, all of us who have been involved with them know that there are times when funding comes in and is used to keep the organisation running and is spent on ongoing costs, and some small organisations may get into serious difficulty.

My hon. Friend makes an important point. The Minister and all of us need to remember that small charities, in particular, are made up of volunteers who may not be accountants or lawyers—who may not have that background—and if we do not want to deter them from taking advantage of this scheme it is really important that the Minister spells this out clearly for them.

I thank my hon. Friend and welcome her to the Committee. She has been in considerable distress because of her injury and because she has missed the Committee. I know that she wanted to make a number of points on behalf of organisations in her area, and I am sure she will have the opportunity to do so today. She makes a powerful point that I want to probe the Minister on. What are the responsibilities of board members and trustees of charities—or the people who run Bromsgrove Scouts or another such organisation—if difficulties arise over overpayments being repaid to HMRC? What will HMRC do in those circumstances? Will HMRC be able to arrange repayments over a period of time; will it take enforcement action if repayments are not made; what position will that put the charities and individuals involved in; and what is the position regarding the link to gift aid payments? Will there  be a facility for any overpayments to be offset against gift aid payments due to come from HMRC at another stage?

I will not labour the point any further; I think I have raised the questions that charities and voluntary organisations will be most concerned about. I hope the Minister can give some immediate responses to those questions and some comfort to those organisations—that nothing will be done to make it more difficult for people to operate Scout groups or small charities at local level, or to deter volunteers from taking up positions on charitable organisations, boards and management committees. I look forward to hearing what the Minister has to say.

It is a pleasure to serve under you again, Mr Turner. This seems an eminently sensible clause: none of us wants a small or even a large charity to claim something it should never have been entitled to, to have somehow been paid it and for us to have no power to force it to give the money back. We clearly need this clause, but it might be better if were titled not “Overpayments” but “Undue payments” or “Inappropriate payments: recovery thereof”.

The clause refers to getting money back from charities that have suffered a penalty and are therefore not entitled to claim; or charities which used the money that was donated not for the charitable purpose; or charities which were connected and therefore not entitled to make multiple claims. None of those are particularly contentious points. I wholeheartedly agree that we need to get the guidance right—we do not want HMRC carrying out ridiculously detailed, inappropriate audits, or clobbering charities for something they probably have not done. We need the clause. It is entirely appropriate and the key, as so often, is to make sure that HMRC implement it in a fair and constructive way, rather than as a proverbial baseball bat to beat people round the head with.

It is, indeed, a pleasure finally to be here to serve under your chairmanship, Mr Turner. I apologise for not having been able to join in so far, but I have been following proceedings. I want to raise some concerns about clause 10, as my local area is about to register our charity, the East Lothian food bank. Although we will have to wait three years before we can take advantage of the Bill, I want to know if the Minister will be issuing guidance to HMRC on whether the method by which it will recover the money will lead to that charity ceasing operation. Obviously, we do not want charities to fold because of the thought of having to repay money in a way that threatens their sustainability. As we know, the charitable sector is struggling enough now, so I want some assurances from the Minister that HMRC will always negotiate with the charity looking at its health and the health of the people using its services.

I thank the hon. Member for Kilmarnock and Loudoun and the hon. Member for Harrow West for their comments and questions, which I shall try to answer. I welcome the hon. Member for East Lothian to the Committee. It is nice to see her.

The clause provides for overpayments of the top-up payments made to charities to be repaid to HMRC. Clearly, all members of the Committee accept the principle  behind such a provision. An overpayment can arise for various reasons: for example, if the charity incurs a penalty in respect of its gift aid claims so that it no longer qualifies for the top-up; or because the top-up received by the charity is not applied for charitable purposes.

As we have heard during the debate, certain conditions are attached to charitable purposes that must be met, such as the community buildings rule. If no charitable activity were taking place, that could cause an overpayment. Furthermore, an overpayment could occur because connected charities did not pool the donation limit before they made a claim. If an overpayment arises for such reasons or for another reason, the charity must repay the amount to HMRC. How HMRC will recover overpayments from charities will be set out in the small charitable donations regulations—the administrative framework of the scheme. When we consider the next clause we will discuss that framework and the draft regulations that have already been published.

I want to touch in a little more detail on how the provision might work in practice. Overpayments will be reclaimed by HMRC in the same way that it currently claims back overpayments for gift aid. A claim form for gift aid and the scheme will have boxes for charities to show whether they have already received an overpayment. In answer to the question from the hon. Member for Kilmarnock and Loudoun, overpayments can then be set against gift aid payments or other liabilities that the charity might have to HMRC, such as PAYE. As we expect, HMRC will exercise its collection and management powers in cases of genuine difficulties. Where the overpayment was clearly unintentional or a mistake, particularly in the case of a small charity that does not have enough resources, HMRC will have sensible discretion to negotiate with the charity.

I thank the Minister for that information. However, the provision is becoming more and more complex, so I shall perhaps return to it later. Can he give some comfort in the event that HMRC makes an error and overpays? Is it the intention that HMRC can seek to have that money returned? In what circumstances would that happen, and how will the process be carried out?

If HMRC makes a mistake and overpays, it is right that HMRC will seek to have the overpayment returned. That is standard tax practice, and there is nothing unusual or unprincipled about it. Clearly, in such circumstances it will be even more important that HMRC work carefully with the charity, because it was HMRC, not the charity, that made the mistake. I would expect HMRC to work with the charity flexibly, such as by making time-to-pay arrangements—in other words, a negotiation to ensure that although the money will eventually be returned to HMRC, the charity can meet that burden without a negative impact on its activities.

The Minister will not be able to do this now and I do not expect him to, but to help the Committee to reflect before Report on what he has said, will he provide us with an estimate of the level of error by HMRC in relation to gift aid payments? That will  help Committee members understand whether we should probe the clause further or simply accept the standard practice.

To the extent that we have that information, I am certainly happy to find out more and provide the hon. Gentleman with it.

I want to say a word about guidance, which has been mentioned several times in the debate, including, understandably, by the hon. Member for Kilmarnock and Loudoun. It is not unusual in relation to such tax or finance measures that the guidance that clearly has to follow such a Bill is quite substantial. A Bill may be technical, and it is important that the guidance be sufficiently substantial and clear that those whom we expect to benefit from the Bill can make the most of it.

I asked the Minister whether there were any circumstances in which HMRC would decide that it was sensible to write off the debt and any repayment. As far as I can see, the Bill as drafted will not allow for that. Is that correct, or have I misunderstood?

I am not aware of any circumstances in which HMRC could write off an overpayment. However, I can foresee some in which the amount involved might be so small—or perhaps in which there is a particular unique situation—that pursuing and collecting it would not be sensible from the taxpayers’ point of view. I understand that HRMC could, under existing general rules, use its discretion to decide how to deal with overpayment of taxes, as well as this type of payment.

I want to remind the hon. Lady of the time when her party was in power. For the 66-page Tax Credits Act 2002 there were 400 pages of guidance, for the three-page Finance Act 2006 (Tobacco Products Duty: Evasion) (Appointed Day) Order 2006 there were 67 pages of guidance, and for the 108-page Climate Change Act 2008 there were 420 pages of guidance. There may have been good reasons for that, but I hope she is clear that having quite a bit of guidance on the back of Bills is not unusual.

By citing those examples, the Minister is now suggesting that charities wanting to claim gift aid and having to wait for three years to access the small payments scheme will have to wade through not only the 60 or 80 pages of guidance for claiming gift aid that are already on the HMRC website, but at least another 66 or more pages to try to claim a maximum of £1,250. His admission cuts to the very heart of the Opposition’s concern that this is an overly complex way for small charities to get a small grant from the Treasury.

It is a nice try by the hon. Gentleman, but it is not going to work. That is not what I am saying at all. I am merely dealing with the point that legislation is followed by guidance. It is not correct for the hon. Gentleman and the hon. Member for Kilmarnock and Loudoun to suggest, both in this debate and in previous sittings, that it is somehow not right to have so much guidance and that it should be in the Bill.

Can the Minister give any indication of how wide or narrow the scope of “otherwise” in clause 10(b) will be in the guidance? Is clause 10(b) telling us that the reference will be to issues relating specifically to this legislation only, or will “otherwise” be cast widely? For example, if the Charity Commission decides that the Plymouth Brethren no longer qualifies as a charity, does that mean that HMRC would use that as a trigger point for recovery?

In the example that the hon. Gentleman gave, HMRC would clearly use other available information and be guided by the Charity Commission. HMRC will use a broad set of information when applying this clause.

When I first spoke about the clause, I wanted to probe particular circumstances where overpayments may be made, perhaps because of arithmetical problems. However, we need to probe further something that the Minister said earlier about top-up payments received but not used for charitable purposes, which links to what my hon. Friend the Member for Harrow West said about the definition of charitable purposes. I now worry about how the use of top-up payments will be policed. Perhaps the Minister can throw some light on that.

As with most matters pertaining to taxation, other top-up payments and the gift aid process itself, which is linked to this programme, there will be a degree of self-policing. There is no process whereby HMRC will be able to check and triple check every piece of information that it receives. There will be an auditing process, as there is with tax in general, perhaps on a random basis, and if HMRC received some kind of tip-off from insiders at a charity, it would be prudent to investigate to ensure that the rules are being met. It is a self-policing process in the sense that once the rules are known, HMRC’s expectation is that charities will abide by them. If it has reason to think that a charity is, as in the hon. Lady’s example, using top-up payments for a non-charitable purpose, we would expect it to investigate.

Returning to the question of the hon. Member for Foyle about the word “otherwise”, if a charity ceases to be a charity, it will no longer be eligible for this scheme, but HMRC works with charities while the Charity Commission inquires into a charity’s status. I hope that that is helpful.

I thank the Minister for that indication. How would HMRC deal with a situation where the Charity Commission in England indicates that it is no longer minded to regard a group such as the Plymouth Brethren as a charity, but the Charity Regulator in Scotland or the Charity Commission for Northern Ireland are offering no such indication and are saying, “No change”? How would HMRC reconcile the different interpretations among charity regulators? Would HMRC be specifically informed about such differences of interpretation when it considers the matter?

HMRC uses the Charities Act 2011 as the basis for whether a charity is a charity. As we have discussed on previous clauses, it is possible that the  Scottish authorities could recognise an institution as a charity while for HMRC, using the 2011 Act as the definition of a charity, it could not be a charity. In such a case, the charity will not be allowed to use the scheme. We have discussed that before.

The Minister’s last point on organisations that are recognised as charities in the devolved Administrations but are not recognised as such under the 2011 Act raises some serious issues. I recognise that this is not the clause under which we should discuss that, but these issues have been raised previously and we will have to return to them.

The difficulty is that the Minister’s points sensibly deal with where charities are deemed to qualify for such payments, but the real issue with recovery is where charities are disqualified, and that is where an invidious situation could arise.

My hon. Friend makes an extremely valid point and I hope that the Minister will reflect on it. We may have the opportunity to discuss it at a later stage.

No one would suggest that there should not be a provision such as clause 10 to recover overpayments. It makes perfect sense to have that, but a number of scenarios have been presented this morning that raise concerns. The way the Minister went on to speak about self-policing, tip-offs from insiders and all sorts of other things going on within charities will put fear into many of the ordinary volunteers who sit on the boards of charitable organisations. They already worry about doing the right thing and ensuring that they have not done anything outside the rules.

My hon. Friend will know that one charity very dear to the heart of the Government is the independent school, Eton. I wonder, in terms of self-policing, how vigilant the Minister intends HMRC to be about the independent schools sector’s use of this?

I take the point. [ Interruption. ] I hear hon. Members across the Committee shouting out the names of other independent schools. My hon. Friend makes a genuine point: there is an issue with organisations when not all their activities will be deemed to be for charitable purposes. That was the issue I was raising. Who will decide whether that particular top-up payment—remember that we are talking about £1,250—was being used solely for charitable purposes? The Minister has said that, in future, to a large extent, that will rely on self-policing, but, none the less, that HMRC would have the opportunity to come in and audit, spot check or do a whole range of other things.

I hope that the Minister understands that we are raising these issues in the context of proportionality. I do not know how many times he has mentioned fraud and all those issues in earlier debates, but we are concerned that more attention seems to be paid to potential fraud than to encouraging charities to take up the opportunity of getting the top-up payments. I do not want to reopen that debate at this time, but we have to ensure that whatever measure is there is proportionate.

The Minister’s tone is perhaps not in keeping with what we are trying to do at this point in the debate; he is possibly trying to make some party political attack on the previous Government in relation to guidance. I do not think anyone, during the course of our proceedings, has suggested that there is no need for guidance. However, we have been suggesting that it is not proportionate or sensible to build a structure around a relatively short Bill, which should do something straightforward—allow small charities and other organisations to get a top-up payment of £1,250—that would cost millions to implement, police, oversee, produce guidance and check the guidance, without even a review of whether it is working, from the Minister’s perspective. We are not saying that there should never be any guidance, but we are saying that it should help and encourage the charities and enable them to take up the top-up payments rather than become an end in itself.

In his earlier remarks, the Minister talked about connected charities. Again, I do not want to reopen the debates that we have previously had; maybe we will come back to them on Report. However, they have highlighted some of the difficulties, and I am concerned that he mentioned, in the context of potential over-payments, issues around connected charities. No doubt the Minister will say that the proportion that each charity would be likely to have to repay will again be covered in guidance.

I was pleased to hear the Minister say that HMRC would adopt what he believes to be a sensible approach and that there may be circumstances in which it would not be cost-effective to recover the whole cost. However, it is still unclear how individuals on the boards of charities or trustees could be affected and at what stage HMRC would decide that it was a sort of de minimus amount and not worth trying to recover. I am also concerned about the stress, the worry and everything else that would be there for charities—or for the Bromsgrove Scout troop, which has been mentioned several times—if an overpayment was made.

I am not suggesting that this clause should not stand part of the Bill; we need that information to be there so that overpayments are recovered when that is the right and proper thing to do. However, the Minister and his officials have some work to do in introducing a scheme that will give charities some comfort and will not put off volunteers from being on boards or becoming trustees. They should also address the points that my hon. Friends the Members for Foyle and for East Lothian made about the real world and the situations that charities currently face.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.