Clause 212 - Circumstances in which an accelerated payment notice may be given

Finance Bill – in a Public Bill Committee at 10:30 am on 17 June 2014.

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Photo of David Gauke David Gauke The Exchequer Secretary 10:30, 17 June 2014

I beg to move amendment 32, in clause 212, page 141, line 3, leave out “tax”.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

With this it will be convenient to discuss the following:

Government amendments 33 and 34.

Amendment 56, in clause 212, page 141, line 35, at end insert—

‘(8) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish a post implementation review.

(9) The Review referred to in subsection (8) above must in particular examine—

(a) the total number of accelerated payment notices issued;

(b) the number of accelerated payment notices issued to cases involving a disclosure made under DOTAS prior to the Act receiving Royal Assent,

(c) the total revenue collected through accelerated payment notices;

(d) the total revenue collected through penalties arising as a result of accelerated payment notices;

(e) the number of representations made to Her Majesty’s Revenue and Customs following the issuing of an accelerated payment notice;

(f) the number of accelerated payment notices that have been subsequently withdrawn;

(g) the financial consequences resulting from the issuance of accelerated payment notices for the businesses and taxpayers involved.

(10) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.”

Clause stand part.

Clauses 213 to 221 stand part.

Government amendments 36 to 38.

That schedule 28 be the Twenty-eighth schedule to the Bill.

Government amendment 35.

Clause 222 to 226 stand part.

Photo of David Gauke David Gauke The Exchequer Secretary

Before I address the amendments in detail, I think it would help the Committee if I set out what the legislation is about and why we are introducing it. Some of that is, of course, common to the debate we just had on follower notices. I suspect that a number of points that we have debated apply even more to this debate, and I may well make similar points during it.

Clauses 212 to 226 introduce the accelerated payment rules. They set out circumstances in which an accelerated payment notice may be issued, including where a follower notice, which we have just debated, has been issued, together with the consequences of a notice being issued.

As I have already said, this Government have taken a robust line on dealing with tax avoidance. It is not right that would-be avoiders can hold on to the disputed tax while their—often highly contrived—attempts to avoid tax are concluded.

The majority of taxpayers have all their tax taken at source under PAYE, and they do not see any reason why suspected avoiders should benefit from holding on  to their money. There is no principle in our tax system that disputed sums should necessarily be held by the taxpayer rather than the Exchequer, and there are a number of examples to demonstrate that this is not always the case. Perhaps unsurprisingly, some of those affected by the measure—the taxpayers involved and those who advise them—have been vociferous in their opposition. I know that Committee members will have received many representations, not necessarily from their constituents but from those who might be affected by the measure. I will attempt to address their concerns, although I must say that some of the points that have been made are as contrived and artificial as the tax avoidance schemes that have been used. Let me be clear where the Government stand: the Government have closed many tax loopholes but have also made the tax system more competitive. They expect people to pay the tax due rather than search for increasingly obscure ways of avoiding their obligations.

I have certainly had a lively postbag and there has been some active commentary on social media. Indeed, I am struck by the number of people willing to admit openly that they are or have been involved in tax avoidance, and who then object—albeit anonymously on some occasions—to something being done about it. I have also had letters from businesses claiming that making these payments will harm their ability to maintain and invest in their business, a point made by the hon. Member for Gateshead. Let me repeat what I said earlier: as a Government, we have put in place a very attractive environment for business investment. We also expect people to pay their taxes. Of course, lower tax bills can increase business investment but that is a matter for this House, taking into account the state of the public finances. That does not in any way excuse aggressive tax avoidance.

Photo of Chris Williamson Chris Williamson Labour, Derby North

Will the Minister reassure the individuals who have been lobbying me and, I am sure, other members of the Committee, and who have said—not all of them, but a number—that the retrospective nature of the APNs will result in them going bankrupt? Is that correct?

Photo of David Gauke David Gauke The Exchequer Secretary

I am not sure whether the hon. Gentleman was here earlier for my exchange with the hon. Member for Gateshead, but it is a perfectly relevant point. HMRC operates a time to pay arrangement, allowing people who will ultimately be in a position to pay any tax debt additional time to pay it. There is no reason why time to pay arrangements should not apply to circumstances covered by the measures in front of us. However, it would be a grave mistake to tie HMRC’s hands and say that it will in no circumstance bankrupt someone as a consequence of the powers we are debating. What would happen quite quickly, I suspect, is that people would make arrangements so that the only enforcement action available to HMRC in respect of these measures would be bankruptcy. I will certainly not tie HMRC’s hands. It needs to have access to all the usual insolvency powers for these powers to be effective. However, I put on record the fact that HMRC has time to pay arrangements for those who are constructively engaged with it and who are looking to pay off their tax debts in a constructive way but are constrained by cash flow matters. That is a perfectly reasonable approach.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

The Minister talked about the fairness of people who pay through PAYE as opposed to having these arrangements and the principle of there being no reason why HMRC should not have disputed money while it is being disputed. I am sure that you will not permit a long answer, Mr Streeter, but can the Minister say whether he intends to extend that principle into the world of corporate tax, because the same point could be made in that regard?

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend raises an interesting point. Although I am not privy to any confidential information, as I am sure he would expect, I understand that, as a matter of practice, often in a dispute HMRC does hold that money and that when such a matter is resolved, the large corporate does not necessarily have to make a payment. That does not happen in every case, by any means—I do not want to give the impression that it does—but sometimes that is so. My hon. Friend raises an interesting policy point.

There is clearly vociferous opposition to the measure. However, it is worth noting responses from professional bodies and larger firms, which I am encouraged by, which agree that this problem must be tackled. I am sure that the vast majority of the tax-paying public also agree, especially when they see reports of court decisions, setting out the elaborate contrivances that some people employ to avoid paying their fair share or to delay the inevitable for as long as possible.

Understandably, the public are shocked to see those who can afford to pay trying to dodge their tax, passing the burden on to the majority, and they expect us to put a stop to it. We have consulted on the measure and I acknowledge that some respondents have raised important concerns. As I said in an earlier debate, I want to make it clear that this is about tackling tax avoidance. We do not intend the measures to be any wider. We have carefully considered the comments received and I have asked HMRC to ensure that there is active consultation on the published guidance, to ensure that the important issues raised are dealt with in that process. Dialogue is important on such a measure and I want it to continue as the measures start to take effect. As I said before, we share the agenda with the business and professional bodies, which want to eradicate such behaviour, and I want that to continue.

The essence of our message is that the Exchequer has waited long enough for this money. The overwhelming evidence of the last few years is that disputes reaching the tribunals and courts decide against the taxpayer and many more taxpayers see the writing on the wall and concede the position before going to the expense of formal hearings. That sends a clear signal to those who may have thought they would never have to pay this money: they are likely to be wrong and should start making provision to pay their tax right now if they have not done so already. I make no apology for these tough measures; they are justified to tackle the behaviour of a persistent minority and I believe that the vast majority of taxpayers will support us for taking these steps.

Photo of Duncan Hames Duncan Hames Liberal Democrat, Chippenham

No one likes to wait for money that is due to them. How long will the taxpayer expect to wait for their money to be returned to them, in the event that it has been collected through advance payment, but HMRC is unsuccessful in a tax tribunal?

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend asks a good question. That will depend upon the progress of the tribunal case. The taxpayer will, of course, be in the driving seat and will be able to progress his or her case to the tribunal. It is right that HMRC properly engages and it is certainly right that it does not engage in any delaying processes. HMRC needs to see full documentation before a case is ready to go to court. However, where the taxpayer has paid as a consequence of the measures, but continues to dispute, as they are more than entitled to do, it is clearly in the interests of the taxpayer to progress the case to tribunal and right that HMRC also takes the steps necessary to get to a tribunal. I would hope and expect that, once a decision has been made at the tribunal that is adverse to HMRC, there would be a very short period from that decision being made to HMRC paying over the disputed sum to the taxpayer. I think that that is only right and proper and I hope that that reassures my hon. Friend.

Let me set out in more detail the changes made by these clauses and the schedule. The clauses require taxpayers involved in certain types of avoidance dispute to pay over the tax that is being disputed while the dispute continues. They will have held the money for long enough by that point. Clause 212 sets out the circumstances in which an accelerated payment notice can be issued. There has to be an open inquiry or appeal, and it has to concern a dispute involving one or more of: a follower notice, a scheme disclosed under the disclosure of tax avoidance schemes—DOTAS—rules or a scheme being challenged under the general anti-abuse rule, the GAAR.

We have already talked at length about the rationale behind the follower notices. Let me take the GAAR next. We introduced the GAAR last year and have recently expanded it to cover national insurance contributions. From what I hear, it is having the effect that we want, dampening the enthusiasm for abusive tax avoidance schemes. It seems entirely appropriate that where we are looking at the most abusive schemes, we should require the taxpayer to pay up front. Very few people disagreed with us on that point in the consultation, and I was happy to take on board the suggestion that taking account of the advisory panel’s opinion should be written into the legislation. I am grateful to those who made that very helpful suggestion.

The final criterion is DOTAS, and in this case there was a wider range of views. Let me set out our thinking. First, DOTAS is clear and objective: the scheme has been disclosed and allocated a reference number and the taxpayer has been told about the disclosure and number. That is clear and easy to apply. Secondly, DOTAS is about tax avoidance schemes. I know that there are concerns that some people disclose arrangements just in case they might fall into DOTAS. I am pleased that they do so, and they should carry on doing so. Where there is no extra tax to pay, HMRC will be able to agree that fairly quickly and there will be no accelerated payment. It will, of course, be in the interests of advisers and taxpayers to provide complete information to HMRC as soon as possible.

I have been very disappointed by the assertions made in a number of letters in my postbag. They claim that HMRC will have almost unfettered power to demand  what they describe as arbitrary sums of tax. That objection is misconceived. Taxpayers and their advisers need to work with HMRC to get to the right figure of disputed tax, but where that co-operation is not forthcoming, HMRC will have to take the decision. I know that robust governance is being put in place by HMRC requiring scrutiny at senior levels. HMRC takes its responsibility very seriously in this regard. I am also aware that this measure may be seen as penalising those who disclose against those who do not. Let me be clear: we will take robust action against those who choose not to disclose when they should. Our new measures against high-risk promoters, which we will come to shortly, will be part of tackling that behaviour, and in the summer we will consult on further improvements to DOTAS.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons) 10:45, 17 June 2014

One of the representations that came across my desk argued that the changes to DOTAS will have the unintended effect of pushing people away from openly declared and transparent tax planning mechanisms towards the more secretive area that the Minister is about to speak about. I would be interested to hear his direct response to that point.

Photo of David Gauke David Gauke The Exchequer Secretary

I take on board what the hon. Gentleman says. We have toughened up the DOTAS regime, and we are also looking to consult over the summer on a strengthened DOTAS and on what may be needed further to strengthen the regime’s effectiveness and compliance with it. The best response to the concern that the hon. Gentleman raises is to ensure that the consequences of failing to comply with DOTAS become ever more significant. I hear his argument, but I am not persuaded by it.

Photo of Christopher Pincher Christopher Pincher Conservative, Tamworth

Does the Minister recognise that since fines for non-disclosure were significantly increased from £5,000 to £1 million, a lot of people have over-disclosed on the advice of their tax advisers and erred on the side of caution? Is there not a danger that these arrangements will penalise people who try to be honest and drive them and others to be less than honest in future, as the arrangements are seen to be unfair?

Photo of David Gauke David Gauke The Exchequer Secretary

I shall make two points in response to my hon. Friend. The first is one that I made a moment ago: disclosure under DOTAS does not necessarily mean that someone will be affected by the accelerated payments regime. HMRC will look at the particular scheme and assess whether it is effective. There may well be circumstances in which HMRC will look at a particular scheme and say, “A DOTAS disclosure has been made, but as far as we can see this scheme is entirely consistent with the law. It is effective and there is no tax under dispute, so no accelerated payment will need to be made.” If there is no tax under dispute, there is no accelerated payment.

The other point that is worth bearing in mind is that the trend for DOTAS disclosures is a significant fall, and all the evidence suggests that that trend has been driven not by concerns about accelerated payments, because it was in place before that policy was announced, but due to the fact that not as much aggressive tax avoidance is being undertaken as a few years ago. The measures that the Government have taken are successfully  changing behaviour, and there are instances of the promoters of tax avoidance schemes declaring that they are ceasing their business because the environment is no longer favourable for them. Taxpayers are changing their attitudes as well, as there is much less appetite for aggressive tax avoidance, and I think that the whole Committee would welcome all that. I hear my hon. Friend’s concerns, but all the evidence suggests that we should not be over-concerned about precautionary disclosures under DOTAS. In truth, they are unlikely to result in any tax dispute.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Does the apparent reduction in tax avoidance indicate not only that the Government have changed the law to take the battle to the tax avoiders, but that they have already sent important behavioural and social messages about what is acceptable and unacceptable in the post-2008 world?

Photo of David Gauke David Gauke The Exchequer Secretary

That is an important point. It has been clear since the Government’s first year in office that there was great focus on this area and a great determination to deal with the situation. There has also been a change to the general public mood, and my hon. Friend is right to highlight 2008 as a time when the public finances faced great challenges. Aggressive, contrived tax avoidance schemes are seen as much less socially acceptable than was once the case.

I return to how the measure will work and the criticisms that have been made of it. Many of those who wrote in claimed that it was retrospective, because it will apply in cases when there has already been disclosure under DOTAS. We are clear that the legislation is not retrospective. It does not change anybody’s tax liability, but it changes who holds the tax during an avoidance dispute. As I said earlier, the taxpaying public is entitled to ask why tax avoiders should hold on to their money for far longer than the majority who pay their tax through PAYE.

Photo of Chris Williamson Chris Williamson Labour, Derby North

I appreciate that clarification, but will the Minister give us a little more information? If the dispute is found in favour of the person who was previously perceived to be avoiding tax, will they receive any compensatory additional payment from HMRC?

Photo of David Gauke David Gauke The Exchequer Secretary

They will receive the original tax back, with interest, which is fair. It is absolutely right that interest is paid. The hon. Gentleman’s body language suggests that he assents to that approach. I have learned during our proceedings that it is always worth watching his body language.

Clause 213 explains how a notice is given during an open inquiry, while clause 214 does the same when there is an open appeal. Clause 215 sets out how the taxpayer can make representations. During our consideration of follower notices, we debated why there is no formal appeal to a tribunal. Such a process would involve simply contesting the substantive point at issue, which is not what the measures are about. The same is true for accelerated payments. As I have said, the key is for taxpayers and advisers to provide full and early information so that we can get to the right amount.

Clause 216 sets out what happens when a notice is given during an open inquiry. The accelerated payment is a new form of payment. It will be treated as a payment on account of the final liability, which means that interest will stop running on the amount paid from the date that the taxpayer pays it over. This is emphatically not any form of determination of the final tax liability, which will still be subject to all existing appeal rights. If the taxpayer is ultimately successful, they will get a repayment, with interest, just like the vast majority who have to reclaim any tax they think they are owed. Clause 217 does the same for an open appeal. In an appeal, the change we are making means that it will no longer be possible to postpone the tax in dispute in these types of case.

Clause 218 is a precautionary power in circumstances when HMRC has concerns that the tax in dispute might be lost following a tribunal or court decision in the taxpayer’s favour, but if it is appealing to a higher court. HMRC can therefore apply to the court to retain the tax in dispute.

Clause 219 introduces a late payment penalty in connection with an accelerated payment. The structure and rates are based on existing late payment penalties under tax legislation. If the tax is under appeal and no longer postponed, the position follows existing rules for the tax concerned. Clause 220 sets out what happens if circumstances change and HMRC reduces or withdraws a payment notice. Any amount overpaid will be repaid with interest, along with any penalty that was paid in respect of the repaid amount. There are special adaptations of the rules under clauses 223 and 224 to cover stamp duty land tax and the annual tax on enveloped dwellings, and in schedule 28 to deal with partnerships.

I know that the hon. Member for Erith and Thamesmead will speak to amendment 56, which she tabled, but I hope that she will forgive me if I make a few pre-emptive remarks about it. She is right to highlight the importance of the implementation of this measure to its success, and I can assure her that HMRC has been working extremely hard to ensure the policy is implemented as planned, and that the first payment notices are on track to be issued shortly after Royal Assent.

I do not agree that the hon. Lady’s amendment is necessary or would add anything to the success of accelerated payments, however. To begin with, six months would be a very short time in which to review the policy. Taxpayers will have 90 days to respond to the notices and it would be hard to produce a meaningful analysis of the impact on a taxpayer of receiving a notice in such a short time frame. It is unlikely that we would see any real impacts that quickly and I do not believe that we would gain any real insights from producing such a report.

Secondly, the assessment of the impacts has already been made public in the Budget documents, and the tax information and impact note and policy costings documents that were published alongside them, in March. Those documents set out that payment notices will be issued to 33,000 individuals and 10,000 corporates, which will cover about £7.1 billion of tax under dispute. They also set out that the mean gross income of those individuals who will receive notices is £262,000—more than nine times the average for the wider income tax paying  population. The average gross profits of businesses that are set to receive notices is £545,000. We have also set out that the vast majority of notices are expected to be issued over the 18 months following Royal Assent. That information and much more is already in the public domain, so I do not think that reporting again so soon after the event would add any real value to the debate.

Thirdly, as for other areas of delivery, HMRC will publish information on the implementation of the policy. It is still determining exactly what figures will be published and at what intervals, but I assure the Committee that it will be transparent about how the measure has been implemented.

For all the reasons I have set out, I do not believe that producing a report that will distract HMRC from the key job of delivering the policy would be beneficial. I pre-emptively thank the hon. Member for Erith and Thamesmead for her contribution, but I hope that she will not press amendment 56 to a Division.

Government amendments 32 to 38 correct the unintended effect of using a definition contained in the follower notice provisions. That definition of “tax arrangements” requires that the main or a main purpose of the arrangements is to gain a tax advantage. That requirement has been taken through into the accelerated payments legislation and, in particular, the DOTAS criterion. However, the intention is that DOTAS should be an objective criterion. In order to be disclosed under DOTAS, arrangements will already have been through a number of tests and filters, including one to the effect that the main or a main benefit is to secure a tax advantage. Therefore, adding a further test is unnecessary and takes away from this being an objective test that is simple to apply and understand. The amendments deal with that and tidy up how the definitions sit together.

The Government recognise that the changes are significant. As I said earlier, we have consulted on the detail, receiving more than 800 responses. In our debate on the previous group, I explained the changes we were making through those provisions, and this aspect of the Bill makes a change so that the rules can apply only when the GAAR advisory panel has given its opinion that the arrangements are not reasonable.

Several further concerns have been raised, chief among which is the lack of a formal appeal right. As I explained earlier, that would simply involve arguing the substance of the case at a different stage and would significantly weaken the impact of what we are trying to do.

We estimate that accelerated payment notices relating to existing avoidance cases currently under dispute will be issued to approximately 33,000 individual taxpayers, concerning £5.1 billion of tax under dispute, and to around 10,000 corporates for £2.1 billion of tax under dispute. The vast majority of notices are expected to be issued over the course of 2014-15 and 2015-16 and, of course, notices relating to new avoidance schemes will be issued in future years as the need arises, although a key part of our drive to tackle avoidance is to stop such schemes from being promoted and used in the first place.

As I said, this is a major new development. If someone tries to avoid tax, the likelihood is that they will fail, but if they want to try, the Exchequer will hold the money while the matter is sorted out. That is the right and fair approach, and it is fair to the millions of taxpayers who pay their tax on time and expect others to do the same.

Photo of Teresa Pearce Teresa Pearce Labour, Erith and Thamesmead 11:00, 17 June 2014

It is a pleasure to serve under your chairmanship, Mr Streeter. I had six pages of questions to ask, but in the light of the Minister’s comments and responses to hon. Members’ interventions, I will pick through them to find those things on which I still need to press him.

In my previous life before my election to the House—sometimes it seems a long time ago—I worked for HMRC and then for the tax investigations department of one of the big four, so I have been poacher and gamekeeper and have seen this problem through 360°. I do not by any means defend aggressive tax avoidance, but certain aspects of this legislation concern me. I am worried that it might not work or be necessary, so I would like some reassurance from the Minister.

My first concern is about retrospection. Businesses need a level playing field and certainty, but retrospection is something that makes people in business very nervous. The Minister says—I understand him—that no one’s underlying tax liability is being changed, but the legislation changes the code of practice under which businesses thought they operated with HMRC. The definition of retrospection is to change the legal consequences of actions that were committed, or relationships that existed, before the enactment of a law, and that is exactly what this legislation does. I agree that it might not change an underlying tax liability, but it changes the consequences of actions.

I am especially worried about those who have submitted applications to postpone tax. Such postponement will have been agreed by HMRC some years ago, but now it will be withdrawn, which is clearly retrospective. The changes will apply to all tax arrangements registered under DOTAS since 2004. I worked for one of the big four when DOTAS came in, and I thought it was a marvellous idea. It has helped HMRC tremendously to investigate tax avoidance schemes. Previously HMRC would have to wait until a return was in before looking at a scheme and trying to work out what it meant, meaning that it would be years before it could be unravelled, but now it has advanced notice and can do things in a timely manner.

It is not only my interpretation that the legislation is retrospective, but that of the Treasury Committee. The Chartered Institute of Taxation, the Law Society and several well-respected chambers have said that they find the legislation’s retrospective element unacceptable. I agree with the legal profession that there is a retrospective element. If the Minister and the Government are trying to change behaviour, surely they cannot change behaviour in the past. They need to change it going forward, but the retrospective element will not do anything about that. People cannot change what they have already done, but they can change what they will do in the future.

I was interested in what the Minister said about the reduction in aggressive tax avoidance. One of the reasons for that might be adverse publicity and changes in public opinion. At one time, people thought, “Well, we would all pay less tax if we could,” but now people do not think that—I am glad they do not. People think that they should pay the right amount of tax at the right time. I agree with that, but dealing with that retrospectively is a dangerous path. I would like more reassurance from the Minister about why he feels that it is necessary, for particular cases, retrospectively to change an agreement  that was reached with HMRC. HMRC already has powers to link a taxpayer’s arrangements to a lead case, so I am not sure why some elements of the legislation are needed.

I hope the proposal works—I want it to work—but I am not convinced that it is the right way forward. Has any research been carried out into behavioural changes that might push companies away from disclosed schemes towards much more risky undisclosed schemes? Has any view been taken of how many inspectors will be needed to issue accelerated payments and go after them, rather than looking into the wider tax gap and the black economy?

Time to pay arrangements can be restrictive. Normally, only a matter of months are allowed, not years. When a retrospective payment has to be made, will any guidance be given to the collector and HMRC about whether there will be more time to pay than is currently the case in most cases? Finally, has HMRC budgeted any money to contend with the number of judicial reviews that are expected to arise from this legislation? I hope that the Minister will be able to respond to my points and reassure me that, if the legislation proceeds, it will do what it is meant to do and close the tax gap.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I rise to oppose amendment 56, and start with a quote from the obituary of Lord Templeman, who passed away recently:

“He was promoted to the Court of Appeal in 1978, where he gained a reputation, among other things, for his implacable opposition to artificial tax avoidance schemes—although as a QC in the 1960s his practice had involved helping some of his clients to avoid estate duty. ‘Every tax avoidance scheme involves a trick and a pretence,’ he said later. ‘It is the task of the Revenue to unravel the trick and the duty of the court to ignore the pretence.’”

As a former tax lawyer, I humbly follow in the steps of Lord Templeman.

The hon. Member for Erith and Thamesmead talked about the important point of retrospection which, traditionally, we go back to seeing in the light of Adam Smith. The Treasury Committee has also raised criticisms on the grounds of retrospection. Adam Smith said that the principle is that every tax that

“each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought…to be clear and plain to the contributor and to every other person.”

That goes to the heart of whether money should be handed over to the Revenue pending determination.

The history of retrospection before this House was well elucidated by my predecessor, Lord Rees, who, as Peter Rees, was Member of Parliament for Dover and Deal. He said that there needed to be a precise warning to the House regarding retrospection because a mere suggestion was not enough. He said that provision needed to be clearly directed, legislatively appropriate and, in essence, to involve a level of certainty. My concern is that whenever we talk about retrospection, we talk about the avoidance of taxation, Parliament’s intention being undermined, and retrospection being needed to reaffirm Parliament’s intention.

Photo of Chris Williamson Chris Williamson Labour, Derby North

Will the hon. Gentleman help me by explaining those aspects of amendment 56 to which he objects? He has not spoken to the amendment so far.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

The hon. Gentleman knows that the debate is about the wider provisions that govern this entire subject, as well as the amendments. You will correct me if I am wrong, Mr Streeter, but I think I am in order by raising these particular points, although of course I stand to be corrected.

Photo of Chris Williamson Chris Williamson Labour, Derby North

I apologise to the hon. Gentleman if he thought I was suggesting that he was being disorderly. I was not doing that, but when he rose to his feet, he said, “I rise to oppose amendment 56,” so I was merely asking which parts of it he objects to?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover 11:15, 17 June 2014

The hon. Gentleman, who has long entertained the Committee, understands that I was talking particularly about the comments on retrospection made by the hon. Member for Erith and Thamesmead. It is legitimate that I talk about retrospection, since it has been raised with so many of us on social media. Many of us have a timeline filled with great anger, angst and fury about the issue. It is right that the Committee honours those heartfelt opinions that have been expressed to us by debating them. I hope I am not alone in thinking that that is a right, proper, legitimate and—dare I say—orderly manner of approaching the matter.

When my predecessor for Dover and Deal discussed this issue and raised these rules, they seemed a touchstone. Retrospection was built on by the previous Labour Government with the help of the Second Deputy Chairman of Ways and Means, when she was a Treasury Minister, and indeed Jane Kennedy, no longer of this parish, through the Finance Act 2008. The issue has been much discussed down the years, but let me just pick up on what the Chair of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), says:

“We have deep reservations about any extension of retrospection in the tax system. Retrospection runs counter to the Committee’s principles of tax policy. In particular, it undermines certainty. Retrospection should be considered only in wholly exceptional circumstances. The latest measure would have to be justified on those grounds. Retrospection puts policy on a slippery path to arbitrary taxation, discouraging investment and innovation and creating the scope for great unfairness.”

In other words, the attack is made on the principle that retrospection creates uncertainty. That is not the case with these provisions, as they apply only in a DOTAS case when a filing has been made to the Revenue. If an adviser has been making a filing, they will say, “I have had to file this with the Revenue.” If they were a competent advisor, they would say, “Keep the money to one side; don’t go out and spend it.”

The argument that we hear being made is that if a person puts £100 on red or black in a roulette tournament, it is okay for them, while the ball is still spinning, to take 50 quid of that stake and buy a round of drinks on the grounds that they might win, but that is a poorly founded argument. If someone is going to put a bet down—that is what people are doing when they are gaming the tax system; it is no different from roulette, except that it is more disreputable—the stake should stay on the table. The principle that the Government are setting out is that the stake should remain on the table and in the hands of the house. In this particular case, the money should be held with the Revenue if it is making a challenge and has issued a follower notice.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

I want to validate my hon. Friend’s Conservative credentials because I think his position is calling some of them into question. Will he accept a couple of points: first, that the taxpayer’s money belongs to the taxpayer first, not to the state; and, secondly, that at the time that the quotes of Adam Smith were made, the complexity and breadth of the tax system were narrower, meaning that those conditions do not now pertain? We have an arcane, complex tax system that makes it difficult for the taxpayer to be sure where he or she should be paying tax. I want to see if my hon. Friend’s assumptions hold to Conservative principles or whether, when he talks about the house holding the money, he is rather referring to views that might come from the Opposition.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

My hon. Friend is right to challenge me—I welcome it—but let us consider how this process works. If a person is advised to reduce their tax liability, they are often introduced to a promoter who explains the scheme to them. The person then signs documents to enter into the scheme and pays a fee. The promoter tells the taxpayer that the scheme is a disclosed tax avoidance scheme and gives them a reference number that needs to be included on their return in the tax avoidance section. They know what they are doing. They know that they are playing with fire and spinning the roulette wheel. They are not an innocent who has suddenly come to an impost—a big shovel in their stores—as has been said in legal cases regarding the philosophy behind the taxation system. They enter into the arrangement with their eyes open.

When the taxpayer submits their tax return with the scheme reference number, or their adviser submits it for them, HMRC considers the tax return and whether more tax is due than has been paid as a result of the avoidance scheme. If an inquiry notice is issued, the taxpayer can choose to co-operate or not, but even when taxpayers co-operate in full, the investigation and litigation process inevitably takes a considerable time, and some people take advantage of that by holding on to the tax. The principle is that, from now on, the tax in dispute in suspected avoidance cases will be held until the matter is resolved. The question is who should hold that money, given that the person has engaged in a disclosed tax avoidance scheme. The Government would argue that the measure ensures a consistency of approach.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Let me make some progress first.

HMRC will be able to issue a notice only when it has sent the taxpayer an inquiry notice or issued a notice of assessment for the disputed tax. As a minimum, therefore, everyone who receives a notice will have been notified by HMRC that their tax affairs are under consideration. They will have filed a DOTAS notice and been notified that their tax affairs are under consideration. I would argue that they should have kept the money to one side and not gone off to the races, spent it on a round of drinks or whatever; they should have responsibly, prudentially and conservatively set the money aside against that risk.

Once an accelerated payment notice is issued, the taxpayer will have 90 days to pay. If they cannot pay, they can contact HMRC to agree arrangements for payment. The Government are demonstrating their understanding by engaging in discussions about hardship cases. If the taxpayer thinks that the tax due is incorrect, they can raise that with HMRC which, as I understand it, will review the facts. People can therefore ask it to look at the matter again. The taxpayer will then get a decision notice confirming the amount of tax due to be paid up front, at which point they will have 30 days to pay. It is fair to say that due warning will be given and that there is due understanding that the person concerned is playing with fire, as it were.

Photo of Chris Leslie Chris Leslie Shadow Chief Secretary to the Treasury

I am interested in how the hon. Gentleman’s logic might extend to other tax-paying scenarios. If, for example, the Chancellor of the Exchequer said that the banks should be paying a £2.5 billion bank levy, is the hon. Gentleman arguing that the banks should vest that money with the Treasury, and that if, as seems to be the case, they then claim that for some reason they need to pay only £1.6 billion, that is their lookout? Is that the logic that he is describing, and why would it not apply in other circumstances?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I always enjoy the hon. Gentleman’s interventions, but he makes a facile point—[ Laughter. ] As is in line with his character. What I am describing is more in line with what happened under the Finance Act 2008, about which Jane Kennedy, then of this House, said:

“the avoidance scheme that the clause closes down was designed to frustrate legislation passed by Parliament in 1987 to prevent this type of avoidance, also with retrospective effect”.––[Official Report, Finance Public Bill Committee, 22 May 2008; c. 372.]

This is about when due warning has been given. In this case, I would say that the taxpayer has been given due warning. They know that they ought to keep the money to one side. HMRC wins 80% of these cases, and I think that the case is well made.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

We have had an interesting debate. As we have been hearing, the legislation underpins the Government’s belief that during litigation and investigations into avoidance, disputed tax should sit with the Exchequer rather than, as is currently the case, with the taxpayer. Under existing rules, taxpayers are able to include the tax advantage in their initial self-assessment and thereby reduce their liability.

The measures have given rise to a lot of comment from stakeholders—members of the public—outside the House. We have heard references to the vigorous campaign being waged on social media. We have all been getting messages in our timelines even as the debate has continued, so many people are listening to what is being said today. I hope that they feel that the issues are being thoroughly ventilated.

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.