Finance Bill – in a Public Bill Committee at 3:15 pm on 7 July 2016.
Rebecca Long-Bailey
Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee
Clause 164 looks at extending HMRC’s data-gathering powers for the growing digital economy, which we are happy to support. HMRC’s existing data-gathering powers were set out in schedule 23 to the Finance Act 2011. HMRC subsequently obtained new powers in section 228 of the Finance Act 2013 to request data from merchant acquirers—businesses—that process credit and debit card transactions.
More recently, HMRC completed a consultation, “Tackling the hidden economy: extension of data-gathering powers”, between July and October 2015, which has led to the detail of this clause. The clause recognises the rapid development of the digital economy and payments made through it, and the Government wish to enhance their ability to obtain data by adding two new categories of data holders to the existing legislation on data gathering.
Those categories are identified as electronic stored-value payment services—or digital wallets—and as other business intermediaries operating offline. The Financial Times recently reported research by Worldpay that asserted that the rise of digital wallets would mean that credit cards and debit cards would fall from accounting for two thirds of all payments to just half by 2019.
The same report found that $647 billion of consumer payments to businesses will be made globally through digital or e-wallets that year. It is in that context that the Government wish to cast their data-gathering net wider to include that growing sector. I am particularly interested in the Minister’s view of the possibility of increasing tax revenue through these powers. The economic impact in the policy paper suggests an increased take of approximately £200 million per year once these powers are embedded.
Roy Maugham, tax partner at UHY Hacker Young, said:
“The new powers HMRC are seeking indicate that they believe there is large-scale tax evasion in the ‘app economy’.”
Is the expectation that these powers will reveal new instances of tax evasion or tax avoidance? Will the Minister indicate what initial scoping or research has been possible to determine the likelihood of that? In the light of the consultation response from the Low Incomes Tax Reform Group, will the Minister guarantee that the powers will not be used in a way that disadvantages those on low incomes who run owner-managed businesses and who will find them a significant new administrative burden?
A number of submissions to the consultation and responses to the draft legislation, including from the Chartered Institute of Taxation and Payments UK, expressed concern about the definition of the two new categories. I believe that the comments from Payments UK on the definition of “providers of digital wallets” have largely been taken on board, with them now being referred to as
“providers of electronic stored-value payment services”.
The Chartered Institute of Taxation would like further clarification on the definition of “business intermediaries” as it is concerned that that will catch not only websites such as eBay, Etsy and Airbnb but traditional businesses such as insurance brokers and letting agents. Can the Minister shine some light on that today?
We are also happy to support clause 165, which addresses HMRC’s power to levy daily penalties on data holders that do not comply with a data information notice request. Under existing legislation, if a person fails to comply with a data holder notice, they are liable for an initial fixed penalty of £300 and daily default penalties of up to £60 a day. If that is unsuccessful, a tribunal can decide the amount of an increased daily default penalty, which cannot be more than £1,000 a day. The clause clarifies that the tribunal will be responsible for determining the maximum amount of an increased daily penalty, but HMRC will determine the penalty that applies.
Our main concern, once again raised by the Low Incomes Tax Reform Group, is that the proposed change to the law in clause 165 might move significant numbers into the scope of data holder notices and a penalty regime intended for large companies involved in established modes of transaction, such as companies that facilitate credit card transactions. Under the current data request regime, the requirement for the parties subject to a notice to produce the information demanded within 30 days, under threat of instant penalties, may be particularly demanding for lower-resourced parties. On that basis, I hope the Minister can give such companies some reassurance.
Aside from the points that I have outlined, we are more than happy to support clauses 164 and 165.
David Gauke
The Financial Secretary to the Treasury
Clause 164 will extend HMRC’s existing bulk data-gathering powers, allowing it to require data from two additional categories of data holder. The first category relates to business intermediaries that facilitate transactions, particularly online, between a supplier and a customer. The category covers providers of electronic stored-value payment services, also known as digital wallet transactions, a method of transferring payments to a retailer or trader. Comparing those new data with information that it already holds will enable HMRC to identify businesses that have failed to register with it or that are not declaring the full amount of tax they owe. HMRC will not seek data about individual transactions.
Clause 165 makes minor technical corrections to schedule 23 to the Finance Act 2011, which covers the bulk data-gathering powers mentioned in clause 164. Businesses are increasingly using intermediaries to provide custom or take payments, in some cases without registering for tax. New payment models are evolving quickly and are moving away from cash and card transactions towards other electronic payment groups, which means that some businesses can trade digitally while remaining beyond HMRC’s view.
Clause 164 updates HMRC’s data-gathering powers to keep pace with those changes and futureproofs legislation by including emerging new data sources of a similar type. Those data will help HMRC to crack down on the hidden economy, which the Government are committed to addressing. The powers that enable HMRC to collect third-party data from a range of data holders is subject to appeal. When a data holder does not comply with a notice, HMRC may levy penalties.
Clause 165 corrects provision by which increased daily penalties can be approved and assessed. As drafted, the existing provisions are not sufficiently clear and may lead to confusion for data holders and obstacles to the administration of the penalties. Clause 165 gives clarity to the legislation regarding HMRC’s application to the first-tier tribunal and adds an appeal right for the data holder over the number of days the increased penalties can be assessed.
The changes made by clause 164 will affect business intermediaries, particularly those online and operators of digital wallets. Compliant business should benefit, as the clause ensures a level playing field between businesses that comply with their tax obligations and those that do not. There will be some impact, as there will be additional administrative burdens for the data holders. However, before an information notice is served, HMRC will always work closely with the data holder to understand their data in order to minimise the burden on the data holder and to ensure that the data are usable when they are passed to HMRC.
Clause 165 will affect only data holders who do not comply with a schedule 23 third-party bulk data information notice. The changes made by the clause will allow HMRC to issue data-gathering notices to two new categories of data holders. Data holders can appeal against a notice, if they deem it to be burdensome. New regulations will specify the types of data to be collected. However, the policy intention is not to capture data about individual transactions. The clause adds an appeal right for the data holder over the number of days for which the increased penalties can be assessed. That appeal right did not previously exist.
On the questions raised by the hon. Lady, it is correct that the measure will raise revenue by £220 million a year by 2021. The yield comes from tackling the hidden economy, which is very important. It is not HMRC’s intention to impose the penalties. Before a notice is issued, HMRC will always work closely with data holders to understand the data they hold, how the data are collated and what format they are in. That ensures that HMRC’s requirements are reasonable.
The hon. Lady asked whether the data holder has a right of appeal against an HMRC request. The answer is yes. The data holder can appeal against a notice to the tribunal on the grounds that the request is too onerous to comply with, they are not a data holder or the data requested are not relevant. Before a notice is served, HMRC will always work closely with data holders to ensure that HMRC’s requirements are reasonable and to minimise the burden on the data holder.
On the concern that powers could be used to disadvantage owner-managed businesses of low income, the measures should not affect low-income groups. The powers relate to businesses that fail to register for tax or significantly under-declare their income. It is right that we take action on such businesses, but compliant businesses should have nothing to fear.
Data from data holders will enable HMRC more accurately to target their compliance checks in the area of highest risk and conclude them quicker. The technical corrections will give clarity to the legislation and add an appeal right for the data holder. That will help to provide a level playing field for the majority of legitimate businesses that register with HMRC and pay what they owe. I hope that the clauses stand part of the Bill.
