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

With this it will be convenient to discuss the following:

Amendment 34, in schedule 1, page 57, line 33, at end insert

“or such higher amount as may be determined in accordance with sub-paragraphs (1A) to (1D).

(1A) This sub-paragraph applies where the loan is between £100,000 and £199,999.

(1B) This sub-paragraph applies where the loan is a multiple of £100,000.

(1C) Where sub-paragraph (1A) applies, the penalty is £600.

(1D) Where sub-paragraph (1B) applies, the penalty is the equivalent multiple of £300.”

This amendment provides for higher penalties for failure to comply with paragraph 35C where the amount of the loan is greater.

Amendment 35, in schedule 1, page 57, line 38, after “£60”, insert

“or such higher amount as may be determined in accordance with sub-paragraphs (4) to (7)”.

This amendment paves the way for Amendment 36.

Amendment 36, in schedule 1, page 57, line 39, at end insert—

‘(4) This sub-paragraph applies where the loan is between £100,000 and £199,999.

(5) This sub-paragraph applies where the loan is a multiple of £100,000.

(6) Where sub-paragraph (4) applies, the penalty is £120.

(7) Where sub-paragraph (5) applies, the penalty is the equivalent multiple of £60.”

This amendment provides for higher penalties for continued failure to comply with paragraph 35C where the amount of the loan is greater.

Amendment 37, in schedule 1, page 58, line 10, at end insert

“or such higher amount as may be determined in accordance with sub-paragraphs (6A) to (6D).

(6A) This sub-paragraph applies where the loan is between £100,000 and £199,999.

(6B) This sub-paragraph applies where the loan is a multiple of £100,000.

(6C) Where sub-paragraph (6A) applies, the penalty is £6,000.

(6D) Where sub-paragraph (6B) applies, the penalty is the equivalent multiple of £3,000.”

This amendment provides for higher penalties for inaccurate information or documents relating to compliance with paragraph 35C where the amount of the loan is greater.

Amendment 38, in schedule 1, page 60, line 20, at end insert—

“17 (1) The amendments made by paragraphs 9 to 12 have effect in accordance with the provisions of this paragraph.

(2) No later than two months after the passing of this Act, the Chancellor of the Exchequer and the Commissioners shall undertake an assessment of the profile of those holding loans to which the amendments made by those paragraphs apply.

(3) A review under this paragraph shall consider what discretionary arrangements it is appropriate for the Commissioners to take in relation those holding such loans who are not higher rate taxpayers.

(4) The amendments made by paragraphs 9 to 12 shall have effect when the Chancellor of the Exchequer has laid before the House of Commons a report of the review under this paragraph.”

This amendment provides for commencement of the provisions of Part 4 of the Schedule to take place after the publication of a review of the profile of those affected, and in particular on lower paid taxpayers.

That schedule 1 be the First schedule to the Bill.

That clause 12 stand part of the Bill.

That schedule 2 be the Second schedule to the Bill.

Is that clear?

I am very clear on my instructions. Thank you, Mr Owen.

Clauses 11 and 12 make changes to ensure that businesses and individuals who have used or continue to use disguised remuneration tax avoidance schemes pay their fair share of income tax and national insurance contributions. Disguised remuneration schemes are used to avoid tax and national insurance contributions by paying individuals and taking profits through third parties in ways that are claimed not to be taxable, such as loans. Such schemes are highly artificial. In the Government’s and HMRC’s view, they do not produce the declared tax advantage, but that has not stopped their use entirely. The coalition Government first introduced legislation to stop such schemes in 2011. The legislation was successful, and since 2011 HMRC has collected more than £1.8 billion in settlements from scheme users.

Of course, more always needs to be done. The Government continue to tackle disguised remuneration avoidance schemes. The changes announced at Budget 2016 included the 2019 loan charge, which treats all outstanding disguised remuneration loans as taxable income on 5 April 2019. The 2016 package followed the tax avoidance industry’s aggressive response to the 2011 changes: it has created and sold more than 70 new schemes. It is claimed that those schemes achieve the same outcome through the addition of even more contrived steps. The Budget 2016 package will bring in more than £3 billion by 2020-21, and will ensure that scheme users pay their fair share of tax.

The changes made by Clause 11 will make clear how the disguised remuneration anti-avoidance rules apply to schemes used by the owners of close companies. The clause also introduces a requirement for scheme users to provide information on disguised remuneration loans outstanding on 5 April 2019 to HMRC, which will help HMRC to enforce the 2019 loan charge. The new information requirement includes an additional penalty regime, which is consistent with existing HMRC information powers.

The clause also includes a clarification to the disguised remuneration rules. It puts beyond doubt the fact that anti-avoidance rules apply even if an earlier income tax charge arises. It will prevent any attempts to avoid paying the tax by claiming that HMRC is out of time to collect payment. The disguised remuneration rules prevent any double tax charge on the same income.

Finally, the clause will make a change to ensure that any employee who has benefited from a disguised remuneration avoidance scheme is liable for the tax arising on the 2019 loan charge where the avoidance scheme used an offshore employer. Clause 12 will also introduce a new requirement for self-employed individuals, and partners who have used disguised remuneration schemes, to provide information about loans that are outstanding on 5 April 2019 to HMRC. That will help to ensure that HMRC is able to enforce the loan charge.

Let me turn to the Opposition’s amendments. Amendments 34 to 37 seek to include penalties linked to the loan amount for those who fail to comply with the reporting requirement. Amendment 38 seeks to introduce a review to consider the impact of the measure on taxpayers—particularly basic rate taxpayers. It would be inappropriate to introduce a penalty based on the loan amount, as it would be inconsistent with HMRC’s other information powers, and a separate penalty regime already does that where a taxpayer does not correctly report the tax due from outstanding loans.

On the proposed review, the Government do not think it is appropriate that avoiders should get a discount, compared with the vast Majority of taxpayers, who pay the right tax at the right time. However, the clause may have a significant impact on the users of disguised remuneration schemes. HMRC aims to contact those who are affected and encourages those who are concerned about their ability to make timely and full tax payments to contact HMRC. The Department has an excellent track record of supporting people with financial difficulties who may be finding it hard to pay immediately. The Government believe that the proposed review would not provide any additional benefit, so I urge the Opposition not to press the amendments.

It is right that everyone should pay their fair share of tax and make their contribution towards public services, and the changes will ensure that users of disguised remuneration schemes pay their fair share. I therefore commend clauses 11 and 12 to the Committee.

May I pose one brief question about Clause 12 before speaking to amendments 34 to 38 to schedule 1? I am grateful to the Minister for his clarifications and comments about clause 12 and schedule 2, but a pertinent question has been asked by one of the different interlocutors—one of the taxation organisations —which suggested it might be easier for self-employed people who have used the schemes to report their use in accordance with the self-assessment deadline. Has that been considered, because there could be a helpful reduction in bureaucracy and in the amount of fees paid to accountants and so on were there an alignment with the self-assessment return deadline? Will the Minister respond to that?

Moving on to our amendments, we would obviously welcome tightening in the area of disguised remuneration schemes following widespread concern about practice. There have been some high-profile cases, not least those revealed recently in the Paradise papers or the Rangers football club case, which have shown the lengths to which some people are prepared to go to avoid paying the tax that others view as a normal part of doing business.

We are concerned that the measures in the Bill do not go far enough. Loans, for example, have been taxable since the disguised remuneration rules came into force in 2011. There should be no excuse for people not to be aware of the situation; there should be widespread understanding of the need for employers and employees to comply in the area and not to enter into such schemes. We therefore need to ensure that future penalties are sufficiently dissuasive of other forms of aggressive tax avoidance as well as this one.

The Minister rightly described some of what has gone on as involving excessively contrived steps to avoid tax. He suggested that our additional penalties might somehow be inconsistent with others delivered by HMRC but, for the reasons I have just mentioned, it is important for us to have a strong line on such issues. The consistent policy has been that there should be no disguised remuneration, in particular through loans or connections with third parties in effect—not third parties, but those presented as third parties—and we need to ensure that we dissuade people with appropriate penalties.

I further note that the projected IT cost to HMRC of delivering the measure is about £3.5 million, so it is important to ensure that such costs are covered and that HMRC does not lose out due to the creation of the new penalties, especially when it is already subject to new demands because of the possible shift to a new customs regime, as we were discussing until very late last night. For those reasons we are keen to press ahead with our amendments, despite the Minister’s suggestion that we do not press them.

The hon. Lady asked a specific question about Clause 12 and schedule 2, on the timing of the requirement for payment of the loan charge and how that interacts with the self-assessment deadline. I will come back to her on that inquiry with a specific and detailed answer.

The hon. Lady is absolutely right, however, that since 2011 we have been clamping down on avoidance schemes, as I said in my opening remarks, and we have had considerable success, although we feel that the job is not yet done. We made it clear with the Finance Act 2017 and with further tightening in this Finance Bill that we will push even further in that direction, so that those schemes that are not paid off or sorted out with the Revenue before April 2019 will incur a penalty charge. We believe that is certainly the right direction of travel.

I want to return to my earlier comments about the hon. Lady’s Amendment. The consistency issue in how HMRC applies penalties for late provision of information is extremely important. We believe that the amount is proportionate. Let us not forget that when we stand back and look at the overall picture of HMRC’s success in clamping down on tax avoidance and evasion, as well as non-compliance, we see that since 2010 we have brought in £160 billion that would otherwise not have been available to the Exchequer. We have one of the lowest tax gaps in the world, at just 6%, which is certainly lower than it was under the Labour Government. We are succeeding, albeit that there is more to do.

At the risk of producing a horrible sense of déjà vu in the Committee, following consideration by the whole House, I will say that assessments of the tax gap do not include the loss of revenue caused by profit shifting internationally. I wanted to clarify that before we get too optimistic about the success of HMRC in that regard.

I will make two points in response to the hon. Lady: first, she mentioned profit shifting, and we have been in the vanguard of the OECD base erosion and profit shifting project—right at the forefront, driving it forward and, indeed, implementing it in many areas earlier than other countries decided to. Secondly, I believe that our overall record is exemplary and world-class; but of course there is always more to be done. It is absolutely right and proper that those who owe tax pay it, and where HMRC or the Treasury come across schemes that use various artificial devices to avoid and evade tax we will clamp down on those measures with vigour. We have demonstrated our success in doing so in the past, and will continue to do so in the future. The Clause is yet another step in pursuing that endeavour.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Amendment proposed: 34, in schedule 1, page 57, line 33, at end insert

“or such higher amount as may be determined in accordance with sub-paragraphs (1A) to (1D).

(1A) This sub-paragraph applies where the loan is between £100,000 and £199,999.

(1B) This sub-paragraph applies where the loan is a multiple of £100,000.

(1C) Where sub-paragraph (1A) applies, the penalty is £600.

(1D) Where sub-paragraph (1B) applies, the penalty is the equivalent multiple of £300.”—

This amendment provides for higher penalties for failure to comply with paragraph 35C where the amount of the loan is greater.

Question put, That the amendment be made.

The Committee divided:

Ayes 9, Noes 10.

Question accordingly negatived.

Amendment proposed: 38, in schedule 1, page 60, line 20, at end insert—

“17 (1) The amendments made by paragraphs 9 to 12 have effect in accordance with the provisions of this paragraph.

(2) No later than two months after the passing of this Act, the Chancellor of the Exchequer and the Commissioners shall undertake an assessment of the profile of those holding loans to which the amendments made by those paragraphs apply.

(3) A review under this paragraph shall consider what discretionary arrangements it is appropriate for the Commissioners to take in relation those holding such loans who are not higher rate taxpayers.

(4) The amendments made by paragraphs 9 to 12 shall have effect when the Chancellor of the Exchequer has laid before the House of Commons a report of the review under this paragraph.”—

This amendment provides for commencement of the provisions of Part 4 of the Schedule to take place after the publication of a review of the profile of those affected, and in particular on lower paid taxpayers.

Question put, That the amendment be made.

The Committee divided:

Ayes 9, Noes 10.

Question accordingly negatived.

Schedule 1 agreed to.

Clause 12 ordered to stand part of the Bill.

Schedule 2 agreed to.

Ordered, That further consideration be now adjourned. —(Graham Stuart.)

Adjourned till this day at Two o’clock.