Mr. Field: I, too, want to speak briefly to the clause. I share the concerns expressed by my hon. Friend the Member for Fareham (Mr. Hoban) and the hon. Member for Torridge and West Devon about the risk that a more onerous compliance burden will be put on taxpayers. Speaking from experience, I know that nothing is more frustrating than looking at an invoice that has been unpaid for many months and realising, especially if it includes a large chunk of VAT, that one has already paid out on it although one has been unable to recover. The worry is that the invoice will become a fully-fledged bad debt further down the line. There is a risk that small business folk will be wary about throwing good money after bad in taking such matters forward if more and more paperwork is required. That applies particularly to small business people who are not well acquainted with financial auditing and who may have to get someone who runs their payroll to go through the whole rigmarole of engaging in correspondence with the Revenue or Customs and Excise to get the money back. Despite those concerns, the proposals in the clause are to be supported in principle.
I agree with the technical comments made by my hon. Friend the Member for Fareham. An overhaul of liquidation is required. I know that much is being made about the proposed abolition of Crown preference in the Enterprise Bill, which will supposedly save small businesses between £70 million and £100 million a year. I should be interested to have some idea of whether that windfall will apply also to bad debts, where a fully-fledged liquidation is not in place.
Mr. Boateng: This has been a useful debate, because it is important that we should constantly keep under review ways of reducing the burden on small and medium-sized businesses, in relation to paperwork and time engaged in dealing with VAT regulations and collection. Anything that clarifies thinking on that or takes forward that cause is to be welcomed, and I am glad that the Committee has, overall, warmly welcomed the clause. It will remove what is currently an onerous requirement: the need for a business to contact a debtor by post to inform him that it has made a claim for VAT bad debt relief. The clause has been welcomed by business.
I can assure the hon. Member for Fareham that the particular tax concession to which he referred will continue to operate. I was probed on the Government's thinking about the six-month period and asked whether it should not be six months from the invoice date. That has a superficial attraction, but we must be careful that, in dealing with one issue, we
Column Number: 87do not create other problems for small and medium-sized businesses. Our judgment sought to reflect the current flexibility in terms of the invoice date and the payment date. We did not want to tie the provision for one to that for the other; we wanted to retain the flexibility. That is why we concluded that there should be a clause whose effect would be to relieve suppliers making a claim for VAT bad debt relief of the need to issue the notification letter to their debtor customer. As part of the change, the debtor is required to repay any input tax claimed on supplies if more than six months have elapsed since payment became due. That was felt to be necessary so that debtors could no longer rely on the receipt of notification letters to inform them that their suppliers had claimed for bad debt relief. That was our thinking.
Mr. Jack: Will the Financial Secretary give way?
Mr. Boateng: I shall just finish the point, then I shall be happy to do so.
It is important to stress that the change is being made in response to representations that we received from business prior to the Budget. They pointed out the unnecessary and onerous nature of the requirement on small businesses, as Committee members have done, and the change is an important part of the package.
A question has been asked about compliance costs. We are removing the most onerous requirements; it will be up to customers to monitor the timing of the payments so that they are aware when they are liable to repay the input tax. I shall be surprised if that represents any more than a routine requirement for most; it should not represent an additional requirement for the majority of businesses in that situation. Whatever burden exists should be switched from the supplierwho has, after all, acted in good faithto the business that has defaulted on its payment.
Those are specific issues. The right hon. Member for Fylde might be coming in his intervention to one that will need to be dealt with by way of draft regulations. We are in consultation with business so that detailed issues can be resolved with the necessary input. The measures may then achieve that which they are designed to doto lighten the burden on business.
Mr. Jack: The Financial Secretary mentioned the relevant date and the date on which the sum becomes payable. What happens if an invoice has been rendered, but there is no expected date of payment because either it is not shown or the terms and conditions do not specify one, or no agreement has been reached between the parties regarding one?
Mr. Boateng: In those circumstances there might be potential for dispute. Generally in such circumstancesfor instance, if there is a dispute over pricing or deliveryif there is a failure to pay the full amount on time, due to the dispute, the customer is liable to repay the input tax claimed on the unpaid balance, but can claim it back once the dispute is settled and the full amount is paid. In the right hon.
Column Number: 88Gentleman's example, the date of payment will almost never be later than the date of the invoice. Provisions ensure
Mr. Burnett: Will the Financial Secretary give way?
Mr. Boateng: May I deal with the point, and then give way to the hon. Gentleman?
Provisions ensure that the relief needs to relate to the date from which payment is late. If there is no payment date, we take the invoice date, which reinforces the point that I made on flexibility.
Mr. Burnett: I want to give an example for which the Financial Secretary's assertion is faulty. The date for payment in seasonal businesses can be much later than the invoice date.
Mr. Boateng: I remind the hon. Gentleman of the flexibility to which I referred. The invoice date and the date of payment are not necessarily the same or linked. There may be good business reasons for a gap between the two, as he suggested. In those circumstances, obviously the parties would take the date most favourable to them, and the dispute would be dealt with in the way that I outlined.
Mr. Burnett: The point that I tried to make was one that Customs might have made to the Financial Secretary. There must be certainty for Customs and Excise as well as for the people operating the tax.
Mr. Boateng: I do not think that our proposal is unreasonable or uncertain. We have not received a representation from business to suggest that it is. Draft regulations will be laid on the implementation of the measure, and we are in consultation with business on their content. If the hon. Gentleman's point emerges from that consultation as one of the detailed issues that needs to be addressedif he was right to point out, bearing in mind his constituency interest, that there may be special circumstances in relation to seasonal businesseswe would look to the draft regulations to deal with it. However, I do not sense that the issue has been raised with us to date as a problem in relation to the provisions, which overall have been warmly welcomed.
Mr. Chope: I am grateful to the Financial Secretary for that response and undertaking. He said that the measures had been widely welcomed. The hon. Member for Torridge and West Devon was referring to a point that has been made by the Chartered Institute of Taxation, which is concerned about the practicality of the measure and whether problems will be caused. I think that the Institute of Directors is concerned as well. If the Financial Secretary says that proper regard will be made to representations, to ensure that the new system is practical and not burdensome, obviously we accept those assurances.
When the Financial Secretary replied to a question from my hon. Friend the Member for Fareham, was he confirming that, to quote the Chartered Institute of Taxation, the
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Mr. Boateng: Briefly, yes, I am confirming that in saying that the concession remains in place.
I do not want to return to the point made by the hon. Member for Torridge and West Devon, other than to say that when detailed points need to be addressed in regulations, the consultation should enable that to happen. He gave seasonal businesses as an example of when there is delay in when payment is due, because that is the nature or custom of the business. That circumstance affects payment, but it will also affect relief, because the point from which bad debt relief applies will then also be delayed. If that is the nature of the business and of the supply, the relief will have to, and will, reflect that.
Mr. Hoban: I have a final question relating to this clause and to clause 23 on the flat rate VAT scheme. We discussed clause 23 on the Floor of the House, which is why I now want to raise the point in the context of clause 22. If a business has taken advantage of clause 23, and has a flat rate of VAT and a reclaim of input tax based on a percentage related to its business, will clause 22 apply to it? Will it have to repay any input tax arising on invoices that it has not settled?
Mr. Jack: I have one simple question. Can the Financial Secretary explain why the opportunity has not been taken, either in primary legislation or in subsequent regulations, to incorporate into law the extra-statutory concession in the interest of improving and simplifying the work of the tax system?
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