Rob
Marris: I hope that my right hon. Friend the Paymaster
General can help with this small point. I understand that subsection
(6) would add paragraph 6A to schedule 11 to the Value Added Tax Act
1994. Paragraph 6(1) of schedule 11 already confers powers on HMRC to
make regulations requiring records to be kept. What additional powers
will paragraph 6A
insert?
Dawn
Primarolo: First, I want to assure the Committee that HMRC
has no plans to use the powers for purposes other than to counter
large-scale fraud, such as MTIC fraud. In that context, any additional
burdens imposed under the measure are, in my view, entirely
proportionate given the serious revenue losses that arise from such
fraud. We had a constructive debate earlier on exactly what the
challenges were. I
was also challenged by hon. Members to explain what the Government are
doing now. The record-keeping requirement is part of that. It is a
well-established principle that VAT must be administered in a
proportionate fashion, so I turn first to the question whether the
power is drawn too widely.
I have given the undertaking
and made it clear that the power should be used specifically to combat
large-scale fraud, such as MTIC fraud. It is totally impracticable to
try to limit the scope of the measure by attempting to have a legal
definition of MTIC fraud. Given everything that has been said about how
it mutates and what the challenges are, I was a little taken aback that
Members could flip so quickly from a discussion recognising the
complexity of the challenge to providing a legal definition that says,
“This is MTIC fraud; everything else you do is okay as long as
you manage to legally get outside the definition.” In order for
the clause to be effective, it needs to be applied in this
way. HMRC will have
to demonstrate reasonable grounds to believe that additional records
might assist in identifying supplies on which VAT might not have been
paid. The whole purpose of the measure is to assist HMRC in detecting
and challenging fraud, and that would be seriously undermined if HMRC
had to prove knowing involvement in a specific fraud before using the
direction, particularly given the point made by the
hon. Member for Dundee, East. By the time HMRC had sufficient evidence
to prove a fraud, the business concerns would be long gone. That is the
nature of such fraud. I want to deal with what
constitutes reasonable grounds for deciding the direction, in practical
terms. The Department will exercise its discretion carefully. It has to
do so, as the area is complex and litigious. As the hon. Member for
Rugby and Kenilworth pointed out, we can end up consuming huge amounts
of resources for no gain and we have still lost the revenue.
The main criterion is
likely to be the previous involvement of the business or persons
associated with the business in transaction chains that have led to a
VAT loss through MTIC fraud. Anyone who receives a direction and does
not believe that HMRC has acted reasonably in issuing it will have the
right of appeal to the VAT and duties tribunal.
The direction would require the
business to keep records that identify the goods it bought or sold,
such as mobile phone serial or batch numbers, or the lock numbers for
computer chips. The direction notice will set out clearly the records
to be maintained. In order to apply the measure, HMRC must have
reasonable grounds. I have explained what those reasonable grounds are
and, given the magnitude of the problem that we want to deal with, that
is entirely proportionate.
The final point was with regard
to the penalty. The whole point of these clauses and the penalties that
support them is not to use the penalties but to hope that they have a
deterrent effect and that businesses keep better records in the first
place to ensure that if they are in a sensitive area they can always
demonstrate the facts of the case and that they complied with the
legislation. The
scale of the fraud could be up to £1.9 billion of stolen VAT. It
is theft, not business. It is like robbing a bank; it is just a
different bank that they are robbing currently. They are doing it
against the Exchequer. In the light of this, the level of penalty must
be appropriate to act as a deterrent. I do not know whether
£6,000 is high enough. However, within the range of penalties
that the Department operates across the piece, that is the appropriate
level and that is how we will back it
up. If businesses keep
the correct records they always know to whom they have sold and from
whom they are purchasing. If they have kept the batch numbers and they
can demonstrate that, it helps to pave the way exactly to the point
made by the hon. Member for Rugby and Kenilworth. Where somebody within
a chain took all possible steps and could not have reasonably known, or
have had access to the knowledge, and can demonstrate the facts with
the records, it will take them outside consideration for MTIC fraud.
That seems very
important.
Stewart
Hosie: The Paymaster General suggested that businesses
should keep correct records of goods, numbers, customers and so on.
That is reasonable. But in a previous debate it was suggested that
tobacco manufacturers should not supply to people who they
believe will smuggle; they should not supply to businesses, possibly
illegal ones, which may then resupply to smuggling operations. Would it
be reasonable under proposed new section 6A(1) for the commissioners to
direct a company to keep records, not only of its immediate customers,
but perhaps of the customers’ customers? That is the implication
of the tobacco smuggling issue. If that became impossible, because a
business simply could not identify it, and the commissioners thought
that it was reasonable in order to try to stop major fraud, would the
penalty then
apply?
Dawn
Primarolo: We are talking about an entirely different case
here. As I made clear to the hon. Gentleman, the requirement for the
direction to keep more records is because of involvement in, or
suspected involvement in, a previous chain. This has operated perfectly
well. The legislation depends and has depended in other areas on this
definition of reasonableness and then the test at the tribunal. It is
entirely appropriate in this area. The question that we still have to
deal with as Members of this House, and I have to deal with as the
Minister responsible for this area, is whether the combination of these
clauses, the reverse charge and the increased activity, will have the
required deterrent effect on MTIC fraud, or whether further steps will
need to be taken. That is a matter that we can resolve only when we see
the exact details of the reverse charge and the derogation we may be
granted by the
Commission. Question
put and agreed
to. Clause 21
ordered to stand part of the
Bill.
Clause
22Treatment
of credit
vouchers Question
proposed, That the clause stand part ofthe
Bill. 4.15
pm
Mr.
Francois: Very briefly—[ Hon.
Members: “Hear, hear.”] It is always nice to
be cheered on in any context. The clause is perhaps more minor than
some of the others that we have debated today. As the explanatory notes
explain: “The
clause allows HM Treasury to amend schedule 10A to the Value Added Tax
(VAT) Act 1994 by affirmative resolution order to specify circumstances
in which the supply of credit vouchers is not to be disregarded for VAT
purposes.” In essence it
is an anti-avoidance measure which appears to be aimed principally at
attempts to redefine items such as phonecards as credit vouchers in
order to minimise the VAT liability. The note goes on to stress that
this is a limited power in that
“This power is intended
to help combat VAT avoidance schemes which seek to exploit the fact
that credit vouchers are not normally subject to VAT, and to discourage
avoiders from implementing new schemes. This clause is also intended to
leave businesses unaffected where they are not avoiding VAT: it does
not change the basic credit voucher rules, but allows the Government to
take targeted action against specific kinds of VAT avoidance, if the
need arises.” In that
sense, the clause seems reasonable. This afternoon, we have been
pressing the Government for
reassurance on several areas, but on this occasion it is provided
directly in the explanatory notes. The Law Society has raised one
minor technical matter; it has one small quibble. It has
stated: “We
recommend that clause 22 makes it clear that HM Treasury cannot specify
circumstances in which sub-paragraph (2) does not apply where
transactions of the type in question have been the subject of a taxable
supply in another Member
State.” Provided the
Paymaster General can give a brief, snappy answer to that point, we
have no objection to allowing the clause to stand part of the
Bill.
Dawn
Primarolo: Yes, I can give that
assurance.
Julia
Goldsworthy: Obviously, this is part of the sweep of
clauses that we have broadly supported. I see no benefit in re-reading
the explanatory notes to hon. Members, so I shall leave my comments at
that.
Mr.
Dunne: Having read the explanatory notes, will the
Paymaster General confirm that HMRC has no intention to start to levy
VAT on book, CD or other retail vouchers? I ask that in view of my
previously recorded
interest.
Dawn
Primarolo: Given the hon. Gentleman’s interest, I
assure him that if he reads the clause, he will find that it is
targeted at exactly where it says it is. If he needs any further
clarification, I could send him a copy of the Labour party’s
manifesto for the previous election, so that he can see exactly what
the commitment
was. Question put
and agreed
to. Clause 22
ordered to stand part of the Bill.
Further consideration
adjourned.—[John
Heppell.] Adjourned
accordingly at seventeen minutes past Four o’clock till Tuesday
16 May at half-past Ten
o’clock.
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