Finance Bill

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Standing Committee B

Thursday 23 June 2005

(Afternoon)

The Committee consisted of the following Members:

Chairmen: Sir Nicholas Winterton, †Frank Cook

†Austin, Mr. Ian (Dudley, North) (Lab)

†Balls, Ed (Normanton) (Lab)

†Field, Mr. Mark (Cities of London and Westminster) (Con)

†Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)

†Francois, Mr. Mark (Rayleigh) (Con)

†Goodman, Helen (Bishop Auckland) (Lab)

†Hammond, Mr. Philip (Runnymede and Weybridge) (Con)

Hammond, Stephen (Wimbledon) (Con)

†Healey, John (Financial Secretary to the Treasury)

†Huhne, Chris (Eastleigh) (LD)

Kramer, Susan (Richmond Park) (LD)

Lewis, Mr. Ivan (Economic Secretary to the Treasury)

†Lucas, Ian (Wrexham) (Lab)

†McCarthy, Kerry (Bristol, East) (Lab)

†McFadden, Mr. Pat (Wolverhampton, South-East) (Lab)

†Marris, Rob (Wolverhampton, South-West) (Lab)

†Morden, Jessica (Newport, East) (Lab)

†Newmark, Mr. Brooks (Braintree) (Con)

†Primarolo, Dawn (Paymaster General)

†Ruffley, Mr. David (Bury St. Edmunds) (Con)

†Spring, Mr. Richard (West Suffolk) (Con)

†Tami, Mark (Alyn and Deeside) (Lab)

†Watson, Mr. Tom (Lord Commissioner of Her Majesty's Treasury)

†Williams, Stephen (Bristol, West) (LD)

Frank Cranmer, Nerys Welfoot, Committee Clerks

†attended the Committee

[Mr. Frank Cook in the Chair]

Finance Bill

(Except clauses 11, 18, 40, 43, 44 and 69 and schedule 8)

Clause 24

Deduction cases

Amendment proposed [this day]: No. 15, in clause 24, page 21, line 4, leave out from 'the' to 'that' in line 5 and insert

'Special Commissioners find, on the balance of probability, following an application by the Commissioners for Her Majesty's Revenue and Customs'.—[Mr. Philip Hammond.]

2 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are taking the following amendments: No. 16, in clause 24, page 21, line 5, leave out 'or may be'.

No. 31, in clause 24, page 21, line 18, leave out

'or one of the main purposes'.

No. 30, in clause 24, page 21, line 20, leave out from 'question' to end of line 21 and insert

'is significantly greater than it would have been if the relevant transaction was part of a qualifying scheme.'.

No. 17, in clause 24, page 21, line 23, after second 'the', insert 'Special'.

No. 18, in clause 24, page 21, line 26, at beginning insert 'Special'.

No. 19, in clause 24, page 21, line 30, after 'the', insert 'Special'.

No. 20, in clause 26, page 24, line 5, leave out from 'the' to 'that' in line 6 and insert

'Special Commissioners find, on the balance of probability, following an application by the Commissioners for Her Majesty's Revenue and Customs,'.

No. 21, in clause 26, page 24, line 6, leave out 'or may be'.

No. 22, in clause 26, page 25, line 5, after second 'the', insert 'Special'.

No. 23, in clause 26, page 25, line 8, at beginning insert 'Special'.

No. 24, in clause 28, page 25, line 37, leave out from 'the' to 'give' in line 38 and insert 'Special Commissioners'.

No. 25, in clause 28, page 26, line 5, at beginning insert 'Special'.

No. 26, in clause 28, page 26, line 9, at beginning insert 'Special'.

No. 27, in clause 28, page 26, line 12, after 'the', insert 'Special'.

No. 28, in clause 28, page 26, line 23, after third 'the', insert 'Special'.
 
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No. 29, in clause 28, page 26, line 24, leave out 'have been reasonably' insert 'reasonably have been'.

The Paymaster General (Dawn Primarolo): At the end of the morning sitting, I was explaining the effect of the amendments and why they are therefore not acceptable to the Government. An important aspect of the arbitrage legislation is that it does not set out an all-or-nothing approach. If a company receives a notice under the legislation, it must consider first whether the legislation applies to it and, if it does, how great an effect the legislation has on its self-assessment. The company takes its own view of both matters in its self-assessment. If there is a disagreement between Her Majesty's Revenue and Customs and the company, and it cannot be resolved, the matter can proceed to the special commissioners, who will be able to consider not only whether the legislation applies at all, but the extent of its effect.

The amendments would bypass the self-assessment stage. Instead, the matter would proceed directly to a hearing at the special commissioners to determine whether a notice should be issued. That unprecedented approach would require the special commissioners, who are established as a body to hear appeals, to apply legislation directly in the first instance. It is not clear how an appeal against the special commissioners' view would proceed. As I said this morning, there is no advantage in the huge increase in bureaucracy and costs that the amendments would impose.

There is already a right of appeal when the parties disagree, and there is nothing to be gained by requiring a hearing irrespective of whether disagreement exists. I hope that my explanation has dealt with the worries of the hon. Member for Runnymede and Weybridge (Mr. Hammond), but I shall be happy to give him further reassurance. HMRC has said in published guidance that companies may make what are referred to as a point of principle referral to special commissioners on aspects of the arbitrage legislation. A point of principle referral allows a point to be considered separately from other self-assessment matters and can be heard as soon as the relevant facts have been established.

Unlike the special commissioners' referral in the amendments, the point of principle referral would include the extent of the effect of the legislation as well as whether it applied at all. I hope that the hon. Gentleman is reassured that the issuing of the notice supported in the guidance notes with the point of principle referral gives sufficient opportunities, without the additional bureaucracy and possible cost, for the matter to be considered. It would also leave in place the special commissioners' role to hear any subsequent appeals.

Mr. Philip Hammond (Runnymede and Weybridge) (Con): I might have misunderstood the Paymaster General. I am grateful to her for what she said, but she seems to be outlining the existing procedure for resolving a dispute about a company's return or its assessment after it has responded to a notice. We want to provide a mechanism for appealing against the issue of a notice when it was not appropriate to have issued a notice. I do not think that anything she has said would allow an appeal against the issue of a notice; it
 
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would only allow an appeal against the Revenue's view of what the outcome would have been.

Dawn Primarolo: I repeat what I said about the working of the point of principle referral. That allows a point to be considered separately from other self-assessment matters, so it can be heard as soon as the relevant facts are known. The point of principle referral will therefore include the extent of the effect of the legislation as well as whether it applied at all. That mechanism, with the referral once the self-assessment processes have been completed, establishes an appeal procedure. The amendments would remove all of that: the issue of every notice would go automatically to the special commissioners, even when there is not a dispute. That would force many claims to be considered and, therefore, much more administration and legal work.

Mr. Hammond: The Paymaster General says that the amendment would remove all of that. With respect, it would do no such thing. All of what she has just set out is in the guidance notes rather than in the Bill. We are seeking to put a mechanism on the face of the Bill. Does she accept that that is the purpose of these amendments?

Dawn Primarolo: I have said that there is no need to appeal the notice because all the notice does is tell the company that it needs to consider the legislation; that is all that it requires. It is then up to the company to decide whether to take any further action. The hon. Gentleman is putting too much emphasis on the issuing notices.

Mr. Hammond: Fishing expeditions.

Dawn Primarolo: No, they are not fishing expeditions. The hon. Gentleman has said that before. The legislation is clear about the tests. All—not nearly all, but all—of conditions A to D have to be met.

Mr. Hammond: Or may be.

Dawn Primarolo: I shall come to that point later. The notice is issued if the Revenue is of the opinion that it should be, and the notice requires that the company takes the legislation into consideration.

Mr. Hammond: I know that the right hon. Lady is taking the line that the issue of a notice does not really matter—that what happens next is what matters, but is she saying that there is no mechanism by which a notice could be rescinded, even if an appeal on a point of principle was made and the Revenue lost? If that happened, would the notice be rescinded or would it remain in force? Taxpayers need protection against fishing expeditions. They need to be able to demonstrate that the Revenue was wrong to issue a notice. That is the point of having a mechanism by which notices may be rescinded or overturned.

Dawn Primarolo: The issue of the notice to the company only requires the company to take the legislation into consideration. If the company receiving the notice believes that HMRC was wrong and that the conditions are not met, it will make a self-assessment on the basis that the arbitrage legislation does not apply. If HMRC agrees, that will be the end of the matter. If HMRC does not agree and the matter
 
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cannot be resolved by discussion and agreement, it can proceed to the special commissioners for a decision. That is consistent with the special commissioners' usual role, which is to hear appeals. In that way, the notice is issued if the conditions are satisfied in the view of HMRC.

The notice requires the company specifically to take note of the legislation. It is a signpost that reads, ''Take note of the arbitrage legislation when completing your self-assessment''. In our system, the company takes note; if it believes that the conditions do not apply, it makes its self-assessment on that basis and the normal processes within the tax system proceed from there. HMRC will decide whether it agrees with the company's self-assessment.

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Prepared 23 June 2005