Schedule
46Duties
of senior acounting officers of large
companies
The
Chairman: I remind the Committee that schedule
46 is introduced by clause 92, which was extensively debated by the
Committee of the whole House on 13 May, so the principle of imposing
duties on senior accounting officers has been dealt with. We are
dealing with schedule 46, which sets out the mechanics of
that, so we do not want a rerun of the original
debate.
Mr.
Field: On a point of order, Mr. Atkinson. The
matter was debated on the floor of the House but, given the number of
Government amendments, surely there should be some leeway and
opportunity for us to look at this in general as well as at the
provisions the Government have put in place, because the clause is now
somewhat different from the one debated only six weeks
ago?
The
Chairman: With respect, I do not wish to change my view.
We have discussed the broader principles. If there is a problem as the
debate on the schedule unfolds, we shall deal with it as it arises. If
the hon. Gentleman gets too far back into the original debate, I will
stop him. It is as simple as that.
Sarah
McCarthy-Fry: I beg to move amendment 269, in
schedule 46, page 338, line 34, leave
out ‘large’ and insert
‘qualifying’.
The
Chairman: With this it will be convenient to discuss the
following: Government amendments 270 to 273, 276, 280 to 282, 287 to
290 and 296 to
298. Amendment
65, in
schedule 46, page 343, line 20, leave
out ‘or
officer’. Government
amendments 300 to
304.
Sarah
McCarthy-Fry: The schedule makes senior accounting
officers of large UK companies and groups of companies personally
responsible for ensuring and certifying that adequate controls are in
place to calculate tax and duty liabilities. Clause 92, under which
schedule 46 sits, helps to protect tax revenues by ensuring
that, in the present difficult economic environment, tax compliance
does not become a cost that is overlooked by the largest UK companies.
The clause will underpin the existing good practices of the majority by
ensuring that tax remains a priority at boardroom level, and tackling
poor tax compliance among a small minority of companies that do not
have robust systems and processes in place.
HMRC is keen
to continue to develop open and transparent relationships with large
businesses. The schedule builds on that and on work that is already
under way to
help business to improve tax governance. That will allow HMRC to
continue its risk-based approach, focusing resources on the most
important issues, while reducing burdensome checks and interventions
when they are not required. At the time
of the Budget, we made it clear that, because of the need to act now to
underpin tax revenues from such an important sector, we would discuss
the operation of the measure with interested parties. HMRC has held
wide-ranging discussions, and we have listened to what has been said.
The Government amendments take account of those discussions and are
designed to smooth the operation of the measure in practice.
Those
discussions began immediately after the Budget, so that when clause 92,
which introduces schedule 46, was debated by the Committee of the whole
House, my right hon. Friend the Financial Secretary was able to
announce the intention to table amendments to make three changes during
the Public Bill Committee stage. Those changes are first, to refine the
population of companies within the scope of the provision to give the
best possible fit with its aims; secondly, to remove the requirement
for the senior accounting officer to notify the company auditors of any
respects in which the tax accounting arrangements of the company are
not appropriate; and, thirdly, to revise the certification requirement
to allow notification of the appropriateness or otherwise of the
company’s tax accounting arrangements using a single form of
certificate rather than one of two
forms. Discussions
with interested parties have continued, and three further changes are
proposed which, like those announced in the Committee of the whole
House, are designed to smooth the operation of the measure, yet fully
retain its effectiveness. They are: to focus the measure only on major
taxes and duties; to ensure that the wording of the draft legislation
is clear about what constitutes appropriate tax accounting
arrangements; and to refine the definition of senior accounting officer
to allow more flexibility for those groups of companies organised on
less conventional lines. We will discuss each of these changes in more
detail. However, all have been welcomed by the parties involved in our
discussions and each will help to smooth the efficient operation of the
measure. None undermines or dilutes the essential aim of underpinning
the tax compliance of the very largest companies.
I remind the
Committee that my right hon. Friend the Financial Secretary wrote to
Committee members last week enclosing a draft of the guidance on the
measure. The Government are grateful for the ongoing input of
representatives from business and the tax profession in developing the
guidance. I draw the
Committee’s attention to a particular point mentioned in the
guidance, which is about how the measure will operate following Royal
Assent. A senior accounting officer who begins a review of the
appropriateness of the tax accounting arrangements during the first
financial year covered by the measure will be treated as having taken
reasonable steps to comply with the main duty introduced by the
legislation for that first period. It follows that, in those
circumstances, the senior accounting officer would not be penalised for
any failure in the main duty in respect of that first year.
Before
speaking to the amendments, I remind the Committee of the situation
that the schedule seeks to address. The majority of large companies
already ensure that appropriate tax accounting arrangements are in
place in their companies or groups. For those companies, we want to
ensure that the burden of the new requirement will be minimised. It is
not intended to introduce a costly and complex bureaucracy for
companies when it is not required. However, a small minority of large
companies do not have robust systems and processes in place. We want
identified individuals—the senior accounting officers—in
those companies to take responsibility. We need to be clear whose
responsibility it is to put that right.
Amendments
269 to 273, 276, 280 to 282, 287, 289 to 291, 296 to 297 and 300 to 304
relate to the definition of the companies that fall within the scope of
the measure. Schedule 46 already provides for the population of
companies within the scope of the measure to be restricted by Treasury
regulations. However, in the Committee of the whole House my right hon.
Friend the Financial Secretary made it clear that, following
discussions with representatives of business, we were mindful to
restrict the population of companies that fall within the scope of the
measure, so that it was broadly limited to those largest companies and
groups to whom HMRC has assigned a customer relationship
manager.
Mr.
Mark Hoban (Fareham) (Con): Can the Exchequer Secretary
explain to the Committee why the decision was taken to exclude
partnerships from the remit of the
measure?
Sarah
McCarthy-Fry: Not off the top of my head. If I cannot get
an explanation for the hon. Gentleman by the end of my remarks, I will
write to him and explain why that decision was
made.
Mr.
Hoban: May I give the hon. Lady’s officials notice
of my next question? Does the measure include mutuals? The Exchequer
Secretary will be aware that there is a large number of, say, financial
mutuals, building societies and mutual insurers out there who, I
suspect, would fall within the definitions of size that the Government
will insert in the schedule through their amendments. I would like to
know if those companies are included in the scope of the measure or if
they are outside its
scope.
Sarah
McCarthy-Fry: Again, I hope to get back to the hon.
Gentleman on that point.
As I was
saying, the scope of the measure is broadly limited to the largest
companies and groups that have a CRM. The legislation could technically
be drafted to define the population as those companies with a CRM.
However, it is not appropriate to use defining criteria that rely on
HMRC’s administrative practices. Instead, we have identified
objective criteria by reference to company turnover and asset value,
which will very closely equate to the assignment of a CRM. That means
that the measure will encompass the top 2,000 groups of
companies.
For both
singleton companies and groups of companies alike, those criteria are
turnover of more than £200 million and/or a balance
sheet total of more than £2 billion.
It is a test that brings banks within the scope of the
measure, as otherwise they would fall outside its scope. The amendments
will also ensure that the measure will apply only in relation to UK
companies and their senior accounting companies, and not to foreign
companies. Mr.
Hoban: Given the restricted number of companies that will
meet the criteria, can the Exchequer Secretary say to what extent the
cost-benefit analysis set out in the regulatory impact assessment
should be revised?
Sarah
McCarthy-Fry: Once again, I will get back to the hon.
Gentleman on that.
Amendment 303
deals with the definition of “group of companies” for the
purposes of the legislation. The Government received some
representations in informal consultation that the legislation as
drafted may have included companies and other entities that we did not
want to catch. We have given the matter further consideration and we
have introduced a definition that is drawn from existing tax
legislation, which will be more familiar to companies and easier for
them to work with. The new definition of “group” is set
out in the amendment.
Amendments
288 to 298 and amendment 65 concern the definition of “senior
accounting officer” for the purposes of the schedule. Who can be
and who should be a senior accounting officer has been discussed
extensively with interested parties and we are introducing amendments
that give more flexibility, so that the legislation is better fitted to
some of the situations that can occur in practice. However, the
legislation still requires the senior accounting officer to be a person
who has overall responsibility for the company’s financial
accounting arrangements.
In
particular, amendment 298 makes it possible for a director or officer
of any group company to fulfil the requirements of the legislation on
behalf of another company in that group, or on behalf of the whole
group, if the company or companies concerned consider that that person
has the appropriate responsibility.
11.45
am
Mr.
Hoban: I note the flexibility that amendment 298 will
give. The guidance suggests that the senior accounting officer could be
based outside the UK. If they are, will they still be liable for the
penalty regime that schedule 46 will
introduce?
Sarah
McCarthy-Fry: It is my understanding that if the company
is based in the UK, it is liable for the penalty regime. The exclusion
was for foreign companies based outside the UK. My understanding is
that a UK-based company that chooses to have a senior accounting
officer based outside the UK will still be liable. I will check that to
ensure that I understand
correctly. Amendment
65 would go against the trend of the representations from business by
narrowing the field of possible candidates to carry out the functions
of senior accounting officer. Businesses consistently ask for
flexibility and the Government are happy to provide it, as long as the
person appointed to be senior accounting officer is appropriately
qualified to carry out the role. I therefore ask the Committee to
reject that amendment.
I look forward
to the debate on this group of amendments. When I sum up, I hope to
respond to the points hon. Gentleman raised in his
interventions.
Mr.
Hoban: It is a pleasure to serve under your chairmanship
this morning, Mr.
Atkinson. I
welcome my neighbour, the hon. Member for Portsmouth, North, to her new
role. As I said last week, we have got used to seeing press releases
from the Department for Children, Schools and Families with the
Minister’s name attached rebadged as reports in the
Portsmouth Evening News. I am looking forward to seeing Treasury
press releases on foreign exchange reserves and new appointments to the
Monetary Policy Committee being rebadged in that way. It will be
interesting to see what coverage such matters get in that august
journal.
Mr.
Field: Given the longevity of the Minister’s
predecessor, a week or a month may be a long time. Indeed, a day is a
long time in the hot seat of Exchequer
Secretary.
Mr.
Hoban: In the week that the hon. Lady was a Minister in
the Department for Communities and Local Government, I did not spot a
DCLG press release being rebadged for the
occasion.
Sarah
McCarthy-Fry: Oh, it
was.
Mr.
Hoban: The hon. Lady clearly got the press machine
working. Perhaps she is so keen to get those press releases in the
local paper because they might affect her longevity in the
post. I
am mindful of your strictures, Mr. Atkinson, that there was
a long stand part debate on clause 92 in Committee of the whole House.
The amendments flow from that debate. There was wide concern across
professional and business bodies about the scope of schedule 46 and the
need to restrict it. The amendments reflect those concerns and it is
good that the Government listened to them. It would have been better
still had the Government consulted on the matter first, rather than put
the schedule in the Bill and then table the amendments. The amendments
will change the schedule significantly and they reflect the concerns
that were
raised. HMRC
desires to improve its relationship with large businesses. A conclusion
of the Varney report of 2006 on that matter was that there should be
clarity through effective consultation and dialogue. If HMRC and the
Treasury had embraced that conclusion, they would not have had to table
so many amendments to restrict the nature of large
groups. I
will deal first with amendment 65. The Minister referred to the
representation that HMRC received from business organisations that were
supportive of the concept that it should be directors or
officers of companies that were senior accounting officers. I argue in
amendment 65 that a senior accounting officer should be a director of a
company. The Government did not acknowledge in their review the
representation from the hon. Member for Coventry, North-West
(Mr. Robinson), who was Paymaster General and who played a
pivotal role in determining how tax law developed at the start of the
Government’s first term in office. In the debate had on the
floor of the House, it became clear that the
hon. Gentleman’s approach to tax law was, “Bung it in the
Finance Bill and amend it in Committee.”—a practice to
which the Government seem to have returned with schedule 46. He said
that it should be a director who took responsibility: “The
point of the person being on the board, as opposed to being an officer,
is that being on the board carries certain specific personal
liabilities. The chief financial officer or the person with tax
responsibilities might in many cases be taken off the board precisely
so that they avoid that sort of responsibility, which a directorship
carries with it.”—[Official Report, 13 May 2009;
Vol. 492, c.
885.] The
Financial Secretary did say that he would look at that important point.
Why did the Government ignore
it? There
is an issue for directors in that they have particular responsibility
for the stewardship of a business. We have seen that a lot over the
past weeks and months. There are obligations that go with being a board
director and one would expect the senior accounting officer of a
company of the relevant size and status to be a director. It would be
very odd for such a company not to have a finance director. A senior
accounting officer always being a board member tightens up the measure
and focuses responsibilities on the board. It is important, and the
Minister may say that professional bodies have argued for flexibility
but sometimes Parliament needs to take a view. I am pleased that the
hon. Member for Coventry, North-West and I seem to share a common view
on the matter.
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