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Mr. Hoban: We will see whether that information is available. Part of the problem is that the examples given—they often involve “a number” of companies—do not provide robust justification. Perhaps the Minister will look at it another way. A risk-assessment process goes on now for large companies. What proportion of those companies are deemed to be high risk?
Sarah McCarthy-Fry: Again, I do not have that information to hand but I will pass it on to the hon. Gentleman. I imagine it will be a percentage not a number.
I want to get to the specific questions asked. Amendment 65, which the hon. Gentleman spoke about, relates to whether a director of a company with board responsibility should always be the senior accounting officer. The board has overall responsibility for meeting tax obligations. We think it is right to give businesses and boards the responsibility and flexibility to decide who is responsible for ensuring that the systems and processes are correct so that the board delivers its obligations. HMRC customer relationship managers will work with businesses to ensure that an appropriate senior accounting officer is identified and has the appropriate responsibility to fulfil this role. With the flexibility we are giving business, working with the customer relationship manager, we can ensure we meet our requirement for an appropriately qualified person to carry out the role.
Mr. Bone: I forgot to welcome the Minister to her new post and apologise for not doing so earlier. Does she think there is a danger that a financial director could pass the buck down to the financial controller, who would probably have day-to-day organisational responsibility? It will be the poor financial controller who hits the dirt, rather than the financial director who sits on the board with all the perks and extra bonuses, and who really should be taking the flak because he has ultimate responsibility?
Sarah McCarthy-Fry: I disagree with the hon. Gentleman. Given that the board has overall responsibility for meeting tax obligations—we are talking about systems and processes—it is for the board to decide what it wishes. The request for such flexibility came from business. By working with the customer relationship manager we can manage to balance both sides so that HMRC is satisfied and we also meet the flexibility that business has asked for.
Mr. Hoban: The Minister said that the customer relationship manager would discuss with the business whether it had identified an appropriate person to be the senior accounting officer. That seems sensible. Does it mean, in effect, that HMRC will have a veto over whom the business decides to appoint as a senior accounting officer?
Sarah McCarthy-Fry: It is not my understanding that he or she will have a veto but I will clarify that point.
I was asked why we had tabled so many Government amendments in Committee. This is part of a compliance package that was announced in the Budget. We would all agree that it is right that all companies pay the appropriate level of tax. We said at the Budget that we would work with stakeholders to manage the implementation. The number of Government amendments reflects the fact that we listened to stakeholders in the consultation and I do not apologise for that.
The hon. Member for Fareham raised a point about partnerships but answered his own question. He asked whether partnerships were included and then he said they were not. Partnerships and other unincorporated bodies are excluded. The biggest risks are posed by corporates, so the measure is focused on corporates, on a risk-based analysis.
Mr. Hoban: I knew that partnerships were excluded. It is clear that they are and the Financial Secretary said so at the time. The question was about why they were excluded. The Minister seems to return to the concept of risk. Partnerships are seen to be low risk—I am not sure about the basis for deciding that—but all companies, depending on the size criteria, and whether they are high or low risk, will have to take part in this regime. Why should low-risk companies be part of the regime, when low-risk partnerships are outside it?
Sarah McCarthy-Fry: As a whole, corporates pose the greatest risk. We are seeking to minimise the burden on businesses, so we are focusing on corporates, which is why the measure does not cover partnerships and unincorporated large businesses.
The hon. Gentleman asked what would happen if the senior accounting officer of a UK-based company was based outside the UK. I can confirm that the information provided was correct. I was also asked to name the companies that would be caught by the provision, but for reasons of taxpayer confidentiality, I cannot disclose the names of particular taxpayers. However, as a result of the amendments, about 2,000 large UK companies will be encompassed.
Mr. Hoban: When I have asked how many companies were assessed as being high risk and how much tax had been lost, Ministers have responded and given examples. However, I raised a further question that the Minister has not addressed explicitly: why are branches and mutuals excluded from the provisions, given that some operate in the same business areas as companies, including in the financial services sector? Should there not be a level playing field for both?
Sarah McCarthy-Fry: We need to strike the right balance and to apply the provision to a particular group, which is why we have restricted the measure to the largest 2,000 companies. They pose the greatest potential for Exchequer loss. We do not have a specific number for high-risk companies, which the hon. Gentleman asked about, but about 40 per cent. of companies are classified as low risk by HMRC.
Mr. Hoban: Does that mean that 60 per cent. of companies are considered high risk?
Sarah McCarthy-Fry: I can do the maths as well as the hon. Gentleman. If 40 per cent. are classified as low risk, it would seem to imply that 60 per cent. are classified as high risk.
I return to my earlier point about why some bodies are excluded and others are not. We have taken a risk-based approach to decide where we think that the greatest cost to the taxpayer lies. That is the reason behind the provision.
Mr. Hoban: If the Minister believes that this is a risk-based approach, why have a blanket inclusion for companies and a blanket exclusion for unincorporated businesses?
Sarah McCarthy-Fry: We are dancing on the head of a pin.
Mr. Hoban: We have not got to that point yet.
Sarah McCarthy-Fry: We do not want to include partnerships or public bodies, or to bring too many people into the scope of the provision. We are focusing only on very large corporate companies. The highest risk is in the corporate sector, although I appreciate what the hon. Gentleman is saying: sometimes bodies operate in the same areas.
Mr. Gauke: If the Government found that partnerships were becoming high risk, would the Minister amend the legislation to bring partnerships into the regime, or is there a technical problem that would make that difficult?
Sarah McCarthy-Fry: I am not aware of a technical difficulty in bringing partnerships into the regime. The hon. Gentleman knows as well as I do that we always keep our legislation under review, which is why we have a Finance Bill each year. We always seek to manage the balance between ensuring that we have the right tax revenues and ensuring that we are not putting too great a burden on business. I can only repeat that it is right to focus on the area in which there is the greatest potential for risk, which is why we have concentrated on companies.
Amendment 269 agreed to.
Amendments made: 270, in schedule 46, page 338, line 35, leave out ‘and each of its subsidiaries (if any)’.
Amendment 271, in schedule 46, page 339, line 1, leave out ‘large’ and insert ‘qualifying’.
Amendment 272, in schedule 46, page 339, line 3, leave out ‘and its subsidiaries (if any)’.—(Sarah McCarthy-Fry.)
Sarah McCarthy-Fry: I beg to move amendment 219, in schedule 46, page 339, line 8, leave out paragraph 2.
The Chairman: With this it will be convenient to discuss the following: Government amendments 277 and 283 to 286.
Amendment 224, in schedule 46, page 341, line 28, at end insert—
‘(3) For the purposes of this Schedule a reasonable excuse for failure to comply includes any circumstance where the failure is attributable to any matter outside the person’s control or any matter of which a person could not reasonably be expected to be aware.’.
Government amendments 291 and 292
Amendment 225, in schedule 46, page 341, line 41, at end insert—
‘(3) No penalty may be assessed under paragraphs 5 to 7 of this Schedule if the matter in question has given rise to any civil or criminal penalty under any other legislation or enactment whatsoever.’.
Government amendments 293 and 299
Sarah McCarthy-Fry: Amendment 219 was originally tabled by Opposition Members and removes paragraph 2 of the schedule, thus removing the requirement for a company’s senior accounting officer to notify the company’s auditors, as well as HMRC, of the respects in which the company’s tax accounting arrangements are not appropriate. The Financial Secretary announced our intention to remove that requirement during the Committee of the whole House debate on clause 92. However, the removal of paragraph 2 requires consequential amendments throughout the schedule to remove references, which is achieved by Government amendments 283 to 286, 293 and 299.
Amendments 224 and 225 are Opposition amendments and propose additional rules to lift penalties in certain circumstances. Neither amendment should be accepted. Amendment 224 is covered by the reasonable excuse provision and by the formal guidance on the measure, while amendment 225 is not entirely clear. I hope that Opposition Members will be able to offer clarification when they speak to amendment 225, but if its intention is to prevent a penalty from being levied in an instance where another penalty has already been charged—for an incorrect return, for instance, or for late filing—we cannot accept it. The penalties under the schedule and the other tax penalties are completely separate, and the purpose of the senior accounting officer rules would be thwarted if there were a get-out for those who have failed to comply with tax legislation elsewhere.
Government amendment 277 is a minor consequential amendment resulting from the proposal to change the certification rules, allowing companies to submit only one form of certificate. I think that the Committee will agree that the text deleted by the amendment is redundant given the move to a single form of certificate.
Government amendment 291 is a small, consequential amendment consistent with Government amendments 276 and 281, clarifying which company is relevant for determining whether a penalty is due on the senior accounting officer. Government amendment 292 removes a potential risk of double jeopardy by making sure that where one company, or a senior accounting officer in a group of companies, has already been subject to a penalty for a particular financial year, no other senior accounting officer or company can be assessed as liable for the same period. I hope that the Committee agrees that that is a useful safeguard limiting the application of penalties.
Mr. Hoban: I welcome the Government’s acceptance of amendment 219, which I originally tabled. When we looked at schedule 46, it was hard to see why there was a need to notify the auditors. It seems that the relationship involved is actually that between the taxpayer and HMRC, so such a notification seemed a fairly redundant step. As my hon. Friend the Member for Wellingborough identified in the previous group of amendments, the accountants or auditors of a company would already know if the tax systems were not up to producing figures that could be included in the accounts and that would give a true and fair view of a company’s profit and loss account for the year and the balance sheet at the year end, so it seemed to be a redundant step. The Government seem to be rather tardy in tabling amendments to that. I thought that I might beat them to the punch and keep them to their promise. I am pleased that I did so on this occasion and will do so with the next group of amendments.
12.30 pm
Amendment 224 seeks to deal with the issue of what is a reasonable excuse, with respect to failure to apply. When we debated that in the House—I will return to a specific example in the final group of amendments—the Government were extremely hard line in their approach and were not accepting materiality. I felt that it was important to place on record that there may be circumstances where we cannot expect a senior accounting officer to know what was happening on the ground and to take responsibility for that. One of the examples I quoted demonstrates part of the problem. The VAT change was implemented in December and, in a number of places, the reduction in VAT was calculated manually rather than through updating a system. Why was it the case that the senior accounting officer would know, or be able to vouch for, the accuracy of someone doing manual calculations for that VAT reduction? Therefore, I wanted to make sure that there was some definition of what was reasonable. My amendments would add the following words:
“any circumstances where the failure is attributable to any matter outside the person’s control or any matter of which a person could not reasonably be expected to be aware.”.
I have heard the Minister’s explanation about why she thinks that the amendment is unnecessary and I am inclined to accept her argument.
The daft, sorry, draft guidance—a Freudian slip, perhaps—deals with this issue of what is reasonable. The guidance is quite widely drafted and we need to make sure that, in order to protect senior accounting officers, there is some degree of certainty in the Bill. Guidance notes are helpful, but they change, whereas the law can be changed only with the approval of the House. That is why we have sought, where possible, to make sure that where there are protections, they should be in the Bill and not tucked away in guidance notes that will not receive the full scrutiny that is offered by primary or secondary legislation. While I accept that there is coverage in the guidance notes and I will not be pressing the amendment to a vote, we need to be very careful that, where we are giving some form of protection, it has a bit more standing than simply a note in a draft document.
The aim of amendment 225, identified by the Minister, is to ensure that where somebody is penalised for late filing of a return, they are not doubly penalised in their capacity as a senior accounting officer. There is a risk of multiple fines for the same offence. I am not sure whether to push this much further with the Minister. It is important that there are penalties in place, but the fact that someone could be fined for the same thing twice would not strike people as particularly fair. We would need to be careful about the circumstances in which such penalties are levied. I accept the point about personal responsibility—there is a gap opening up between the personal responsibility of an accounting officer and the corporate responsibility of a business—but we need to be make sure that we do not lose sight of the fairness issue in the drive to tighten up responsibility for accounting.
 
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