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. The
hon. Gentleman also asked about the impact assessment, which was based
on the original analysis. Following the Budget, our discussions showed
that the
draft legislation was likely to encompass more companies than originally
envisaged, which is why the commitment was made to narrow the scope. We
want to ensure that the measure focuses on the area of greatest risk to
the Exchequer and that we do not impose administrative burdens on those
who pose less risk. I also say to the hon. Member for Wellingborough
that compliance with the provisions will not cause additional
difficulties to companies with robust systems in
place. 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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