10 June 2003
By the Select Committee appointed to consider the
The Finance Bill 2003
CHAPTER 1: EXECUTIVE SUMMARY
1.1 The House of Lords is taking a new step
forward with this Report. It is the first time that a Lords Committee
has reported on a Finance Bill. We see this as a constructive
and helpful contribution to the evolving process of Parliamentary
consideration of Finance Bills. Our aim throughout has been to
complement and assist the work of our Commons colleagues, making
the best use of the expertise and objectivity which this House
1.2 Our terms of reference enabled us to
consider technical issues of tax administration, clarification
or simplification, but not the rates or incidence of taxes. We
were also constrained by the exceptionally tight Parliamentary
timetable for this year's Bill. From the start we decided to focus
within our remit on a few key topics which had aroused widespread
concern and where we could make the best use of our collective
expertise in the very limited time available.
1.3 Those key topics were the new Stamp
Duty Land Tax, the new provisions against VAT evasion and the
mandatory electronic payment of PAYE by large employers. We also
decided to concentrate particularly on the consultation process
leading to the introduction of those measures, as well as on the
extensive use of regulation-making powers related to them.
1.4 Stamp Duty Land Tax is an important
new measure which attempts to modernise centuries-old legislation.
It has potentially far-reaching consequences for the commercial
property business. The early stages of pre-legislative consultation
were widely welcomed by the professional and trade sectors involved.
But the process was abruptly halted, leaving some of the main
provisions and a great deal of important detail to be worked out
and implemented through secondary legislation by 1 December of
1.5 Most of our private sector witnesses
believe this timescale is far too short. They would much prefer
the introduction of the tax to be delayed until next year while
the legislation is redrafted to take more account of market factors.
They also argued that far too much was being left to regulation-making
powers without proper Parliamentary scrutiny.
1.6 Our attention was drawn to a wide range
of outstanding specific problems thrown up by this tax: the lack
of certainty over potential tax liability for commercial property
transactions, lease duty provisions that are still to be decided,
the difficulties of fair assessment where lease revenues depend
on turnover or factors like the outcome of planning applications,
potential inflexibility over reclaiming tax where leases are terminated,
how to deal with complex commercial transactions and apparent
inconsistencies over the qualification for disadvantaged areas
relief. We were also alerted to potential bureaucratic difficulties
created by the self-assessment provisions and by the transitional
rules for the commencement of the new tax.
1.7 Inland Revenue witnesses assured us
that these problems could still be ironed out satisfactorily by
the time that tax is due to take effect on 1 December 2003 and
that the vast majority of ordinary property transactions would
not be adversely affected by these changes. But, given the huge
task outstanding, we think it is more important to get the tax
right, and as fair and simple as possible, than to meet an arbitrary
target date. We therefore recommend that early in the Autumn of
2003 the Government should review the progress made to see whether
the tax can be got right in time.
1.8 We share the concerns raised over the
extensive use of regulation-making powers related to this tax.
We recommend that clearance procedures should be devised to reduce
uncertainties over liability. We hope the Inland Revenue can find
ways of countering or deterring tax avoidance that will not penalise
legitimate commercial transactions. We welcome the assurances
they have given us over improvements in customer service and reducing
1.9 We were told that the VAT anti-abuse
provisions are designed to combat serious professional frauds
operating across the EU. The Government estimate that these cause
revenue losses of between £1.7 and £2.5 billion in the
UK alone. Sophisticated "missing trader" and "carousel"
rackets exploit the supply chain of high volume trade in volatile
markets like computer chips or mobile telephones. We fully support
the Government's efforts to crack down on these abuses. But, as
always, a proper balance has to be struck between those efforts
and the need to safeguard the rights of legitimate traders.
1.10 Consistent and understandable misgivings
have been raised with us over the prospective reach of the enforcement
powers contained in the VAT anti-abuse measures: traders can be
required to provide security against potential loss of VAT caused
by insolvency as well as fraud in the supply chain, and joint
and several liability can be imposed upon them. We recommend that
enhanced safeguards should be considered to protect the interests
of legitimate traders unwittingly caught up in an artificial supply
chain, without weakening the attack on fraud. These would incorporate
extended judicial oversight by the VAT and Duties Tribunal.
1.11 Mandatory electronic payment of tax
by large companies is the right way to go and should not create
serious difficulties for business. We looked at the arguments
for using carrots rather than sticks to encourage wider and more
rapid adoption of electronic payment, but concluded that would
not have been appropriate in this case.
1.12 All in all, we believe this has been
a worthwhile exercise which should make a valuable contribution
to Parliamentary consideration of the Bill. We are encouraged
by the wide and warm welcome given to it, especially in professional
circles, and by the ready and invaluable assistance given to the
inquiry by all our witnesses, both from the private sector and
from the Government Departments involved.
1.13 We recommend that a similar exercise
should be carried out next year, starting earlier and with wider
terms of reference.