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Baroness Carnegy of Lour: My Lords, this is an important matter to which it is well worth returning. The CBI and the representatives of small businesses are worried. One of the reasons for their worry is the wording of Clause 6(5)(d). It states:
Lord McIntosh of Haringey: My Lords, I do not at all complain about any inelegance in the amendment to which the noble Lord, Lord Higgins, referred. I complain about myself, because obviously I did not make myself clear at the Committee stage. I thought I had given the most complete and absolute assurance that the circumstances which the amendment supposes would not actually arise. So I was rather surprised to find the amendment on the Marshalled List again. However, I must try again. The amendment provides that an employer would not pay tax credit to an employee unless he had received direct funding from the Inland Revenue or indirect funding by setting off the tax credits against the amount he was due to pay to the Inland Revenue: presumably PAYE, national insurance contributions and any student loan repayments.
This is exactly what is already provided for in Clause 6(5)(d) of the Bill, to which the noble Baroness, Lady Carnegy, referred and in the draft Payment by Employer Regulations. Therefore an amendment of this
Let me tell your Lordships again about the way in which employers will receive funding to pay tax credits. All employers who will be asked to pay tax credits through the payroll will already be operating a PAYE scheme and so they will all have some PAYE or national insurance contributions liability to the Revenue. In addition, some employers will be deducting student loan repayments from their employees' pay and they will be responsible for paying these amounts also to the Revenue. Therefore the draft Payment by Employer Regulations provide for employers to set off any tax credits they have to pay against their total tax, national insurance contributions or student loan liability. When they are paying over PAYE, NICs and student loan recoveries to the Inland Revenue they will simply reduce the total by the amount of tax credits they have paid.
This mechanism is explained in the Inland Revenue booklet on Working Families Tax Credit and Disabled Persons Tax Credit and is clearly set out in draft Regulation 6 of the Payment by Employer Regulations. Of course we recognise that some employers will not have a large enough liability to the Inland Revenue to cover the tax credits that they have to pay. Such employers will be able to apply for funding from the Inland Revenue in advance. So the Inland Revenue will provide funds where they are needed to ensure that employers are not out of pocket. Draft Regulation 7 covers the arrangements for advance funding.
Applications for funding will be made on a special form which the Inland Revenue will provide. From April 2000 this form will be sent to an employer who is being asked to pay tax credits for the first time. From January 2001 onwards the forms will be included in the Inland Revenue's annual employer's pack. If any of your Lordships have been employers and have seen this pack you will know that it is a weighty one. All employers will be prepared in case they need to apply for funds. I hope it is clear that the Government have no intention of asking employers to dig into their own pockets in order to pay tax credits.
I have been asked what happens if the employer has no money to pay the tax credits. The noble Lord, Lord Swinfen, in particular talked about a firm which is on the brink. Employers of course will have a duty to see that the money is available on pay day, and when they are notified to start paying tax credits they will need to do two things. First, they will have to make arrangements as soon as possible to pay tax credits, ensuring that the person processing the payroll has all the tax credit information that is needed. If they have any doubts they will have to check that there will be enough money available to pay the tax credits, and apply for Revenue funding if necessary. As soon as it is clear that the money will not be available, the employer must
Lord Skelmersdale: My Lords, I am sorry to interrupt the noble Lord but surely he has got that wrong. It is not the employer who has to make certain: it is the Inland Revenue which has to make certain.
Lord McIntosh of Haringey: My Lords, I am grateful for that correction. Yes, of course, the Inland Revenue may step in to ensure that payments are maintained. We are not talking about a very large number of employers. Our estimate is that between 50,000 and 70,000 employers throughout the whole country will have to receive funding because their payments on PAYE, NICs and student loan recovery will not be enough to cover the tax credits. But even in those cases there is no question of employers digging into their own pockets, and this amendment is not necessary.
Baroness Carnegy of Lour: My Lords, before the noble Lord sits down and with the leave of the House, can he tell us how accurate employers are going to have to be in assessing the money they will need? This is one of our great concerns. The noble Lord said that if an employer reckons he is going to be out of funds for paying the working families' tax credit he will be able to apply for more money. Will he have to prove in detail what he requires or can he make a general assessment? I hope the noble Lord will be able to tell us that because it is quite important to individual employers, especially small ones.
Lord McIntosh of Haringey: My Lords, the employer will get from the Inland Revenue all the calculations: these will all have been done by the Inland Revenue and so the employer will get a single figure. He will know how many employees it applies to and it will be very straightforward for him to calculate how much he will have to pay out in tax credits. I have dealt with a payroll for many years and one of the easiest things to calculate month by month is the amount that you have to pay out in PAYE and national insurance contributions. It is in a book with 12 monthly pages. You keep a record on the inside front cover of what you pay out, and I can assure your Lordships that every employer knows exactly what he is paying out. He will have no difficulty in assessing whether the cashflow benefits that he gets will cover the tax credits.
Lord Swinfen: My Lords, before the noble Lord sits down, if the Inland Revenue needs to step in to provide funding, how long will that take?--because if the employee is paid on a weekly basis he will want to paid at the end of that particular week.
Lord Higgins: My Lords, the House will understand that the noble Lord is overcome with nostalgia for his previous calculation of PAYE forms. I always found it extraordinarily difficult, but obviously he is much better at these matters than I am. The noble Lord has given a clear undertaking on the basis of the amendment and confirmed what he said previously. On that basis, I beg leave to withdraw the amendment.