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Lord Jenkin of Roding: My Lords, before the noble Lord leaves the question of process, will he comment on the allegation that, while the Revenue was still talking to bodies, the revised proposals were already in draft and ready to be published? That seems to me to be a thoroughly disreputable way of misleading people.
Lord McIntosh of Haringey: My Lords, that is way over the top. Of course, we have been considering ways in which to respond to consultations which have been coming in since April of this year. If there was a meeting at a time when consideration was advanced, what is wrong with that? There have been other meetings and consultations and there have been plenty of other opportunities. Nobody else has complained about the nature of the consultation, except those who have clearly been filling the e-mail and mail boxes of noble Lords opposite. Noble Lords will forgive me if I pass on to the more important matter of the content of the clause.
The noble Lord, Lord Goodhart, made a worthwhile point. He said that in returning to the existing tests that have been built up by case law over a considerable period we have to consider whether those tests are adequate. He said that they would have to be reconsidered. I totally reject the view of the noble Lord, Lord Higgins, that we were receiving information about these for the first time. These tests have been built up by the courts over many years. They are not new to anybody, and certainly not new to the noble Lord, Lord Higgins, nor to anybody like me who has run a small business.
If the Tax Law Review Committee wishes to make comments about the nature of these tests, of course we are open to suggestions as to how they should be improved, subject to the legislation and case law. We have yielded to the thrust of the consultation, which is that we should go back to the existing law and not introduce a new and simpler criterion.
We are told, as a new complaint, that this means that the intermediaries will have the additional burden of paying the national insurance contributions and, in due course, the tax. They can get out of that immediately; they can abolish single-person companies. Like my market research interviewers with whom I have bored noble Lords in the past, they can go back to their PAYE being calculated by their employers without the device of a single-person company. If the tax avoidance benefits are removed, that is exactly what they should do.
Lord McIntosh of Haringey: My Lords, if that were the case, it would have been the case for 30 or 40 years. In market research, where that has always been the case and there has always been a requirement on research companies employing interviewers to keep a payroll for them, those research companies would have taken advantage of any loophole. Nothing new is being proposed. If there is no abuse of this kind, there is no supposition that there will be abuse in the future.
Since we are talking about these single person companies, these intermediaries, let us rid ourselves of the illusion that these are entrepreneurs. They are not entrepreneurs in the sense that the noble Earl, Lord Kintore, or the noble Lord, Lord Jenkin, spoke about; these are persons working entirely for themselves and by themselves who have chosen to set up a company, maybe for legitimate reasons, but in some cases in order to avoid paying a national insurance contribution and PAYE by paying themselves in the form of dividends rather than in the form of earnings. As soon as they become real entrepreneurs and employ somebody else or expand, they can no longer do that because they have to have a payroll. This clause will not then apply to them.
All the talk we have heard about the IT industry, the North Sea oil industry and all this emotional stuff is way outside the scope of the amendment. We really have no case to answer here. We are doing a simple thing to get rid of tax avoidance. We are doing it in a way which, after consultation, has received the approval of virtually everybody who has been consulted, and the idea that we should back down now on the arguments we have heard is simply not acceptable. I beg to move.
Page 75, line 10, leave out from (his") to end of line 11
Page 75, leave out lines 12 to 16 and insert--
((2) For the purposes of this section--
(a) the intermediary" means--
(i) the third person mentioned in subsection (1)(b) above, or
(ii) where the third person does not have such a contractual or other relationship with the worker as may be specified, any other person who has both such a relationship with the worker and such a direct or indirect contractual or other relationship with the third person as may be specified; and
(b) a person may be the intermediary despite being--
(i) a person with whom the worker holds any office or employment, or
(ii) a body corporate, unincorporated body or partnership of which the worker is a member;
and subsection (1) above applies whether or not the client is a person with whom the worker holds any office or employment.")
Page 75, line 21, leave out (relevant payments or benefits,") and insert (the specified amount of relevant payments or benefits (the worker's attributable earnings"),")
Page 75, line 22, leave out (client") and insert (intermediary")
Page 75, line 23, leave out (client") and insert (intermediary")
Page 75, line 24, leave out from (of") to end of line 26 and insert (the worker's attributable earnings;")
Page 75, line 30, leave out from (of") to (period") in line 32 and insert (the worker's attributable earnings for any specified")
Page 75, line 33, at end insert--
(( ) for aggregating any such amount, for purposes relating to contributions, with other earnings of the worker during any such period;
( ) for determining the date by which contributions payable in respect of the worker's attributable earnings are to be paid and accounted for;")
Page 75, line 44, leave out (third party") and insert (intermediary")
Page 76, line 1, at end insert (persons, whether--
Page 76, line 4, after (1988)") insert (, or
(ii) persons of any other specified description,")
Page 76, line 12, at end insert--
(( ) Regulations made in pursuance of subsection (3)(c) above may, in particular, make provision--
(a) for the making of a deduction of a specified amount in respect of general expenses of the intermediary as well as deductions in respect of particular expenses incurred by him;
(b) for securing reductions in the amount of the worker's attributable earnings on account of--
(i) any secondary Class 1 contributions already paid by the intermediary in respect of actual earnings of the worker, and
(ii) any such contributions that will be payable by him in respect of the worker's attributable earnings.")
Page 76, leave out lines 18 to 28
Page 76, line 40, leave out (third party") and insert (intermediary")
Page 76, line 45, leave out from beginning to end of line 2 on page 77
Leave out Clause 71
Resolved in the affirmative, and amendment agreed to accordingly.