Lord Flights comments from HoL last night
But the most radical measures have been the anti-tax avoidance measures and I want to say a little about those.
First, I find it rather sad that even in this House the language of this territory has become rather muddled and, dare I say, misleading.
Let us be clear: you start off with evasion, which is criminal. That is simply breaking the law and not paying the tax that you should pay. Then there is avoidance. By definition, avoidance is within the law. If it were not, it would be evasion and without the law. But within avoidance there is a hierarchy. There are all sorts of government tax incentives such as ISAs, EIS, pension saving and the very tax incentives that are in this Finance Bill, which everyone would say were fine. They are actually there to avoid tax. The other side of the coin is that they constitute tax avoidance. I am sure that there are very few Members of this House who have not invested in ISAs or benefited from the tax incentives of pension savings. Everyone is a tax avoider in that sense.
Then we have what have been essentially government schemes, but which have been poorly drafted and have then been exploited and abused where fundamentally the issue is that the original law needs tightening up. Then, at the bottom of the heap, are what I view as unacceptable schemes—fabrications. Tax is wholly justified on those. It has always been my view that I knew one when I saw one and always felt that it was unwise for anyone to consider using one of those.
However, the measures in this Bill do not apply just to the latter—as I think the noble Lord, Lord Deighton, implied. They also apply to statutory government schemes brought in by the previous Government, where the law is somewhat unclear—in part because they were legislated in a hurry—and where there are disagreements between lawyers and HMRC, often as to what is within and without the measures that were enacted.
There is a better solution—and here I declare an interest as chair of the EIS Association. There were criticisms that EIS was at one stage subject to abuse, and the industry sat down with HMRC and went through what HMRC thought and what the industry thought. It ended up with a win-win solution whereby in future all EIS issues are subject to pre-clearance. That means that those raising the money, and the companies, know where they stand, the Revenue knows where it stands, and the whole issue is satisfactorily cleansed of criticism. This Finance Bill introduces a retrospective requirement, where the Revenue considers that a scheme has been abused, for the full amount of tax being saved to be deposited. This applies to three areas of government statutory incentives in particular: to film and sale schemes, known as Sections 42 and 48; to enterprise zones; and, where I think there is most injustice, to the Business Premises Renovation Allowance —BPRA—scheme. I might add that I have no investment in any of these areas and no direct first-hand knowledge, but a lot of perfectly responsible people have brought concerns to me, and they have been raised with the Treasury.
I start by saying that if the Treasury and HMRC considered that some schemes did not meet the statutory requirements, they should probably have disallowed them at the outset. Instead, for years things have been waiting to be sorted out and have not been addressed one way or the other.
My next point is that many people registered under the so-called DOTAS—Disclosure of Tax Avoidance Scheme—rules before there was any obligation to do so. They registered with an intention to be transparent.
16 July 2014 : Column 683
Ironically, it now ends up with those registering being punished and those not registering not being punished. It is a very strange anomaly in the approach that has been taken. What is happening is that HMRC is demanding money when they cannot necessarily show that the relevant investors have done something wrong.
The proposed legislation which authorises HMRC to remove funds from individuals’ bank accounts goes even further towards a somewhat overbearing state. It is such a complicated and difficult area that very few people actually know what is in the Finance Bill in this regard. However, the Treasury Select Committee and the Chartered Institute of Taxation have complained about unprecedented HMRC executive powers of decision, and of HMRC being put in the position of judge and jury, and they have complained that it creates a precedent in the UK tax system whereby the tax authorities are given power to demand payment without any right of appeal. The Treasury Select Committee also objected to the retrospective nature of the requirement for taxpayers to pay 100% up front within 90 days—potentially applying, I think, to some 65,000 cases. This puts fiscal policy on a slippery slope towards arbitrary taxation. Many individuals have been good-faith, legitimate BPRA investors over several years with no complaints from HMRC. They now find themselves on the wrong side, with notices to pay.
Moreover, the current position seems immediately to be shambolic, in that although HMRC has published an extensive list of all those to whom those arrangements are to apply, at the same time it appears to be saying—if anyone can get through to it on the telephone—that, no, they will not apply until negotiations have been completed.
There is an important issue, which is that there may be some situations, particularly with the BPRA, where most of the schemes are completely in compliance with the law but some are deemed not to be by HMRC, so a modest and partial amount of tax may have to be recovered. I am advised—I do not know whether it is true—that HMRC did not take full external legal advice on the measures before the Finance Bill was produced and that there is a significant possibility of judicial reviews where the courts will find against HMRC.
Finally, the accelerated payments rules are contrary to two fundamental legal principles. First, I believe that in this country we are always innocent until proven guilty; whereas what is happening here is that the standard basis of self-assessment is being overridden and taxpayers are being treated as guilty until they can prove their innocence. Secondly, there is no proper appeal mechanism. As I have already said, HMRC is judge and jury in these matters. Extraordinarily to my mind, two of the schemes are—I repeat—government, statutory schemes, state-aid approved and brought in under the previous Government.
The Treasury and HMRC have been unwilling to listen to the concerns of many people. I exhort the Treasury and HMRC to be extremely careful how they use the new powers; to endeavour to use them justly; and that HMRC itself is wholly transparent in the use of those powers.
But the most radical measures have been the anti-tax avoidance measures and I want to say a little about those.
First, I find it rather sad that even in this House the language of this territory has become rather muddled and, dare I say, misleading.
Let us be clear: you start off with evasion, which is criminal. That is simply breaking the law and not paying the tax that you should pay. Then there is avoidance. By definition, avoidance is within the law. If it were not, it would be evasion and without the law. But within avoidance there is a hierarchy. There are all sorts of government tax incentives such as ISAs, EIS, pension saving and the very tax incentives that are in this Finance Bill, which everyone would say were fine. They are actually there to avoid tax. The other side of the coin is that they constitute tax avoidance. I am sure that there are very few Members of this House who have not invested in ISAs or benefited from the tax incentives of pension savings. Everyone is a tax avoider in that sense.
Then we have what have been essentially government schemes, but which have been poorly drafted and have then been exploited and abused where fundamentally the issue is that the original law needs tightening up. Then, at the bottom of the heap, are what I view as unacceptable schemes—fabrications. Tax is wholly justified on those. It has always been my view that I knew one when I saw one and always felt that it was unwise for anyone to consider using one of those.
However, the measures in this Bill do not apply just to the latter—as I think the noble Lord, Lord Deighton, implied. They also apply to statutory government schemes brought in by the previous Government, where the law is somewhat unclear—in part because they were legislated in a hurry—and where there are disagreements between lawyers and HMRC, often as to what is within and without the measures that were enacted.
There is a better solution—and here I declare an interest as chair of the EIS Association. There were criticisms that EIS was at one stage subject to abuse, and the industry sat down with HMRC and went through what HMRC thought and what the industry thought. It ended up with a win-win solution whereby in future all EIS issues are subject to pre-clearance. That means that those raising the money, and the companies, know where they stand, the Revenue knows where it stands, and the whole issue is satisfactorily cleansed of criticism. This Finance Bill introduces a retrospective requirement, where the Revenue considers that a scheme has been abused, for the full amount of tax being saved to be deposited. This applies to three areas of government statutory incentives in particular: to film and sale schemes, known as Sections 42 and 48; to enterprise zones; and, where I think there is most injustice, to the Business Premises Renovation Allowance —BPRA—scheme. I might add that I have no investment in any of these areas and no direct first-hand knowledge, but a lot of perfectly responsible people have brought concerns to me, and they have been raised with the Treasury.
I start by saying that if the Treasury and HMRC considered that some schemes did not meet the statutory requirements, they should probably have disallowed them at the outset. Instead, for years things have been waiting to be sorted out and have not been addressed one way or the other.
My next point is that many people registered under the so-called DOTAS—Disclosure of Tax Avoidance Scheme—rules before there was any obligation to do so. They registered with an intention to be transparent.
16 July 2014 : Column 683
Ironically, it now ends up with those registering being punished and those not registering not being punished. It is a very strange anomaly in the approach that has been taken. What is happening is that HMRC is demanding money when they cannot necessarily show that the relevant investors have done something wrong.
The proposed legislation which authorises HMRC to remove funds from individuals’ bank accounts goes even further towards a somewhat overbearing state. It is such a complicated and difficult area that very few people actually know what is in the Finance Bill in this regard. However, the Treasury Select Committee and the Chartered Institute of Taxation have complained about unprecedented HMRC executive powers of decision, and of HMRC being put in the position of judge and jury, and they have complained that it creates a precedent in the UK tax system whereby the tax authorities are given power to demand payment without any right of appeal. The Treasury Select Committee also objected to the retrospective nature of the requirement for taxpayers to pay 100% up front within 90 days—potentially applying, I think, to some 65,000 cases. This puts fiscal policy on a slippery slope towards arbitrary taxation. Many individuals have been good-faith, legitimate BPRA investors over several years with no complaints from HMRC. They now find themselves on the wrong side, with notices to pay.
Moreover, the current position seems immediately to be shambolic, in that although HMRC has published an extensive list of all those to whom those arrangements are to apply, at the same time it appears to be saying—if anyone can get through to it on the telephone—that, no, they will not apply until negotiations have been completed.
There is an important issue, which is that there may be some situations, particularly with the BPRA, where most of the schemes are completely in compliance with the law but some are deemed not to be by HMRC, so a modest and partial amount of tax may have to be recovered. I am advised—I do not know whether it is true—that HMRC did not take full external legal advice on the measures before the Finance Bill was produced and that there is a significant possibility of judicial reviews where the courts will find against HMRC.
Finally, the accelerated payments rules are contrary to two fundamental legal principles. First, I believe that in this country we are always innocent until proven guilty; whereas what is happening here is that the standard basis of self-assessment is being overridden and taxpayers are being treated as guilty until they can prove their innocence. Secondly, there is no proper appeal mechanism. As I have already said, HMRC is judge and jury in these matters. Extraordinarily to my mind, two of the schemes are—I repeat—government, statutory schemes, state-aid approved and brought in under the previous Government.
The Treasury and HMRC have been unwilling to listen to the concerns of many people. I exhort the Treasury and HMRC to be extremely careful how they use the new powers; to endeavour to use them justly; and that HMRC itself is wholly transparent in the use of those powers.
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