Making Tax Digital for VAT (Economic Affairs Committee Report)

Debate between Lord Young of Cookham and Lord Kerr of Kinlochard

Monday 29th April 2019 Lords Chamber

[Lord Young of Cookham]

I was not aware. Of course, I understand the sensitivities of the issue and will raise the matter with HMRC.

HMRC has introduced simplified payment arrangements for those who approached it to settle by 5 April this year so that individuals will not have to pay the loan charge. Regardless of whether the individual decided to settle their taxes or whether the loan charge applies, for those who need more time to pay there is no maximum period for payment.

Resources for HMRC were raised during the debate. The Government have always provided HMRC with the resources that it needs. At the 2015 spending review, they invested £1.3 billion to transform HMRC to make it quicker and easier to deal with. In addition, since 2010, the Government have invested £2 billion in HMRC to tackle avoidance and evasion.

My noble friend Lord Forsyth raised the right of appeal on accelerated payment notices and follower notices. As my noble friend knows, the rules do not affect a taxpayer’s right to appeal against an HMRC decision or assessment concerning their tax liability. If the taxpayer successfully appeals the actual liability, the follower notice penalties will no longer be due. Again, Parliament granted HMRC these powers to discourage tax avoidance.

My noble friend also asked about retrospection. I think that I have dealt with that, if not wholly to his satisfaction. It is a new charge on DR loan balances outstanding on 5 April. It does not change the tax position of any previous year or the outcome of any open compliance checks.

My noble friend asked what the position was on the powers review. We agree that HMRC has to balance tax collection with important taxpayer safeguards. The powers review was a major project coming alongside the merger of HMRC and Customs and Excise. There has not been a similar fundamental change to justify another such review, but I say in response to my noble friend that we keep the tax system under review and will consider options for reviewing and updating the tax administration framework to ensure that it is effective in modern tax administration.

A number of noble Lords spoke about low-paid employees and social workers being affected by the loan charge. HMRC’s analysis shows that around 3% of those individuals who used a disguised remuneration loan scheme worked in medical services and teaching.

My noble friend Lord Tugendhat raised the issue of naming. Again, Parliament has legislated to allow taxpayers to be named in limited circumstances. These are prescribed explicitly in legislation. HMRC places importance on taxpayer confidentiality, and no one can be named simply for disagreeing with it. I hope that HMRC never engages in what my noble friend called “innuendo”.

In view of the number of interventions, I may claim a bit of injury time on the question about HMRC inaction on loan charges. The Government’s view, as I think I have already said, is that these schemes never worked. Compliance activity has been taken ever since the schemes were first used, including the use of thousands of inquiries into scheme users, successful litigation and agreement of settlements. The loan charge was introduced to draw a line under all outstanding DR loans, but HMRC has always warned against the use of DR schemes, with the first spotlight being published in 2009. Many scheme users did not disclose details of their scheme use, or disclosed partial information which did not enable compliance—this is in response to an issue raised by the noble and learned Lord, Lord Judge. Where DOTAS numbers were provided, HMRC routinely opened inquiries, and it will look carefully at cases where individuals provided evidence that they fully and properly disclosed their use of a DOTAS at the time and where HMRC closed an inquiry with that evidence. However, it does not believe that there are many cases where that has happened.

I am conscious that I have not said anything about Making Tax Digital, so I will say a few final words about that report. We want every individual and business to develop the skills and confidence to seize the opportunities of digital technology. In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system keeps pace. Making Tax Digital gives UK businesses more control over their finances and allows them to manage their tax more easily so that they can focus on what they do best—innovating, expanding and creating jobs. The Enterprise Research Centre found in 2018 that web-based accounting software delivered productivity increases for micro-businesses of 11.8%. One should set that against the costs mentioned by my noble friend Lord Forsyth and the noble Baroness, Lady Burt.

I was asked what the position was on small businesses unable to go digital because of the absence of broadband. Businesses that are unable to go digital will not be forced so to do. If it is not reasonably practical for a business to join MTD for reasons of age, disability or remoteness of location—which can affect broadband connection—it may qualify for an exemption.

I am deeply conscious that I have not done justice to the many serious questions that have been raised, and I am already over my time. In conclusion, I thank noble Lords for their contributions to this stimulating debate—

[Lord Kerr of Kinlochard]

I am quite sure that the House will be very willing to extend considerable injury time to the Minister if he would be prepared to tell us not just what the boilerplate says but what he actually thinks.