Farmers Markets

Jim Shannon Excerpts

Wednesday 5th March 2014 Commons Chamber

[Richard Burden]

As my right hon. Friend the Member for Barking (Margaret Hodge) has repeatedly argued, Her Majesty’s Revenue and Customs is not tackling this problem seriously enough and

“pursues tax owed by the smaller businesses but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations.”

Further, at the same time as the farmers markets had their exemption removed, the Government decided to reduce the level of corporation tax on profits from overseas financing inside multinational companies to just 5%, which could actually be making tax avoidance easier for such firms. Is this not just yet another example of the Government’s skewed priorities when it comes to tackling tax evasion? It is important to address tax avoidance, but is it really the priority to address the issue of the tax of community interest companies that accrue small surpluses and want to invest them back in the local community? I hope that, in the light of these concerns and a rapidly increasing tax gap, the Government are actively looking at HMRC’s priorities and methods.

I also want to suggest how the Government could act in the interests of the small CICs that provide precisely the kind of local services and community support that the Prime Minister seemingly wanted to encourage when he was talking about the big society vision not so many years ago. Will the Minister consider the following options? Will he consider reviewing what is eligible for tax relief for community interest companies? Might he introduce some flexibility for small community interest companies, in terms of the surpluses they can accrue before having to pay corporation tax? Will he look into enabling CICs to accrue profits over more than a single financial year, as that might help? Might he also consider extending the corporation tax cut that the Government have given for overseas financing to multinationals to small community interest companies?

I hope the Minister will look into this issue seriously. Tax is always a complicated issue. I look forward to hearing his response because it is clear that it is not only tax avoidance and evasion which are the problem; the way in which tax collection and administration are managed and targeted needs to change. I hope the Government, who seem able to reform corporation tax to meet the needs of big business, will also consider what changes are needed to support small community interest companies that are providing vital local support.

The donations made by the farmers market I have been talking about are increasingly important in the context of unprecedented and devastating cuts to local government and services. Only yesterday Birmingham set its budget for the coming year. It has already had to save £375 million, and in the next financial year that will go up to £461 million. If the Prime Minister was serious when he said just a few years ago that he wanted to give people

“more power and control to improve their lives and communities”,

is it not right that he should be giving some practical support to CICs such as Kings Norton farmers market, which do precisely that?

In the light of the concerns I have raised, I hope that the Treasury will think seriously about how it uses fiscal policy to empower companies such as my local farmers market to act in the community interest.

[Jim Shannon (Strangford) (DUP)]

The hon. Gentleman has outlined the case for local farmers markets and the benefits that accrue to the community through funding and assisting projects. That is an example of how farmers markets support the big society, which, as he said, the Government have decided to promote. Does he agree the Minister should look at these benefits for the community?

[Richard Burden]

The hon. Gentleman makes an excellent point. We are dealing with a decision about priorities. This is not about the principle of whether or not people should pay tax—of course they should. It is not about whether tax avoidance should be clamped down on—of course it should. It is about priorities, and something is going radically wrong if the priority for HMRC is to mess up the surpluses accrued by institutions such as Kings Norton farmers market, which benefit the local community, while, apparently, finding it much easier to aid tax cuts for much bigger institutions. The priorities are wrong. I am sure the Minister understands what I am saying and I look forward to his response.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I congratulate the hon. Member for Birmingham, Northfield (Richard Burden) on securing this debate and putting his case so eloquently. I am sure he will appreciate that it is difficult for me to comment on the tax affairs of any specific community interest company, but I will do my best to provide answers on some of the general points that he has made.

It seems likely that the dormant status of the particular farmers markets in which the hon. Gentleman has expressed an interest has simply been subject to the usual periodic review that HMRC undertakes for all dormant companies. There has been no recent change of Government policy in respect of the taxation of CICs. As hon. Members may be aware, CICs were specifically designed to provide a legal framework and a brand identity for social enterprises that operate for the benefit of their community. As such, they provide an alternative to setting up a charity. Indeed, the major attraction of such companies is that they can be set up and operated in a manner significantly less regulated and more commercially focused than charities. The use of a CIC also ensures that the assets of the company are locked away for a public benefit purpose. Indeed, he touched on the differences between the regulation of charities and of CICs.

It is important to note that, unlike charities, CICs are not not-for-profit organisations. They do aim to make a profit, which can be distributed to the company’s owners or shareholders, or may be used to benefit the community. For that reason CICs are liable to corporation tax in the normal way. That is entirely consistent with the Government’s long-standing level playing field policy, whereby profits that arise from trading activity are subject to corporation tax, regardless of the nature of the entity undertaking the activity.

[Jim Shannon]

The thrust of what has been put forward for consideration relates to the difference between the taxes paid by a company and those paid by organisations such as the one that has been mentioned, which plough money back into the local community. Does the Minister not feel, as the hon. Member for Birmingham, Northfield (Richard Burden) and I do, that their situation is different? If the community is being regenerated, with opportunity and confidence created, is that not sufficient reason for doing away with the corporation tax because of the benefits that come to the community, which may lead to more jobs and other people paying tax?

[Mr Gauke]

Let me just elaborate on the point I was making and the reason we have a level playing field approach in this area. For example, a farmers market could operate in competition with other local businesses, and should not be given a competitive advantage over those other businesses purely by reason of being a CIC. A different regime is in place for charities, although one must bear in mind what applies in terms of trading there. CICs are under a different regulatory regime. They are, and have always been, chargeable to corporation tax on any trading profits, investment income or capital gains, but they are also able to take advantage of any corporation tax reliefs that are available.

HMRC treats some entities as dormant for corporation tax purposes when they are in fact active, but they must meet specific criteria to do so—for example, where a particular type of organisation has a corporation tax liability of £100 or lower. Rather than that being an exemption from the tax, this is an administrative issue based on a consideration of the costs that would be incurred through processing returns and collecting payments for such small amounts of tax.

As a general rule, a community interest company is unlikely to meet the specific criteria to be deemed to be dormant, but if the criteria were met, as appears to have been the case in the example given by the hon. Member for Birmingham, Northfield, HMRC would then review the matter periodically and decide whether to continue to treat the company as dormant or whether the company should start submitting tax returns. It should also be noted that the company itself is obliged to tell HMRC if its situation changes such that it is no longer within the criteria to be treated as dormant.

HMRC’s administrative discretion to depart from the strict statutory position is extremely limited. What we are talking about here, as far as I can tell, is essentially that a periodic review having been undertaken, an assessment was made that the farmers markets in question were liable to corporation tax. Although I accept the point that the great bulk of the tax gap that HMRC seeks to address will not be found from dealing with dormant companies or CICs, none the less it is appropriate that HMRC properly enforces the law, which we in Parliament have made, and ensures that companies or CICs are not treated as dormant when in fact they are not.