HC Deb 07 April 1964 vol 692 cc913-25

9.8 p.m.

Mr. John E. Talbot (Brierley Hill)

I beg to move, in page 6, line 35, to leave out "or may have".

This is a Clause of a penal nature. It gives the Revenue the right to reopen a man's affairs for an indefinite period—indeed, for as long as his life. I know of a case which was instituted in 1955 and has not yet reached finality. The man's affairs are being investigated back to 1927. This Clause is a very formidable weapon, which it is quite proper to use against the sort of person who can properly be found guilty under it. If tax has been lost, then it is proper to bring proceedings. In other cases, however, there may only be reasonable grounds for suspecting that tax has been lost. That is what I believe "reasonable grounds" must mean. If the inspector has reasonable grounds for thinking that the tax has been lost, he is perfectly right to bring proceedings, but when the Clause says that he can have reasonable grounds which may be wrong, and the tax which may have been lost in fact has not been lost, then the subject is faced with a double possi- bility. On a matter as serious as this, that is not fair. The Revenue ought to be satisfied, before turning the muck rake on a man's entire career, that tax has been lost, or that there are reasonable grounds for thinking that it has been lost.

I want the House to understand precisely what this means. Many people who are subjected to this type of inquisition are not guilty of the charges made against them, but they have an enormous amount of trouble to rebut the attack of the Inland Revenue on their affairs. They are often people who are not wholly literate and who are unable to make the searching inquiries and the complete assessment of their position which this procedure requires unless they have professional advice, which has to be paid for. If in the end the whole thing turns out to be a mare's nest, that professional advice still has to be paid for and the Crown contributes nothing.

I dare say that I shall be told that the Clause is merely an adaptation of the existing position. If so, the existing position requires correction. We are here as the House of Commons not to act as collectors for the Inland Revenue or to wangle the law in its favour, but to maintain a fair and just balance between the Revenue and the subject. I can recall that in the days when I read history at school I read that this was what the House of Commons was supposed to be for. It was supposed to protect the citizen against the Crown—and there was a great deal of trouble in this place years ago and Statutes were passed before the House would grant Supply to the Crown. That was all because our predecessors were awkward and were not rubber stamps for the Inland Revenue or the Government, but insisted that anything taken out of the pockets of the taxpayer and paid to the Crown should be justified up to the hilt. Yet in this year of grace we produce a Clause which seems to permit absolutely anything.

An inspector of taxes may go to his office one day, having had a domestic difference or having bought a poor piece of meat at the butchers, and seize on the file of John Jones and say, "I am sure that this man must have concealed some tax; I saw him in the golf club the other night standing whiskies all round". Perhaps that example is rather far drawn, but there is nothing in the Bill to protect the subject against the institution of a long inquiry which after years may never reach a court and may never reach the general and special commissioner who has to give leave for operations to start. The Clause is extremely harmful and gives no protection to the subject either in the payment of costs if unreasonable action is taken or if an unreasonable time is taken, often longer than would be the case in criminal proceedings.

9.15 p.m.

Cases have been known in which proceedings of this sort have been instituted as a result of anonymous letters, or disgruntled employees leaving a business. The anxiety that that causes to people who are often not guilty of what they are charged with produces serious medical problems. I might even say that men have committed suicide because of the pressure brought to bear on them by the tax collector.

The time has come when the House ought to think a little less about the convenience of the Revenue and a little more about justice to the taxpayer. I want to hear from my hon. Friend whether he has any suggestion to make certain that his officers do not institute proceedings of this sort in cases where there is a mere speculative thought that the person may not have paid all the tax that he ought to have paid.

The standard of intellectual precision involved in the words only requires that tax may have been lost to the Crown. It is not good enough to put somebody on inquiry for the financial transactions of a lifetime merely because some factor may be present which leads one of the Revenue officers to speculate, not that tax is lost, but that tax may have been lost. It is for that reason that I have caused the Amendment to be tabled, and I hope that I shall hear something by way of comfort from my hon. Friend.

The Financial Secretary to the Treasury (Mr. Alan Green)

Having studied as best I can, not only the particular history to which I think my hon. Friend may be referring, but as many of the other histories of these back cases that I have had the chance to study. I think that I understand and in many respects sympathise with my hon. Friend in his effort to protect the taxpayer against what he presents as being the all-powerful Revenue.

Perhaps my hon. Friend will look at it in this way: if the Inland Revenue is unable, on a reasonable premise—which is really what the words "may have" mean—to pursue an inquiry which is directed towards securing that the taxpayer does what the law demands, namely, produces all the facts of the case, then I believe that my hon. Friend would be putting an unreasonable weapon into the hands of that very small minority of taxpayers who go out of their way not to admit and to fulfil their obligations under the law.

It is not a question of inspectors raising assessments on spec because they have had a bad breakfast, or because the butcher has not delivered the meat on time, or whatever it is. Inspectors do not have time for fishing expeditions of that kind, and if they embarked on them to any degree at all they would rapidly bring into contempt their own common-sense administration of the duties which the law currently lays on them. If they went on these fishing expeditions, they would destroy that element of trust between the administration and the taxpayer on which the administration relies to a great extent to get the proper business of the nation done. Inspectors are not encouraged by the Inland Revenue to go on these fishing expeditions. If they were to do so they would produce a series of hypothetical cases of the kind which my hon. Friend has in mind. If those cases were produced we should deal with them in our common-sense, pragmatic and practical fashion.

But this is not the case. What we think it is right to be in a position to deal with is that very small minority of determined tax evaders who refuse to make any admission—although under the law they are charged to do so—or to co-operate in any way in an investigation. It is precisely in the case of this minority that the power to make an assessment and subsequently to issue precepts is essential. If this were not possible we could not bring the cases to a determination. We should be left with a limbo of the law and its administration in which it would increasingly pay other taxpayers to join that very small but determined minority.

I understand what my hon. Friend is after. All that I ask him to accept is that it is simply not an interest of the Administration to pursue needlessly or without reasonable cause the case of a possible evasion, whether deliberate or not, but that if inquiry were prevented—and the Amendment would make it very difficult to carry out that inquiry—the people who would suffer would not be the very small minority of determined evaders but the overwhelming majority of good taxpayers, on to whom an additional burden of tax paying would inevitably be cast, because the small minority would be able to get away with it.

I hope that my hon. Friend will accept from me that this power is not strengthened in the Bill. It is simply retained. History—certainly recent history—shows that this power has not been abused. It is used only in the defence of the general majority of taxpayers and not in a sort of witchhunting pursuit of one or two people, decided upon personally by any one inspector.

On those grounds I very much hope that the House will not accept the Amendment. Indeed, I hope that my hon. Friend will think it right to ask leave to withdraw it. I hope that he will do so in the realisation, from what I have said, that I have tried to examine the Amendment in principle, from the point of view of the consequences of its application if it were accepted, and of my belief that its acceptance would do real damage to the vast majority of taxpayers who make a point of coming completely clean with their Income Tax affairs when they are asked to do so.

Mr. Douglas Houghton (Sowerby)

The House will always give very careful and sympathetic attention to an Amendment which seeks to safeguard the rights of the citizen, not only against the Executive but against its agents. In the hands of bureaucracy many citizens feel helpless and ill-equipped to stand up for their own rights. I may as well make a clean breast of it: as the House knows, my bias is heavily in favour of the Inland Revenue. Nevertheless, I have tried to bring a detached mind to bear upon the Amendment.

This Amendment is a sequel to what is done in Clause 5, which transfers from the general commissioners to the district inspector of taxes the right to make assessments which is now in the hands of the commissioners. It was thought desirable—I agreed with it—that the transfer of the power from the general commissioner to the Inland Revenue under the provisions of Clause 6 should be qualified in certain cases and in certain respects. It was thought proper to require an inspector of taxes to get the leave of a special or general commissioner when proposing to make an assessment out of time on the ground that tax had or might have been lost to the Crown owing to fraud or wilful default or neglect of any person.

The hon. Member for Brierley Hill (Mr. Talbot) should bear in mind the overriding conditions upon which an assessment of this kind may be proposed. The commissioner would require some evidence that there were prima facie grounds for believing that revenue had been lost, or might have been lost, owing to some serious delinquency on the part of the taxpayer concerned. I am quite sure that no commissioner would give leave for an assessment to be made out of time on these grounds, unless some evidence were given to him which would enable him to give leave for the assessment to be made, fully believing that he was doing the right thing by the Revenue, by the community and by the taxpayer concerned.

I said a moment ago that the House should safeguard the interests of the citizen and protect him against bureaucracy. It has another duty, not so to cripple the administration of its own laws as to defeat their purpose or enable some citizens to escape from his proper obligations to the Revenue and the community under Acts passed by the House. I am bound to say that the closer one gets to the seamy side of tax evasion the more one's sympathies are with the Inland Revenue, because one realises that, notwithstanding the powers given to the Inland Revenue, it is very often a long, tiresome and an unequal contest between the Revenue and the taxpayer who sets out deliberately to evade his responsibilities.

I do not think that the hon. Member for Brierley Hill need fear that there is any mischief done by leaving in this Clause those words which he proposes to take out. So far as I can tell, they carry the wording of the Clause just that little bit further to enable an assessment to be made in the belief that something has happened, even though at that moment there is no concrete evidence that it has.

Let me remind the hon. Member that this is leave not to harry a taxpayer to prison or to make his life a misery. It is leave to make an assessment. When that assessment is made the taxpayer has all the rights provided by the Income Tax Act to appeal, to appear personally before the appeal commissioners, and to take all the steps open to the citizen with the best advice he can obtain so that his interests may be watched in the subsequent proceedings. That is no less than any other citizen has whose assessment is made at any time or in these circumstances by leave of a commissioner.

9.30 p.m.

I do not think that the case has been made for this Amendment. To leave out the words which the hon. Member seeks to leave out would take that little something from this Clause which it is important should be there without in my opinion putting the taxpayer at any disadvantage in the circumstances which the hon. Member has contemplated. I have considered this very carefully to see whether the House would be justified in deleting these words. My opinion is that the House would not be wise to leave out these words. I do not believe it will do any harm to any taxpayer to leave them in. To leave them out might damage the ability of the Inland Revenue to deal with a particular type of taxpayer at any particular time.

Hon. Members have only to read the Annual Report to the Commissioners of Inland Revenue to see the running battle which is going on between them and defaulting taxpayers year by year. Year in and year out the number seems scarcely to diminish, the amount recovered from lost tax seems scarcely to increase. The penalties may have gone down because this House decided a little time ago to moderate the penalties which would be imposed by the Inland Revenue on taxpayers who neglect or default. There is, of course, still the right of prosecution of a taxpayer who is alleged to have been deliberately fraudulent. When that case arises it is decided by the courts in the normal way.

In face of this recurring evidence of the problem of evasion, the House has to be very careful indeed not to snatch from the hands of its own agents, the Inland Revenue, suitable and proper equipment to deal with this minority of taxpayers who, unfortunately, continue in our midst and must be brought to book if the rest of the country is to feel satisfied that the Revenue is efficient and that others are not evading their responsibilities while honest taxpayers are doing their best—often in conditions of hardship—to meet the demands of the Inland Revenue.

I sincerely hope that the hon. Member will respond to the plea of the Financial Secretary and will withdraw his Amendment. Otherwise, I shall have to advise my hon. Friends not support the hon. Member in the Lobby.

Mr. Talbot

In view of the strong and almost unanimous plea from both Front Benches, I wish not to proceed with this Amendment. I only express regret that its purpose seems to have been misunderstood. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Green

I beg to move, in page 6, line 36, at the end to insert: (2) The General or Special Commissioner giving leave to make such an assessment shall take no part in the proceedings, and shall not be present, when any appeal against the assessment is heard or determined. The Amendment would debar the commissioner who has given leave under Clause 6 for an out-of-time assessment to be made from taking part in the hearing of the appeal against the assessment. This follows partly from discussions in Committee on what may be the locus standi of the commissioner from whom the inspector seeks leave to make an assessment out of time.

It was quite properly presented that the person giving the leave to appeal should not also be the person appearing to judge the appeal. This was a proper representation, and it was reinforced by the Law Society to the effect that it was at least conceivable—the Society did not pitch its case too high—that the commissioner who gave leave might, having heard only the Revenue side of the case in the first instance, be unconsciously influenced in his mind against the taxpayer when it came to appeal, and that although the practical risk might be negligible the commissioner concerned should, nevertheless, be excluded from the appeal proceedings on the principle that justice should not only be done but should be seen to be done.

On consideration of these thoughts, we have decided that it is right to maintain the spirit of the existing arrangements in Section 6(4) of the Income Tax Act, 1952, and the Amendment therefore debars the commissioner who gives leave from sitting at an appeal. I hope that this commends itself to the House.

I should take the opportunity of saying something about the proceedings in Committee when to some extent this point was discussed. I was asked what the situation was between the commissioner and the taxpayer when leave to make an out-of-time assessment was sought by the inspector. I was asked whether the commissioner could go to the taxpayer and seek his side of the matter. I said: I believe that the commissioner has not only the right but the duty to seek further information, or refuse the application, if he feels any doubt. It is not necessarily an automatic granting because, so to speak, the inspector has knocked on the commissioner's door. The commissioner may inquire further of the taxpayer or his agent if he wishes. That is fundamentally correct.

My hon. Friend the Member for Torquay (Mr. F. M. Bennett) went on, quite properly, to ask: Of the taxpayer himself, verbally or orally? I replied "off the cuff", I am pretty certain of that. Perhaps my hon. Friend will leave it to me to check right through what I have said, and I will certainly undertake to do that."—[OFFICIAL REPORT, Standing Committee B, 27th February, 1964; c. 18.] I have checked right through what I said and what the case has been. I have taken the advice of the Solicitor of the Inland. Revenue. I am certain that this is the right advice to take. The fact is that the commissioner cannot, under an ex parte application, himself directly approach the taxpayer. When one thinks about it, this is quite right; otherwise it would not be an ex parte application. But what he can do—and this follows the substance of what I said—if he feels that he needs further information is to tell the inspector what he needs. It is very much up to him to do that. If the inspector can obtain the further information only by communicating with the taxpayer or his agent, it is then up to the inspector either to do just that or to drop his application for an out-of-time inquiry.

I hope, therefore, that my hon. Friend the Member for Nottingham, South (Mr. W. Clark) and my hon. Friend the Member for Torquay will not feel that I misled them. I thought it right to try to put the record completely straight on this occasion. I hope that they will agree that we have gone a substantial way towards meeting what I appreciate was the point they were raising in Committee by making quite sure that the commissioner who may grant leave to an inspector's application to make an out-of-time assessment shall not be the commissioner who will judge the subsequent appeal if an appeal is made by the taxpayer.

Mr. William Clark (Nottingham, South)

I am grateful to the Financial Secretary for accepting the spirit of the Amendment which was moved in Standing Committee. He will appreciate the great worry that has been expressed regarding the situation which arises when leave is applied to the commissioner to raise out-of-date assessments, if I may put it that way. The commissioner is in the position to hear only one side of the story and the Amendment moved in Standing Committee was designed to ventilate this worry. I am delighted that my hon. Friend has agreed that the commissioner who hears the application for an out-of-date assessment should not hear the appeal—and, obviously, the taxpayer may now put forward his arguments for or against the raising of the assessment.

I still have a slight worry about the position of the Revenue in this situation. The Revenue may sometimes be neglectful to raise an assessment. This may happen through no fault of the taxpayer. I should have thought that, administratively, my hon. Friend would have been able to deal with such matters; that where an application is made to the commissioner for an out-of-date assessment, the Revenue should say to the commissioner, or point out in the application to the commissioner, that no neglect is involved on the part of the Revenue concerning the raising of the assessment.

Where an application is being made for an out-of-date assessment, although the taxpayer has the right to appeal and go through the whole process of the appeals machinery, I do not believe that the Executive should have the right to put forward a one-sided case—although I am not suggesting that the Revenue would do this—but that the Revenue, in any application to the commissioner, should say, "These are the facts of the case. The Revenue has not been neglectful and an out-of-date assessment should be made."

9.45 p.m.

Mr. Houghton

I support the Financial Secretary in the Amendment, which gives the taxpayer a safeguard he at present does not have. Under the new arrangements, in connection with assessments which are made in time by the inspector, any appeal to the commissioners by the taxpayer will be made to a body which has had no part in making the original assessment. At present the taxpayer appealing to the commissioners may have his appeal heard in part by commissioners who have originally made the estimate, and in part by additional commissioners who are added to the general commissioners for hearing appeals—and that imports a degree of independence into the appellant body which would not otherwise exist.

At present, the taxpayer may have his appeal heard by commissioners who have had a part in making the original assessment. This Amendment removes entirely from the taxpayer any danger that an appeal may be heard by commissioners who have had something to do with an earlier stage in his tax liability. I am sure that we can welcome that, and agree to it.

Where I think hon. Members opposite may be going wrong is in not understanding what the present practice is. The commissioners already make assessments out of time if they are recommended to do so, and see fit so to do, without hearing anything from the taxpayer. No commissioners when making assessments, whether in time or out of time, say to a taxpayer, "Look here, is this all right?" Nor do they say to his professional adviser, "We have in mind making an assessment of so much, and would like your comments." That does not happen now. The commissioners make their assessments on the recommendation, and the evidence, given to them by their assessor, who is now the inspector of taxes.

Therefore, all that is happening under Clause 6, and this Amendment is related to this change, is to provide some qualification of the right of the inspector to make assessments out of time off his own bat, and to bring into the proceedings the independent judgment of the general or special commissioners whose consent is necessary before the inspector may act.

It might have been a little cumbersome, but it would have been quite proper to have provided in the Bill that in the cases covered by Clause 6 the inspector would have had to go to the commissioners as a body to get an assessment made—as he does now—but we know that in many cases it is not all the commissioners who hear any such application, and here a special responsibility is being put on the general or special commissioner, whose consent must be given, to satisfy himself that what he is asked to do is right. The responsibility is fixed on him. We also say, again and again, that these provisions under Clause 6, to which the Amendment is also related, apply only where there is prima facie evidence of fraud, wilful default or neglect by any person.

I think that hon. Members on both sides can be satisfied that in all these cases there will be a file an inch thick. There will be abundant evidence upon which the inspector goes to the commissioner for leave to make an assessment out of time. As the Financial Secretary has said, the inspector will not go just with a hunch, just with a suspicion, but with some evidence upon which he can ask the commissioner to make an assessment on a specified amount. The commissioner cannot say, "Yes, I will make an assessment of anything you like, or of nothing in particular." The commissioner must give his consent to an assessment of an amount. He will ask, "How do you get at this amount?" The inspector will then produce a computation showing his estimate of the revenue lost on the grounds specified in Clause 6. That puts a very specific responsibility on the inspector.

I really do not think that there are grounds for the misgivings that have been expressed by hon. Members opposite. In any case, the Financial Secretary's Amendment strengthens the position of the taxpayer vis-á-vis the Revenue machine, and I think that the House can approve that in good spirit. I am fully with the Financial Secretary—I am sorry to be so much on his side; it must be very embarrassing for him, and it is embarrassing for me, too—when he says, in clearing up any possible misunderstanding that arose in the Standing Committee, that it is neither the duty nor the right of a commissioner, put in these circumstances, to go canvassing the taxpayer or his professional adviser to find out what he thinks about what it is proposed to do.

The commissioner's job is to satisfy himself, on the evidence produced by the inspector, that there are prima facie grounds for his doing what he is doing under Clause 6. When he has done that he has discharged his duty both to the taxpayer and the Revenue and it is up to the taxpayer and his adviser to follow the normal processes of appeal if they contest what is proposed to do. I believe that in nine cases out of 10 the amount of assessment proposed to be made will have been agreed with the taxpayer and his advisers after long and tedious examination of the ramifications of the taxpayer's affairs and the amount specified in the assessment will be accepted and the inspector will go to the commissioner for formal ratification of an informal agreement which will give statutory effect to the assessment proposed to be made.

Amendment agreed to.