§ The evasion of tax and national insurance by many members of the so-called "lump" in the construction industry has for a long time caused widespread resentment. A scheme introduced in 1971 to deal with the problem set a pattern for a remedy, but experience has shown that it was not tightly enough drawn. It has been abused by those who sought to be self-employed but were unwilling to meet their consequential statutory obligations.313
§ The Government gave a pledge in their election manifesto, and in the Queen's Speech, that they would deal with the problem. It is costing the Exchequer large amounts of revenue and bedevilling industrial relations in the construction industry.
§ For my part, I propose to implement this pledge by introducing fundamental measures to overhaul the 1971 scheme. First, all existing certificates, which excuse certain sub-contractors from deduction of tax at source, will be withdrawn. Secondly, holders of certificates will have to reapply and will have to satisfy much stricter conditions. Thirdly, a new type of certificate will be issued which it will be very difficult to forge, steal or otherwise misuse without detection. Fourthly, companies will be brought within the scheme, and it will no longer be possible to use them as a means of avoiding the tax deduction. And, fifthly, the Revenue is making major changes in its policing arrangements so that it will have a firmer control of the new scheme.
§ My aim is to ensure that only subcontractors who can satisfy the Revenue that they have genuine businesses and will meet their future tax liabilities in full will be entitled to be paid gross. Those who have abused the system will have to become employees if they wish to avoid the automatic deduction of tax. These new tax measures will, of course, complement the measures put forward by the Department of the Environment.
§ I propose also to deal with a form of avoidance that has been increasing during the last year or so. I refer to the number of companies offering so-called scrip options and similar schemes under which shareholders have been able to take dividends in the form of stock instead of cash and so escape liability to the higher rate income tax and investment income surcharge. These arrangements amount to an option not to pay tax and must, I believe, be brought to an end in the interest of fiscal equity. As already announced, I propose to charge such issues of stock dividends to tax with effect from 6th April last.
§ Next, I gave notice last year that I shared the view, which has been gathering force in recent years, that a taxpayer is entitled to some compensation by way of interest when repayments of income 314 tax owing to him are unduly delayed. Accordingly—and despite the very real administrative difficulties—the Finance Bill will include provision for a necessarily simplified scheme of compensation when tax repayments to individuals are delayed beyond 5th April in the year following the year of assessment. The Bill will also include provision giving, so far as possible, comparable compensation when late repayments of tax are made to companies and other bodies within the charge to corporation tax. The "repayment supplement", as it will be called, will be calculated using the same rate of interest as that attaching to underpayments of tax—currently 9 per cent—and will not be taxable. It will apply to repayments made after the Bill becomes law.
§ I also said last year that I intended to introduce new measures to encourage the more prompt payment of tax. The Inland Revenue has had consultations with the main representative bodies concerned about proposals in this area. I believe it is generally agreed that the present rules work very unsatisfactorily in a large number of cases. At the extreme they permit a minority of people virtually to opt out of the tax system for months or even years at a stretch. The new rules will apply to assessments made after Royal Assent. They will, in particular, include more effective rules for securing a reasonable payment on account and for charging interest when tax is not paid pending the result of an appeal; and also for charging interest both where large amounts of tax are delayed for a relatively short period and where smaller amounts of tax are delayed for a longer period. In framing these proposals I have borne in mind the representations that have been made to me about the pressures under which many businesses and accountants are working at the present time and the problems that would arise if the necessary changes attempted too much too quickly.