HC Deb 25 May 1978 vol 950 cc1726-9
4. Mr. Blaker

asked the Chancellor of the Exchequer what representations he has received about the methods employed by inspectors of taxes when examining the accounts of the self-employed.

21. Mr. Moate

asked the Chancellor of the Exchequer if he is satisfied with the investigatory powers of the Inland Revenue.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

Since the Inland Revenue adopted its new approach to the examination of accounts in January 1977, I have received about 50 representations mainly on behalf of individuals.

Tax inspectors are instructed to examine the quality and reliability of the records on which the business accounts are founded, and to verify that expenses claimed are allowable for tax purposes. If the inspector discovers that a trader's records are so poor that reliable accounts have not been presented, the profit can be calculated only by adding together spending and saving. Inspectors are then authorised to attempt a detailed build-up of personal expenditure. Inspectors invariably encourage accountants to attend interviews with their clients.

I am satisfied with the Revenue's present investigatory powers.

Mr. Blaker

It is right that taxes should be properly paid, but is the Chief Secretary aware that there is a good deal of concern on the part of the self-employed and their tax advisers at the methods that have been adopted since the new system came into force, and, in particular, at what appears to be the unreasonably prying nature of some of the questions asked and the setting of a gross profit margin which cannot be challenged? Will the Chief Secretary change his mind and look at this matter again?

Mr. Barnett

We are looking at these matters all the time. Most of the reports have been grossly exaggerated. The total number of investigations of all types, since January 1977, has been about 70,000, and there are 1.8 million Schedule D taxpayers.

Let me make the matter quite clear to the hon. Gentleman. Even where there is suspicion of evasion, I would not myself accept, and I hope that the House would not accept, an intolerable attitude on the part of inspectors of taxes. But, equally, I hope that the hon. Gentleman and the House will accept that where there is clear evidence of evasion of tax it is the duty and responsibility of inspectors of taxes to ensure that full tax is paid. I hope that hon. Members will not support the kind of exaggerated and inaccurate comments that have been bandied about in the Press recently.

Mr. Heffer

Will my right hon. Friend indicate what success there has been in relation to dealing with those involved in "lump" labour in the construction industry? How much has the Treasury got that it would not have got? Also, are there still outstanding problems that need to be dealt with to bring that pernicious system under further control?

Mr. Barnett

As my hon. Friend will realise, I cannot, obviously, give him precise figures. However, if he tables a Question, I shall be happy to deal with it.

The new methods that we have adopted in relation to the "lump" have been very successful and have undoubtedly ensured that the average taxpayer paying his full and proper tax on Pay-as-You-Earn can see that those who were evading it are now paying a rather better share than they were previously.

Mr. Peter Rees

If the Chief Secretary regards the reports to which my hon. Friend the Member for Blackpool, South (Mr. Blaker) has drawn attention as being exaggerated, will he tell the House whether he regards the reports and criticisms which the Ombudsman has felt obliged to make on various aspects of tax administration as being exaggerated? If he does not regard them as exaggerated, what does he propose to do about them?

Mr. Barnett

As the hon. and learned Gentleman knows very well, out of the vast number of about 25 million taxpayers, the number of reports on individual cases by the Ombudsman is very small indeed. They are all serious, and they will all be examined very carefully. A report will be made in due course.

Mr. Ronald Atkins

I know little of the new system introduced, but will my right hon. Friend agree that tax evasion is a major industry and that it is unfair to those who have neither the perks nor the opportunities to evade taxes that this situation should continue?

Mr. Barnett

I agree, but let me also say that the great majority of the self-employed are hard-working, decent people. I am sure that they would not want their image to be tarnished by the small numbers who are evading taxation on the lines that I have indicated.

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