HC Deb 16 July 1980 vol 988 cc1621-8
Sir Graham Page (Crosby)

I beg to move amendment No. 2, in page 9, line 25, after'substituted', insert '£20 but if payment has not been made of the amount assessed and notified to the person concerned under section 31 (1) of the Act the substituted amount shall be'. The clause imposes new penalties for two offences. The first is not paying VAT that is due, expressed in the clause as "tax due". The phrase "tax due" is defined as the amount shown by the person's return or such tax as has been assessed and notified to him if he has not made a return.

The second offence is that of not furnishing a return within the time required by statute, whether or not the tax has been paid as assessed.

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The present penalty for the offences is £100 plus £10 per day. Under the clause the penalty will be increased to £100 plus £10 per day or ½ per cent. on the amount owing. That sounds a small sum, but we heard in Committee that it was at the rate of 182½ per cent. a year. My mathematics do not tell me whether that is correct; I take someone else's word for it. Anyway, it is a severe penalty.

I am not complaining about the penalty being severe if tax is due, but if a person has had the tax assessed or has made his return and has paid the tax shown in it, he is still liable to those severe penalties. He may have had the tax assessed and have paid all that he has been told is due and then it may later be found that some more tax is due. if he is then prosecuted for not making a return the penalty will be large—½ per cent. on what is due. It seems unfair that he should suffer the same penalty merely for not making a return when he has paid all the tax that he thinks is due.

The amendment would leave the same penalty as is in the clause when the tax has not been paid. It is a harsh penalty, but is probably right that that should be so, when the tax has not been paid. But when the tax has been paid, because it has been assessed, and the only offence is failure to make a return, the ½ per cent. part of the penalty would be removed.

I recognise that we need a more severe penalty than the £10 a day, and under the amendment it would be £100 plus £20 a day. I think that that would be fairer when the offence is nothing more than failure to make a return.

Mr. Richard Alexander (Newark)

I support the amendment. I find all penalty clauses in statutes rather reprehensible and unpleasant, but they are no doubt necessary. The objectionable part is that in most instances the taxpayer does not have equal treatment. While he is liable to penalties for late delivery, the Revenue is not obliged to pay any interest if it owes him money. He must wait without interest, without redress, except perhaps the intervention of his Member of Parliament.

Here we have a penalty that could cripple the small trader in certain circumstances. As my right hon. Friend the Member for Crosby (Sir G. Page) said, we are given to understand that ½ per cent. a day comes to 182½ per cent. a year—four times the permitted level of interest rates under the Moneylenders Act 1927. That is too high and puts enormous power over the taxpayer in the hands of the Customs and Excise.

My hon. Friend the Minister argued in Committee that the object was to catch those who paid high taxes and who tended to use the VAT system and the penalties as something of a banker. Very well But I suggest to my hon. Friend that, if that is so, we could perhaps have drafted the clause in such a way that it caught the big fish and did not put the smaller taxpayer at so much risk from the Customs and Excise.

Small business men and small traders find the requirements of the VAT system and the time involved in dealing with returns and the VAT man a great burden. Because of the problems experienced with the big fish, the little man has greater cause for fear as a result of this clause.

As my right hon. Friend the Member for Crosby said, the matter does not quite stop there. The taxpayer who has paid his VAT is liable to the same penalty if he is in arrears or if his tax return was submitted late. So the taxpayer who has paid all his VAT is at risk, under this clause, of a penalty of 182½ per cent. a year on tax that he has already paid. That is penal. Therefore, I support the amendment. The small business man has enough hanging over his head without the risk of incurring penalties of that order on tax that he has already paid.

My hon. Friend might argue that these are maximum rates, but these days the small business man in particular has little confidence in the VAT man and his reasonableness. We should not put the small business man at such risk. The clause should have been drafted to catch the much bigger fish who abuse the present system. We should leave the smaller man facing realistic and fair penalties. Nothing less than this amendment will give him confidence in the VAT system.

Mr. Peter Rees

We return once again, and not inappropriately, to clause 14. This issue was given exhaustive consideration in Committee and enjoyed the considerable and penetrating atten- tion of my right hon. Friend the Member for Crosby (Sir G. Page). However, since we are proposing an increase in existing penalties, it is right that we should examine the matter again and that I should attempt to reassure the House that what we propose is well thought out and moderate in intent and application.

I emphasise to my hon. Friend the Member for Newark (Mr. Alexander), who made a powerful contribution but who was not a member of the Standing Committee, that this is, of course, a penalty. It is not an interest charge, and the computation we propose is a maximum and not a mean figure. It is subject to review at imposition by the VAT tribunal and subsequently on appeal to the High Court. I think, therefore, that my hon. Friend's reservations and his description of the VAT man are a little misdirected.

I believe that in the Customs and Excise there are bound to be errors of judgment in an area as complex and sensitive as this. Many officials are involved, but on the whole they do a fair and useful job. We are not entrusting to the Customs and Excise the ultimate decision on the amount of the penalty involved. That will be a matter for the courts.

My hon. Friend suggested that we should have so tailored the provision that it did not bear heavily on the small business man. I reassure him that it is a matter of simple mathematics. A person whose charge to VAT is £2,000 or less will be on the existing penalty as it is set out today. I do not wish to weary the House with the calculation and I hope that the House will accept it. We dealt with that point in Committee. By any fair standard, the small business man will not be exposed to the risk of a larger penalty than that to which he is exposed under the existing system. We are not imposing a new penalty but merely sharpening the effectiveness of the existing penalties which have been operating since 1972.

Sir William Clark

I agree that 182½ per cent. is a maximum and that one can appeal to the VAT tribunal, but a business man will hesitate to do that if he has made a mistake or is late in his payments. The VAT officer will settle a case at a higher rate because of the 182½ per cent. maximum than he would at present. The Government should take that on board. It is easy to say that there is a right to go to the tribunal, but that involves more and more expensive legal costs for the business man. Giving the VAT inspector the right on paper to impose a maximum 182½ per cent. penalty puts into his hands the strength to settle the case before it goes to the tribunal.

Mr. Rees

I remember my hon. Friend making exactly that point in Standing Committee. The argument does not lose force merely because it is made a second time in the Chamber. I am not in the business of generating more litigation. We want something which is serviceable. I do not entirely take my hon. Friend's point because soon the tenor of decisions by the VAT tribunal will become generally known. The type of cases which carry a stiffer or more lenient penalty will become known. I am sure that the profession of which my hon. Friend is a notable adornment will soon be able to advise clients whether to settle. If the Customs and Excise officers seek to impose unreasonable penalties, the profession will tell clients that it is unreasonable.

Unlike the special income tax commission, the VAT tribunal can award costs. It is not for me to direct the tribunal. Indeed, it can take no account of what I say. I have no doubt that if the Customs and Excise bears hard on a trader costs will be awarded. My hon. Friend is being over-sensitive. I know that we must be sensitive, but he must remember that the Government's cash flow depends on the prompt payment of VAT, which is a self-assessed tax.

We have directed our attention to two areas—first, to when a taxpayer is late in paying the tax due under his own return, or perhaps under an estimated assessment, and secondly, to when he makes no return at all.

My right hon. Friend the Member for Crosby, with his customary penetration, seeks to distinguish between the two situations. He says that a person who fails to make a return should be treated more softly or sensitively than a person who has not paid his tax. I regret to say to a lawyer of such eminence and experience that his amendment is a little defective. It does not cover the case of a person who has made a return but who has not paid the tax due under it.

Since VAT is based on self-assessment it is of crucial importance that registered traders should be encouraged to make their returns promptly so that a fair assessment of their liabilities may be made. I am sensitive to the anxieties that have been voiced by my right hon. and hon. Friends. I hope that on reflection they will feel that the right balance has been struck. If there is any tendency to bear down on registered traders in an unfair way, I have no doubt that it will be put right by the judicial authorities, namely, by the VAT tribunals. A fundamental safeguard has been built into the provisions. It has been built in all along.

I have no doubt that it has been of great service to the House that these considerations have been ventilated. This is an issue which perhaps has weighed more heavily with one side of the House than with the other.

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Mr. Dennis Skinner (Bolsover)

Sometimes poachers turn gamekeepers.

Mr. Rees

The hon. Gentleman reminds me that it is known for poachers occasionally to turn gamekeepers. That background may assist them to carry out their gamekeeping duties. It may assist them to recall their time setting snares. I have set snares in my time and because of that I am sensitive to the arguments that my right hon. and hon. Friends have presented. I hope that they will feel that we have struck just about the right balance. I hope that my right lion. Friend will feel able to withdraw the amendment.

Sir Graham Page

I am grateful to my hon. and learned Friend for answering so fully the points that I endeavoured to raise. He advanced one argument against the amendment that was not valid. He said that I had not dealt with the person who had made a return but not paid his tax. If he has not paid his tax, he should receive the harsher penalty.

My amendment was intended to deal with the unfortunate taxpayer who is assessed and notified by the authorities that he owes £X. He pays that and later the authorities find that they made the wrong assessment. They then say "You do not owe £X but £X plus. You have not made a return, although we have been happy to assess you and notify you. Therefore, you will suffer a penalty that is severe and harsh"—I should say even an unconscionable penalty—"for not having put in your return."

How many hon. Members have failed to put in a tax return in the time required by statute? It is not such a great offence, especially when the tax has been assessed, the amount has been notified and it has been paid.

I am grateful to my hon. and learned Friend for his reply. I feel that I cannot withdraw the amendment.

Amendment negatived.

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