HC Deb 17 July 1980 vol 988 cc1793-801
Mr. John Heddle (Lichfield and Tam-worth)

I beg to move amendment No. 177, in page 116, line 6, after 'to', insert 'a building or maintenance department of'. I am encouraged to move this amendment because of the consultative document issued by the Board of Inland Revenue dated January 1980 entitled The Construction Industry Tax Deduction Scheme. By way of introduction, I should like to quote paragraph 7: The highly mobile nature of the work force and the history of past abuse suggest that some sort of arrangements for deduction of tax at source will continue to be necessary in the construction industry. Moreover, the extent to which the present rules can be relaxed must be considered against the continuing abuse of the more flexible arrangements which were introduced for companies holding 714C certificates. Nevertheless, there is no doubt that the existing rules—in particular the three-year employment rule—are in certain circumstances producing indefensibly harsh results. The present system also imposes a heavy administrative cost on the industry. Certain changes are needed and can be made without weakening the intrinsic security of the system. The purpose of the amendment is to relieve major companies of the requirement to operate the 714 certificate scheme as contractors where they are parties to a main construction contract, but to leave the requirement for internal building or maintenance departments of such businesses—I shall give examples of those businesses—to operate the scheme where they undertake sub-contract work.

As the proposals stand, every person—"person" is the word in the legislation—commissioning construction operations who, on average over three years, spends £250,000 on such operations will be required to operate the scheme as a contractor. I pay tribute to my hon. and learned Friend the Minister of State, Treasury for persuading the Committee upstairs to increase the threshold—despite the arguments put forward by the hon. Member for Gateshead, West (Mr. Horam)—from £100,000 to the more realistic figure of £250,000. That is so whether the expenditure is carried out by way of an internal, in-house building or maintenance department—what one might describe as a private enterprise direct labour organization—or under contract with an outside independent contractor, who in the building industry is known as the main contractor.

To include such operations, which come under a main contract, will result only in much unproductive paper work and unnecessary and expensive red tape, both for the business in question and for the Inland Revenue. That is a burden that I know my hon. and learned Friend the Minister of State would like to eliminate.

It is important to recognise that it is not a small and easily identifiable group to which the requirement will apply. It will apply to every person spending above the average three-year threshold of £250,000 a year. It will certainly include modernisation and refurbishing operations by such businesses and institutions—here I come to the definition to which I referred earlier—as banks, building societies, multiple shops, department stores, companies building or extending their factories, and hotel and restaurant chains modernising their premises.

Such businesses spending above the threshold of £250,000 are not the sort of undertakings that are likely to employ lump labour, nor are they likely to resort to using the skills of those who lurk in the black economy. On the contrary, they will engage reputable contractors, who in turn operate the tax deduction scheme where they employ subcontractors.

To require large businesses to operate the scheme when they commission construction work will contribute nothing to eliminating the lump or to reducing the black economy. It will present the businesses with an unnecessary and unwelcome administrative burden, which will be expensive and will do absolutely nothing to loosen the skein of red tape that still enmeshes some sections of our larger businesses.

Mr. Peter Viggers (Gosport)

Before my hon. and learned Friend the Minister of State is seduced by the charms of my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle), it is fair to say that another point of view can be put forward on the subject.

I declare an interest—it is recorded—in the building industry, which has an ambivalent attitude towards the subcontractors scheme. The industry recognises the scheme's value. It tightens up on the collection of taxation and national insurance contributions and thereby assists reputable builders to obtain contracts that might otherwise go to those who are not so punctilious in fulfilling their taxation and national insurance requirements. On the other hand, the industry recognises that it would be impractical—indeed, impossible—to apply the scheme to every domestic contracting operation.

Therefore, the only question is where the line should be drawn. I think that the general view is that the Bill is broadly correct and that it would be correct to keep the matter under review, but that acceptance of the amendment would perhaps be to go too wide.

The Minister of State, Treasury (Mr. Peter Rees)

I am in a fortunate position. In the Standing Committee we had the privilege of hearing the silver tongue of my hon. Friend the Member for Gosport (Mr. Viggers) but not that of my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle). Today we have heard deployed from the Back Benches both considerations that weigh very much with the Government. After a certain amount of consideration and a great deal deal of consultation, we have come down on the side of my hon. Friend the Member for Gosport.

As we did not have the privilege of debating the matter with my hon. Friend the Member for Lichfield and Tamworth, perhaps I should do a little more justice to his amendment. There is a definite problem as to how far we should extend the 714 certificate scheme. It undoubtedly imposes a certain administrative burden on those firms, individuals, partnerships and companies that have to operate it. We recognise that, but we feel that we are obliged, within limits, to impose on them, if only to ensure that the Exchequer receives its due share of tax from those whom they directly or indirectly employ.

After a great deal of consideration and consultation, and with a certain reluctance, we decided that we could not, largely for the reasons that my hon. Friend the Member for Gosport out- lined, confine the scheme to what I shall call the mainstream building companies. It would put those who are not in the main stream and who operate through their own in-house departments in a favourable competitive position.

5.15 pm

There might well be a temptation for many large companies, which could by no stretch of the imagination be described as being in the building industry but which have occasion to command building resources to restore, repair and improve their own premises, to use in-house labour forces rather than go outside to the building industry. In other words, competition would be slightly distorted.

Therefore, we decided that we should not extend the scheme. However, after considering the points advanced in Committee, we thought that we should raise the threshold from £100,000 to £250,000 a year.

On general principles, I must advise the House, with some regret, to reject the amendment so eloquently and persuasively moved by my hon. Friend the Member for Lichfield and Tamworth. My regret is tempered, and I hope that my hon. Friend's regret will also be tempered, by certain other important technical considerations. If the House accepted the amendment, any non-mainstream company that did not choose to divisionalise itself into a building and maintenance department would be able to take itself outside the scope, so we should be building in another distortion.

I am not so much moved by the possible latent defects in the amendment. I am more moved, as I hope the whole House will be, by the general considerations. I hope that my hon. Friend will feel that justice has been done to both sides of the issue, small and difficult as it may be, and that he can honourably ask leave to withdraw the amendment.

Mr. Heddle

My hon. and learned Friend kindly referred to the silver tongue of my hon. Friend the Member for Gosport (Mr. Viggers) and to my own contribution. The golden words of my hon. and learned Friend have persuaded me to believe that he has an open mind on the matter and that he will not close the door to further discussion, perhaps this time next year. On that assumption, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Sir Graham Page (Crosby)

I beg to move amendment No. 36, in page 118, leave out lines 1 to 14.

Lines 1 to 14 are paragraph 6 of the schedule. I think that it was intended by the schedule to relax to some extent the conditions under which one would be allowed to trade as a subcontractor and hold a certificate that tax did not have to be deducted from every payment made. One of the conditions is that one must have been employed in this country for three years before one can obtain such a certificate. Another is that one must have paid one's taxes.

The paragraph requires a person who has been working overseas to satisfy the Board of Inland Revenue, first, that he has been working overseas since the three-year period, and, secondly, that during the period that he was working overseas he paid all the taxes similar to income tax in this country. He must not only say that he has paid them but must produce evidence. The clause provides that such a person must satisfy the Inland Revenue, by such evidence as may be prescribed in regulations, that he has complied with his overseas tax obligations during the time spent overseas. At present, I believe that no such regulations have been issued in draft form. We do not know what the Inland Revenue has in mind. We do not know what evidence will have to be produced.

Much of the construction work done by British companies is undertaken in countries in which it would be extremely difficult to obtain a certificate, or written evidence to the effect that tax had been paid. I think, for example, of some of the Gulf countries, in which a great deal of construction work is done by British contractors. If the regulations are too severe about evidence, a worthy man may be unable to obtain the certificate that will enable him to work without having tax deducted.

To some extent, this is a probing amendment to discover what evidence would be required. However, the paragraph is too general and vague. Without it, the Board of Inland Revenue could obtain such evidence as it required. However, when it states that evidence must be produced, one envisages that the board will require documents or firm receipts to show that the money has been paid and that tax obligations have been met. It would be no use if a taxpayer were to produce a tax receipt on earnings overseas. He would have to satisfy the board that he had satisfied all his tax obligations. I do not imagine that the authorities in, for example, Bahrain or Saudi Arabia would give an ordinary British workman a clearance certificate for his tax obligations. There will be great difficulties unless we are given a firm assurance that the board will accept a statutory declaration from the taxpayer. I believe that that is the most that he will be able to produce. I therefore commend the amendment to the House.

Mr. Peter Rees

My right hon. Friend the Member for Crosby (Sir G. Page) has returned to a point that he made in Committee, with his customary penetration and wit. I appreciate his anxiety and that of other Committee Members. He was right to emphasise that we have introduced considerable relaxations in the subcontracting scheme. This is not a tightening up, or Draconian measure. However, despite the relaxation, we must recognise that problems must be faced by the Inland Revenue if it is to ensure that a due measure of tax is exacted from those who work in the industry.

One problem has been faced by this Administration, the Labour Administration and the Administration preceding that. It has therefore been faced by parties of both political hues. People tend to drift in and out of the industry, and in and out of the country. It would be invidious if I were to single out a country that provided a reservoir of labour. My right hon. Friend the Member for Crosby instanced a country in the Middle East. That country has made a notable contribution in many spheres, but I am not certain that it has made a human contribution to the industry.

Sir Albert Costain (Folkestone and Hythe)

Does my hon. and learned Friend appreciate that many British citizens work in the Middle East because it is tax-free? If they had to get certificates showing that they had paid all their taxes the authorities would be extremely suspicious. It would be very confusing for everybody.

Mr. Rees

I accept my hon. Friend's point and I am aware of his personal interest and knowledge of such matters in the Middle East. However, I doubt whether there is a large influx or deflux of people. Nevertheless, we must take account of small numbers as well. People turn up in Britain after long periods of absence. They have no record of their tax-paying capacity or integrity. How can the Inland Revenue deal with that? We have relaxed the three-year rule to a considerable degree.

During the brief time in which I have had responsibility for these matters, I have been particularly disturbed by the number of letters that I have received from hon. Members from all parties about cases of real hardship. We were unable to deal with those cases under existing legislation. Occasionally, one may be able to temper the situation by small, administrative extra-statutory concessions. However, to go against the tenor of the legislation would be repugnant to the House and to the Government. We would expose ourselves to considerable criticism from such bodies as the Public Accounts Committee.

In addition to the relaxation that we have already provided, we feel that if a person has been abroad for three years and has no record of employment, or tax-paying employment in this country, he should provide some evidence that he has been, if not a respected citizen, at least a respected taxpayer in the various countries in which he has worked.

My right hon. Friend, with his mordant wit, instanced a country where there may not be a heavy, direct impost on those working there. No impossible or absurd burden will be placed an a taxpayer in that situation. The Inland Revenue will not require reassurance about direct and indirect taxes. Direct taxes alone will bear on such activity. My right hon. Friend said that no regulations have yet been promulgated. In the formal sense, that is true. However, draft regulations were published on 30 June for comment. In due course, they will come before the Statutory Instruments Committee, which is chaired by my distinguished right hon. Friend. There will, therefore, be ample opportunity for the House to consider and comment on them.

I hope that hon. Members will agree that the draft regulations impose an acceptable and reasonable obligation on those who have been out of the country for a considerable time. Ultimately, there is a right of appeal to the Commissioners. That represents yet another major relaxation. To a considerable degree, we have amplified the rights of the taxpayer to challenge the administrative decisions of the Inland Revenue. An individual will have the right to go to the Commissioners in order to determine whether his case has been adjudicated fairly and reasonably. That is an additional and important safeguard.

The House will therefore have an opportunity to consider the regulations already been published in draft form, in more detail. I therefore hope that my right hon. Friend will feel that ample justice has been done to the real point that he revealed in Committee, and today.

Mr. Dalyell

I did not speak immediately after the right hon. Member for Crosby (Sir G. Page), because I was curious to hear what the Minister would say about a real problem. Some of us raised this issue not only upstairs, but in another form upstairs. We may say what we like about various countries in the Middle East, but the problem exists nearer home, namely, in the North Sea. I reported to the Minister, as I believe Mr. Linkie of East Kilbride did, that when the Scottish group of Labour Members went to East Kilbride they were told that a number of people went on to North Sea rigs—both in the British and Norwegian sectors—direct from Schipol or another airport in Holland. The Inland Revenue knows very little about such people. One gathers that that practice is growing.

It is easy to ask rhetorical questions, but it is harder to discover exactly what the answer is. People may be in the North Sea one month, and in Houston, Texas the next. To chase them round the world is easier said than done. Nevertheless, the problem remains, and it is creating considerable difficulties. One is entitled to ask the best brains in the Inland Revenue what they can do about it. To my mind there is no easy or immediate answer, but with a certain amount of care and thought perhaps this important problem could be at least half met. I wonder whether the Minister has any comment on that matter.

5.30 pm
Sir Graham Page

I think that the hon. Member for West Lothian (Mr. Dalyell) had more in mind the avoidance of tax. What we are dealing with in this clause is an assurance that the person who applies for a certificate has paid his taxes overseas and met his obligations to another country. We are not collecting taxes for other countries in any way, or seeing that other countries have got their taxes. All we are asking is whether this man pays his taxes, and whether it is an obligation for this country or another country.

The Inland Revenue Board must be satisfied with firm statements by the taxpayer concerned if he is unable to obtain anything better. This has repercussions, not only in the North Sea, but in the Irish Republic, the United States of America and Australia, or anywhere in the world where a British contractor undertakes work and sends people out from this country. In many cases the employee receives payments tax-free, so that he will never come in contact with the equivalent of the Inland Revenue in another country. I would not think that he would want to come in contact with it, because if he asks for a certificate of clearance after two years' working he may be expected to answer a lot of questions, even though he may be quite entitled to have all his money tax-free.

I hope that my hon. and learned Friend will bear this in mind. I am sure that the increased opportunities for appeal will keep the board in check if it tries to ask for too much from a person who is in difficulties trying to produce evidence. We are relying very much on the improved administrative appeal here. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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