ASSESSMENT OF AMOUNTS DUE BY WAY OF PENALTY (Hansard, 16 July 1987)

§ Sir William Clark
I beg to move amendment No. 60, in page 53, line 1, leave out from 'assessment' to the end of line 7 and insert— `or may reduce it to such an amount as they consider appropriate having regard to the provisions of that section and all the circumstances of the case; and (b) if it appears to them having regard to all the circumstances of the case that no penalty ought to be awarded, may set the assessment aside.'.

§ The Temporary Chairman (Mr. James Lamond)
With this it will convenient to take amendment No. 61, in page 53, line 7, at end insert— '(6A) In any appeal against an assessment by way of penalty under section 94 of the Management Act unless the Commissioners are satisfied on the basis of lawful evidence provided by the inspector or any representative of the Board and by or on behalf of the taxpayer that a penalty has been incurred they shall set the assessment aside.'.

§ Sir William Clark
The amendments need not delay us for long, because much of the ground was covered by the hon. Member for Sedgefield (Mr. Blair) in the previous debate.
There is no power for anyone to mitigate the various fines, although I appreciate that there is some scaling of the fines in relation to the delay in filing accounts. In the recent VAT tribunal case of Gailey, Jackson and Pook, the chairman of the tribunal described section 15 of the Finance Act 1985, which contains the automatic penalty provisions, as follows: The section is draconian in that it imposes a penalty of 30 per cent. without power to any authority to mitigate, without reference to the amount of tax lost to the state and, indeed, without reference to the justice of the matter". That is a severe indictment of fixed penalties, because all cases are not the same. I accept that interest will be payable in the event of overpayment or underpayment, but I do not accept the argument that thousands of people would appeal if mitigation were possible. They do not do so in the normal course of events when assessments are made under the present system. People do not automatically appeal in relation to ordinary computations. They may appeal to protect their position, but very few cases go to the special commissioners or to the general commissioners. The matter is settled before the appeal comes up. A case goes to the commissioners only if the taxpayer appeals against an assessment but does not provide accounts and cannot prove that the assessment is wrong.
In all justice, it is a bit much for my hon. Friend the Minister to say that there is to be no mitigation of penalties simply because the Government or the Revenue believe that everyone would appeal. That has not happened in practice, and I see no reason why it should now.
On amendment No. 61, if one appeals against an assessment in the normal course of events, it is up to the taxpayer to prove why that assessment is wrong. If the Revenue, under the penalty procedure, says that there is a penalty and makes an assessment of that penalty, does the Revenue have to prove it, or does the taxpayer have to disprove it?

§ Mr. Lilley
My hon. Friend referred to a criticism that applied to the original Keith committee recommendations, rather than to the modified version incorporated in these provisions. We have responded to that criticism by reducing the maximum proposed penalty from 30 to 20 per cent. of outstanding tax and by increasing the time before it becomes applicable. Therefore, a longer delay is allowed before any penalty comes into force for the non-filing of accounts, and the penalty is less than it was. Theoretically, the present maximum penalty is up to 100 per cent. of tax and obviously that is much more liable to require some degree of mitigation.

§ Sir William Clark
The chairman of the tribunal said that 30 per cent. was draconian. My hon. Friend says that it has been reduced to 20 per cent., but that is still draconian.

§ Mr. Lilley
Clearly it is less so, and it becomes applicable much later. This problem of appeal which my hon. Friend suggests is unlikely to be serious could become important and there could be widespread appeals. The practice of going to appeal already stands at about 400,000 cases a year, so we are not talking about small numbers 1331 of people who are in the habit of appealing. We cannot be sure that they would not continue this habit even under a regime where it was less appropriate.

§ Mr. Blair
We must he a little careful. The Economic Secretary talks about people in the unfortunate habit of appealing, but they are perfectly entitled to appeal if they feel that their interests have not been properly considered. We should not necessarily think that everyone who appeals is attempting to abuse the procedures.
The two amendments deal with the question of litigation and we have substantially dealt with that, but I wish to pursue a matter arising from amendment No. 61. I thought that in effect the commissioners, on appeal, would have to be satisfied that a penalty should have been incurred. I should be grateful if the Minister could tell me whether that is the case. Or is it the case that at present the duty is on the taxpayer to show that a penalty should not be incurred?

§ Mr. Lilley
When the hon. Gentleman said "at present", did he mean in the clause as it stands, or under the present regime?

§ Mr. Blair
Under the amendment.

§ Mr. Lilley
I am not criticising the practice of appealing. It is almost built into the present structure of corporation tax and it has become established practice. However, I would regret its continuing under the new system, because it is partly to avoid the necessity of that that we are introducing pay and file. It would be sad to create a new system under which appealing was legitimate and so people did it. If mitigation was built in, obviously it would be open to people to lodge an appeal, because they would stand some chance of having their penalty mitigated. They stand to lose nothing, except in trivial cases where the cost of lodging an appeal may not be worth it.
In answer to the question about the onus of proof, the Revenue must prove that a penalty is applicable. It must demonstrate that the filing had not been made by the relevant time. In that regard, the amendment probably has no effect. I can reassure my hon. Friend the Member for Croydon, South (Sir W. Clark) that the onus of proof remains where it is now and the Inland Revenue will have to prove that it has gone through the relevant processes of showing that a penalty is applicable.
The amendment could require the Inland Revenue—it would depend on how the amendments were interpreted by the courts—to prove, for example in the event of a plea of reasonable excuse, that the company had no reasonable excuse: that is, not that a specific excuse was not reasonable, but that it had gone through all reasonable conceivable excuses and could prove that the company did not have one. Obviously, that would be extremely unsatisfactory, and I am sure that it is not the intended consequence of my hon. Friend's amendment.

§ Sir William Clark
In view of the current investigation and review, which will be completed before the next Budget, I beg to ask leave to withdraw the amendment.