Inland Revenue: Responsibilities (Hansard, 29 April 1993)

The Minister of State, Department of Transport (The Earl of Caithness)
No, my Lords.

§ Lord Jenkins of Putney
My Lords, does the noble Earl accept that such an Answer is quite inadequate to the Question which is put to him? Perhaps he has not read the Question but he is asked whether the Inland Revenue is required to approve schemes. He gave me a negative answer and I accept that that is adequate in itself, but will he not tell us—the House is entitled to know—on what basis it is possible for a person in an earning capacity to turn himself into a company? Does every occasion on which that is done have to 438 receive the approval of the Inland Revenue? If I worded the Question wrongly, I must apologise to the noble Earl.

The Earl of Caithness
My Lords, it is up to the noble Lord how he words his Question. I answered the Question on the Order Paper. The Inland Revenue takes steps to assist employers to fulfil their obligations. As a part of its work the Inland Revenue issues written guidance for employers; it advises on the obligations arising in certain situations when asked to do so, and it also visits employers periodically to audit their records. However, it is the obligation of employers to ensure that payments to employees or other workers are treated correctly for income tax and national insurance purposes.

§ Lord Hailsham of Saint Marylebone
My Lords, am I not right in thinking that the construction of tax statutes is ultimately a question for the courts and not for the taxpayer or the Inland Revenue?

The Earl of Caithness
My Lords, I believe my noble and learned friend is right that ultimately a decision is taken in the courts if there is a dispute. It is the Inland Revenue's duty to look into the facts of each case.

Lord Bruce of Donington
My Lords, is the noble Earl aware, or will he agree, that it would be most undesirable if the Inland Revenue were allowed to interfere at will with the operation of the Companies Acts themselves which grant to individuals, provided they have gone through the necessary formalities, the right to turn themselves and possibly their relatives into a limited company with all the rights of contract as between one corporation and another which are thereby enshrined in the articles and memorandum of association? However, does the Minister agree that the real trouble in this whole matter is the disparity of treatment between individuals employed, and therefore assessible under Schedule E of the income tax Acts, and the expenses that are allowed to independent individuals or to limited companies? What is really required is a revision of the taxing statutes themselves whereby the expenses allowed to employees for tax deduction purposes are brought more into conformity with those that are admitted under Schedule D in the corporation tax provisions.

The Earl of Caithness
My Lords, I agree with the noble Lord's analysis that he gave in the first part of his question. However, the second part of his question goes very much wider than that on the Order Paper.

§ Lord Stewartby
My Lords, does my noble friend agree that it is perfectly in order for consultancy companies to be set up for legitimate purposes, one of which is pensions, for those who draw their income from many sources or who change their occupations and their revenue sources quite frequently? However, what has caused concern about a recent case, and other comparable cases which may exist, is that a person with such a consultancy company might apparently be able to become not only a full-time employee but actually an executive of another 439 company and still have expenses deducted from the consultancy company. That is the cause of the concern which many of us feel.

The Earl of Caithness
My Lords, my noble friend will appreciate and fully understand that I do not wish to comment on any particular case. However, he was right to point out some of the potential advantages of using a service company for those people who have certain occupations; for example, computer consultants, TV and film workers, entertainers and those in professions such as design and architecture.

§ Lord Bonham-Carter
My Lords, will the noble Earl be so good as to tell your Lordships' House whether Mr. Birt—that is the case which gives rise to this Question—has yet signed a contract with the BBC as a normal member of the staff?

The Earl of Caithness
My Lords, I wonder whether the noble Lord heard my reply to my noble friend? I said that I would not discuss any particular case.

§ Lord Molloy
My Lords, is not the quintessential feature of this matter the fact that all these cunning and clever schemes are really designed to reduce the amount of income tax the individuals involved will have to pay? That provision does not apply to other skilled workers such as coal miners and steelworkers. Is it not therefore about time that the Government defended the mass of ordinary hard working people who cannot become involved in such cunning schemes but who pay their income tax in an honest and straightforward manner?

The Earl of Caithness
My Lords, these service company schemes are perfectly legal provided the Companies Act is followed. I would say to the noble Lord that there is also the matter of VAT, corporation tax and many other taxes which come into play when one is dealing with companies rather than individuals.

§ Lord Cledwyn of Penrhos
My Lords, is the noble Earl aware that the supplementary question asked by my noble friend Lord Bruce was well within the scope of the Question and is an important matter related to the complex subject we are discussing? Will he be good enough to reply to my noble friend?

The Earl of Caithness
My Lords, I listened with care to the question posed by the noble Lord, Lord Bruce of Donington. My understanding was that it concerned a revision of the whole of the tax structure and the payment of tax. That is very different to the Question on the Order Paper.

§ Lord Mackie of Benshie
My Lords, is not the Minister being somewhat unreasonable in refusing to answer my noble friend Lord Bonham-Carter? This is a case of immense public interest and it has been mentioned in every newspaper. The matter is very relevant to the Question on the Order Paper.

The Earl of Caithness
My Lords, I do not believe I was at all unreasonable in my answer to the noble Lord, Lord Bonham-Carter. It would be quite wrong for me to discuss individual cases.

§ Lord Monkswell
My Lords, in his first supplementary answer the Minister said, as I understood it, that the responsibility for the payment of income tax rested on the employer. Is the Minister satisfied, in connection with the remuneration of Mr. Birt as an employee of the BBC, that the BBC has ensured that the correct income tax has been paid?

The Earl of Caithness
My Lords, I repeat for the third time that I am not prepared to discuss any individual case.

§ Lord Richard
My Lords, it is all very well for the Minister to stand there saying he is not prepared to discuss that case but the Question on the Order Paper specifically deals with it. I cannot therefore for the life of me understand why he cannot discuss the matter. Is it a fact now that Mr. Birt has a contract with the BBC and is paying tax under the PAYE scheme? Why on earth cannot the Minister answer that question? I would say with respect that it is in the Question.

The Earl of Caithness
My Lords, it might be in the Question but it is not a matter for the Government.

§ Lord Jenkins of Putney
My Lords, is the noble Earl aware that the importance of the BBC example is precisely that a person receiving a full-time salary simultaneously set himself up as a company and obtained reliefs which, strictly speaking, were applicable only to a company or to a person not engaged by a single employer? That is an example of a general case. The noble Earl is entitled to tell us whether that practice is common. If it is common ought it not to be stopped?

The Earl of Caithness
My Lords, I certainly do not know whether the circumstances alleged by the noble Lord are common practice. That is a question for the Inland Revenue, which will look at every individual case. I shall not comment on the case.