E-Rendering unto Caesar

RICHARD CURTIS reviews the final sittings of Standing Committee F's debates on the Finance Bill 2002.

IN 'DREAMS IN E' (Taxation, 27 June 2002 at page 341), Allison Plager reviewed the Government's plans on the subject of electronic business between itself (i.e. its various departments and agencies) and its charges (i.e. you and me). Having decided that it will wholeheartedly embrace the electronic age, the Government's only problem appears to be that a proportion of the population are apparently 'Luddites' who will have to be dragged kicking and screaming into this brave new world, unless perhaps they have a very good reason from a higher authority.

Mandatory e-filing

In the words of the Treasury's 'Explanatory Notes', clause 132 of the Finance Bill 2002 'allows the Inland Revenue to require the use of electronic communications for the delivery of information'. The clause appears to have grown from the Carter Report, which looked at ways of reducing the administrative burdens of the pay-as-you-earn system and decided that an electronic strategy was the answer. Unfortunately for the Government (which, according to the debate, estimates that it will also reduce the Revenue's administrative burden from pay-as-you-earn by approximately 1,300 jobs), such a strategy has not been wholeheartedly embraced by the taxpaying public. The Notes go on to say 'but the benefits of electronic technology have not been clear enough on their own to persuade many small employers to move away from paper. The report recommended a mixture of compulsion and incentives to achieve the necessary culture change'. Strangely, although the Notes refer to the Chancellor's Budget statement that all employers will have to file their returns electronically by 2010 (earlier for larger employers) and that incentives will be offered, nowhere in the clause itself is pay-as-you-earn mentioned. Instead the clause is drawn in very wide terms, basically providing that 'The Commissioners of Inland Revenue may make regulations requiring …' and therein seems to lie the problem that the Opposition has with clause 132.

Mr Bercow (Opposition Chief Secretary to the Treasury) started the debate by proposing a Conservative amendment that the word 'requiring' in the clause should be replaced by 'permitting', they are after all 'the party of choice'. Gentlemanly, he suggested to Dawn Primarolo (Mr Bercow: 'I am dangling a fairly juicy carrot') that if the Government were to accept that it had 'got it wrong' with its emphasis on compulsion, ('there is no shame in making a mistake'), then the Opposition would not 'bang on and bore the Government rigid, for months to come, about their failure and embarrassment'.

On a more serious note, he commented on the opposition of both the Institute of Chartered Accountants of England and Wales and The Chartered Institute of Taxation to 'unrealistic time scales' and 'the element of compulsion'. There was also concern that the clause was simply a skeleton on which the flesh would be added later, but without the opportunity of debate. Parliament was being asked to 'lie back and think of England'.

Mr Bercow went on to remind Ms Primarolo of her statement (in a letter to a constituent) that 'it remains Government policy not to force individuals to use the Internet personally … and reassure you that nothing in clause 132 nor the regulations that will follow will create such a requirement'.

There followed contributions from other Committee members along the same lines - this could cause problems for the elderly, small employers (for example those who employee nannies, gardeners, etc.) and those who were concerned about Internet security. The Government was forcing people to change the way that they work.

The proposed incentives, £250 for small employers in 2004-05, were described as 'pathetic' and as amounts 'which will not buy much of a computer these days'. There was concern that taxpayers' records could be accessed by other Government departments and also about the dominance of Microsoft.

Further concern was expressed about the wide-ranging powers in the clause, for example subsection 8, 'the imposition on any person of any requirement or the issue to any person of any request' and the possibility of penalties up to £3,000. Mr Rob Marris also noted that pay-as-you-earn was not mentioned anywhere in the clause and asked for reassurance on that. Dawn Primarolo subsequently stated that 'the clause only refers to the pay-as-you-earn system'. In view of the exceptionally wide terminology used in the clause, future development should be watched with interest.

Dawn Primarolo stated that, following the Carter Report, the Government and the Revenue were encouraging e-filing with a £420 million incentive commitment (or 'bribes' in Mr Bercow's terminology) for intermediaries. 'Armageddon' has not occurred for those firms already filing returns electronically and Department of Trade and Industry figures showed that 94 per cent of businesses were connected to the Internet, the highest for any of the Group of Seven countries. (Mr Bercow interrupted with the question of 'if the use of the net and e-filing are as popular as she (Ms Primarolo) supposes, why does e-filing have to be compulsory?'). Furthermore, the incentive payments are not necessarily for computer equipment, but for assistance in paying the bills of the intermediaries who were dealing with e-filing.

The principles of compulsion for e-filing continued to exercise the minds of the Committee members during the afternoon sitting. This was the sixteenth and final sitting of the Committee, and discussions had a decidedly 'end of term' feel.

Mr Bercow again kicked off proceedings - subsection 3 'Regulations … may also make provision (which may include including provision for the application of conclusive or other presumptions)'. 'What does it all mean?' The same as is already happening in the paper-based pay-as-you-earn system according to Dawn Primarolo, who was 'staggered' that 'in this day and age … the Opposition wish to stick to paper - and presumably if they could, the pony express'.

The Labour backbencher, Roger Casale, gave support to Ms Primarolo. He could not understand why people 'seem to be ready to go to the stake over what they regard as the inviolable right of business people not to file their tax returns by e-mail … after all, people are compelled to use a paper form, and in future they will be required to use e-mail. What is wrong with that?'

The amendment was defeated.

Conscientious objections

Mr Bercow now introduced an amendment that would exempt individuals from clause 132 if electronic communication was incompatible with their religious beliefs. Apparently, this was suggested by a religious group, the Brethren. He pointed out that as members of the group view their relationship with God, they do not vote in elections and this was therefore not a vote-grabbing exercise, nor did he have an interest as a member, the Brethren being upstanding people of high moral fibre! He explained that the Brethren believe that communication should be by the spoken or written word (I find in St Paul's second letter to the Thessalonians 'So then brethren, stand firm and hold to the traditions which you were taught by us, either by word of mouth or by letter'). The Brethren 'regards the Internet as a source of uncontrollable evil' and its businesses in the United Kingdom operate without computers.

The Committee began to delve into the implications and ramifications of this subject and the debate took a rather philosophical turn as follows.

• Did the Brethren use telephones? Apparently yes, but this is a personal decision and does not involve the receipt of unwanted information.
• Could they instruct an intermediary? They should not ask someone else to do something of which they disapprove.
• Did the fact that the Pope apparently uses a computer suggest that it was not the instrument of the devil?
• What would the Government think of a sect whose religious convictions prevented them from paying tax?
• Would it be right to refuse this concession, when other minorities were catered for - for example Sikhs, who did not have to wear protective headgear on building sites and motorcycles?
• Could the exemption be exploited by the more cynical and less principled?

On a slightly more surreal note, Mr Tom Harris said that he had also actively researched his Bible for the references quoted by the Brethren. As a previous evangelical Christian, he was interested. Was there any justification for any suspicion of Bill Gates? Was the Apple Macintosh the preferred platform of the Apostles? Knowing that they should also not take part in political activity, he also admitted to the pleasure of canvassing Jehovah's Witnesses 'as revenge for the number of times that they have chapped me up on Saturday mornings'.

Dawn Primarolo had also received representations from the Brethren and persuaded the Opposition to withdraw the amendment when she advised them that the subsequent regulations could provide for situations such as this. Subsection 7(c) of clause 132 - the regulations will include the power 'to make different provision for different cases' and 'the officials in the Inland Revenue will have discussions with the Brethren to ensure that the regulations, when drafted, cover the point that they have been making'.

It is perhaps interesting that the Government appears to have accepted Mr Burnett's view that 'we should not ride roughshod over the principled and constant views of a substantial group of our fellow citizens' (about 1,200 businesses according to him), yet the views of the Institute of Chartered Accountants and The Chartered Institute of Taxation (representing between them about 130,000 members) opposing compulsory e-filing were overruled.

After some further discussions regarding the use of regulations in such circumstances, the clause was accepted.

New clauses

The Committee then moved to a discussion of some new clauses.

Swanning around

New clause 21 proposes that the tax exemption for allowances paid to Members of Parliament in respect of, for example, visits to the national parliaments of other European Community Member States, should be extended to encompass visits to 'candidate countries'. The clause was swiftly accepted, although, in the opinion of Mr Flight, adding to the number of 'swan visits... tend to bring the European Union into disrepute'.

Corporation tax instalments

The Opposition had already proposed an amendment to bring an income tax self-assessment 'payment on account' system to corporation tax and this was attempted again with new clause 6. Dawn Primarolo pointed out various flaws in the clause. It only applied to group payments, there were no provisions for the current year liability being less than the previous year or for 'opening' years. She also mentioned that, following consultation, the Revenue would be issuing further guidance on instalment payments (which it did on 4 July) and the new clause was withdrawn.

Stamp duty and OFEX

New clause 17 proposes that the market-making activities of the OFEX market should be exempt from stamp duty in the same way as similar activities in the rest of the London market. To the 'delight' of the Opposition, Dawn Primarolo accepted the arguments (but not the clause itself) and promised that the Government would table a suitable amendment during the report stage of the Bill.

Employee's accommodation

New clause 24 was introduced by Chris Grayling (Conservative), with the aim of extending the exemptions from the income tax charge for living accommodation in section 145(4), Taxes Act 1988 to employees in designated public services. The purpose was to address the problems of lower-paid, but 'essential', workers who find it difficult to find affordable accommodation in large cities. The clause was withdrawn after Dawn Primarolo promised to look at this problem.

Insurance company gains

Mr Flight flagged up an apparent anomaly in that the tax paid by life insurance companies on policyholder capital gains was 22 per cent, whilst for basic rate taxpayers the rate for capital gains tax was 20 per cent. New clause 29 proposed that the rate should be reduced. Ruth Kelly pointed out that there were differences in the way that the gains of companies and individuals were calculated, e.g. indexation and deductible management expenses for companies, taper relief and annual exemptions for individuals. She considered the clause 'too simplistic', but again mentioned that there was to be a review of life insurance taxation, and the clause was withdrawn.

Inheritance tax

Mr Mark Hoban proposed new clause 30 (a 'probing' clause), that 'a person's principal private residence is excluded property'. Ruth Kelly was relieved that Mr Hoban was proposing a consequent decrease in the zero-rate band to compensate (more than compensate as he thought) as, without this, the cost to the Treasury was estimated at £950 million per annum. Ruth Kelly considered the clause unfair; those with higher value properties (in the south?) would benefit, whilst those with lower value properties would not. Mr Field suggested that this was the case with the capital gains tax exemption, but the clause was then withdrawn.

Residential care

Mr Chris Grayling's new clause 32 proposed that 50 per cent of the cost of residential care should be deductible for income tax purposes (subject to an upper limit). He felt that it was unfair that elderly people who had saved saw these savings rapidly eroded, whilst those who had not were supported by the state. Dawn Primarolo was amused that new clause 30 (above) would raise money, which would be spent by this clause. She though that this was 'taking the idea of Government-in-waiting beyond normal expectations'. She felt that the improvements in funding for local authorities' provision of residential care was a better way of targeting this problem and, again, the clause was withdrawn.

Executors and inheritance tax

New clause 33 would allow personal representatives to pay inheritance tax from the estate remaining after death, before probate has been granted. Mr Flight highlighted a problem with the working of probate in that nothing could be paid out of the estate until probate had been granted, but people could not afford to pay the inheritance tax until the estate was distributed. This meant that they often had to take out a loan to pay the tax, repaying it after grant of probate. Ruth Kelly pointed out that changing the tax position would not solve the problem as it related to general probate law. However, she confirmed that the Government was working with banks and building society representative bodies to find a solution to this problem, and on that basis the clause was withdrawn.

The end, my friend?

The sixteenth sitting of Standing Committee F was the final sitting and finished with Dawn Primarolo (for the Government), Howard Flight (Conservative) and John Pugh (Liberal Democrat) thanking the Chairman, Deputy Chairman, Commons staff, etc. for their assistance in ensuring the smooth-running of the Committee. Dawn Primarolo noted how much she had enjoyed her eighth (or was it ninth) Finance Bill and thanked members of her own and other parties, particularly Mr Flight who she appeared to look forward to meeting again in twelve months' time. Mr Flight thanked his colleagues and noted the professionalism of Dawn Primarolo, and Mr Pugh also wished to 'bury some of my differences with the Paymaster General' and finish on a note of sweetness and light'. Was it ever thus?

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