Question proposed, That the clause stand part of the Bill.

This measure extends the scope of the disclosure regime to situations in which the VAT advantage does not affect the taxpayer's VAT return—for example, because the VAT relates to exempt supplies and the scheme is intended to reduce the amount of irrecoverable VAT that is effectively a straight cost to the business. The definition is also extended to cover a reduction in the amount of VAT incurred by non-taxable persons. That will bring offshore arrangements that were not previously caught by it within the scope of the disclosure   regime. That, of course, will mean an increased compliance burden for affected taxpayers.

It is interesting that the VAT disclosure regime is continuing to request the disclosure of schemes, but no action is being taken to introduce any anti-avoidance legislation in response. That may be because there is no possibility of amending UK legislation within the European Union directive or because Her Majesty's Customs and Excise is awaiting the outcome of certain European Court of Justice cases to determine whether it has sufficient grounds to introduce anti-avoidance legislation. I should like some clarification on that point, the theme of which will consistently run through our proceedings.

One of the more contentious issues arising from the redefinition of a tax advantage is that under the existing rules only taxable persons are required to notify a scheme when a tax advantage arises. Therefore, the onus is placed on the supplier to notify HMRC when a recipient of the tax advantage is not registered for VAT. That may not be possible if transactions pass through several third party companies before the end recipient benefits. Again, additional burdens are placed on legitimate businesses.

There is a lack of Government activity on disclosed VAT avoidance schemes. At HMRC's large business forum in May, it indicated that it had received details of more than 700 VAT avoidance schemes. The Government have not sought to close down any of those in this or the previous Finance Bill. On Second Reading of the Finance Bill, the Paymaster General cast doubt on that number of 700, which had been raised by my hon. Friend the Member for Runnymede and Weybridge. Yet the statistic is there for all to see in an Inland Revenue presentation on the Inland Revenue website: 729 VAT schemes have been disclosed.

In the same large business forum, HMRC debated the tax gap—that is, the tax not collected due to non-compliance, defined to include tax avoidance. The Government's apparent inaction appears to be fuelling the tax gap. It is possible that concerns about EU law are once again preventing the Government from closing down some of the VAT avoidance schemes. If the Government are not going to use the VAT disclosure scheme to close down avoidance, should not those rules be reduced, to remove, at least, the compliance burden on business and enable HMRC to concentrate on more fulfilling matters?

I ask one final question. Why are the Government not using the information gathered under the 700-plus schemes to take action to shut down the tax gap?

Let me explain clause 6 as it relates to schedule 1 in terms of the two principles. I will then respond to the questions raised by the hon. Gentleman. If we are to take clause 6 and schedule 1 as one debate, perhaps I should wait until other Members have spoken. Alternatively, would you like me to respond now, Sir Nicholas?

They are down for separate debate. I was aware that the hon. Member for West Suffolk was probably straying marginally into schedule 1, but at   this early stage of the Bill's consideration I was using the Chairman's discretion.

I thank you for your indulgence, Sir Nicholas.

We have also had conversations with a number of parties who are concerned that they expend a huge amount of time and effort complying with these particular rules and regulations and produce information that seems to go into a pot somewhere and never results in any action by HMRC. They appreciate that HMRC has been willing to meet and to talk, but is this not a good example of where consultation in much greater depth in advance would have avoided this process of businesses constantly filing and providing information that appears to be of no particular relevance or use to HMRC?

Order. It is clear that Members are going to involve schedule 1 in this debate on clause 6. I am quite happy to have a wide-ranging debate on the clause and to include matters involved in schedule 1, but I shall put the question on schedule 1 formally without debate, if that is agreeable to the Committee.

My apologies, Sir Nicholas.

My question to the Minister is simple. Given that much work has gone into providing information that appears to go nowhere, would it not be wise at this point to simply set aside many of the new provisions that are being proposed until such time as HMRC and the Government have an idea of what they want to do with the information that is gathered? Reducing the burden on business gives far more credibility to the entire process of regulation. This would be a good opportunity to start taking that message in a practical way to the business community.

Let me deal first with clause 6 and schedule 1. I will then respond to the more general point about the operation of the disclosure rules and the submissions to HMRC in answering the points made by the hon. Members for Richmond Park and for West Suffolk.

Clause 6 and schedule 1 provide for two additional disclosure rules, which follow on from the introduction of the disclosure rules in the Finance Act 2004. The hon. Members for Richmond Park and for West Suffolk were not present at that debate, but fortunately I was. The Committee's view at that stage, and indeed Parliament's view and that of tax administrations around the world, involved concern about an increasing tax gap—the non-collection of taxes, particularly as a result of avoidance. In a number of Finance Bills we have acted, as did the previous Government, to reduce that loss.

Will the Paymaster General give way?

I shall come to the hon. Gentleman's question of what we are doing with the information, but may I first answer the points already put to me? I will then be more than happy to give way to him. It is important that the Committee is focused on what is in the Bill, what we are doing, and how that   interacts with the laws previously passed by Parliament. I will try to set that out.

The first change is to extend the definition of tax advantage to include circumstances in which the scheme is intended to reduce irrecoverable VAT—and a number of avoidance schemes are intended to do that. Those schemes are artificial and provide the business concerned with an unfair competitive advantage over compliant taxpayers. The disclosure rules identify where legislation or changes are particularly required.

The second change in clause 6 and schedule 1 is a simplification measure. It provides that a business will not have to disclose a listed scheme if it had previously notified the authorities of the use of the scheme as a hallmark scheme. That ensures that when the Treasury designates new schemes, businesses will not have to notify us of use of a scheme if they have already done so. That is important. So, the clause and schedule 1 build on and strengthen the disclosure provisions introduced by the Government in 2004.

The disclosure regime is a key part of the Government's strategy to tackle avoidance and ensure fairness. I seem to recollect that the principle was accepted by this Committee and the House. Other illustrious Committees of this House, including the Public Accounts Committee and the Select Committee on the Treasury, have also been pressing the Government very hard to deal with avoidance. The disclosure regime provides Her Majesty's Revenue and Customs with better information, which allows for a faster and more targeted response to abuse of the tax system.

I shall give way to the hon. Member for Runnymede and Weybridge before I move on to what we are doing with the information that we have.

I am grateful to the hon. Lady, and look forward to hearing about what she is doing with the information. She said, when I first sought to intervene on her, that the Government had acted to recover the loss from such tax avoidance. Can she give some suggestion of the amount of VAT recovered as a result of VAT anti-avoidance legislation? To what extent have the Government succeeded in closing the VAT gap?

I am happy to send the hon. Gentleman the annual accounts of the Department; if he looks at them—and, indeed, at the recent considerations of the PAC from before the election—he will see the substantial effect that such legislation is having. None the less, it is important to ask what we are doing with the information. The Committee must understand that disclosure is not the only method available to the tax authorities pursuing those trying to avoid tax. It is an additional tool that was added to those that could already be used.

The rules are working, and I shall explain how. The hon. Member for West Suffolk is quite right: the quantity and quality of the disclosures that have arisen from the measures are as we expected. In fact, almost 800 disclosures about VAT have been received since the rules were introduced. For VAT, the main value of providing information is to inform compliance, which   is going on regardless. It is to inform how we use our risk assessments and to enforce compliance. All information received is risk-assessed and prioritised. Further, hallmarks provide an early warning of new schemes and, together with listed schemes, provide information about who has used these schemes.

One of the discussions that features in every Finance Bill and every debate on the Floor of the House, is that of anti-avoidance measures and the need to get the information to ensure that they are appropriately targeted. It was a problem for the previous Government as well. It is very much the sort of debate that we were having in earlier discussions on clauses: whether it was targeted correctly, and whether it was getting to the non-compliant taxpayers without causing difficulties for compliance.

Hon. Members should not believe that disclosure automatically means legislation. Disclosure means that we can respond to the avoidance in a number of ways, of which legislation is one.

Will the Paymaster General give way?

If I may finish the point and tell the hon. Gentleman what the others are, then I shall be happy to give way.

The other ways for HMRC to assess the tax due are to do an assessment, and to litigate against those schemes that they do not believe will work under existing law. Some of the disclosures are challengeable under existing law, and that is the correct way to proceed. The Government have legislated to close some schemes. For example, the ones that came into force on 1 August 2004, to address the listed scheme 6—that is the group's third party supplier. The disclosure provisions ensure that HMRC has the intelligence to ascertain whether the scheme, or similar schemes, may be in use. This is about them being marketed and used, not necessarily to bring forward legislation.

The suggestion that the information is not being acted upon because there is not legislation is erroneous. HMRC can use assessment and litigation, and where a situation needs to be addressed in law we bring forward changes to Finance Bills. That is entirely appropriate given the powers that we already have.

HMRC is currently investigating the returns of businesses that have notified the use of these schemes under disclosure provision, and is using assessment for due tax as the solution. Assessments are expected to prove effective in combating schemes and recovering the lost yield to the Exchequer. The simple proposition is that if businesses can have it demonstrated to them that their scheme does not work under current law, they will not continue to use them.

I hear what the Paymaster General says, and I understand it. She must recognise, however, that the same arguments apply to direct taxes. The Revenue has the scope to raise assessments   on businesses, yet there is a marked asymmetry in the Government's reaction to disclosure of direct tax avoidance schemes and their reaction to disclosure of VAT avoidance schemes. There is a raft of measures in this Bill dealing with the disclosed direct tax avoidance schemes. There is nothing dealing with the disclosed VAT avoidance schemes.

Can the Paymaster General tell the Committee what the Department's estimate of the tax loss from the 800—she says—disclosed avoidance schemes is, so that we can get some idea of the scale of that loss as against the scale of what it expects to recover from shutting down disclosed avoidance schemes for direct taxes, the estimate for which we have in the Red Book?

The hon. Gentleman has to understand the difference between VAT and corporation tax. One is historical, one is real time. He puts it as the ''tax loss from 800 schemes''. If the Department is notified and is raising assessments for tax to be paid, and if the Government are pursuing litigation, that tax is not lost. The difference between VAT and corporation tax, and therefore the difference between the disclosure approaches, exists in order to prevent the loss before it occurs. What we are trying to address is the nature of the assessments of VAT and the time period over which it is paid—real time, as opposed to the historical information that we receive when we are dealing with corporation tax.

You spoke about the responses of the Government to disclosures under the 2004 VAT avoidance schemes. You also spoke about assessment litigation and bringing forward new legislation. You said that—

Order. I did not say anything; the Paymaster General did.

I am sorry, Sir Nicholas. The Paymaster General stated several times that the Government would use assessment to combat certain schemes. She also said that 800 schemes had now been disclosed. I wonder how many of those 800 schemes have been tackled by assessment. The Paymaster General also spoke about the tax gap—the amount not collected through non-compliance, which included avoidance. However, she has not yet answered the point made by my hon. Friend the Member for West Suffolk about whether there is any impediment to UK legislation because of the rulings of the ECJ. Can she answer those two points?

To be clear, I understand the hon. Gentleman to be suggesting that the disclosure rules breach, or would be in conflict with, ECJ rules.

The first thing to be said about the disclosure rules is that taxpayers know what they are doing when they decide to use these schemes. The point of disclosure is to provide the information to the Department when those schemes are being used, so that it can use assessment.

Assessment means that we disagree with what the taxpayer says, and that the tax is raised and paid. If the disagreement moves on to litigation—I should point out that we are talking here about rules that were introduced very recently—that can take some time to   pass through the courts, and it can go beyond that. As the hon. Gentleman knows, there are a number of cases before the ECJ, and we will have to wait and see what the ruling is on them.

Let me explain the purpose of the disclosure rules that are in the Bill and those that the House passed last year. They are about providing the information so that the tax authorities can respond by challenging when things are not within the law—or their interpretation of it—which will be assessment litigation if things come to that, and they are also about introducing legislation where that is considered necessary. Having become aware of certain schemes, we have now listed them as declarable—when using them, the taxpayer must inform. That is an entirely appropriate way to proceed. The hon. Gentleman and his friends have to address the following question: what are the appropriate tools for the tax authorities, acting on behalf of the vast majority of compliant taxpayers? What should be our response to the few taxpayers—although there are not many of them, they can cause much expense—who continue to use our legislation in ways that it cannot or should not be used? Disclosure is about giving us the information to respond to that.

As I said to the hon. Gentleman, these rules were introduced in 2004 legislation, and they became operable at the beginning of the current year. They are the correct way to proceed. If the hon. Gentleman disagrees, he needs to explain how we can ensure that we have the information to tackle the schemes that are considered abusive, without introducing for every single taxpayer submissions to the tax authorities of a kind that I think all Committee members would object to.

I understand what the right hon. Lady said, but earlier she made the case that a number of the 800 or so schemes had been covered by assessment and listing as disclosable. I am trying to get some measure of how many of those schemes are covered, because I am still not clear about that.

That is what happens if hon. Members intervene on the Minister, thereby stopping her before the point has been made.

I do not have the figure showing how many schemes we have raised assessments against, but I am happy to write to Committee members to let them know—although I will not be able to tell them clearly. I think that the hon. Gentleman wants to know that we have moved to deal with the question of assessment, so that the circle of assessment and litigation, which is the next step, and the rules are operating together.

I am grateful for the right hon. Lady's offer to write to the Committee. That was my point. However, she would not have come to that point, so my intervention was probably correct.

When a Minister is still on her feet and takes an intervention it normally indicates that there is something more to be said.

Opposition Members still have not yet addressed the central point: how do the tax authorities receive the information that they need from those taxpayers   who would seek to use avoidance in advance of that happening, and thereby make it clear that avoidance does not work and ensure that the tax is paid? That is a defence for the Revenue and is preventing the loss of greater amounts of revenue.

To give a complete picture of the procedure, I circulated information to the Committee advising it that the changes are made in regulations, which are dealt with by affirmative resolution, so hon. Members, in this Committee and the House will have an opportunity to consider the proposals when the regulations are laid.

Of course we understand the importance of closing down VAT avoidance structures, but it is important to deal with a thread that runs through the whole issue. Perhaps the Minister will deal with the point that I was trying to make, which is about an assessment by the Government of the impact of EU law in closing down the VAT avoidance structures, given the pattern in the ECJ. That is of profound importance in terms of the impact on domestic legislation and practice.

The hon. Gentleman asks me to speculate on decisions that have not been made and say how they might impact on domestic law. I cannot do that. I have to ensure—as do my hon. Friends the Financial Secretary and the Economic Secretary—that provisions in the Finance Bill allow the appropriate balance, which is a proportionate and reasonable one, in order to get the information that the tax authorities need to ensure that the tax system, as currently agreed by Parliament, operates correctly. Disclosure provides that for us. If the hon. Gentleman wishes to raise a debate on the ECJ, he is welcome to do so, but that is not pertinent to the clause.

Moving to a different point, although I might have misunderstood it, we are to extend the scope of the disclosure rules to include schemes operated by people who are not VAT registered, which is an innovation. I understand that the person responsible for making the disclosure will, of necessity, be the VAT-registered supplier who supplies the non-registered person who is gaining the advantage. Can the Paymaster General confirm that that is correct and tell us what she will do to avoid a situation in which a supplier might have an obligation to disclose, but is not in possession of all the pertinent facts to make a full disclosure? Will that VAT-registered supplier find himself vulnerable to prosecution because he is not in possession of the information from his customer that HMRC wants to have?

I cannot envisage those circumstances arising. The purpose of disclosure is to ensure that the VAT due to the UK tax authorities through the everyday use of the VAT system is provided for. In those circumstances, the advice on which I must always act is that the disclosure rules work and provide the safeguards that are required to ensure that the authorities have the information to decide whether they raise an assessment or pursue matters through litigation.  

Can the Paymaster General confirm that when a scheme is operated by a non-registered person with the intention of reducing irrecoverable VAT—the point to which she referred earlier—the registered person who supplies that person will have the obligation to make the disclosure?

Yes. The hon. Gentleman must understand that there has to be a party to the transaction and that that party is someone who is registered for VAT. The measure is about the interaction of the advantage that the person seeks to achieve. The rules provide for that. If the system has been artificially manipulated, there will be a loss of revenue.

I am seeking an assurance that VAT-registered suppliers will not be in a position of non-compliance with the disclosure rules because their customer is doing something dodgy with the supply. In the example under discussion, their customer is an exempt person who is not registered for VAT.

In order to take part in the scheme, that person would have to be a knowing and willing participant in it, so it would not be possible for the person not to know what was going on. It is the nature of the scheme to interact. Under the rules, it is not conceivable that the registered traders who would be caught could be knowing and willing participants in the scheme to reduce their VAT liability.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Schedule 1 agreed to.