I welcome you back to the Chair, Mr Crausby.

Before speaking about the clause, it might help if I provided some further information to the Committee on a couple of points raised this morning about related issues to do with remittances, particularly the requirements that an establishment must meet to secure status as an approved establishment for the purposes of the viewing public. As I said this morning, the rules relating to exempt property require that the property in question is placed on public display in an approved establishment in order to be treated as exempt.

I assure the Committee that there is a long-standing and well-understood process by which HMRC grants approved establishment status. This process pre-dates the introduction of the current remittance basis rules. It was set up to allow museums and galleries to import items from countries outside the EU customs union, for exhibition in the UK, without incurring the VAT and customs duties that would otherwise arise. To take advantage of this concession, the museum or gallery must seek HMRC’s approval to be an approved establishment. Approved establishment status is given by HMRC’s national import reliefs unit according to a range of criteria, which will depend upon the facts in each case.

The hon. Member for Newcastle upon Tyne North also asked about how HMRC polices the process for granting approved establishment status. Again, I can assure the Committee that HMRC has a comprehensive compliance regime for this process, informed by a national risk assessment, as it does for other rules for which it is responsible. I should also add that, in order to ensure that the rules for approved establishment status are not abused, an establishment generally needs to have its approval renewed on an annual basis. If the hon. Lady wants further information on this matter, I direct her to public notice 361, which is published on HMRC’s website.

The hon. Lady also asked this morning what was meant by public access for the purposes of the exempt property rules. I direct her to the legislation introduced by the previous Government in Finance Act 2008, which makes it clear that the property in question, throughout the period in which the property is held by the approved establishment, needs to be on display to the general public; available for viewing on request by the public; held for educational purposes; or on public exhibition in connection with the sale of that property. I think the hon. Lady was concerned that these rules could be open to abuse and used as a means of tax avoidance. I can inform the Committee that since they were introduced in 2008, HMRC has not seen any evidence that the exempt property rules have been used for the purposes of tax avoidance, and we do not anticipate that the changes made by schedule 7 will alter that position. I hope that is helpful to the hon. Lady and I thank you, Mr Crausby, for allowing me just a moment’s digression before turning to clause 21.

Clause 21 makes a minor change to the remittance basis rules in response to concerns expressed during consultation, in the same way as clause 20 and schedule 7, which we have just discussed. Specifically, it prevents a  taxable remittance from occurring when an individual is liable to pay the annual remittance basis and is required to make payments on account, under the self-assessment system.

As you will be aware, Mr Crausby, payments on account are an advance payment of a current year’s income tax liability, based on the individual’s liability in the previous tax year. When an individual has paid the annual charge of either £30,000 or £50,000 in a previous year, their payments will automatically include an amount in respect of the annual charge due in the current year.

However, if an individual decides at the end of the tax year that they do not want to elect to pay tax on a remittance basis, the payments relating to the annual charge will be refunded to them by HMRC. If the initial payment was made using foreign income and gains, the person will be treated as having made a remittance and taxed accordingly. It does not matter that the individual had the intention to bring money to the UK in the first place. Under current rules, they do not have the option to take the money back offshore. That is clearly unreasonable.

The clause prevents that inadvertent remittance from arising where an overpayment of the annual remittance basis charge is refunded by HMRC. However, to take advantage of this new rule, the individual will be required to take the amount repaid back offshore, in order to avoid being taxed. I am sure that hon. Members will agree that this is a far more reasonable position.

I was asked how many people will be affected by the clause. In all honesty, it is not always possible to say how many people will be affected. Theoretically, however, everyone paying the remittance basis charge could be affected. In 2010-11, that was 5,600 people. However, in practice we expect there to be a much smaller number.

Will further changes to the rules be needed? We are confident that no further changes to the remittance basis rules will be needed. The clause corrects a very minor anomaly in the remittance basis rules and it does not represent a fundamental flaw being corrected. As I said this morning, the Chancellor made the point in Budget 2011 that we have no intention of making any further substantive changes to the remittance basis rules for the remainder of this Parliament, and I am happy to reiterate that. We believe that a stable set of rules for non-domiciled individuals will provide certainty and increase the international attractiveness of the UK as a place to live and work. I hope that that is helpful to the Committee and that the clause can stand part of the Bill.