Clause 9 - GAAR to apply to national insurance contributions

Part of National Insurance Contributions Bill – in a Public Bill Committee am 2:30 pm ar 21 Tachwedd 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Exchequer Secretary 2:30, 21 Tachwedd 2013

My hon. Friend raises an interesting point. Perhaps I am not the proper person to answer. I hope that we may get an answer during the course of the afternoon.

I will talk a little bit about how we got to where we got to. I also make a wider point. Given the quite significant increases we are seeing in yield from HMRC, given the action taken by the Government to close many loopholes during the past three and a half years, and given the reinvestment into HMRC to address avoidance and evasion behaviour, I think we have a proud record as a Government. Indeed, I would go further and say that I do not believe that any UK Government have done as much as we have to address avoidance and evasion.

The GAAR is but one part of it. I do not suggest it is the solution to every problem in the tax system, but it is a useful contribution. It is a key part of our strategy to prevent avoidance from occurring at the outset and tackle it firmly where it persists. This is the culmination of a long and considered process, starting with the Aaronson review in 2011, the HMRC consultation in 2012, the 2013 Finance Act and now this Bill.

The Aaronson report advised against the introduction of a broad spectrum general anti-avoidance rule. The risk of a broadly based GAAR was that taxpayers and their advisers would have to look at what the GAAR might do in a large number of circumstances where the possible application of such a GAAR could arise. This would place a significant burden on business and would risk damaging investment, all of which we want to avoid. To answer my hon. Friend the Member for Skipton and Ripon, when the previous Government looked at this matter not long after they were elected to  office, they looked at a general anti-avoidance rule, which was broader, and concluded that the difficulties of such a GAAR were pretty well insurmountable.

Graham Aaronson and his Committee put forward proposals for a general anti-abuse rule which targets only those avoidance schemes that are clearly abusive. By “abusive” we mean the sort of scheme that one can see from the outset is simply a highly contrived arrangement designed to get round the tax law and avoid paying tax. Where something is on the borderline, the GAAR may prompt some to question what is and is not abusive. But that is no bad thing as the uncertainty will be limited to activities that are tax avoidance and will not impact legitimate business.

We consulted widely on this measure following the Aaronson report, and I have been struck by the widespread consensus that this is the right way forward. The public was rightly shocked in summer 2012 by some of the news items about highly contrived schemes used to avoid paying tax, a number of which tried to avoid NICs as well as tax. At a time when we need to make sure that everyone is paying their fair share to help to reduce the deficit, abusing the tax system in this way at the expense of the majority has to stop. Representatives of business, individual taxpayers and the professions have all shown common cause in wanting to get rid of this problem, and I am very grateful to everybody who committed a lot of time and expertise to help us to get this right.

The GAAR is only one plank in our overall strategy to tackle avoidance. HMRC published “Levelling the tax playing field” alongside Budget 2013 to provide an update on the strategy and set out the full range of measures being taken to tackle tax avoidance. We have heard arguments that because the GAAR is tightly focused it will give a green light to all other forms of tax avoidance. Those who think that should take note of the range of actions we have taken in recent Budgets and Finance Bills. We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introduced the new annual tax on enveloped dwellings, and continued to close loopholes as quickly as possible after they emerge.

In the summer, we published a consultation called “Raising the stakes on tax avoidance” in which we sought views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes. HMRC does an excellent job defeating tax avoidance schemes in the courts and ensuring that people know that many of these schemes simply do not work, but we know that there is more to do. That was why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases had lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is not the only step and we will continue to take action against all forms of tax avoidance. Clause 9 will apply the tax GAAR introduced in part 5 of the Finance Act 2013 to national insurance contributions, and I hope that it has the support of the whole Committee.