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

With this it will be convenient to discuss the following:

Government amendment 9.

That schedule 2 be the Second schedule to the Bill.

Let me begin with a few introductory remarks. As I set out in earlier debates, these measures are an important part of our drive to stamp out tax and national insurance contributions avoidance. It cannot be right for those who go in for these schemes to be able to sit tight and hold on to the money while the dispute is settled; nor can it be right that they can simply ignore the evidence of a tribunal or court decision in another case that quite clearly resolves their dispute. These measures address those situations, and introduce important powers for HMRC to tackle the behaviour of a small but persistent group of promoters who devise avoidance schemes that have little or no chance of succeeding.

The main purpose of clause 3 is to apply to NICs the rules on follower notices, accelerated payments and high risk promoters that have already been put in place for tax by the Finance Act 2014. Clause 3 introduces schedule 2, which contains the detail, so I will focus on the schedule.

For the most part the schedule applies the tax legislation to NICs, with modifications, to create a single set of anti-avoidance rules that applies to both tax and national insurance contributions. Therefore, I would like to focus on some specific points where there is more of a difference compared to the equivalent tax rules.

In relation to follower notices and accelerated payments, the first point to note is that paragraph 6 of schedule 2 introduces the concept of a “relevant contributions  dispute”. For tax, we have made it clear that a notice can be issued only where there is an open inquiry or appeal. Where the arrangements involve an employer, it is likely that both PAYE and NICs will be in dispute. For PAYE the issue of a regulation 80 determination is the trigger for an appeal that can lead to a notice.

The equivalent of a PAYE determination for NICs is a determination under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999—or article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999—which I shall simply refer to from now on as a section 8 decision. A section 8 decision is issued very late in the process, whereas a regulation 80 determination has to be issued earlier in order to meet statutory time limits. By introducing a “relevant contributions dispute” we will enable notices to be issued for PAYE and NICs at the same time, removing the need for two separate processes.

The second point I would like to emphasise in relation to follower notices and accelerated payments is in respect of paragraph 17, which makes clear that the accelerated payment is a payment of the national insurance contribution itself, and not a separate payment on account. Among other things, that enables the amounts collected to be paid into the National Insurance Fund and used by employees to qualify for future benefits.

Finally, in respect of paragraphs 17 and 18, entitlement to benefit cannot be based on any accelerated payment that is subsequently repaid. The only exception to that is where payments of benefits have already been made. Those will not be affected by any repayment made of an accelerated payment.

In relation to the promoters of avoidance schemes, the Bill before the Committee applies the tax legislation included in part 5 and schedules 34 to 36 of the Finance Act 2014 to NICs so that the legislation operates as one unified measure that covers both tax and NICs. The Bill introduces no new concepts; it merely seeks to secure that coherent result.

I will now turn to amendment 9, which is a minor technical amendment that will ensure that the legislation works as intended. The legislation on promoters of tax avoidance schemes introduces a higher standard of reasonable excuse and reasonable care for monitored promoters and their clients. Generally speaking, it is open to taxpayers to claim that they have taken “reasonable care” to avoid failing to comply with an obligation under the Taxes Acts. In relation to errors in a return, a taxpayer may point toward having obtained legal advice when seeking to construct an argument that they have taken reasonable care to avoid such an error.

However, section 276 (2) of the Finance Act 2014 introduces a higher standard of reasonable care for tax returns and accounts of clients of monitored promoters, specifically those listed at paragraph 1 of schedule 24 of the Finance Act 2007. The Finance Act 2014 ensures that, in relation to tax, if a client is liable for a penalty under schedule 24 of the Finance Act 2007, and has relied on legal advice as to the operation of the scheme which has been provided by a monitored provider, that advice cannot be taken into account in relation to a defence of reasonable care.

The promoters of tax avoidance schemes legislation do this to ensure that a client does not blindly rely on advice provided by a high-risk promoter for a defence  of reasonable care. Removal of this defence in these circumstances encourages the clients of monitored promoters to obtain independent advice from alternative sources, not just monitored promoters who may seek to misrepresent the likely success of an avoidance scheme. This amendment, to part 2 of schedule 2 to the National Insurance Contributions Bill, ensures that the reference to schedule 24 of the Finance Act 2007 in section 276 of the Finance Act 2014 will also include that schedule as applied to NICs. It ensure that the higher standard of reasonable care provided for by section 276 of the Finance Act 2014 applies to clients of monitored promoters of NICs avoidance schemes when submitting returns to HMRC.

I hope that by now those who engage in tax avoidance have got a clear message. We have introduced a general anti-abuse rule and extended it to NICs, and we have taken steps to close down loopholes. The anti-avoidance measures in this Bill are the next step in building up the pressure on those who market and those who use tax avoidance schemes. But promoters and avoiders should be under no illusion that we will stop there. As long as they continue to try to frustrate the tax system and try to pay less tax than the law clearly intends, we will continue to act against them. Extending these provisions to NICs is an important step to increase the pressure on the tax avoidance industry. I therefore hope that the clause, schedule and amendment will be accepted by the Committee.

I am grateful to the Minister for his introduction to clause 3 and schedule 2. He and I have debated at length the measures relating to follower notices, accelerated payment notices and high-risk promoters of avoidance schemes. He will know that the Opposition have supported the measures that were introduced in the Finance Act 2014 and continue to be supportive of all these measures and what they seek to do to tackle tax avoidance. One of the most controversial aspects in our debates on these issues concerned accelerated payment notices and the whole issue of retrospection as put forward by some of the campaigners on this. There was a vocal campaign across social media, and many business people were getting in touch with their Members of Parliament.

I agreed, and continue to agree with the Minister, that issues of retrospection are not engaged because we are not talking about a new tax liability being created. Instead the issue is where the tax that is in dispute should sit. I agree with the Minister that it is entirely right and proper that that should sit with HMRC, particularly given the ways in which some people have sought to frustrate the process by using the legislative framework to extend the length of time it takes to deal with these matters, holding on to the tax for all that period and denying it to HMRC. As HMRC win around 80% of those cases, most of it has to be paid over at some point. So the measures to speed that up are very welcome. They have to be applied to national insurance just as much as to income tax.

In the evidence session this morning we asked some of the witnesses how they felt the provisions on income tax that have already been made in the Finance Act are working in practice. The experts felt unable to make a judgment yet about how those changes are bedding in. They made the point, which is important for the Committee  to recognise, that the measures are having an effect. We welcome that fact, and I am sure the Minister does as well. I was struck by Mr Hubbard’s statement that they have encouraged people to sort matters out and err on the side of caution. They have certainly had the welcome behavioural effect of concentrating minds, which will help ensure that the provisions work successfully for income tax and, after the Bill is passed, national insurance.

Somebody—I cannot recall whether it was the Minister or one of his officials—said that 600 notices have been issued since August. The acoustics in the room this morning made it difficult to hear what was being said. Given that a reasonably large number of notices have been issued, will the Minister say a bit more about how the changes are working in practice? Will he talk about the internal governance procedures that have been put in place by Her Majesty’s Revenue and Customs? Many of the stakeholders said that the changes give the impression that HMRC will be the judge, jury and executioner. The internal safeguards introduced in the Finance Act go some way towards allaying that concern, but it would be helpful to hear from the Minister how they are working in practice in HMRC and the team responsible for issuing the notices.

A concern was raised about the fact that the changes may affect the successful disclosure of tax avoidance schemes regimes, and that some people might be unwilling to disclose schemes they have used if they fear that an APM may be issued. The Government are conducting a review and looking at strengthening DOTAS. It would be helpful if the Minister updated the Committee about those important things.

Another point that the Minister and I have debated at length when we have discussed these issues is the resourcing at HMRC. This morning we heard more about the counter-avoidance directorate, and we were told that 100 or so staff are working on this issue. As this change is relatively new, it would be helpful if the Minister set out how the directorate is getting on and how it is operating. What is his assessment of the staffing, the work load and the skill sets of its staff members? Does he think more needs to be done to bring the staff up to a sufficiently high level of seniority so they can make judgment calls about follower notices, in particular, for which there is an internal review procedure in HMRC?

Finally, we heard this morning from Mr Haskew of the Institute of Chartered Accountants about the potential effect on the ability of tax advisers to access indemnity insurance from their insurers. We were given a sense that insurers are tightening up the questions they ask of advisers before offering them insurance. I must declare to the Committee that in my previous life as an employed barrister I was a specialist in professional indemnity litigation, although I have never acted on an accounting negligence case.

The issue of indemnity insurance is important, because it pertains to the wider point of whether there should be more wholesale regulation of tax advisers. I get representations from both sides of the argument on a semi-regular basis, as I am sure the Minister does, both now and when he was the shadow spokesman. It would be unhelpful for indemnity insurers to act as creators of a de facto regulation regime. Has the Minister had more representations on that issue or given more thought to it? There is not much time left in this Parliament, but regulation comes up regularly. It would be helpful to  hear how the Minister thinks those things will change as a result of the behavioural change of both the stakeholders—the institutes themselves—and their insurers on tax advice and liability for it.

Again, I thank the hon. Lady for her comments. This is familiar territory for both of us, having debated this subject at some length over the summer in the Finance Bill Committee. I appreciate her support on these measures and, in particular, that she shares our view that they are not about retrospective taxation. The liability is ultimately determined by the courts interpreting the law as applied at the relevant time. It is a question of where the money sits in the interim, and I am grateful to her for reiterating her point.

The hon. Lady touched on some of the evidence I gave this morning on the early stages of accelerated payments. The first notices went out in late August. Some 600 notices were sent out, which cover sums in dispute of £250 million. The notices give the recipients 90 days in which to pay, so it is too early to give a success rate, as it were, but already more than £25 million has come in to HMRC, some time in advance of the expiry of that 90-day deadline. The early signs are encouraging.

I will address some of, but ideally all of the questions that the hon. Lady has raised. On governance and HMRC’s capability, it is worth highlighting that HMRC has put strong governance procedures in place to handle a range of complex issues with significant amounts of tax involved. Therefore, as with any of its responsibilities, HMRC has put in place appropriate governance for follower notices and accelerated payments. The case team, advised by litigation specialists and solicitors, is responsible for analysing the decision to be used as the basis for a follower notice, identifying the relevant principles and reasoning and setting out how those apply to potential follower notice cases. The recommendation is signed off by all relevant parties in the Department before being submitted for approval, and the report is presented to a governance body to consider whether to give approval. The taxpayer can make representations that the judicial ruling is not relevant to their arrangements and must do so within 90 days of receiving the notice. The representations will be covered by an independent HMRC officer, who is unconnected with the team that issued the follower notice and the governance panel that decided that the judicial decision relied upon was relevant.

That is particularly relevant for the follower notice points, but there is a wider point to be made on ensuring that HMRC has the resources to be able to pursue these policies. It is clear to me that it is in a position to do that. Although HMRC is reducing in size in line with efficiencies, the Government have provided significant reinvestment of £1 billion specifically to combat revenue lost and at risk through non-compliance. That means that while most of HMRC’s lines of business are reducing in size, the number of roles in compliance is increasing.

HMRC has brought all its work to tackle avoidance together in a new counter-avoidance directorate. As we heard this morning from an HMRC official, around 100  staff have been recruited into counter-avoidance to deal with the issue of accelerated payment notices, and another 100 will be added in 2015. In addition, HMRC is deploying additional staff to handle collection work. HMRC is taking a flexible approach on additional legal staff, which will depend on the number and nature of legal challenges.

Her Majesty’s Courts and Tribunals Service is recruiting additional tribunal judges to handle the cases involving accelerated payments and follower notices and to accelerate the number of cases going through the tribunal generally. The Government have invested extra funds into HMRC’s work to tackle avoidance and evasion. That is bearing fruit, with compliance in 2013-14 bringing in £23.9 billion up substantially from where it was when we came to office.

The hon. Lady raised the question of whether this measure will put pressure on compliance with DOTAS, given the particular treatment that applies to schemes put forward in DOTAS. As I made clear in Finance Bill Committee, HMRC will take robust action against those who choose not to disclose when they should. Our new measures against high-risk promoters will be part of tackling that behaviour. We have been consulting over the summer on improvements to DOTAS and what may be needed to further strengthen its effectiveness and compliance with its rules. That consultation closes on Thursday. There has been a good level of interest and engagement and HMRC and the Government will evaluate the responses in the usual way before deciding how to proceed. We certainly will do everything we can to ensure that DOTAS is properly complied with.

I hope that those points of clarification are helpful to the Committee and that the clause, schedule and amendment can stand part of the Bill.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.