Carrying on a third country goods fulfilment business

Finance Bill – in a Public Bill Committee am 9:25 am ar 24 Hydref 2017.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

With this it will be convenient to discuss the following:

Clauses 49 to 55 stand part.

That schedule 13 be the Thirteenth schedule to the Bill.

Clauses 56 to 59 stand part.

New clause 5—Annual report on powers in relation to third country goods fulfilment businesses—

‘(1) The Commissioners must prepare a report on the operation of the provisions of Part 3 of this Act in relation to each tax year after their commencement within six months after the completion of that tax year.

(2) The Chancellor of the Exchequer shall lay a report under subsection (1) before the House of Commons.

(3) Each report under subsection (1) shall cover in particular—

(a) prosecutions for an offence under section 53,

(b) penalties imposed under Schedule 13,

(c) the effects on the operation of Part 3 of the United Kingdom’s withdrawal from the European Union or (as the case may be) preparations for that withdrawal,

(d) implications of the matters specified in sub-paragraph (c) for the activities and resource requirements of HMRC in connection with the provisions of this Part,

(e) implications of the matters specified in sub-paragraph (c) for the exercise of the powers to make regulations under Part 3, and

(f) HMRC’s assessment of the extent to which the operation of, or changes to the operation of, comparable provisions in other countries affect businesses in the United Kingdom.’

This new clause requires HMRC to produce an annual report on the operation of Part 3 relating to third party goods fulfilment businesses and specifies some of the information to be included in that annual report.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

It is, as ever, a pleasure to serve under your stewardship, Mr Howarth.

I want to talk about fulfilment businesses in part 3, clauses 48 to 59, and the annual report on powers in relation to third-party goods fulfilment businesses, or new clause 5. I will speak a little about the fulfilment business measures before addressing the specifics of our new clause.

We welcome the action and powers for HMRC to deal with the problems created by the difficulty in properly taxing and charging VAT on the profusion of small businesses trading online through platforms such as Amazon. They are not just problems for the Exchequer. Many small businesses find themselves outcompeted and outpriced by overseas traders, which not only have lower operating costs but artificially lower their prices by failing to pay VAT on the goods they sell to UK consumers through fulfilment houses based here. It is essential that we act to protect both the taxpayer in general and the thousands of small British businesses that are, as we have discussed, the lifeblood of our economy.

It is not just lower prices and running costs that present problems for our small businesses. I have dealt with casework from small businesses that found themselves severely disadvantaged when filling out their VAT returns when they were unable to obtain VAT receipts from either their overseas supplier or the fulfilment business in question. In one case, the reason for the problem was simple: there were no VAT receipts because the seller had not charged VAT, unbeknownst to that particular British business. The online fulfilment house involved simply washed its hands of the matter and blamed a third-party seller that it supposedly has no control or influence over. It is right that we bring our laws up to date and ask the huge online fulfilment businesses to take their responsibilities to our society seriously, assist the Exchequer in levying the proper taxes and stop hiding behind the excuse of separate businesses.

Many of the overseas sellers we are talking about could not and would not exist were it not for online retailing sites and the fulfilment services they provide. The business models are entirely based on the mode of operation laid down by the multinational online marketplace, which makes their businesses possible. Action has been too slow to deal with these problems, which have festered for far too long, but better late than never. We do not seek to hinder action on this at all and we welcome the broad sweep of these measures and other related efforts to address the problems that have grown up from online marketplaces and fulfilment houses.

New clause 5 seeks another review—this time on an annual basis—examining the working of these new powers and responsibilities so that Parliament can keep a check and a close eye on the problems around fulfilment businesses. It is an expanding market and business sector, and we have to try to keep up with it. We hope that the new clause will prevent any future problems from festering too long and ensure that Her Majesty’s Treasury keeps a close eye on changing business practices in this field, which might threaten the Exchequer or, importantly, undermine small businesses.

Photo of Kelvin Hopkins Kelvin Hopkins Llafur, Luton North

It is a pleasure to serve under your chairmanship again this morning, Mr Howarth. When I first entered this House over 20 years ago, I visited my local VAT office and they said that if they had more VAT officers they could collect many more times their own salaries. That has been the case ever since. I am not so familiar with third country goods fulfilment businesses, but it nevertheless strikes me as something that requires a proper resource within the VAT component of HMRC. I wonder whether we are still understaffing VAT offices and whether we could collect much more by employing more staff. At that time, the ratio between the staff salary and the tax they collected was about 5:1. Every additional member of the VAT staff produced five times more than their own salary. If that is still the case today—it may be an even bigger ratio—it would be helpful to think about employing more staff.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clauses 48 to 59 and schedule 13 implement the fulfilment house due diligence scheme. The scheme will require that from 1 April 2018, fulfilment businesses in the UK that fulfil goods for traders based outside the EU must register with HMRC, keep certain records, and carry out robust due diligence checks on their overseas clients.

The fulfilment house due diligence scheme is part of a package of measures announced at Budget 2016 that will disrupt and deter VAT abuse by overseas traders who sell goods to UK consumers via online markets. To address the point raised by the hon. Member for Luton North, the measure is not one that requires lots of extra inspectors; it requires a different attitude and regime for the fulfilment houses that are facilitating this VAT fraud. We expect it to be effective in those terms, rather than needing large numbers of additional staff.

Together, these measures are expected to deliver £875 million for the Exchequer by 2021. Many overseas traders selling via online marketplaces import their goods en masse to fulfilment houses in the UK, in readiness to fulfil anticipated future orders from UK customers. Once imported, the fulfilment house businesses will store, pack and sometimes deliver these goods on their behalf. Currently, certain overseas traders do not comply with the obligation to charge VAT on their goods held at UK fulfilment houses, as the hon. Member for Luton North pointed out. This not only deprives the UK Government of a significant amount of revenue but allows these overseas traders to obtain an unfair competitive advantage over the honest majority of VAT-compliant businesses operating in our country.

Clauses 48 to 59 and schedule 13 implement the fulfilment house due diligence scheme. Clause 48 sets out that all UK fulfilment houses that fulfil goods owned by traders established outside the European Union will be within the scope of the new scheme. These are referred to throughout the legislation as “third country goods fulfilment businesses”.

Clause 49 sets out that, following commencement of the scheme, all third country goods fulfilment businesses in the UK will require approval from HMRC as a “fit and proper” person in order to continue operating legally.

Clause 50 outlines that HMRC will maintain a register of all such approved persons. It will publish such details from the register as it deems necessary to allow counterparties, such as those in the express deliveries industry, to check whether they are dealing with a compliant fulfilment business.

Clause 51 enables HMRC to issue regulations outlining the conditions of registration and approval. Clause 52 provides HMRC with a disclosure gateway, which will provide taxpayers’ information to the fulfilment houses for the purpose of meeting the scheme’s obligations. Clause 53 sets out that it is a criminal offence for an unapproved person to carry out a third country goods fulfilment business and sets out significant but proportionate criminal punishments which can be administered against offenders. Clause 54 provides that goods stored on the premises of unapproved fulfilment houses are liable to forfeiture and can be seized by HMRC.

Clause 55 sets out the civil penalty contained within schedule 13, which may be imposed upon an unapproved person carrying on a third country fulfilment business. Clause 55 also allows for regulations to be made imposing civil penalties on all third country fulfilment businesses, whether approved or not, which fail to abide by the requirements of the due diligence scheme. This shall include failure to carry out appropriate due diligence checks or to take appropriate action as a result of those checks.

Clause 56 sets out that an appeals process will be available to persons who have been made liable to a penalty under clause 55 or schedule 13. Clause 57 confirms that regulations which shall be brought forth under the terms of this legislation will be made by statutory instrument. It also sets out that appeals can be made against decisions to revoke a person’s approval, or to impose particular conditions and restrictions upon their approval status. Clause 58 contains definitions of the key terms utilised in the legislation.

Clause 59 outlines that for the purpose of passing scheme regulations the legislation will come into force at Royal Assent. Clause 59 also makes provision for HMRC to decide upon appropriate dates from which components of this legislation relating to other purposes will come into force.

Taken together, these changes will make it more difficult for non-compliant overseas businesses to trade in the UK and will enable HMRC to identify and tackle them more easily. It is intended that the scheme registration window will open on 1 April 2018. Existing fulfilment house businesses should apply to register with HMRC by 30 June 2018. The changes made will impact upon all third country goods fulfilment houses in the UK. They will incur a one-off compliance cost for registration and familiarisation with the new scheme.

I welcome the opportunity also to debate new clause 5 tabled by Opposition Members. The new clause proposes HMRC report on the operation of the provisions of the fulfilment house due diligence scheme in relation to each tax year after its commencement, within six months after completion of that tax year. The Government believe that legislating for a review of these matters is unnecessary. The Government have already undertaken extensive consultation on this scheme over the last 18 months and they will continue to monitor the impact of the legislation. The fulfilment house due diligence scheme will disrupt and deter that abuse.

Question put and agreed to.

Clause 48 accordingly ordered to stand part of the Bill.

Clauses 49 to 55 ordered to stand part of the Bill.

Schedule 13 agreed to.

Clauses 56 to 59 ordered to stand part of the Bill.

Clause 60