Clause 23 - Minor VAT amendments

Finance (No. 2) Bill – in a Public Bill Committee am 10:30 am ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clause 23 makes some minor, technical changes to VAT legislation relating to the DIY house builders’ scheme and VAT credit in the penalty reform regime, and allows for reform of the VAT terminal markets order. I will speak briefly about each measure in turn.

The DIY house builders’ scheme allows individuals building their own home, or converting a non-residential building to their own home, to recover VAT incurred on the cost. That puts individual house builders in the same position as property developers, who are able to sell new build residential property at a zero rate and recover the VAT they incur in the process of constructing new build properties. The scheme was simplified and made digital in December last year, which has significantly reduced the time taken for claims to be paid. Under the new process, only essential details are required on the claim form, eliminating the need for claimants to submit certain evidential documents up front. Based on the information provided on the claim form, HMRC can then request evidential documents to verify the claim.

Clause 23(1) will give HMRC a clear power under the DIY house builders’ scheme to require further evidential documentation, such as invoices, from the person who submitted a claim under the scheme. That will assist HMRC in verifying claims.

Clause 23(3) is a minor update to the existing powers that allow for reform of the VAT terminal markets order. The order reduces VAT administration burdens on commodities traded on specified markets, so the power will allow for simplifications to support businesses trading those commodities. The Government previously announced their intention to reform the order to reflect current market practices and to keep pace with market changes, such as trades in new products, including carbon credits. This clause takes that commitment forward.

Finally, subsections (4) and (5) make changes to ensure that VAT interest rules operate as intended. For most major taxes, the Finance Act 2009 requires HMRC to pay interest on amounts due from HMRC to taxpayers, and to charge interest on late payments to HMRC. Historically, that regime did not apply to VAT, which had its own interest rules. Harmonising the rules on interest was an important step in delivering the Government’s ambition to build a trusted, modern tax administration system. Changes made by the Finance Act 2021 brought VAT interest in line with taxes such as income tax from 1 January last year. In implementing the new interest rules for VAT, HMRC has discovered some minor defects in the legislation, which without correction would force it to act in a way that conflicts with policy intent.

Clause 23 will therefore make two changes to the interest rules. The first will address the situation in which interest ought to be repaid to HMRC because, following an assessment or amendment that reduces the amount of VAT credit, the repayment interest due is also reduced. It was always intended that HMRC could recover all these amounts through a simple automated process that does not add to burdens for taxpayers and HMRC alike. The IT system can already operate, but the legislation, mistakenly, does not always allow that automated recovery. The change will ensure that HMRC can do so in all cases instead of needing a different, onerous process for a minority of cases that the original legislation did not cover.

The second change will make sure that VAT-registered businesses are always protected by a provision that creates a fairer basis for the calculation of interest where they owed money to HMRC over the same time that HMRC owed money to them. The original legislation failed to extend that safeguard to all scenarios in which that could happen with VAT, undermining the fairness of the interest regime. To ensure that all VAT-registered businesses are treated equally, the changes will be given backdated effect to 1 January 2023, when the interest rules were introduced for VAT.

Clause 23 makes some small changes to ensure that policy works as intended and to further Government commitments on reforming the VAT terminal markets order. I commend it to the Committee.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

The Opposition support the changes that will assist with compliance checks by making online applications equivalent to paper applications. Has the Minister considered adding the online application as a service to the agent services accounts so that an agent can prepare and submit the claim on behalf of their client?

We also support the provisions for modifying the application of VAT for terminal markets, as that will allow for further reforms such as bringing trades in carbon credits within the scope of the Value Added Tax (Terminal Markets) Order. We feel that is a vital and necessary step in developing this important market.

We support the changes to legislation that governs the interaction between late payment interest and repayment interest for VAT. Has the Minister given any thought to reinstating HMRC’s ability not to charge interest on VAT errors where the supplier did not charge VAT, with no loss to the Exchequer because the customer could claim in full?

Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Economy)

On clause 23’s minor VAT amendments, there is very little to disagree with. VAT should be paid where it is due, and HMRC should pay interest where it should pay interest. That is to be welcomed.

However, on Second Reading I pointed out the paucity of thought and imagination that had gone into providing real help for people across the nations of the UK, and the kinds of thing that the Government could have done but have not. The clause title, “Minor VAT amendments”, just highlights the problem with the entire Bill. The Government could have taken some action to deal with the issues for people in hospitality by cutting VAT and doing something meaningful for tourism, but no: they have chosen to make these minor adjustments. They could have used VAT as a mechanism for helping our high streets to create economic zones that could boost life back into vital high streets and centres. Instead, they have taken to tinkering with the VAT rules.

My question to the Minister is why there is such a lack of ambition in his Government. Is it that this is a fag-end Government in a fag-end Parliament that has run out of ideas, or is it just that they do not care?

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

The hon. Member for Inverness, Nairn, Badenoch and Strathspey has been charming until this point, and now he goes back to this. I know him very well; I am sure he does not mean it. First, he knows as well as anybody in this House that everybody who comes into Parliament cares: they care about their constituents and they care about the country. We are motivated to come here because we want to make the country a better place for our children and grandchildren.

I know that the hon. Gentleman occasionally gets rather vocal on some of these points, but I politely request that he be a little bit careful with some of his comments. I would never criticise the motivation, incentives or purposes of any colleague in this place. I may fundamentally disagree with some of their policies, but I will not disagree with their motivations. In saying things like “People don’t care” or “The Government don’t care,” I am afraid he is straightforwardly wrong.

Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Economy) 10:45, 21 Mai 2024

I am very fond of the Minister, as he knows. We often have these back and forths, and I often have to rise to my feet to correct what he has said. I did not make any assertion about any individual; I was talking about his Government. I was very explicit about that. I just want to make that clear.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Yet again, I appreciate the hon. Gentleman’s trying to clarify, but I am a member of the Government and therefore I am afraid that I do take offence, direct or indirect. But that is a side point to the matters under discussion.

The hon. Gentleman is making fair and valid points about the support that has been given, but I repeat that this Government, like every Government around the world, have had incredibly difficult circumstances to deal with. I do not think that there is any doubt whatever that the support measures that we have put in place to support lives and livelihoods have been incredible and stack up pretty well when compared internationally. That includes cost of living support, as I have mentioned.

I know that the hon. Gentleman is a huge supporter of the tourism, hospitality and leisure industry. We have spoken about that many times, and I know that it is particularly important to Scotland, where it is a disproportionately larger share of the economy than in England, for example, although it is important and large across every single constituency in the UK—and I do mean every single constituency. But the hon. Gentleman is being a little bit rich, because he knows as well as I do that there are other measures beyond VAT to support the hospitality and leisure industry. Of course, in England we have extended the 75% business rates reduction to the retail, hospitality and leisure sector, but that has not been done in Scotland, nor has it been done to its full extent in Wales.

Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Economy)

I am grateful to the Minister for allowing a bit of back and forth on this. It is generous of him to do so. He fails to mention that in Scotland, 100,000 businesses are lifted out of business rates altogether through the small business bonus scheme. The record in Scotland shows that we are supporting businesses, and those businesses are very prevalent in the tourism sector.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I acknowledge the efforts made by the Scottish Government to support various sectors, but as I say, on that particular item, the hon. Gentleman will know as well as I do that it is a key ask of the industry in Scotland for the Scottish Government to follow suit with England and elsewhere.

The hon. Member for Hampstead and Kilburn raised several points. Some were slightly out of the scope of the specific measures under discussion, including IT systems and other considerations, but I take on board what she says, as does HMRC, because there is a constant need to review and assess the scope of IT systems and so on. We do so on a regular basis; I spend a lot of time talking to HMRC about this, so I can assure the hon. Lady that the points that she raised are constantly under consideration. I will probably leave it at that.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.