VAT rules attacked

The government has refused to limit new powers given to Customs & Excise in the Budget allowing it to force companies out of VAT groups.

Paymaster General Dawn Primarolo rejected Tory and Liberal Democrat protests that Customs will be able to act purely to increase its revenue.

The opposition failed to press the issue to a vote in the Finance Bill committee dealing with Budget legislation, creating the possibility of a further confrontation when the Bill returns to the floor of the Commons.

The proposed powers give Customs the authority to remove companies from VAT groups for what the Bill describes as the ‘protection of the revenue’.

This definition was seized upon by accountant MP Nick Gibb, a shadow front-bench spokesman, who led Tory protests and cited complaints from professional bodies, including the English ICA.

Gibb said the situation was unacceptable: ‘The phrase “protection of the revenue” sets a precedent and means any measure to raise more revenue for the government.’

He also cited complaints from The Law Society, the Chartered Institute of Taxation and the Institute of Directors – to no avail.

Primarolo retorted: ‘A company will normally be removed from a group for the protection of revenue only if it appears to Customs that it is engaged in a VAT-avoidance scheme, membership of the group threatens the collectability of tax, or the revenue loss associated with its membership of the group goes beyond the natural consequences of grouping.’

She said it was right to extend the existing power to prevent a company joining a group to removing one where circumstances merited it. And she claimed that companies would be able to appeal against any degrouping decision they felt was unfair.

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