Finance Bill

As we have heard, amendment 38 seeks to take anti-forestalling legislation introduced in the Finance Act 2009 for the reversion of the standard rate to 17.5% on 1 January this year, and use it to prevent forestalling as a result of next January's rate increase. That appears to be a simple approach, but in fact it would render the earlier anti-forestalling provisions inoperative and leave us wide open to a loss of revenue on transactions spanning 1 January 2010. Schedule 2 was closely modelled on the measure used when the rate reverted to 17.5% on 1 January 2010 and is intended to operate in the same way. There are no changes of substance and no hidden amendments. However, the anti-forestalling provisions in last year's Finance Act were specific to the last rate increase and are still required in relation to that increase. Trying to cover both rate increases in one schedule would lead to unnecessarily complex legislation. Both last year's anti-forestalling legislation and the draft provisions in the Bill counter forestalling by introducing a supplementary charge to VAT, and so remove the tax advantage. The charge applies where a VAT invoice is issued or prepayment occurs before the rate rise, but where the provision of goods or services is to take place afterwards. Clearly, there could be a large number of transactions where an invoice was issued or a prepayment was made before 1 January 2010, but where the goods or services had not yet been provided. For example, a right to acquire goods at a later date might have been granted in 2009, but not yet taken up. In those circumstances, the amendment would mean that HMRC could not collect a supplementary charge that would otherwise be due under the provisions of the existing Finance Act 2009. This is because that legislation, as amended, would have effect only in relation to the VAT rate change on 4 January 2011. Furthermore, I am sure that taxpayers find it much easier to refer simply to a single piece of legislation for the upcoming rate increase, rather than risk getting confused by having to refer backwards and forwards between two provisions. Schedule 2 as drafted is clear, and it will be effective in preventing forestalling as a result of the upcoming rate change. Retaining schedule 3 to the Finance Act 2009 without amendment will continue to prevent forestalling in relation to the latest rate change. I appreciate the manner in which the amendment was moved by the shadow Chief Secretary, but I would urge him to withdraw it.