§ Where any person or company is engaged in any trade or business, and receives interest or dividends from investments made in the course of and as part of such trade or business, such interest and dividends shall not be assessable to Income Tax as a separate subject matter of taxation but shall be assessable to Income Tax as part of the trade or business profits (if any) of such person or company and not otherwise, and if Income Tax shall have been deducted from any such interest or dividends before the same have been received by such person or company such person or company shall be entitled to repayment of any amount of Income Tax paid by such person or company, or deducted from such interest or dividends in excess of the tax payable in respect of the trade or business profits of such person or company.
§ I am not going to make an appeal to the generosity of the Chancellor of the Exchequer, but to his justice. This Clause is intended to meet the case of corporations or firms who, in the course of their business, have to invest large sums in interest-bearing securities against liabilities, and the interest on which exceeds in total amount the profits of the concern. This is especially the case with life insurance companies, some banks, and firms who have to deal largely with matters of insurance. It is very common for them, under the provisions in vogue for the protection of the 1602 State, to have vast sums receiving interest. The Income Tax is deducted at the source, and the interest is brought into the account minus the Income Tax. Yet at the end of the year it is found that the profits of the concern are less than the total interest on which Income Tax has been deducted. Although this is a matter which affects few people, it affects those few people in large figures. They pay Income Tax on £10,000, £20,000, £30,000, and £40,000 a year in excess of their profits, on which they ought to be charged. I know this is in consequence of a judicial decision, but it is because of the injustice which it works that I have put this Clause down, and I ask the Chancellor of the Exchequer to take it into his consideration. It is not a large matter, because there are comparatively few persons affected, but it is really a most gross injustice that anybody should have to pay Income Tax on such large sums in excess of the profits they make. If it is to be a tax on profits, as the public understand it, and as it is intended to be, then it is grossly unfair that any individual or corporation should have to pay Income Tax on large sums in excess of profits.
§ Mr. LLOYD-GEORGE
This is a grievance, to the extent to which it is a grievance, which I am afraid is inevitable so long as we have the present machinery of collection of the Income Tax. It is a machinery which all those who are engaged in the undertaking of collecting the revenue feel essential to success. I think the hon. Gentleman will agree there. It is desirable that you should collect as much as possible at the source. It saves trouble, and secures revenue which otherwise would escape altogether. This Clause would involve a very serious departure from that principle. I agree there is a certain measure of harshness in its operation, but it is almost inevitable in some oases. It is desirable that, as far as possible, you should do your best to minimise the number of hard cases, but the real danger is that the moment you begin to infringe upon the principle of collection at the source the whole machinery would break down, and you would be driven to the system of collecting by means of declarations. I do not think that is desirable unless you are really compelled to do it. The more limited the application of that method the better for the revenue. This is an illustration of the danger. There are two or three Amendments, each in its own way seeking to impinge, as it were, upon that principle. 1603 There are Amendments by the hon. Member for Manchester (Mr. Joynson-Hicks) and the hon. Member for Sheffield (Mr. James Hope), each suggesting some method of getting out of the present arrangement, and the hon. Member (Sir Seymour King) wants to carry it a little further. That is the real danger. If the hon. Member can show me means whereby it can be done without really breaking one of the cogs, as it were, of the wheel, then I shall be very glad to consider it; but, foreseeing the dangers and the far-reaching possibilities of admissions of this kind, I am afraid it is quite impossible for me to accept the Amendment. I am quite willing to consider, not only any representations which may be placed before me, but any suggestions which may be made with a view of meeting the difficulty.
Sir SEYMOUR KING
I am entirely at one with the Chancellor of the Exchequer as to the advisability of the maintenance of the principle of collection at the source. I regard it as a vital thing in the collection of the Income Tax. I would, however, point out that the Amendment of the hon. Member for Sheffield is identical with my own, and the Amendment of the hon. Member for North-West Manchester is also practically identical, though it does not go quite so far. I will show the right hon. Gentleman in a minute how the difficulty can be met. At the present moment when a bank, for instance, makes up its accounts for the purposes of the Income Tax, it gives its gross trading profits, shows the amount it has received on securities, and sets off the amount it has already paid in Income Tax, and, if the profits exceed the amount of interest on securities, pays Income Tax on the difference. There would not be the least difficulty in making up a similar account showing when anything has been paid in excess and getting back an abatement, exactly as abatements are granted in other cases. All people who get abatements have their Income Tax deducted at the source, but they go to the Inland Revenue Department and file a certified account showing their income is only so much. I do not wish to avoid one shilling that is justly due, and all I ask is that in these cases they should be allowed to file a certified account with a list of securities and counterfoils showing on the strictest lines that the profits for the year, for instance, were only £30,000, whereas Income Tax had been 1604 paid on interest amounting to £40,000 on securities, and asking the Inland Revenue to return the Income Tax on £10,000. It would be a simple matter. It would not add a hundred returns for consideration at the Inland Revenue Offices, and would not disturb what I agree is a most precious instrument for collecting the Income Tax at the source.
§ Mr. LLOYD-GEORGE
I do not think it is quite as simple as the hon. Member seems to imagine It would in the first place involve a yearly adjustment. It would involve a close examination of each individual transaction, otherwise there would be no proper check. This year certainly I should not be justified in adding such additional labour to that which I have already imposed upon the Departments by this Bill. I may point out also that mutual assurance companies would escape altogether, since there are no profits made by them.
§ Mr. LLOYD-GEORGE
I know of one company which only divided losses. In a case of that kind, wherever there are investments, they would escape altogether. I hope the hon. Member will reconsider his Amendment from that point of view, and I will also promise to reconsider the matter.
§ Sir JOHN JARDINE
I have great sympathy with the Amendment, and I am bound also to express my gratification at the friendly manner in which the various suggestions have been received by the Chancellor of the Exchequer. The question of interest on investments is one of the most important parts of the work of directors of insurance companies. On their decisions the profits are often based. It should be the policy of the State to encourage as much as possible the assurance of lives. The matter is attracting much attention among life assurance companies, and I am glad that the Chancellor of the Exchequer has received in so kindly a manner the suggestions which have been made this afternoon. I hope he will leave the matter open for further consideration.
Sir SEYMOUR KING
After the friendly way in which the Chancellor of the Exchequer has received my Amendment I will leave it for him to think over.
§ Clause, by leave, withdrawn.1605
§ Mr. RENWICK moved the following:—