HC Deb 12 December 1911 vol 32 cc2312-5

Notwithstanding anything contained in Section one hundred and three of the Income Tax Act, 1842, a person who shall prove before the Commissioners for General Purposes in the manner in that Act mentioned that the aggregate annual amount of his income, estimated according to the several rules and directions of that Act, is less than one hundred and sixty pounds shall be entitled to be repaid all payments of Income Tax on account thereof even if such payments have been made by some person or persons on account of interest paid to him under a contract to pay a fixed rate of interest free of Income Tax, and in such case such payments shall, for the purpose of Sections one one hundred and sixty-four and one hundred and sixty-five of The Income Tax Act, 1842, be deemed to be money charged and paid by way of deduction from such interest.

The Clause is intended to secure protection under the Income Tax laws for a considerable number of persons whose incomes are under £160 a year. In Lancashire the cotton mills are largely run on loan capital and that capital amounts in all to something not less than £20,000,000. Those loans are very largely made up of small amounts. The small tradesmen and the operatives make loans to the mills in sums of £10, £5, and even as low as £1, so that it is estimated there are not less than 27,000 loanholders in Lancashire mills. Most of them are these small loanholders and are men with incomes of less than £160 a year. The usual form of contract is that the mill undertakes to pay interest at the rate of four, four and a half, or five per cent. free of Income Tax. For a considerable number of years these men whose incomes are under £160 a year have been receiving interest money free of Income Tax. The procedure has been that the Income Tax has in all cases been paid by the company on the loans of the poorer people and then these men have applied for the return of the Income Tax, which has been granted. It has recently been decided, however, not to allow this return in future. The determination of the Income Tax Commissioners has not yet been put in force, but it is intended to be shortly. This Clause is intended to provide for the paying back of Income Tax to those men whose income is under £160 a year. The reason why it is unlawful to pay it back at the present time is that there is a Clause in the Act of 1842, which makes any contract to pay a fixed rate of interest free of Income Tax void. These people having received these payments for a large number of years, it would be a great hardship to them if they were stopped. It may be said that this money is only paid on profits, but that is not so, because the companies pay whether there are profits or not. This was Income Tax definitely paid and applied to these loans. It has been the understanding that these people should get a sum which when Income Tax is deducted will give them a clear 4 per cent. The same result could be obtained under the present contracts by simply altering the form, but that would cause the greatest inconvenience and trouble to mills throughout Lancashire. And not only that, but it would be a considerable blow to the credit of many of these mills. It is evident that a considerable number of people who are not legally obliged to pay Income Tax do, in fact, pay at the present time. I ask the House to give a Second Reading to the Clause.


I beg to second the Motion. I hope the Government will give some consideration to the case of these people. The proposal will not be a very great matter for the revenue. These people have been used to having 4 or 4½ per cent. plus the return of Income Tax if their income is less than £160 a year. I hope the custom will be permitted to go on.


No one could have listened to what my hon. Friend who moved the Clause said without admitting that there is a great deal of force in his observations. I think, however, that this is really a proposal which he ought not to press. In his Clause, he begins with the words, "Notwithstanding anything contained in Section 103 of the Income Tax Act, 1842." Those words appear to be extremely innocent, but as a matter of fact Section 103 of the Act of 1842 renders the very kind of bargain which he describes in his Clause invalid. The law having decided very properly that this kind of bargain ought not to be entered into, is it reasonable that the House should assist persons who do enter into these invalid bargains to recover Income Tax? I think they have a very simple remedy in their own hands, and that they ought to apply that remedy themselves, and not ask the House of Commons to do so. All they have to do is, instead of agreeing to £4 free of Income Tax, to agree to £4 5s., and pay Income Tax themselves. That would put the bargain in the proper form.


This is an important question in Lancashire. We have been allowed the rebate for a period of forty years, and it seems to us very strange at this time of day there should be this alteration without any alteration in the law whatever. This has been going on for forty years, and one naturally asks why it has been allowed to go on all this time if it is illegal. The limited company system is extending very largely in Lancashire, and small men have invested in these companies. They have always had interest free of Income Tax, and the matter has not depended upon profit in any way whatever. The companies might have been working at a loss, but they have had to pay in exactly the same way as when they made large profits. If these are to go on in the way the Government suggest, the Government will certainly be getting Income Tax to which they are not entitled. Whoever is entitled to it, of course it is not the Treasury. There are a considerable number of companies which pay 5 per cent., and people generally, if they see a number of advertisements offering a larger interest, will think the companies are not safe, and it will certainly affect the credit of the companies, as the people will think it necessary to draw out their money. That is a matter which has been considered to be a serious matter. I see no reason why they should not go on as in the past. We have had no reason given us for the change now, and I hope the Government will reconsider the matter and allow it to remain as before.