§ Resolution reported,
§ 28. "That in estimating for assessment under Schedule D of the Income Tax Acts the amount of the profits and gains of any banker no deduction shall be allowed from the profits or gains of any year of any interest paid or credited to any customer 1114 or other person, but the banker shall be allowed to deduct and retain out of any interest so paid or credited the amount of Income Tax on such interest."
§ Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
§ Mr. J. M. HENDERSONI understand that my right hon. Friend is considering this question. There is a great deal of difficulty about it. In the first place, I should like to point out that it is really necessary to make this mandatory, otherwise difficulties will be created in that certain banks, discount houses and others would offer to abate the interest. It must apply to discount houses and all other people. I think my right hon. Friend has this matter under consideration, so, leaving it for discussion when it comes up under the Finance Bill, I will say no more about it now.
Mr. BUTLER LLOYDIn regard to this tax upon deposits at banks, I should like to ask the Chancellor of the Exchequer if he could not reduce to a smaller amount the amount which is taxable as profits. In the country, at any rate, there are many cases where a small man puts in £100 or some such sum for a few weeks, or it may be a month or two. In that case it would cause the bank considerable trouble and an amount of clerical work in calculating the Income Tax. When the man tried to get the Income Tax deducted he would have a great deal of trouble in getting it returned. I would venture to suggest that the amount the bank charge upon it should, at least, be not more than that which the savings banks are allowed to charge. At the present moment savings banks are exempt from such a tax, and it would, at least, be fair to the great joint stock banks that their deposits should be free to the same extent. I think the Chancellor of the Exchequer will agree with me that the joint stock banks have done well. They have subscribed something like £260,000,000 of this big Loan lately. They should have the privilege of not being mulcted on their profits, and the small amounts should be exempt from this tax.
§ Mr. McKENNANo one recognises more fully than I do the great, public-spirited effort which the banks have made to assist the country by very large subscriptions to the War Loan, and I should be most ungrateful if I did not listen to all their representations upon a subject of this kind. I 1115 have been in negotiation with representatives of the bankers upon this subject, and it is my desire, as I am sure it would be the desire of the whole House, that in any arrangement that we make we ought to be careful that we do not unduly obstruct business and add to the difficulties of the Inland Revenue for no sufficient purpose. I am not yet in a position to say what the final proposal will be that I shall have to make to the House, but I shall be very glad in the meanwhile if this Resolution could be carried, so that some scheme may be founded upon it later. If the final scheme which we have to propose would not be covered by the present Resolution I should, of course, have to ask the House at a later stage to sanction a different one.
§ Sir ARCHIBALD WILLIAMSONI would ask my right hon. Friend to consider the case of a business firm having several banking accounts in one of which there might be a balance on the credit side, when the bank might owe a customer interest, and in the other there was a large debit, and consequently the firm has a net debit. Will it be entitled to recover as against the debit the interest which the credit balance is charged?
§ Mr. McKENNAThe debit would be an expense in the business, and in the ordinary return made by a large business firm would be deducted from the total profits, and consequently no Income Tax would be paid upon it. The business firm of which my hon. Friend speaks would in the ordinary course of events pay Income Tax on the deposit account, because it would be an honourable firm which would act in accordance with the law, and would pay such tax as it is now bound to do. This is merely collecting at the source what should be paid under the existing law.
§ Sir A. WILLIAMSONI have not made myself quite clear. The business firm has a debit balance and deducts that interest paid as a charge on the business, but in arriving at that charge it has to take into account, surely, the amount it has paid on its credit balance at the other bank. It must charge only the total net and not pay on the one side, and only deduct a portion.
§ Mr. McKENNANo, I do not think there will be any change. This proposal would make no difference whatever to the firm my hon. Friend has in mind. The firm he has in mind now pays in upon the profit side the interest it receives from the bank 1116 and charges on the business the interest which it pays to the bank. In that case the firm pays Income Tax on the net. What will happen now will be that it will not credit on the profit side the interest which it receives because the interest will have already paid Income Tax. It will still continue, of course, to deduct as an expense the charge for Income Tax payable.