HC Deb 12 July 1916 vol 84 cc498-501

It is hereby declared that, for the purpose of Subsection (2) of Section thirty-eight of the principal Act, any period for which the books of a trade or business have been actually made up for any interim or other purpose in such a manner that the profits for that period can be readily ascertained is (without prejudice to the powers of the Commissioners of Inland Revenue under that provision) to be taken as an accounting period, notwithstanding that under the articles of association of the company carrying on the trade or business or under any other Regulations affecting the carrying on of the trade or business the accounts are also required to be made up for some other period, and notwithstanding that such accounts are not issued.

Sir J. HARMOOD-BANNER

I beg to move, after the word "actually," to insert the words " or can be."

I think the Chancellor of the Exchequer will acknowledge that I assisted him to stop a leakage, and I hope he will give a little consideration to this Amendment. The Chancellor of the Exchequer has given an extension of the period for making up accounts by putting in the word "actually," which remedies a great grievance of some firms which made up their accounts just about the time war commenced. The words "can be" would allow them to make up their accounts in such a way as to satisfy Somerset House and to give an accurate representation of their position. If it is as near as possible to the date 4th August it would create a real and true representation of the pre-war standard in a fairer way than it does at present.

Sir J. D. REES

I beg to second the Amendment.

Mr. McKINNON WOOD

I appeal to my hon. Friend not to press the Amendment. It is entirely belated. Thousands of standards have already been fixed—nearly the whole—and millions of money have been collected on the basis already enacted. It is far too late to alter that basis now. I do not think I need go into other arguments against the Amendment.

Amendment negatived.

Sir J. HARMOOD-BANNER

I beg to move, at the end of the Clause, to add the words, "Provided that where there has not been one pre-war trade year and where the actual profits of a trade or business for a portion of a year prior to the fifth day of August, nineteen hundred and fourteen, amounted to more than the percentage standard for the same period as defined by the principal Act, the pre-war standard of profits shall be taken to be the amount of the actual profits earned prior to the fifth day of August, nineteen hundred and fourteen, and the first accounting period shall be appointed accordingly." This Amendment has the same object as the last.

Mr. McKENNA

It is all disposed of.

Sir J. HARMOOD-BANNER

In what way?

Mr. McKENNA

The tax is collected.

Sir J. HARMOOD-BANNER

I do not quite understand. The tax was only due on 1st July, and there are many firms which have not yet had the application for it; therefore, it cannot be collected.

Mr. McKENNA

The Amendment would affect the first year. Out of the first year £8,000,000 have been collected, while the total estimate is £26,000,000. We have the accounts of £23,000,000 out of £26,000,000. Therefore, to go back upon the principle now would be quite impossible.

Sir J. HARMOOD-BANNER

A man may have been carrying on a very successful business until the 30th June and earned a good deal more than the 6 per cent. upon his capital. It is very hard that he should have to go back to the 6 per cent. for the purposes of Excess Profits Tax. There are many young firms upon whom this is pressing very hardly indeed. The average of their profits up to 30th June would be a much fairer basis than the 6 per cent. upon their capital when they have been earning a greatly increased percentage.

Sir F. CAWLEY

I beg to second the Amendment.

As the matter stands at present a very gross injustice is done. The case I have in mind is of two young men who started business with a capital of £l,000, and made in the first six months an income at the rate of £1,438 per year. The Income Tax Commissioners come along and say, "We will not take that amount into consideration at all, but we will take your joint salaries." These were put at £330 per year. The Income Tax Commissioners come forward and say, "You must pay Excess Profits Duty on over £600 a year," whereas the basis of the six months profits should have been £l,438 for the year. It is grossly unfair to take their joint salaries, which had nothing whatever to do with the case. This Excess Profits Tax, I take it, is on profits in excess of those made before the War. That is very easy to ascertain, because those people made up their books for the first six months, and thus provided a basis for calculating the excess profits. To take those men's joint salaries as the basis for excess profits is very unfair and I hope the Chancellor of the Exchequer will consider the point. The amount could not come to a great deal, because there are very few cases who make a large profit in the first year. In this case one of the young men only earned £100 a year, as he was just out of his time. The basis of profit is very easily ascertainable by chartered accountants.

Mr. McKENNA

This Clause would in many cases operate with the greatest hardship on firms which have just begun business and which very often do not expect to make profits during the first few months. Yet we are asked to take the six months' profits as the standard. What my hon. Friend really does mean is that such a firm as he has described should have an option; if by good luck they have made a lot of money that they might object to our standard.

Sir F. CAWLEY

You can have the actual profits that they have made.

Mr. McKENNA

Where, on the other hand, they have had bad luck, we are asked to have some other standard. That is to say that they may be allowed to take such a standard as will reduce the amount they have to pay on excess profits. I cannot conceive a case more proper for the payment of excess profits than the case raised by my hon. Friend. Their profit was made entirely owing to the circumstances of the War.

Sir F. CAWLEY

The profit was made before the War.

Mr. McKENNA

I happen to know this case, and the firm have done extremely well. You could not have a better case for this taxation than that of a firm, or persons, who, having been accustomed only to a salary, suddenly find themselves in possession of a large income. I regret that I am unable to accept the Amendment.

Amendment negatived.