NEW CLAUSE.—(Further Provision as to Profits Applied in Extinction of Previous Losses.) (Hansard, 12 July 1916)

§ Mr. McKENNA
This new Clause, which stands first on the Paper in my name, is to be inserted after Clause 44. It makes further provision as to profits applied in extinction of previous losses. The case is a very simple one. It was brought before the Committee by the hon. Member for Paddington, who moved an Amendment on the Committee stage of the Bill, and I promised to look further into the matter, and, if possible, produce a new Clause to carry out the object. A company which has no assets cannot take the 6 per cent. basis; consequently, a company of that kind, where there has been three years partly of losses and partly of gain, might be in a position that it could take no standard at all for its profit—I mean profit standard—and would not really get such relief from the Act as was intended to be given. Take a concrete case of a firm which made in the first year £10,000 loss, in the second year £5,000 profit, and in the third year £1,000 profit, but has no assets. Such a firm would be able to take its total loss of three years as £4,000 as a setoff to the profits for Excess Profits Duty, and at the same time under this new Clause would be able to take as its basis line any two out of the three years. In a case of that kind where the percentage standard is taken as the basis, the company can set off the balance of loss on the three years against its total profits. It can only have the advantage of that Clause where the percentage standard is taken as the basis of the profits. I am assuming the case of a company which has got no capital assets at all, and therefore the percentage basis would give you 391 nothing and the balance is all liability. Therefore I propose to give the benefit of the power to deduct the balance of the loss in the three years from the profits and at the same time to give the company the right to take two out of the three years as the basis standard. In the case I have in mind the company would take the last two years, the average of which would give a basis standard of £3,000 per year. It would be also able to deduct the total loss in the three years from the excess profits and would get the benefit consequently of both measures of relief. It is a rather complicated and technical matter, but I can recommend the new Clause with the assuraice that it is a very proper relief to give in cases of this kind.

§ Mr. JAMES MASON
I desire to ask whether it is proposed that this arrangement should be retrospective in cases where firms have already had the standard fixed. Otherwise considerable difficulty would arise. I take it that the three years means the three previous years to the period which is to be taxed.

§ Mr. McKENNA
This is an Amendment to the principal Act, and it will apply to obligations therefore under the principal Act.

§ Mr. MASON
It will apply.

§ Mr. McKENNA
It will apply.

Mr. HENDERSON
I am very much obliged to the right hon. Gentleman for what is undoubtedly a considerable concession. The intention of the principal Act was to divide businesses into certain classes. But I think it will be realised now that when you touch commerce or business it is impossible to put them all under one classification. The case I have in mind is of a business which was being mismanaged in 1912 and was insolvent. The creditors instead of winding-up changed the management, and there has been gradually less loss until last year they became solvent.

§ Mr. McKENNA
On a point of Order. The hon. Gentleman is now dealing with a subsequent Amendment which has nothing to do with the proposed new Clause.

Mr. HENDERSON
I think this Clause might meet the case by Amendment.

§ Mr. SPEAKER
The hon. Gentleman had better wait until his Amendment is reached.

§ Sir J. HARMOOD-BANNER
I greatly appreciate what the Chancellor has said, and there is no doubt this is a considerable gift to many firms which have a difficult position to fill. The Chancellor did not quite answer as to the meaning of a debit balance. Does this mean where there is no capital, or would it include a case, say, where £20,000 was gone on a capital of £100,000, and where a company has not got sufficient assets to represent its capital? Does it mean where all capital is gone, or will it include a case where some capital is left but the company is trading with a deficiency of capital?

§ Mr. McKENNA
Where there is no capital so that the percentage standard would be of no use, where it would be 6 per cent. on nothing, and not in the other.