NEW CLAUSE.—(Amendment of Section 38 of Finance (No. 2) Act, 1915.) (Hansard, 28 June 1916)

§ Mr. HASLAM
I beg to move, "That the Clause be read a second time."
The object of the Clause is to provide that no excess profits shall be charged where a business after a series of years in the capital account on balance shows a loss. It may be right in certain cases under such conditions to charge Income Tax, but I think to add Excess Profits Duty when the business has lost money over a series of years is really committing an injustice which we ought to avoid. I will take the instance of a company which, say, during the last five years, has lost £20,000 previous to the three years for which Income Tax is calculated, and for the three years suppose they made £2,000 per year and last year £4,000. On that they will be subject to Income Tax and £2,000 would be subject to excess profits, which in one calculation would amount to £l,200 and by another £600. So that the £4,000 profits would be reduced to £2,400 in one case or £1,800 in the other. That iB done at a time when the balance of loss over the series of years is about £11,000, and at a time when the company is unable to pay a dividend and when every penny of profit is being utilised in 948 paying off previous losses. I hope the Financial Secretary will kindly inform me whether my representation of the case is correct.

§ Mr. MONTAGU
Even if what my right hon. Friend desires to do was commendable in itself to the Committee, I do not think this is the right way to do it. His Amendment only deals with dividends, so that it differentiates between companies and firms.

§ Mr. HASLAM
That was not my intention.

§ Mr. MONTAGU
It would not apply to firms because there are no dividends. I have, however, many other objections. A company which made great efforts to pay its preference shareholders even though it paid no dividend to the ordinary shareholders would be treated less favourably than a company without preference shares. Again, I do not quite know exactly what balance of capital account would really mean. Suppose you assume that a company exists which shows a balance on capital account of a loss of £5,000, and that during the accounting period they made a profit of £100,000, surely that is not a company which my hon. Friend would desire should escape.

§ Mr. HASLAM
Certainly not.

§ Mr. MONTAGU
But if during the previous five years the capital account showed a loss and no dividend had been paid then, according to the Amendment, no excess profits could be charged.

§ Mr. HASLAM
I mean including the present year still shows a loss. I thought I made that clear in my speech.

§ Mr. MONTAGU
My great difficulty is that I am bound to speak to the Amendment which the hon. Member has placed on the Paper. We have already made arrangements for dealing with losses in the previous Act. We have the percentage standard. We have the profits over two years, and in certain cases six years, and we have power to apply profits to the writing off of old losses, and this afternoon I accepted a new Clause from the hon. Member for Paddington, allowing for total loss of capital. There is a whole zareba of provisions for dealing with this matter.

§ Mr. LOUGH
I think the right hon. Gentleman might really address himself to the point my hon. Friend raised, instead of entangling the Amendment in technical difficulties. What my hon. Friend meant 949 was, I think, this: If there is a balance of loss in any trade or business, and if the profit made in the accounting period is not sufficient to write off that loss, Excess Profits Duty should not be charged. I do think the first thing that ought to be done with the profits is to pay off the losses and put the company into a solid position. That is what, I understand, my hon. Friend seeks to do. The £100,000 case is not the sort of case which arises. The object of the Amendment is that no excess profits shall be charged until the business is cleared of any loss.

§ Sir A. MARKHAM
How far back?

§ Mr. LOUGH
That is not a relevant question. If a sufficient sum is not made to clear off the losses no charge should be made.

§ Mr. MONTAGU
The Committee is asked to accept the Amendment which is on the Paper. My right hon. Friend puts on that Amendment an interpretation which it actually cannot bear. If he wishes to provide that a firm which desires to do so shall be entitled to use its profits to write off losses in the preceding years, he ought to draft an Amendment to do so. I simply refuse because it is already the law of the land. The House has deliberately refused to go back into the dark ages, but a firm may use profits in the year of account to write off losses for the three preceding years. The question was raised whether we should go back further, and the House decided that we should not. If my hon. Friend means what he says on the Paper, I submit there is nothing to be said for the Amendment, and if he means what the right hon. Gentleman says he means, then he is asking us to legislate on a thing which we have already done, and on both hypotheses there is no reason to put anything in the Bill now.