§ In Section forty, Sub-section (3), of the Finance (No. 2) Act, 1915, line 4, after "case," there shall be inserted the words "owing to the recent commencement of a business or."—[Sir F. Cawley.]
§ Clause brought up, and read the first time.
§ Sir F. CAWLEYI beg to move, "That the Clause be read a second time."
§ The DEPUTY-CHAIRMANThis seems to have been covered by a discussion which has already taken place.
§ Sir F. CAWLEYIt is an entirely different case.
§ The DEPUTY-CHAIRMANI suppose the hon. Baronet was here.
§ Sir F. CAWLEYI was here when the other Amendment was moved, and I heard 963 all the discussion. This Clause makes a very small alteration, and it meets a case of very gross injustice which very seldom arises. If the words I propose were inserted, the Clause would read:
"Where it appears to the Commissioners of Inland Revenue, on the application of a taxpayer in any particular case, that any provisions of the Fourth Schedule to this Act should be modified in his case, owing to the recent commencement of a business, or …, the Commissioners shall have power to allow such modifications,"
etc. Two young men started an electrical business—
§ The DEPUTY-CHAIRMANSurely that is the very same case.
§ Sir F. CAWLEYNo, it is not the same case. The hon. Member's case was one of five years. This is a case in which no accounting period could be got at. Two young men started an electrical engineering business, and they were in business eight months when the War came. Their first yearly accounting period was November, 1914. It included four months of the War. That is the complete year that they would like to have taken as their basis. In that year they were very fortunate. They scraped together by their savings and borrowings £1,000, and they made £1,700. The Commissioners said, "We cannot make that the accounting period because it includes four months of the War." These young men said, "Will you take the first six months we were in business?" That is their only period previous to the war, and they made a profit of £1,450 or something of that kind. The Commissioners said, "Oh, no, we will not do that at all; we will take as the basis 7 per cent, on your capital, £70, and the salaries you got in the situations you occupied before the War." One of these young men had only just got out of his apprenticeship, and he got a very small salary. Their total salaries amounted to £350. That made £420 a year. These young men have worked extremely hard and have done their duty, and if they had stayed in their original situations they would have got very much higher salaries than the amounts at which they are put down in this assessment. It is very unfair, but the case might very easily be met by this Amendment which gives the Commissioners power to take the circumstances into consideration. I think that the Chan- 964 cellor of the Exchequer ought to accept the Amendment. It gives the Commissioners power to consider the case and to make some allowance. There would be very few such cases, and it ought to be met by some such new Clause as I have proposed.
§ Mr. McKENNAThe Section which my hon. Friend desires to amend is a Section dealing with exceptional cases which could not readily be dealt with by the Statute. The particular Amendment which he proposes deals with a matter which is already regulated by the Statute.
§ Sir F. CAWLEYWhere?
§ Mr. McKENNAIn the original Statute. A business which is started less than three years before the War and has not the ordinary datum line is provided for by special Sections in the Statute which enable us to take a substituted datum line.
§ Sir F. CAWLEYAs a matter of fact, these people made every representation they could to the Treasury, and they have been assessed on the £420 a year.
§ Mr. McKENNAI know. They have been assessed according to the existing Statute. This is a matter which is dealt with by the Statute. The hon. Member now wants to amend it by including it in an addition to a Section which deals with matters which could not be directly dealt with by the Statute and which were therefore handed over to a discretionary power of the Commissioners. If my hon. Friend wishes to deal with these cases by a new rule for a datum line, he should tell us his proposals. He should have put them forward as an Amendment to the Section which defines the datum line. But as a matter of fact, has my hon. Friend got a ease at all. I was familiar with this case before he stated it. These two young men in the last year before the War made between them £350.
§ Sir F. CAWLEYThey got salaries.
§ Mr. McKENNAThat was their income from their work. The amount which they receive after payment of Excess Profits Duty in their first year of business after the beginning is £1,150. That is to say, they have still left to them an income upwards of three times as much as the income which they had before the War. Of course, it is hard upon them to have to give up £550 out of their total receipts, but this is a case of two young men who are enjoying a very much larger income in the. War than they enjoyed before the 965 War. That is the whole principle of the tax. The question that has to be asked is, "Are these recipients of the income enjoying during the War a larger income than they enjoyed during peace? If they are, we will endeavour to tax them upon, certain lines. Upon those lines these two young men, in accordance with the Statute, are assessed upon the datum line fixed by Statute. My hon. Friend says, "I do not like these rules. I would like the Treasury, or the Commissioners of Inland Revenue, to make special rules to deal with special cases of this kind." I recommend the Committee not to ask the Commissioners of Inland Revenue to make special rules to deal with these special cases when they have been dealt with by rules of general application. The Section which my hon. Friend would amend dealt with special cases which may be briefly summarised as follows: A change in the constitution of a partnership; postponement, owing to the War, of renewals and repairs; special depreciation, owing to the War, of assets employed in a business; special classes of cases in which hardship may be found to arise in practice which might be specified in a Treasury Regulation. If my hon. Friend's case came under that last, no Amendment would be necessary.
§ Sir F. CAWLEYYou have no Regulations.
§ Mr. McKENNAMy hon. Friend does not ask for any, but it is not a case which should be dealt with by Regulation, because it is already dealt with by Statute. It is defined here, and I do not think, therefore, although I feel sympathy with the young men of whom he speaks, that there is a case which could be described as such a special case as to need this action.
§ Sir F. CAWLEYI do not think my right hon. Friend has dealt fairly with this matter. He has ignored the fact that these two young men were only receiving a salary of £350, and one, being a clever young man, started in business. He says, "We started in business with six months' trading before the War, and in six months we made so much. Why not make that the basis of the assessment? That we received salaries has nothing to do with it. We are in business, and there is a datum line to be taken."
§ Mr. McKENNAMay I interrupt? If we were to have an Amendment of the Act fixing any period of time before the period 966 of the War as able to be taken for the purposes of the datum line, that would be, not by amendment of this Section, but by an amendment of the Clause which determines the datum line. Let my hon. Friend put down, on the Report stage, the Amendment he wishes for, but do not let him ask that the Treasury, or the Commissioners of Inland Revenue, should have a general power of fixing their own datum line.
Mr. HENDERSONThe great hardship in this case is that this unfortunate datum line will continue, although it does not really represent their normal earning power. I think my hon. Friend is right, and if you could alter the datum line I would support that, because I think it is very hard that these young men should have this datum line fixed.
§ Sir F. CAWLEYI will bring in an Amendment on the Report stage.
§ Proposed Clause and Motion, by leave, withdrawn.
§ The DEPUTY-CHAIRMANThe Clause standing in the name of the hon. Member for West Aberdeenshire is covered by a previous discussion.
§ 9.0 P.M.
§ The DEPUTY-CHAIRMANI do not know whether the hon. Gentleman was here, but the point was clearly covered by the discussion which took place on the Clause moved by the hon. Member for Monmouth Boroughs (Mr. Haslam), and on the somewhat similar Motion standing in the name of the hon. Baronet the Member for West Denbighshire (Sir H. Roberts).
Mr. HENDERSONIf you will pardon me, it is rather a different point altogether, and if you will allow me to explain I think you will see it. It is the case of a company who was formed some years ago, and in no single year was a profit made by the company until the year 1910. The company showed a deficiency in its balance sheet of £9,000, and it had a small nominal capital of £600. It became insolvent; the creditors met, and they found, when it reached this stage, that the shareholders' capital was lost. In 1910 a new managing director was appointed, and, with the consent of the creditors, the company was allowed to go on with its business. The trading loss was stopped almost immediately, and gradually it has gone on 967 until this last December's balance sheet shows that it can pay 2s. in the £, and no more.
§ The DEPUTY-CHAIRMANIt is the same point.
Mr. HENDERSONNo; it is not quite the same. I say they should not pay any Excess Profit Tax which would make them insolvent. That is not the other case.
§ The DEPUTY-CHAIRMANIt really is. I am quite sure the hon. Member does not wish to trifle with the Committee; but it rests with me to decide whether it is the same or not, and I say, unhesitatingly, that it is.