NEW CLAUSE.—(Amendment of s. 5 of Income Tax Act, 1918.) (Hansard, 16 July 1919)

§ Sir F. BANBURY
I beg to move, That the Clause be read a second time. This is rather a complicated question, but I will endeavour to explain it as well as I can. The Income Tax Act of 1918, as the Committee know, consolidated the various Income Tax Acts which had been passed previously to that date, and Section 5, Sub-section (2), says: Where an assessment to Income Tax has become final and conclusive for the purposes of Income Tax for any year, the assessment shall also be final and conclusive in estimating total income from all sources for the purposes of Super-tax for the following year, and no allowance or adjustment of liability on the ground of diminution of income or loss shall be taken into account in estimating the total income from all sources, unless that allowance or adjustment has been previously made in respect of Income Tax on an application under the special provisions of this Act relating thereto. I cannot say when that provision was introduced. My recollection is that it was 461 introduced about five or six years ago. The effect of it is this. I will take a concrete ease, and we will suppose that A, who has money on deposit or who has money invested in securities on which the Income Tax is not deducted at the source has to make a return of that income in May, 1918. In May, 1918, he makes a return of the interest received on money deposited at his bank for the year ended 6th April, 1918. We will say, for the sake of argument, that that income is£500. That sum is sent to the Inland Revenue, and they accept that as the amount of the income arising from this source for the year ended 5th April, 1918. In January, 1919, he pays tax upon that amount of£500. In May, 1919, he has to make his return for the Super-tax. In doing that, he takes his various amounts which make up his income and he turns to the amount which he has received as income from money on deposit at the bank for the year ended 5th April, 1919. That is the time at which he has to make his return for the purposes of Super-tax. He finds that for the year ended 5th April, 1919, he has had no income from interest at the bank. He has, perhaps, invested it in various War Loans at the suggestion of the Government, but he has got to return, for the purposes of Super-tax, not the income which he has received from that source, which is nothing, but the income which he received for the year ended 5th April, 1918, which, as I have already said, was£500. Therefore, the result is that he has to pay Super-tax on an income which he has never received, and which he never will receive. That seems to me to be a very unfair provision. It is a provision which is quite unnecessary) and it is, I think, a provision which ought not to be maintained. It is rather a technical point. I do not know whether I have made the Committee understand it, but I had an interview with the authorities at the Inland Revenue, and I made them understand at once, and they confirmed my view that that is the law as it stands now. It may be said that that is all very well; but, supposing a person realises all his securities and keeps the money on deposit in the bank, the result will be that for one year, at any rate, he will avoid paying Super tax upon anything at all, because the income from interest at the bank for the previous year, or really for two years ago, will have been nothing, and therefore he will return it as nothing, whereas, as a matter of fact, during the year the whole 462 of his money has been on deposit in the bank and he has received interest on that. I say that is not a fair way of looking at it. And it is not the right thing to encourage people to realise their securities at the present moment. That is the very last thing—and I speak with some authority on this point—my right hon. Friend would desire people to do. But, even if that is so, it is not right to do something which is an injustice on the plea that, if you do something, later on another injustice may be inflicted on the Government and they will be deprived of Supertax they ought to receive.
I do not know whether I have made the point clear, but, if 1 have not, and my right lion. Friend will put any question to me, I shall only be too glad to endeavour to make the point clear. What I want to avoid is the injustice of making a man pay a Super-tax upon an income which he has not received. Even hon. Members opposite, I am sure, would not desire that. The injustice would be just the same if the Income Tax were 6d. and there was no Super-tax; but when, as at the present moment, the Income Tax and Super-tax combined are very often 10s. in the, the infliction of such an enormous tax on a person, already highly taxed, on something he has never got, and never will get, is surely wrong. Moreover, it alters the basis upon which the Super-tax is assessed. Super-tax is assessed upon an income for the previous year in every case excepting this one case, and here it is assessed upon an income of two years previously. My right hon. Friend has made some concessions to-day to other quarters of the Committee. Is it unfair to ask him to make some little concession to his own Friends and supporters, and to treat them, at any rate, in something of the same way as he has treated his opponents

Mr. CHAMBERLAIN
There were moments in my right hon. Friend's speech when I felt convinced that I understood both his Amendment and his case. Then he elaborated it, and I confess clouds of obscurity gathered from time to time, and I am not quite certain that I do understand it. I am not quite certain that my right hon. Friend—if he will permit me to say so—himself understands it.

§ Sir F. BANBURY
Oh, yes, I do!

Mr. CHAMBERLAIN
He is dealing with a case where a man changes from an investment, where income is not deducted 463 at the source, to an investment where the interest is deducted at the source. What happens? Assessing the Super-tax, according to the law as it stands, the un-taxed interest in the first year is assessed under Schedule D in the second year, and the amount of that assessment is included in the Super-tax return in the third year. I do not see the injustice of that. It is not what my right hon. Friend calls paying tax on money you have not received. It is paying tax on money you received two years before, instead of in the year immediately preceding it. I am not quite sure the boot is not on the other leg. You have had the use of the money for two years before you pay the Super-tax, instead of for one year. There is no double payment of the tax. There is no payment of tax on money you have not received. Assuming that the interest was, as my right hon. Friend put it, £500, and you change it into another investment where you get exactly the same amount—I put it so for simplicity—in the first year you have£500, which, however, was not assessed for Income Tax in that year, and only appear when the Super-tax appears with it. When you change your investment into the new form the second year's income appears in the year in which it is received. Therefore, in year 1, supposing you made a fresh investment, then you would have no interest. It would only appear in year 2. The effect of your changing is that interest for two years appears in one return, but there is no tax on more than your income or on any you have not received.

§ Sir F. BANBURY
I will try to convince my right hon. Friend. Let me first point out that a few years ago—I am not sure as to the exact year —

Mr. CHAMBERLAIN
1915.

§ Sir F. BANBURY
Prior to that date everyone paid Super-tax upon his income of the previous year. That is to say, in May, 1919, you would have paid Super-tax on an income which was reckoned as being your income from April, 1918, to April, 1919. You included in your income the interest you had received, say, £500, from deposit at the bank. Then it was altered, so far as regards interest on deposit, and it was thrown back a year, and supposing this took place in 1914, in the following year, 1915, instead of doing as you did before, and taking your interest from the bank for the year ending April, 464 1915, you had to go back to the year ending April, 1914. Therefore, the whole thing was upset, and for no object that I can see whatever, because the fair and proper course was to continue the old system of assessing Super-tax on income you received in a given year. My right hon. Friend says that, suppose you changed your investment, and you invested it in something that would return the same amount, you would not be charged Super-tax on both. I say you would, and that is where we differ.

Mr. CHAMBERLAIN
You would be charged on all you received; you would not be charged on sums you never received.

§ Sir F. BANBURY
Yes, you would. That is what I am trying to explain. If my right hon. Friend will allow me, I will give my own ease for clearness. In May, 1918, I made a return for Super-tax, and in that return was an income of£500 a year which I received from deposit at the bank. In June, 1918, I drew out my deposit and invested it in securities which gave me the same income of£500 a year. In May, 1919, I made my return for Super-tax for the year ending 5th April, 1919. I had to include in that return£500 a year received from the interest on the investment that I made in June, 1918. I also had to return the£500 which I received as interest from the bank, not in the year 1918–19, because I had not anything in the bank, as I had invested the money, but for the year previously, 1917–18, when I had that money in the bank. Therefore I had to pay Super-tax twice over on a given sum of £500. I put that very question to Mr. Harrison, I think his name is. The Financial Secretary to the Treasury very kindly gave me an introduction to him. I put that sort of question to him, and he admitted I was quite right; he did not question it for a moment. If Mr. Harrison is under the Gallery at the present moment, and my right hon. Friend will ask him, I am sure he will confirm what I have said as being absolutely correct. Under those circumstances, it is very evident you pay a Super-tax on £l,000—that is, the two £500 added together—when, as a matter of fact, you have only received£500. I do want that anomaly altered, and I think it ought to be altered.

Mr. CHAMBERLAIN
I understand that my right hon. Friend's statement of the law as it now is, is wrong.

§ Sir F. BANBURY
If my statement of the law is wrong, will my right hon. Friend allow me to withdraw my return, and reduce it by the amount of£600, which I have put in in error, because I have returned my Super-tax on that system?

Mr. CHAMBERLAIN
My right hon. Friend says he pays Super-tax on money which he has never received. His return for Super-tax is founded on his assessment for Income Tax. Therefore his assessment for Income Tax must also have included income he never received.

§ Sir F. BANBURY
No; because the system on which the Super-tax is returned is not the same for all sources of income. If it were the same for all sources of income, that would be another thing. I had to declare my income for the year ending 5th April, 1919, so far as regards all my sources of income except one. That source of income, which was derived from money on deposit at the bank, was taken, not for what I did receive in the year ending 5th April, 1919—I received nothing in that year—but for the income I received in the year previously, 1917–18. That, I say, is absolutely unfair.

Mr. CHAMBERLAIN
I think the Committee will agree that this discussion between my right hon. Friend and myself is not very profitable, and I am afraid he must feel the same. I am still in doubt by his last speech as to what he alleges. Does he allege that he paid Super-tax on income that he never received?

§ Sir F. BANBURY
Yes.

Mr. CHAMBERLAIN
At any time; on which he is never liable at any time?

§ Sir F. BANBURY
No; but I have already paid it once.

Mr. CHAMBERLAIN
Then the right hon. Gentleman alleges that he is paying Super-tax twice over on the same£500?

§ Sir F. BANBURY
Yes.

Mr. CHAMBERLAIN
I do not understand that, but I will look into it and perhaps my right hon. Friend will submit his Super-tax return to me quietly at the Treasury where he can get to it more rapidly—[An HON. MEMBER: "May we all do that"]—than we can here. But in no case could I accept my right hon. Friend's Clause. Even if there be a case for 466 Amendment it would not have to take the form of this Clause. The right hon. Baronet's Clause would not meet the case in any way, and his proposal would not be a remedy that I could accept under any circumstances. But, on my information, I cannot understand how the right hon. Gentleman can have paid on money he never received or paid twice over on money he did receive.

§ Sir P. MAGNUS
It might be convenient if the Chancellor of the Exchequer would reconsider this Clause and. bring it up, if necessary, on Report. There is a little difficulty about it, but this is quite certain, that the more it is explained the more difficult it is to understand, 1 would suggest that, without agreeing to accept this particular Amendment, it might be reconsidered on the Report stage.

§ Sir F. BANBURY
I am sorry that my evidence in explanation has only resulted in making the question more difficult to understand. I am sure it is my fault, though I endeavoured to explain it as clearly as I could. I would suggest to my right hon. Friend—I have already spoken to my right hot). Friend privately on this matter, and I have seen the gentleman whom I thought was the greatest authority in these matters in the United Kingdom, and he certainly agrees with me—that if he will allow me to have an interview with him, possibly in the presence of that particular gentleman, I think I can make the point perfectly clean I do not care particularly about my form of Amendment, so long as I can show that there is an injustice, and I hope my right hon. Friend will see whether or not he can meet it. If he will agree to that, I am willing to withdraw the Clause.

§ Colonel GREIG
I do not like to intervene, and the Chancellor of the Exchequer will correct me if I am wrong. As I understand the case, the interest on the deposit comes into assessment for Super-tax the year but one after it is received. The interest on an investment, being taxed at the source, comes into excess profits for the next year. Therefore both of them fall in the same year, though arising from different years—but there is no double taxing.

§ Sir F. BANBURY
That is absolutely the case.

Mr. CHAMBERLAIN
That is exactly what I put to my right hon. Friend. The income of the two years in respect of this particular sum falls to be taxed in one year.

§ Mr. COURTHOPE
As this matter has come up, I want to draw attention to one aspect to which the right hon. Baronet has not referred. It is perfectly true, as the Chancellor of the Exchequer says, that no income is assessed twice under this Clause under Income Tax or Super-tax, but the fact that income for two years from a huge block of capital may be included in a single Super-tax return, may, under these circumstances, affect not only the rate of the Super-tax, but in some cases it may bring a man into the Super-tax level who would not otherwise be assessed for Super-tax at all. I hope that the right hon. Gentleman will bear that point in mind when he considers this matter.