HC Deb 16 July 1920 vol 131 cc2856-61

No deductions shall be allowed under Schedule D of the Income Tax Act, 1918, in respect of any contribution to an association not wholly and exclusively carried on for trade or professional purposes.—[Mr. G. Thorne.]

Brought up, and read the First time.

Mr. G. THORNE

I beg to move, "That the Clause be read a Second time."

I do not in the slightest degree desire to prejudice the reduction made in respect of contributions to associations which are bonâ fide carried on for trade or professional purposes. I believe that at one time no deduction was allowed in respect of such contributions, but I understand that now an allowance is made, and that seems to me to be perfectly fair. I am seeking, however, to prevent such a deduction being extended in directions which have really no relation to proper trades or professions. I have been led to put down this Clause by a printed memorandum sent to me by a friend in the country, and purporting to be a form for sending contributions to the British Empire Union. In the margin, in leaded type, are these words: We have obtained a concession from the Income Tax Authorities whereby trading members will be allowed to debit as a trading expense any contributions towards the funds of the British Empire Union. In spite of that, I might have supposed it to be a bonâ fide trading concern, but I read in the memorandum the following: Enclosed please find cheque for pounds, being my donation towards the campaign of the British Empire Union against industrial unrest and Bolshevism. Please send me copies of this letter for distribution. That having been sent to me by a gentleman in the country who feels very indignant about it, I felt it my duty to raise the question by means of this Clause, and I hope either that some satisfactory explanation will be given or that the Chancellor of the Exchequer will accept the Clause.

Mr. CHAMBERLAIN

I hope I shall be able to satisfy my hon. Friend, and that he will not press this Clause. He and I are absolutely at one, both in regard to the view we take of that circular and in regard to the policy which we ought to adopt. A subscription to a trade association is a legitimate deduction from Income Tax, and my hon. Friend does not wish to interfere with that. There are associations, the subscriptions to which are partly applied to purposes within the meaning of the Income Tax Act, and partly to other purposes in respect of which a deduction is not admissible. It has been found, from the point of view of the trader, the association, and the Inland Revenue, to be convenient and economical to allow the subscription to be deducted by the original subscriber, but to charge it to Income Tax, in so far as it is chargeable, on the association which receives it. Often the subscriber himself does not know what proportion of his subscription is properly allowable as a deduction and what portion is not, and he would have to write to the association for a statement of the proportions in which their funds are expended. The Inland Revenue, also, would have to do that in order to check the statement made by the individual taxpayer. That is uneconomical from the point of view of Revenue administration and harassing to the trader, and, of course, it does not tend to encourage people to subscribe to the association. Accordingly, in the interests of all, where a subscription is partly a proper trade expense, but where some proportion is not, trading associations have to a growing extent availed themselves of the permission to make themselves responsible for the Income Tax due from their individual subscribers in respect of their subscriptions. I have made that plain.

Mr. THORNE

What I do not understand is this. This is sending a cheque for a donation towards the campaign of the British Empire Union against industrial unrest and Bolshevism, and the very form which is issued for that purpose to the subscribers distinctly states that a deduction would be made from subscriptions so made. That is the point I am raising, and it seems very important.

Mr. CHAMBERLAIN

I think the statement on the circular is most improperly expressed. When it was brought to my notice a month or two ago I at once communicated with the Inland Revenue authorities about it; and steps have been taken to see that no such statement is included in their future circulars. They have no special concession, and in so far as their subscriptions are contributed for the purpose there set forth, they will be taxed to the full. The association appeared from that circular not to be a trade association in the proper sense at all—I know nothing of it except through the circular—but a perfectly legitimate political association, and as such, it had no right to be admitted to this practice. But I find by far the major portion of their expenditure is legitimate trade association expenditure and I do not think I should be justified in leaving them out of a system which is of general application and to which they were admitted a good many years ago. But I can assure the right hon. Gentleman that in so far as any part of the subscriptions which they receive are devoted to other than proper trade purposes, and are devoted to political agitation of whatever class or character, even though it be of a perfectly legitimate kind, they will be taxed. They ought to be taxed, and I agree they shall.

Dr. MURRAY

How will you discriminate?

Mr. CHAMBERLAIN

The association has to produce its accounts and prove the proportion of its subscription income which has been applied to the purpose. I think the circular, as worded in regard to Income Tax, is an improper circular. We have taken steps to see that that wording is not repeated. No special favour will be shown to this association, and no subscriptions to political objects will be allowed to pass untaxed.

Mr. SPENCER

I understood the right hon. Gentleman to say that in his opinion any contribution to a trade association is a legitimate contribution, and one that he would allow for the purpose of abatement. What is the difference between a contribution made to a trade association by an employer and a contribution made by a workman to his trade union, and if there is no difference, why is there a discrimination between the two, and will he take steps to give the workman the same benefit that the employer himself derives in his contribution to the association?

Lieut.-Commander KENWORTHY

I understand that the accounts of this and similar organisations are audited by the Treasury officials or, at any rate, closely scrutinised. With respect to what is meant by "legitimate trade object," I understand that this very interesting association describes as a trade insurance propaganda against what they call industrial unrest, but which other people would call efforts to raise the standards of life of the workmen. They call that legitimate insurance of traders, and they claim exemption for it as a trade service. What is the view of the Treasury officials upon that matter? How far can the question of trade insurance be stretched to cover insurance against so-called unrest and enable them to send out cinematograph films and propaganda of that sort?

Mr. CHAMBERLAIN

Propaganda of that character is not a trade expense within the meaning of the Income Tax Act. The Income Tax Act lays it down what is a trade expense. The matter mentioned by the hon. Member (Mr. Spencer) is very different. This arrangement in regard to trade expense does not confer a favour upon any particular association. There have been 1,800 associations admitted to this arrange- ment, which is a great convenience to them and to the Treasury, and a great convenience and economy to the Treasury in the collection of revenue. Because one circular has been, as I think, very improperly worded, I hope the Committee will feel that that is no reason why an arrangement of this sort—I will not call it a concession; it is not a concession—which is as convenient to the revenue authorities as it is to the individual taxpayer, should be upset. The arrangement provides that the association desiring to accept it shall bind itself to render copies of its accounts annually to the Inspector of Taxes and to furnish that officer with all the necessary information in regard to those accounts and the operations of the association, and to submit to an assessment of Income Tax under Schedule D on any balance of its receipts or members' contributions over expenses which may properly be regarded as incurred wholly and exclusively for the purpose of the members of the trade. The arrangement in terms specifies that the association should pay tax on the balance of income over expenditure computed in accordance with the provisions of the Income Tax Act. In actual working I do not think there is any possibility of abuse. I do not impute any wrong intention to the people who drew up the circular in question, but it was very improperly worded, it gave a wrong impression, and it has caused me a great deal of trouble, which I hope may be allayed by the explanation I have given.

Mr. KILEY

The Committee are agreed that some relief should be given for purely trade purposes to purely trade organisations. If a draper joints the Drapers' Chamber of Trade, or a grocer joints his trade association or the local Chamber of Commerce, which are purely trade organisations, we are all agreed, but there has recently sprung up quite a number of organisations who call themselves the union of this or the union of that, and which are used to a certain extent for clearly well-defined political purposes, and there ought not to be any facilities given to such organisations. While we all agree that some of them which are legitimate trade organisations should receive every support, I think the Chancellor is exposing himself to the possibility of his good intentions being abused by such organisations. We have had evidence of that during the last few weeks. A well-known organisation which is not confined to one particular trade has been spending thousands of pounds on advertisements and telegrams to Members of this House for a cause with which I am in complete sympathy. That is not done by any particular trade or to the advantage of any particular industry. While that is possible under the system which exists at the moment I think that, before agreeing to the new Clause as drawn, we should ask for an undertaking by the Chancellor that between now and the Report stage he will go carefully into the question to see what action, if any, can be taken so that there shall be no extension of the abuse to which we have just had our attention called.

Mr. G. THORNE

I thank the Chancellor of the Exchequer for the full and courteous reply that he has given me. I recognise the position which he has taken, which is exactly the position that I take myself. I do not in the least desire to interfere in any way with this deduction in respect of contributions to a bonâ fide trading concern. I say this in the interests of the traders themselves, because if they were unwisely used they might lose what is legitimate benefit to them. Having got that statement from the Chancellor I do not desire to hurt the societies, and ask leave to withdraw.

Motion and Clause, by leave, withdrawn.