HC Deb 16 June 1921 vol 143 cc765-73

(1) Paragraph (1) of Rule 3 of the Miscellaneous Rules applicable to Schedule D shall not apply in any case where the person charged to tax has continued to carry on throughout the year of assessment the trade, profession, employment or vocation in respect of which the assessment was made.

(2) This Section shall be deemed to have been in force as respects Income Tax (including Super-tax) charged for the year 1920–21, and all such adjustments, amendments of assessments, and payments of tax (including Super-tax) shall be made as are necessary for giving effect to the provisions of this Sub-section.


The Amendment in the name of the hon. Member for the Wood Green Division (Mr. G. Locker-Lampson)—to leave out Sub-section (1) and to insert (1) Where, under Rule 3 of the Miscellaneous Rules applicable to Schedule D, a person has obtained relief in consequence of diminished profits, he shall be assessed for each of the two years following the year of assessment in respect of which relief has been granted on the actual profit of those years respectively— is not in Order, because it might in individual cases increase the charge.


If in line 2 after the word "shall," I insert the words, "if he so claim," it would be in the taxpayer's own option whether he claims or not. I take it that would not necessarily increase the charge. Would that be in order?


Yes, I think would be in order.


Does the right hon. Gentleman want to go on with the Clause now? I understood that if the Government got to the end of Clause 18 by 11 o'clock they would not proceed further.


I should be very glad if the Committee would give us Clause 19 to-night, because it finishes this particular topic of debate. We can then start a fresh topic when the Committee stage is resumed.


I beg to move to leave out Sub-section (1), and to insert instead thereof a new Sub-section— (1) Where, under Rule 3 of the Miscellaneous Rules applicable to Schedule D, a person has obtained relief in consequence of diminished profits, he shall, if he so claim, be assessed for each of the two years following the year of assessment in respect of which relief has been granted on the actual profit of those years respectively. This Rule 3 provides that relief should be given when a person ceases to carry on a trade in respect of which the assessment has been made, or supposing he dies or becomes bankrupt or from any other specific cause loses the profits on which he is assessed. Hitherto that relief has been granted where the profits have diminished in the year of assessment from some specific cause. For instance, I believe that lately two companies have gone to the courts and obtained that relief. I believe that a coal company obtained relief under this particular rule because it suffered from acute depression of trade and did not get the normal profits, and recently I believe that a brewery company was able to obtain relief under this rule because the license charge were increased, and there have been various other specific cases in which relief has been given.

I may give an illustration of the way in which relief works out under the rule which the Government now propose to abolish. Assuming an average profit for the, three years, 1917–20, of £1,000— that is the basis of the tax for 1920–21— but the actual profit for that year was £500. Owing to specific causes, up to now the taxpayer has been able under this particular rule to appeal, and if he proved the specific causes, the assessment has been reduced to the £500. He only paid on the £500. Now assuming that the business is continued and recovers speedily, and makes £2,000 the following year, then under this rule the taxpayer pays only on £850. The Treasury, I imagine, say that "The taxpayer cannot have it both ways. We must put an end to this rule, and make him pay on the average." I can quite see that the Government in a real sense are more or less justified in saying that the taxpayer cannot have it in both ways. Certain hard cases will arise under this particular provision if it is carried out. Suppose a business has been working on very advantageous terms in connection with an agreement with people who govern the source of supply of any particular commodity, and suppose the agreement is suddenly terminated or is renewed on very much less advantageous terms. The business struggles on; it continues, but gives the taxpayer very much less profit. Without some kind of relief very great hardship will be suffered in such a case. Suppose that the average profits up to and including 1919–20 were £1,000, during 1920–21 the specific cause, whatever it may be, brings the profits down to £500. There is absolutely no hope that there is to be any recovery in the particular business. For the next two years, in each year, for the whole three years, the profits are only £500. Under this Clause relief will not be granted, and the taxpayer, instead of paying on £500, in these two years will pay on £833 and £677 respectively. In fact during the three years he would pay on an average of £2,500, when in reality he has had an income of only £1,500.

There are various other examples that might be chosen. Take a solicitor or a stockbroker who has a permanent and rather small clientele. Suppose that half the clientele die in a certain year. A case came before the Courts the other day, known as Green's case, in which half the clientele died in a single year. I know that hard cases make bad law. The matter has been rather prejudiced by this rule of order which prevents me raising the subject in the form in which I wished to raise it. My point is that a business may continue but may continue at very much less profit. I wish that the Chancellor of the Exchequer would think out some scheme by which if a business does continue— according to this section the business has to discontinue altogether and come permanently to an end in order to get the privilege—but at far less profit, the taxpayer would be allowed to pay, not on the average; but on the actual profits of the two following years, the two years following that in which the specific cause arises.


I appreciate what my hon. Friend is trying to achieve, but I am not sure that his object is not met under the provisions dealing with the position of the successor to a business where the profits have dropped by reason of the change in the business. I should like to address myself to the point which the first part of the Amendment raises, namely, the leaving out of Sub-section (1) which contains the main object of the Clause. There has been in existence for a number of years—in fact since the Act of 1842—a definite provision which states that if a person charged under this Schedule ceases to carry on the trade, profession, employment or vocation in respect of which the assessment is made, or dies, or becomes bankrupt before the end of the year of assessment or from any other specific cause is deprived of the profit or gains, he or his executor or administrator may within three months apply to the Commissioners for amendment of the assessment. As the Committee will see, that gave an opportunity for making an adjustment of the assessment where a business came to an end through the person dying or becoming bankrupt before the end of the year of assessment, but it added words which one often finds in Acts of Parliament—"or from any other specific cause." According to the ordinary rules of legal interpretation, ether causes following upon the named causes are said to be only causes of the same nature. During all this long period of time there were only one or two cases in which relief was claimed on the ground of any cause other than the death or bankruptcy of the taxpayer. There have been two cases—to which my hon. Friend referred—which came before the Commissioners. There is no appeal from the Commissioners upon such an application to the courts of law, and consequently there is no legal decision upon the matter at all.

When every taxpayer is seeking to find a possible loophole to escape from payment, this section is now being called in aid of claims, although in all those years it never occurred to the ingenuity of more than one or two people to utilise it. The death or bankruptcy of the taxpayer was understood to be the ground upon which such relief could be claimed. It has never been said—except in these one or two cases— that relief could be claimed on the ground that profits had fallen off in any particular year. It is perfectly plain if such ground of relief had been intended it would have been stated in quite another form. In the present year applications began to be made upon this ground. Already eight applications have been heard before the Commissioners, six of which have been decided in favour of the Inland Revenue and two in favour of the applicants, and in a large number of cases where applications have been made, the taxpayers concerned have been satisfied with the reply of the Inland Revenue and have not proceeded further. It is of the utmost moment, and it is only wise, that we should let people know where they

are upon this matter, and that we should not have a perpetual series of applications, of this kind holding up the ordinary assessments and impeding the flow of the-revenue. We ought to make it thoroughly well understood that this rule cannot be prayed in aid by an applicant simply owing to the adverse circumstances of his business. It is really declaratory of the law.


It is declaratory of what the right hon. Gentleman wants now, but not of what has always been believed to be the law. This question of a specific cause has always been difficult. It has mainly been given effect to when there was a change in partners. In the ordinary way a new firm carrying on a business had to pay tax on the three years' average of its predecessors, but owing to a change in partnership it was able to plead a specific cause, if it could show that the skill of the deceased or retired partner had been lost to the firm and that in consequence they were not able to make such large profits. As the right hon. Gentleman said, a number of firms are now pleading decreased profits due to trade depression as a reason why they should not pay on the three years' average. There was a decision in the High Court on this matter in 1881 in the case of the Ryhope Coal Co. v. Foyer. The Court held that the extraordinary depression in the iron and coal trade, where the Ryhope Coal Co. was unable to sell either so large a quantity of coal or to obtain so good a price as formerly, was a specific cause, and I put it to the right hon. Gentleman that that has been a legal decision for 40 years, and that therefore he is now not interpreting the intention of the law, but is actually altering the law as decided by a High Court case. It is for the Committee to decide what should be done, and it is for him to advise what he thinks-should be done, but I oppose altogether his suggestion that he is merely giving us now the law as it was always intended to be.

Question put, "That the words proposed to be left out stand part of the Clause."

The Committee divided: Ayes, 161; Noes, 18.

Division No. 173.] AYES. [11.30 p.m.
Adamson, Rt. Hon. William Baird, Sir John Lawrence Barnston, Major Harry
Addison, Rt. Hon. Dr. Christopher Baldwin, Rt. Hon. Stanley Bell, Lieut.-Col. W. C. H. (Devizes)
Agg-Gardner, Sir James Tynte Barlow, Sir Montague Bellairs, Commander Carlyon W.
Amery, Leopold C. M. S. Barnett, Major Richard W. Benn, Sir A. S. (Plymouth, Drake)
Betterton, Henry B. Hacking, Captain Douglas H. Palmer, Brigadier-General G. L.
Bigland, Alfred Hamilton, Major C. G. C. Parker, James
Bird, Sir William B. M. (Chichester) Hartshorn, Vernon Parkinson, John Allen (Wigan)
Borwick, Major G. O. Hayday, Arthur Parry, Lieut.-Colonel Thomas Henry
Boscawen, Rt. Hon. Sir A. Griffith- Henderson, Rt. Hon. A. (Widnes) Pease, Rt. Hon. Herbert Pike
Bowerman, Rt. Hon. Charles W. Hennessy, Major J. R. G. Peel, Col. Hon. S. (Uxbridge, Mddx.)
Boyd-Carpenter, Major A. Henry, Denis S. (Londonderry, S.) Pollock, Sir Ernest Murray
Breese, Major Charles E. Herbert, Dennis (Hertford, Watford) Pratt, John William
Bridgeman, Rt. Hon. William Clive Hewart, Rt. Hon. Sir Gordon Purchase, H. G.
Bromfield, William Hills, Major John Waller Raffan, Peter Wilson
Brown, James (Ayr and Bute) Hinds, John Rankin, Captain James Stuart
Bruton, Sir James Holbrook, Sir Arthur Richard Renwick, George
Buckley, Lieut.-Colonel A. Holmes, J. Stanley Richardson, Alexander (Gravesend)
Bull, Rt. Hon. Sir William James Hopkins, John W. W. Richardson, R. (Houghton-le-Spring)
Burn, Col. C. R. (Devon, Torquay) Horne, Sir R. S. (Glasgow, Hillhead) Roberts, Rt. Hon. G. H. (Norwich)
Carter, W. (Nottingham, Mansfield) Hotchkin, Captain Stafford Vere Roberts, Samuel (Hereford, Hereford)
Chamberlain, Rt. Hn. J. A. (Birm., W.) Hurd, Percy A. Roundell, Colonel R. F.
Churchman, Sir Arthur Inskip, Thomas Walker H. Sanders, Colonel Sir Robert Arthur
Clough, Robert Jephcott, A. R. Sassoon, Sir Philip Albert Gustave D.
Coats, Sir Stuart Jodrell, Neville Paul Seely, Major-General Rt. Hon. John
Coote, Colin Reith (Isle of Ely) John, William (Rhondda, West) Sexton, James
Cope, Major William Johnstone, Joseph Shaw, Capt. William T. (Forfar)
Cowan, D. M. (Scottish Universities) Jones, J. J. (West Ham, Silvertown) Short, Alfred (Wednesbury)
Craig, Captain C. C. (Antrim, South) Jones, J. T. (Carmarthen, Llanelly) Simm, M. T.
Craik, Rt. Hon. Sir Henry Kellaway, Rt. Hon. Fredk. George Sitch, Charles H.
Davies, A (Lancaster, Clitheroe) King, Captain Henry Douglas Spencer, George A.
Davies, Thomas (Cirencester) Lane-Fox, G. R. Stanley, Major Hon. G. (Preston)
Dewhurst, Lieut.-Commander Harry Larmor, Sir Joseph Stewart, Gershom
Du Pre, Colonel William Baring Lawson, John James Sugden, W. H.
Edwards, C. (Monmouth, Bedweilty) Lloyd-Greame, Sir P. Thomson, F. C. (Aberdeen, South)
Edwards, Major J. (Aberavon) Locker-Lampson, Com. O. (H'tingd'n) Thomson, Sir W. Mitchell- (Maryhill)
Elliot, Capt. Walter E. (Lanark) Lort-Williams, J. Thorpe, Captain John Henry
Entwistle, Major C. F. Loseby, Captain C. E. Townley, Maximilian G.
Eyres-Monsell, Com. Bolton M. Lunn, William Townshend, Sir Charles Vere Ferrers
Falle, Major Sir Bertram Godfray Lyle, C. E. Leonard Tryon, Major George Clement
Farquharson, Major A. C. Mackinder, Sir H. J. (Camlachle) Wallace, J.
Finney, Samuel M'Lean, Lieut.-Col. Charles W. W. Waterson, A. E.
Ford, Patrick Johnston McNeill, Ronald (Kent, Canterbury) White, Col. G. D. (Southport)
Forestier-Walker, L. Mallalieu, Frederick William Willey, Lieut.-Colonel F. V.
Forrest, Walter Manville, Edward Williams, C. (Tavistock)
Fraser, Major Sir Keith Mitchell, William Lane Wills, Lt.-Col. Sir Gilbert Alan H.
Gibbs, Colonel George Abraham Molson, Major John Elsdale Wise, Frederick
Gilmour, Lieut.-Colonel Sir John Montagu, Rt. Hon. E. S. Wood, Hon. Edward F. L. (Ripon)
Glanville, Harold James Moore-Brabazon, Lieut.-Col. J. T. C. Worthington-Evans, Rt. Hon. Sir L.
Glyn, Major Ralph Moreing, Captain Algernon H. Young, E. H. (Norwich)
Goulding, Rt. Hon. Sir Edward A. Morgan, Major D. Watts Young, Robert (Lancaster, Newton)
Graham, R. (Nelson and Colne) Murray, John (Leeds, West) Younger, Sir George
Green, Joseph F. (Leicester, W.) Murray, Major William (Dumfries)
Greenwood, William (Stockport) Neal, Arthur TELLERS FOR THE AYES.—
Griffiths, T. (Monmouth, Pontypool) Newman, Sir R. H. S. D. L. (Exeter) Colonel Leslie Wilson and Mr.
Guest, J. (York, W. R., Hemsworth) Nicholson, Reginald (Doncaster) Dudley Ward.
Bowyer, Captain G. W. E. Marriott, John Arthur Ransome Wilson, Rt. Hon. J. W. (Stourbridge)
Cecil, Rt. Hon. Lord R. (Hitchin) Oman, Sir Charles William C. Wilson, W. Tyson (Westhoughton)
Davison, Sir W. H. (Kensington, S.) Robertson, John Young, Sir Frederick W. (Swindon)
Gretton, Colonel John Steel, Major S. Strang
Hannon, Patrick Joseph Henry Walsh, Stephen (Lancaster, Ince) TELLERS FOR THE NOES.—
Hickman, Brig.-Gen. Thomas E. Wheler, Col. Granville C. H. Sir Frederick Banbury and Major
Locker-Lampson, G. (Wood Green) Williams, Aneurin (Durham, Consett) Christopher Lowther.
Maitland, Sir Arthur D. Steel-
Colonel Sir A. HOLBROOK

I beg to move, at the end of Sub-section (1), to insert the words But the specific cause from which the person charged is, under the paragraph (1) referred to, deprived of profit shall not necessarily be a specific cause of similar nature, but other specific causes, such as, for instance, a disastrous fire, shall entitle the person charged to apply for amendment of the assessment. I trust this addition will be accepted by the Chancellor of the Exchequer, because it does not bring forward any contentious matters, but is rather with the idea of making the Clause clearer.


This will exactly contradict what we have just decided. The Amendment proposed admits that, but says: "Oh, yes, but this must still apply in the case of a disastrous fire."


So it should!


We can scarcely pass an Amendment contradictory to what we have decided.

Amendment negatived.

Clause ordered to stand part of the Bill.


As there are no Amendments on the Paper to Clauses 20, 21 and 22, I hope the Committee will agree to take them to-night, in order that we may resume the Committee on Clause 23.

Clauses 20 (Power of holder of certain Government securities to require income tax to be deducted before payment of interest), 21 (Evidence of payment of wages in certain proceedings for recovery of income tax), and 22 (Exemption from income tax for funds of special and supplementary schemes under 10 & 11 Geo. 5), ordered to stand part of the Bill.

Committee report Progress; to sit again upon Monday next.