HC Deb 24 June 1921 vol 143 cc1715-27

1. The profits of a trade or business for any period, and the pre-war standard of profits, whether a percentage standard or a pre-war standard of profits based on the statutory percentage on the average amount of capital employed in the trade or business during the first accounting period, shall for the purposes of this Schedule be computed on the basis prescribed by Part III. of the principal Act, as if such first-mentioned period were an accounting period, and where the period for which the profits of a trade or business fall to be ascertained is a period less than a year, the amount of the pre-war standard of profits shall be proportionately reduced:

Provided that where any period which would, if the section of this Act providing for the termination of excess profits duty had not passed, have been an accounting period of any trade or business within the meaning of the principal Act commences before and ends after the termination of the final accounting period of that trade or business, the profits of the first-mentioned period shall be computed on the basis prescribed by Part III. of the principal Act as if that period were an accounting period, and shall be apportioned between the time ending on and the time subsequent to the date of the termination of the final accounting period in proportion to the number of months or fractions of months before and after that date respectively.

2. The Commissioners of Inland Revenue shall have the same power to require for the purposes of a claim under this Schedule the furnishing of returns of profits and other particulars as they have under Part III. of the principal Act, as if the period for which the returns and particulars are required were an accounting period.

3.—(1) Every person making a claim under this Schedule in relation to any trade or business shall, in support of the claim, and on being so required by the Commissioners of Inland Revenue by notice in writing, furnish to the Commissioners returns in writing containing such particulars with respect to the trading stock of the trade or business in hand at any material date, including particulars with respect to the cost price, sale price, or value of the stock at any material date, and with respect to any other matters relevant to the claim, as the Commissioners may require.

(2) Every return furnished in pursuance of this paragraph shall be signed by the person making the claim, or where the claim is made by a firm or by a company by one of the partners in the firm or by the secretary or some other responsible officer of the company, as the case may be, and shall, if the Commissioners so require, be certified by some person being a member of an incorporated society of accountants, and shall be verified by the production of such evidence and otherwise as the Commissioners may direct.

4. The provisions of the second paragraph of subsection (2) of section forty-four of the principal Act (which impose a penalty on persons failing to comply with any require- ments of the Commissioners under that section) shall apply to any requirements of the Commissioners under paragraphs 2 and 3 of this Part of this Schedule as they apply to requirements under that section.

5. Nothing in this Schedule shall derogate from the power of the Commissioners of Inland Revenue to make assessments and collect duty for any accounting period without reference to any notice which may be given that the owner of the trade or business intends to claim relief under any part of this Schedule.

6. Relief under this Schedule shall be given by way of repayment to the person who is at the end of the final accounting period the owner of the trade or business, except in cases where it can be set off against any duty which has been assessed on him for any accounting period and remains unpaid.

7. Any repayment under this Schedule shall for purposes of income tax be treated as a repayment of duty, and any set-off under this Schedule shall for those purposes be treated as a repayment of duty made at the date when the amount of the set-off is ascertained.

8. Relief granted under this Schedule shall not be taken into account for purposes of the section of this Act relating to the adjustment of duty over the aggregate period of charge.

9. Subsection (5) of section forty-five of the principal Act shall apply to a determination of the Commissioners of Inland Revenue under this Schedule as it applies to the amount of an assessment of duty.

10. For the purposes of this Schedule a trade or business shall not be deemed to have changed ownership unless the Commissioners of Inland Revenue are satisfied that the change was made bonâ fide and was not an artificial or fictitious transaction.

11. In this Schedule the expression "duty" means excess profits duty.

Sir G. COLLINS

I beg to move, in Part I, paragraph 3, after the word "price" ["valuation at a constant price"], to insert the words "or other specially agreed method of valuation."

Very late last night my hon. Friend, the Member for East Wolverhampton (Mr. Thorne), asked me to move this Amendment standing in his name. The object of it is to define more accurately the words in the Bill.

THE CHANCELLOR OF THE EXCHEQUER (Sir Robert Horne)

I would very gladly give consideration to the Amendment if I understood it. I have tried to understand what is meant, and I hope if the right hon. Gentleman (Mr. Thorne) addresses the Committee, he will be able to inform me so that I can clearly follow him. I only know of three methods of arriving at a valuation. One is the market price, another is cost price, and the third is this invariable price, which is called a constant price, which is taken in businesses which can always guarantee a certain amount of stock for manufacture, and it is put in at a price which is practically bedrock and taken as never varying. I do not know of any other. If I knew what was referred to as "other specially agreed methods of valuation," I should be very glad to meet it, but I do not know what it is, and accordingly I do not think we should encumber the statute with anything we do not entirely understand.

Amendment negatived.

Mr. HOLMES

I beg to move, in Part I, paragraph 4, after the word "twenty-one" ["nineteen hundred and twenty-one"], to insert the words "after any adjustments in respect of increased or decreased capital."

This is set down for the purpose of clearness. The paragraph states that the allowance in respect of the depreciation of stock shall not exceed the amount by which the profits of the trade or business for the period from the end of the final accounting period to 31st August, 1921, fall short of the percentage standard. The percentage standard in any business is a statutory percentage upon the capital of the business at the commencement of the first accounting period. Trades and businesses are allowed in addition a statutory percentage of any increased capital in any subsequent accounting period, but that has nothing to do with the percentage standard. The percentage standard still remains the statutory percentage on the capital at the commencement of the first accounting period. The matter in practice has been adjusted by deducting the interest on the increased capital from the profits in the accounting period before they are assessed. I only want to make sure that that is the intention of the paragraph, that when the matter is adjusted there will be added to the profits of the trade or business for the period from the end of the final accounting period to 31st August, 1921, any allowance for increased capital or a deduction made for decreased capital.

Sir R. HORNE

The practice necessitated by the words of the original statute is to deduct from the profits a percentage on the new capital which has been introduced after the beginning of the account- ing period, and accordingly there will be the deduction which my hon. Friend mentioned of a higher percentage upon all the capital which is introduced after the beginning of the Excess Profits Duty.

Mr. HOLMES

The reason I felt it necessary to put this down was that in the Coal Mines Bill the Government themselves found it necessary to insert these words. As the right hon. Gentleman has explained that that has met his view, I ask leave to withdraw.

Amendment, by leave, withdrawn.

Mr. HOLMES

I beg to move in Part I, paragraph 4, to leave out the words the percentage standard of that trade or business, or if there has not been one prewar trade year, fall short of the pre-war standard of profits based on the statutory percentage on the average amount of capital employed in the trade or business during the first accounting period, and to insert instead thereof the words an amount equal to the statutory percentage on the capital of the trade or business as existing at the commencement of the last accounting period. This is frankly a request to increase the amount which trades and businesses will be allowed. A trade or business has its percentage standard and then its interest on increased capital. The percentage standard of a limited company would be calculated at the rate of 6 per cent. upon its capital at the commencement of the first accounting period. Then for any increased capital for its last accounting period it would get 11 per cent., so that a firm which had £300,000 capital pre-war and has increased it by £100,000 since 1914, would get 6 per cent. on £300,000 and 11 per cent. on £100,000. What I am proposing is that it shall get 11 per cent. on the whole of its capital. The reason for increasing from 6 per cent. gradually up to 11 per cent. was because capital required a greater return than before the war. Government loans were 3 per cent. before the war, but they have had to pay up to 6 per cent., and those who have put money into business have expected a higher rate of interest, as the result of increased prices and increased cost of living, than they expected in 1914. Having regard to the fact that that state of things still exists, it will be equitable that firms and companies should receive 11 per cent. on the whole of their capital and not have to go back to the old 6 per cent. of pre-war days.

Sir R. HORNE

I am sorry I cannot meet the hon. Member's request. It is an attempt to increase the allowance which should be made to those who claim a set-off against Excess Profits Duty which they have already paid in respect of losses in the valuation of their stock subsequently. It would cost a very considerable sum of money, which affects my mind at once, as no doubt the Committee will understand. The standard of 6 per cent. on pre-war capital was originally fixed, and at a later period the question arose as to whether capital introduced after the beginning of the war should be recompensed at a higher rate. Originally, I think the Committee fixed the amount at 9 per cent., and subsequently increased it to 11 per cent. In the case of private firms it is 13 per cent. on the capital introduced after the war and 8 per cent. on the capital in existence before the war.

Mr. HOLMES

Seven per cent.

Sir R. HORNE

No, I think I am right in saying it is 8 per cent.

Mr. HOLMES

Six per cent. for companies, and 7 per cent. for private firms.

Sir R. HORNE

At all events the House has deliberated upon this matter and has given a considered judgment. When the question of capital introduced after the beginning of war was considered the House deliberately gave a higher remuneration upon that capital than upon pre-war capital. They did not seek to raise the standard of remuneration upon pre-war capital, recognising the fact which my hon. Friend has pointed out, that capital before the war was much easier to get at a cheaper rate than after the war. The inference to be drawn from that is that that capital having been got easily at a cheaper rate, the remuneration upon it should be less than upon capital introduced after the war. The hon. Member now seeks to give the pre-war capital the same rate of remuneration as the capital introduced after the war. I do not think there are any grounds for that. I am looking at the fact that it would cost a good deal of money, and I cannot find any justification for accepting the Amendment.

Amendment negatived.

Mr. HOLMES

I beg to move, in Part II, at the end of paragraph 5 (b), to insert a new paragraph— (c) Where the trading stock in hand on the thirty-first day of August, nineteen hundred and twenty-one, consists wholly or in part of raw material which upon being put into process of manufacture loses its identity the realised price of such material shall be taken to be the market price of such material ruling on the day when it is passed into process of manufacture and that day shall also be taken to be the day when such material is sold. like my first Amendment, this Amendment is put down for the purpose of making the matter clear, and I think it is self-explanatory.

Sir R. HORNE

I was very much impressed with the merits of this Amendment when I first read it. There seemed to be a justification for taking my hon. Friend's plan rather than the plan in the Bill; but after having discussed the matter at length with my advisers, I have come to the conclusion that, upon the whole, the plan in the Bill will do more justice to all parties than would the plan in my hon. Friend's Amendment. My hon. Friend proposes that in valuing the raw material in process of manufacture it should be valued as at the date when it passes to the manufacturing side of the business. That plan has this defect, that in valuing at that date it might be a date much sooner than the 31st August, and, therefore, you might have the raw materials valued at that point of time at a higher rate than its real value at the 31st August, or at the time when it actually comes to be sold as part of the manufactured article. In that way the trader would suffer a loss. On the other hand, the converse might happen. He might at that time be getting the benefit of an assumed form which in fact the manufactured article has not realised. I agree that the plan in the Bill seems a little difficult on the face of it, but I am told that it works out quite well. The plan in the Bill is that you sell the manufactured article, and you assess the amount which is gained in the operation of manufacture, and in that way you arrive at the value of the raw material at the period when it was sold. I am informed that, taken over all, the plan works out quite efficaciously, and it seems to avoid the difficulties which I have mentioned which might arise on my hon. Friend's Amendment. For the reason which I have stated, I am afraid I must stand by the original proposal in the Bill.

Mr. HOLMES

In view of what the Chancellor of the Exchequer has said, and seeing that it is a complicated matter, I will withdraw my Amendment. Perhaps I may have a conference with the right hon. Gentleman before the Report stage.

Amendment, by leave, withdrawn.

Mr. HOLMES

I beg to move, in Part II, at the end of paragraph 8, to insert the words

In this Schedule the expression "trading stock" includes—

  1. (a) any goods such as are sold in the ordinary course of a trade or business whether in a finished condition or not; and
  2. (b) any raw or other materials used in any such goods.

This, again, is by way of explanation as to what is trade stock. The words of this Amendment are the actual words used by the Government in the provisions of another Act in regard to trading stock, and possibly as this expression in regard to trading stock appears in a previous Government Act, it would be equally applicable to this one.

Sir R. HORNE

I should be glad if my hon. Friend would talk over this matter with myself and the Inland Revenue Officials As far as I can see at the moment, the definition which my hon. Friend suggests, although it is a definition taken from another Act, is unnecessary in regard to this particular matter. I am not entirely confident about that, and I should like to have an opportunity of going further into it. As the matter stands the definition given in the first part (a) of the Amendment is unnecessary. In regard to (b) that is too wide. For example, it would include such things as coal and oil, which I am certain my hon. Friend does not mean to include. They are raw materials "used in the manufacture or preparation of any such goods," but he does not mean them to be covered by the terms of this Amendment. I shall be glad to have an opportunity of discussing the matter with my hon. Friend.

Mr. HOLMES

I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. HOLMES

In view of what has happened in reference to my two former Amendments, I will not move the others of which I have given notice.

Mr. A. M. SAMUEL

I beg to move in Part III, paragraph 1, to leave out the words amount of the percentage standard of the trade or business or, where there has not been one pre-war trade year, than the prewar standard of profits based on the statutory percentage on the average amount of capital employed in the trade or business during the and to insert instead thereof the words maximum amount of profit on which that trade or business would not have been liable to pay excess profits duty in respect of its final accounting period if the pre-war standard of profits for that trade or business had been taken to be the percentage standard. I believe that this matter has been brought before the notice of the right hon. Gentleman by representatives of bodies of traders, and I commend the Amendment to its consideration.

Sir R. HORNE

I am not quite certain that I understand my hon. Friend's Amendment, but so far as I do understand it, it is precisely the question which was raised by the hon. Member for North East Derbyshire (Mr. Holmes) when he suggested that we should take the percent return upon the capital as the standard profit rather than the prewar standard of 6 per cent. Perhaps this goes a little further, but for the same reasons as I have given to the hon. Member for North East Derbyshire I cannot accept it.

Mr. SAMUEL

In those circumstances, I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. A. M. SAMUEL

I beg to move, in Part IV, paragraph 1, after the word "period" ["accounting period"], to insert the words and so that all adjustments shall be made for increase and decrease of capital accordingly. I believe that this is agreed to and is incorporated, and in that case I will not press it.

Sir R. HORNE

It is covered by another part.

Mr. SAMUEL

I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. C. WHITE

I beg to move, in Part IV, paragraph 3 (2), after the word "accountants," to insert the words "or by a practising professional accountant approved by the Commissioners of Inland Revenue."

I confess that I am out of my element in wandering into the realms of finance, but my submission is that there are many competent expert accountants who are not members of any incorporated society of accountants but are fully qualified and are just as responsible persons as those who are members of these bodies. I know several myself who have been continually appointed by the Treasury under the Provident Societies Act, 1893, and under the Friendly Societies Act, 1896, hut according to my reading of this Clause responsible men such as these are debarred from giving a certificate as required, and what I desire is not to close the door against those men if the Commissioners of Inland Revenue are satisfied that they are responsible men. There is some precedent for this, because in the Munitions of War Act (1915), by the provisions with regard to the limitation of profits in controlled establishments accounts had to be supplied by these establishments, and it is stated that the audit must be by a member of an incorporated society of accountants, or by an accountant approved in any particular case by the Board of Trade. My object is solely that the Act shall not shut the door in this way, and the Treasury will be safeguarded by the fact that the Commissioners of Inland Revenue will have to be satisfied that these men are responsible men.

Sir R. HORNE

I appreciate to the full the considerations put forward by the

THIRD SCHEDULE
ADVANCES OUT OF CIVIL CONTINGENCIES FUND.
Body or Department to which Advance made. Purpose for which Advance made. Amount outstanding.
£
Royal Commission on Sugar Supplies … Purchase of sugar … … … 21,650,000
Board of Trade … Purchase of zinc concentrates and spelter. … … … 1,050,000
Minister of Agriculture and Fisheries … Flax production … … … 350,000
Total … … … 23,050,000

hon. Member, and I recognise at once that there are bodies of accountants, such as he describes, who are outside the ordinary associations of accountants, but I am embarrassed by his Amendment. It is an invidious duty to put upon the Inland Revenue to say with regard to a particular accountant that he is satisfactory and is perfectly respectable, and to say with regard to another that he is unsatisfactory and that his firm is not of sufficient repute to be employed for this purpose. I considered that matter very carefully in connection with the Bill itself, and I felt that I was not in a position to say with regard to one man that he satisfies the demand for respectability which the Inland Revenue required, and with regard to another that he does not. Obviously that is a very difficult and embarrassing position. Therefore I am thrown back on the ordinary arrangement with regard to these matters, and although there may be a hardship in certain cases, I do not think that I can be asked to go outside the members of incorporated societies of accountants.

Amendment negatived.

Lieut.-Colonel HURST and Sir R. NEWMAN had given notice of an Amendment in Part IV., paragraph 3 (2), to leave out the words "and otherwise as the Commissioners may direct."

The CHAIRMAN

This Amendment is out of order.

Schedule agreed to.

Second Schedule (Provisions for carrying out redemption of Government stock) agreed to.

Lieut.-Commander KENWORTHY

had given notice of Amendments to leave out the lines beginning "Royal Commission" "Board of Trade" and "Minister of Agriculture and Fisheries."

FOURTH SCHEDULE.
ENACTMENTS REPEALED.
Chapter. Short Title. Extent of Repeal.
39 & 40 Vict. c. 36. The Customs Consolidation Act, 1876. In section thirteen the words "except existing "warehouses of special security in respect of "which security by bond has hitherto been "dispensed with."
43 & 44 Vict. c. 34. The Spirits Act, 1880 … Subsection (6) of section one hundred and thirty-five.
46 & 47 Vict. c. 34. The Cheap Trains Act, 1883 … Section four, and in section five the words from the beginning of the section down to "but."
52 & 53 Vict. c. 42. The Revenue Act, 1889 … Section twenty-nine.
6 & 7 Geo. 5. c. 24. The Finance Act, 1916 … Section fifty-five, and the words "during the "continuance of the present war and a period of "six months thereafter" in section sixty.
8 & 9 Geo. 5. c. 40. The Income Tax Act, 1918 … Sections forty-three and forty-four.
10 & 11 Geo. 5. c. 18. The Finance Act, 1920 … In subsection (1) of section seven the words "Spark-"ling wine in bottle, an additional duty, the "gallon - - 5s. 0d.", and the words from "and in the case of" to the end of that subsection; in subsection (2) of that section the words from "and as though" to the end of that subsection; subsection (3) of that section; sections nine and ten.
Sir W. BULL

had given Notice of an Amendment to leave out the lines beginning "8 & 9 Geo. 5 c. 40."

The CHAIRMAN

This Amendment is out of order, because, these Sections having been repealed by a Clause, the insertion of words that they are so repealed is purely descriptive.

Mr. HOLMES

In last year's Act the Chancellor of the Exchequer accepted an Amendment omitting from the repeal Section the repeal of these Sections. Sections 43 and 44 of the Income Tax Act are in force in any year only when they are specifically re-enacted. Last year they were specifically re-enacted, and, therefore, have been applied to 1920–21; but they were not repealed. The Schedule to the 1920 Act included originally the Section to repeal them, but the Chancellor of the Exchequer accepted an Amendment omitting them from the repeal Section. Therefore, they stand on the Statute and can be re-enacted by the House in any particular year. I submit

The CHAIRMAN

These Amendments are out of order, because the words sought to be left out are purely descriptive, and their substance is already in the Bill.

Schedule agreed to.

that that is quite a different point from Clause 18.

The CHAIRMAN

The point is a complicated one, but on its face Clause 18 appears definitely to repeal them. This is what Sub-section (1) of Clause 18 says: For the purpose of removing doubts it is hereby declared that sections forty-three and forty-four of the Income Tax Act, 1918 (which grant certain reliefs for any year of assessment as respects which they are respectively continued in force by any Act), were not continued in force for the year 1920–21, and the said sections are hereby repealed. I do not think there can be any doubt about it.

Schedule agreed to.

Question proposed, "That the Bill, with Amendments, be reported."

Mr.-ACLAND

We were kept until five o'clock on Wednesday morning discussing many things which we were then not properly in a position to discuss, and the idea arose that there would be a full day's work left to be done to-day. We have got through that work in thirty-five minutes, and the moral of it appears to be that we might have gone to bed a little earlier on Tuesday night so as to be in a better position for discussion to-day.

Sir R. HORNE

I agree that had I known we were going to get through our work so rapidly to-day, I should not have kept the House sitting so late on Tuesday night. But hon. Members must recognise that the reason for the speed with which we have completed our work to-day is that a large number of Amendments have not been moved, owing to the absence of Members. Had the Amendments on the Paper been moved and discussed, they would have occupied all the time to-day. I apologise to the Committee if I am supposed to have been guilty of extreme pressure on Tuesday night.

Bill reported, with Amendments; as amended to be considered upon Monday next, and to be printed.—[Bill 152.]