HC Deb 12 July 1922 vol 156 cc1378-82

Where the profits or gains chargeable under Schedule E are of a fluctuating character owing to the person charged or to be charged being paid otherwise than by a fixed annual remuneration, the assessment upon such person shall, if he so elect, be based on the total income arising or accruing to him in respect of his office or employ- ment for the year preceding the year of assessment.—[Mr. G. Locker-Lampson]

Brought up, and read the First time.


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

The object of the Clause is to enable persons with fluctuating incomes who are assessed under Schedule E to be assessed on their previous year's income, and not on the actual income of the present year. This has become a much more serious question than it was a few years ago. Under the present Bill the number of people coming under Schedule E has been very largely increased. Up to the present the only persons under Schedule E have been Government employés and persons employed by companies and large corporations. As a matter of fact, not all the employés of corporations came under Schedule E. It only applied to the chief employés. Now all persons employed by private firms are going to come under Schedule E and they are going to be obliged to have their incomes assessed on the actual year's income. How on earth are you going to say at the beginning of any particular year what the income is going to be if it is of a fluctuating character? A great many of these people who are now-going to come under Schedule E are commercial travellers and bank clerks. Part of their income is in the shape of bonuses which go up and down with the cost of living, which make their income to a certain extent fluctuating. Part of their income is in the shape of commission, which may increase or diminish from year to year. How are they going to say at the beginning of a year what their actual income is going to be? The Inland Revenue have lately issued a form to say that where the income is fluctuating, in certain cases the person may have his income assessed on the previous year's income, and I hold in my hand a notice that the Inland Revenue lately issued which uses those words. In the case of commission, bonus, or other fluctuating emoluments, the amount of which for that year is unknown, it will be sufficient for the purposes of this return to state the amount for the preceding year. So that in certain districts and in certain cases they are giving the very concession I am asking for as a statutory right. On a previous occasion I begged the Chancellor of the Exchequer to do away with the whole of these concessions as concessions and to put them into an Act of Parliament. It is impossible for Income Taxpayers to know where they are if in addition to their statutory rights they are told if they hunt about they may possibly find there is some concession issued by the Inland Revenue to meet their case. I cannot really see any reason why this concession as it now is, and which I do not believe one man in a million knows, should not be turned into a statutory right. Let us try to make the Income Tax law a little more comprehensible than it is at present. An hon. Member said just now it is impossible even for people who have studied the Income Tax all their lives to know really what all these concessions amount to. I hope the right hon. Gentleman will make this concession a statutory right.


I support this Amendment in the hope that it may be taken as a step towards putting the assessment under Schedule E permanently on the basis of the preceding year. Under the change brought about this year I know one case in which the secretary of a company had to make a return the previous year in respect of ten persons, and in consequence of the change brought about by the Bill this year he had to make returns in the case of 600 people, and in the majority of these cases the returns will prove to be incorrect because the persons are paid by a fluctuating bonus or emolument. The result will be that fresh returns will have to be made, and there will be continual correspondence and interviews between the officers of the Inland Revenue and the officials of the company. The whole thing is in a continual state of confusion, and will entail unnecessary expense. As a step towards putting the assessment under Schedule E permanently on the basis of the income of the preceding year, I trust that the Government will accept this proposal.


The question as to whether the present or the preceding year is the fairer basis for Schedule E deserves and requires very careful consideration, and upon that if in the Finance Bill of next year there be a motion that Schedule E should always be put or. the basis of the preceding year, that proposal will get the consideration which it deserves. There is a great deal to be said for it in cases where the income is of a fluctuating character. But the present law is that the basis of assessment is the income in the year of assessment. In committee the hon. Member for Wood Green (Mr. Locker-Lampson) moved an Amendment not giving the taxpayer the right of election but putting him on to the. previous year in all eases. That was out of order because in many cases it might have resulted in the taxpayer having his taxation increased. On this occasion he has avoided tripping up over the rules of order by putting in the four little words, "if he so elect." But these words mean that where the year of assessment shows a lower income than the preceding year the discreet taxpayer not only in Scotland but even in England will elect to be taxed on the year of assessment, and conversely where in the year of assessment the income is obviously going to be larger than in the previous year that discreet person will elect to be taxed on the income of the previous year, with the necessary result that heads the taxpayer wins and tails the Chancellor of the Exchequer loses.


May I point out that the Inland Revenue have issued a paper giving as a concession the option which I am asking as a statutory right. My point is, why not turn this concession into a statutory right?


I do not think the piece of paper to which the hon. Member referred gives an option. At any rate if it purports to give an option, it is not what the law permits. Under the existing practice, where the profession or business is one which essentially leads to fluctuate of income from year after year, the assessment is made, for the purpose of getting at the income of the year of assessment, by reference to the actuality of the preceding year, taking that as a fair test for the year in question. That it is strictly law I do not suggest, but it is a practicable way of acting. That has been the practice for a very considerable time. The words on the piece of paper to which the hon. Member referred are as follows: In the case of commission, bonus, or ether fluctuating emoluments, the amount of which for the year is unknown, it will he sufficient for the purpose of this return to state the amount in the preceding year. That is not an option. It is an indication of what I have said is the ordinary practice. The practice may be legally defensible or it may not. I am rather inclined to say that it is not in accordance with the law. But it is practical good sense. You try to get at the year of assessment by reference to the actual figure of the preceding year. That is not giving an option to the taxpayer and enabling him to say "my income this year is lower than that of last year, and I will therefore be taxed on my income of this year" nor does it enable him to say, "I do not like my income this year because it is bigger than last year's income. I shall be taxed on last year's income." Such election would cost the Exchequer £1,000,000 sterling at least. and the Government is not in a position to accept the Amendment.

Question, "That the Clause be read a Second time," put, and negatived.