FIRT SCHEDULE. (Hansard, 13 July 1922)

§ Sir R. HORNE
I beg to move, at the end of paragraph. 4, to insert a new paragraph— 5. Where the Special Commissioners have issued a notice requiring a company to furnish them with particulars under paragraph 4 of this Schedule as respects any year or other period, and the auditor of the accounts of the company is a member of an incorporated society of accountants, the directors may, if they think fit, make and submit to the auditor such a statutory declaration as is hereinafter mentioned, and in such case the following provisions shall have effect: —

(a) The directors of the company shall make a statutory declaration as to—

(i) The amount which they regard, or regarded, as proper to be retained in the business out of the income of that year or other period; and

(ii) The amount (if any) which they propose to recommend for distribution, or which has been distributed;
setting out the reasons for such retention and giving such information as will enable the auditor to form an opinion whether the amount (if any) proposed for distribution or distributed, having regard to such requirements as are mentioned in the proviso to Sub-section (1) of the said Section seventeen, would be, or was, a reasonable part of the income for such year or other period:

(b) If the auditor—

(i) is satisfied that the information disclosed in the declaration is sufficient to enable him to form an opinion as to whether the proposed distribution or distribution (if any) would be or was a reasonable part of the income for such year or other period as aforesaid; and

(ii) is satisfied that a prima facie case is made out by the reasons and. information given in the declaration that the proposed distribution or disbution (if any) would be or was reasonable
he may so certify:

(c) The certificate, together with the statutory declaration, shall be sent to the Special Commissioners who, unless they see reason to the contrary, shall take no further action in the matter."
This is designed to meet a case presented by the hon. Member for North-East Derbyshire (Mr. Holmes). In dealing with companies which are suspected of having failed to distribute profits in order to avoid the Super-tax, much stress was laid by business men in the House on the embarrassment to which companies would be subjected by the kind of investigation and scrutiny which would necessarily be conducted by the Inland Revenue Department, and in order to 1556 avoid unnecessary inquiry it was suggested by the hon. Member that resort might be had to the great body of chartered accountants in this country, who would be in a position in many cases to grant a certificate which might avoid the unnecessary investigation. His original suggestion was that a firm of accountants might be entitled to give a certificate to the effect that the company was distributing a reasonable proportion of its profits, but it was impossible, according to our view, to put quite so big a responsibility upon the accountants. I have, however, succeeded in drafting a proposal which, I think, obtains the support of those chiefly interested in making the suggestion. Its general effect is this, that a company may make a statutory declaration as to the amount which they regard as profits to be retained in the business out of the income of the year, and the amount which they propose to recommend for distribution, and that in their declaration they should set out their reasons. On that declaration being submitted to an auditor, who must be a member of an incorporated society of accountants, he may, if he is satisfied that the information is adequate for him to give a certificate upon and that a prima facie case is made out, so certify. In such a case, the certificate may have the effect of inducing the Special Commissioners to say that an investigation is unnecessary, but if for other reasons, such, for instance, as that they may have information which leads them to suppose that, all is not disclosed which would enable them to form a just judgment on the case, they may still proceed to inquire. As the House will readily understand, a certificate by a firm of accountants giving a prima facie justification for what a company is proposing to do would in very many cases avoid the necessity of investigation altogether.

§ Sir E. BARTLEY-DENNISS
I notice something in the right hon. Gentleman's Amendment which may be dangerous. I have had a great deal to do with societies of accountants, and in many Acts of Parliament these societies have been named. There are two great societies, the Society of Chartered Accountants and the Society of Incorporated Accountants, and I take it that no other society has ever been recognised in an Act of Parliament as the people upon whom the Legislature 1557 relied. May I point out to the Chancellor of the Exchequer that there may be—and indeed are—other societies of accountants besides those two great societies which may be incorporated as companies and that the terms of his Amendment would include these. I do not think the right hon. Gentleman wishes to rely upon any auditor unless he is a member either of the Society of Chartered Accountants or of the Society of Incorporated Accountants. Can he not put in words to make sure of that? I have had various societies of accountants writing to me in past years complaining that in the Friendly Societies Act and other Acts they have been excluded specifically, because those Acts only recognise the two great societies which I have named.

§ Sir R. HORNE
I have considered very carefully whether it would be possible to confine the issue of such certificates to members of the two great societies to which the hon. Member has referred, and I have come to the conclusion that it would not be possible. There are such societies as the London Society of Accountants which would be excluded if only those two were mentioned and which, as is very well known, is a very important society, and it would be unfair to say that such a society should be entirely excluded from giving certificates under this Clause. The phrase I have used in this connection is already sanctioned by at least one previous Finance Act, and, it may be, by more than one.

§ Sir E. BARTLEY-DENNISS
If the right hon. Gentleman is satisfied, I am.