§
Section forty-five, Sub-section (1), of the Finance Act, 1927, shall be amended by the addition of the following Sub-section: —
Rule 1 of the Rules applicable to Schedule E shall be amended to provide that where any person shall in any year continue in office without remuneration the assessment shall be withheld until such person shall again receive a salary, fee, wages, perquisites, or profits in respect of such office or employment.—[Sir A. M. Samuel.]
§ Brought up, and read the First time.
§ Sir ARTHUR MICHAEL SAMUELI beg to move, "That the Clause be read a Second time."
Under Section 45, Sub-section (1) of the Finance Act, 1927, it is provided that:
Subject to the provisions of this Section Rule 1 of the Rules applicable to Schedule E shall be construed as if for the words 'for the years of assessment' there were substituted the words 'and shall be computed on the amount of all such salaries, fees, wages, perquisites or profits whatsoever therefrom for the year preceding the year of assessment'.656 At this point my Clause adds the following words:but where any person shall in any year continue in office without remuneration the assessment shall be withheld until such person shall again receive a salary, fee, wages, perquisites, or profits in respect of such office or employment,and then the Section will continue as in the Finance Act, 1927. This Clause is intended to deal with the hardship of directors having to pay four years' Income Tax for three years' remuneration which means, in other words, paying tax for the year when nothing was received from the office or employment. Under the 1927 Act there was a change in the basis of assessment, and from that date the assessment was on the income of the previous year. It was a new system of assessment, and special provision was made for the year in which employment ceases. No provision, however, was made for a director continuing work without remuneration. Thus such a man is taxed for the first year in which he receives no remuneration on the amount he received the previous year. The result is that in some cases a man actually pays tax for four years' assessment, although he has only received three years' pay, and surely the House of Commons never meant that, and it cannot be right. Last December it was stated in the House that it all depended on the system under which the reduction of salary was made. If the reduction took the form of a new contract, then the taxpayer would not pay for four years when he had received only three years' pay. Few people knew of this, and did not arrange to meet that technicality, and they merely continued their work without salary, and are now being taxed on one year's salary more than they have received. That position is unjust, and was probably unforeseen, and not desired by the Revenue. My new Clause is intended to put that matter right.
§ Mr. ATKINSONSuppose that the remuneration is renewed next year, I understand that Income Tax would not be paid because the income of this year would decide what has to be paid when no salary has been received. Surely, the taxpayer would get his money back next year, because he would not have to pay, not having received a salary.
§ Sir A. M. SAMUELSuppose that he does not go on next year? I want to 657 protect the man who has worked for four years and has only received three years' salary. I want to protect the man who has to pay for four years, but who has only received income for three years.
§ Major ELLIOTIt is true that my hon. Friend the Member for Farnham (Sir A. M. Samuel) has put his finger on a point about which there is a certain difficulty. That difficulty is not confined to the directors of companies, but it is one connected with the method of assessment of Income Tax. The change over to the preceding year system involved a great many alterations in the law and practice which prevailed in previous years. The hon. Member for Farnham has brought forward a, case in which a director has not continued to draw his salary.
§ Sir A. M. SAMUELIt is the case of a director who continues his employment but does not take his fees, and I am asking that he should not be charged Income Tax for that year.
§ Major ELLIOTThe hon. Gentleman means that a director remains in office, although he is not drawing any emolument. The essential point is that if the director alluded to again begins to draw his fees he will be all square, because he will not be charged any Income Tax for that year. Therefore, in what, let us hope is the majority of cases, in which the effort is successful and the business becomes prosperous again, the man who has not drawn his fees or emoluments for one year will once more draw directors fees. In that case he will be charged nothing for that year, and, consequently, will be all square as regards the Inland Revenue. If, however, he never goes on —if his business never again makes any profit and he is never again able to draw any emoluments from it—in that case in what way is he worse off than the trader who makes no profits during the last two or three years of his business? Indeed, the position of the trader is worse, because he is usually drawing the whole of his upkeep from his business, and that is much less frequently the case with a director.
The general trend of remuneration has been downwards, and the taxpayer is at present losing on the preceding-year basis, but that is due to the change in the law whereby the Income Tax was simplified. Everybody is suffering from 658 that cause just now. If we make this concession for the Schedule E assessments, how can we refuse a similar concession to all the taxpayers who are assessed under Schedule D? The fact that the preceding-year basis sometimes operates in favour of the Exchequer seems to me to afford no adequate ground for departing from it. [Interruption.] The contention of my hon. Friend is that in certain cases a man may be taxed on money that he has not received; but if he subsequently receives the income, he will escape tax upon it for that year, and so he will be all square; while if he never again receives the income I do not see how we could make a concession in that particular case which would not also in some way or other have to be applied to the small trader whose business went out of existence or who lost his whole profits for two or three years. It seems to me, therefore, that very regretfully I must refuse the proposed new Clause.
§ Sir A. M. SAMUELI must, of course, bow to the decision of my right hon. and gallant Friend, but it seems to me that what we are being told is that an injustice must continue because we cannot devise means for doing away with it. I would ask my right hon. and gallant Friend to look into this matter between now and the next Finance Bill, and see if it is possible to make some concession to Schedule E taxpayers in this connection. If they are penalised by having to pay four years' tax instead of three, the worm will turn at last, and they will say that they are not going to work if they are taxed in this way.
§ 9.0 p.m.
§ Mr. LOUIS SMITHWhile I strongly support the plea which has been put forward by my hon. Friend, I should like to ask the Financial Secretary whether it is not the fact that if a director, having received during, say, the last three years a certain salary, voluntarily gives up a portion of that salary—say 10 per cent.—an arrangement is made under Schedule E for him to be assessed on the lower amount? If that be so, is it not equitable that, should he receive no salary at all, be should not be taxed when he has nothing with which to pay the tax? While I accept what my right hon. and gallant Friend has said, I think it is only fair that some alteration should be made to meet such cases.
§ Mr. ATKINSONIs it not the case that a director does not pay at all during his first year of office, being taxed on the income of the previous year when he was not earning director's fees? In that case he only pays tax for the same number of years for which he has had the money. He does not pay in the first year; in the second year he pays on his first year's salary, in the third year on his second year's salary, and so on so that really he only pays Income Tax on the same number of payments of salary that he has received.
§ Sir A. M. SAMUELI do not wish to be misunderstood. These people are willing to pay three years' tax on three years' salaries. The observations which my bon and learned Friend the Member for Altrincham (Mr. Atkinson) has just made would presuppose that one year has been left out, but I am not arguing on those lines. If one year is left out, there is no grievance, but undoubtedly in some cases the type of person whom I am trying to protect is called upon to pay on four years' assessments when he has only received three years' income, and in that case he has a grievance.
§ Sir JOSEPH NALLThe view put forward by the hon. and learned Member for Altrincham (Mr. Atkinson) would be correct in the case of a director appointed after 1927, but it is not correct in the case of one who was in office before that year. I have been informed of a number of cases in which this double collection does apply, and in which it is a fact that tax has been collected for a period one year longer than that for which fees have been received. I would ask the Financial Secretary whether it is strictly accurate to say that a trader may in similar circumstances have to pay tax for one year more than the number of years for which his business has been running? I rather gather that, if a business exists for, say, five years, and thereafter is wound up, or is unable to show any profit in the sixth year, tax is hot paid in respect of the sixth year, seeing that a profit has only been made in five years. At any rate, a grave injustice undoubtedly occurs in certain cases. The whole idea of Income Tax is to collect tax in respect of something which has been received, and to ask a man to pay tax for a year in which he has not received any income at 660 all from the source to which this particular provision applies is wholly unjust. It ought not to be beyond the wit of the Treasury to devise some wording whereby a man would be relieved of the burden of assessment for a year in which in fact he receives nothing at all.
§ Major ELLIOTIt is, of course, true that these cases are intricate and difficult. We are all familiar with the problem as to the commencement of a century— whether, for instance, the present century began in the year 1900 or in the year 1901. Hon. Members have repeatedly put to me a sense of grievance which they have felt on this matter in their own personal affairs, and I have had considerable correspondence with hon. Members on this point. In some cases one is able to do something, and in others, unfortunately, not. In some cases one is able to explain the difficulty, but in more cases it is true that the individual in question is left with a sense of grievance and injustice. At the same time, a sense of grievance and injustice in connection with Income Tax is no novel phenomenon. For instance, the teaching profession have pointed out that it is a most unjust thing that the heavier Income Tax which we imposed last September should fall on them when, by reason of the cuts that were imposed the previous year, they are in receipt of a lesser income. I will, however, look into this and see whether before next year the wit of man can devise anything that will be satisfactory in this respect. There will always be marginal cases, and a marginal case always creates a sense of injustice and people think that they are only receiving bare justice, and not very much at that. If it will satisfy my hon. Friend, I will look into it, and I shall be willing to discuss the matter with him either here or at the Treasury. With that, perhaps, it will be possible for him not to press the Motion.
§ Sir A. M. SAMUELI will willingly withdraw my Clause, and I shall avail myself of my right hon. and gallant Friend's kind invitation and do myself the pleasure of discussing it with him, and I hope I shall convince him that this is an injustice which can be stopped in some way.
§ Motion and Clause, by leave, withdrawn.