HC Deb 20 April 1937 vol 322 cc1609-11

It will be within the recollection of hon. Members that a considerable proportion of last year's Finance Bill was occupied by measures devised to protect the Revenue against the avoidance of taxation. I have two further proposals to make this year for the same purpose. The first one concerns the operation which is, no doubt, well known to most hon. Members under the term "bondwashing." This particular kind of washing is a term used to describe operations under which the owner of securities sells them at a price that covers accrued dividend and buys them back again, after the dividend has been paid, at a lower price. The result of these transactions, which are technically of a capital character, is to deprive the Exchequer of a tax which otherwise it would have received if the owner had retained the securities and drawn the dividends upon them. I am sure the Committee will agree with me that it is not right that people should be allowed to evade the incidence of the Income Tax, and I am glad to be able to say that my proposals have the support of the representative bodies in the financial world, to whom I wish now to express my thanks for their assistance in co-operating with me in framing these provisions. It is extremely difficult to estimate the gain that I shall receive from the abolition of "bondwashing" but I put it at not less than £150,000 in the current year, and at £1,000,000 in the year after and succeeding years.

My second proposal is intended to strengthen certain provisions with regard to tax avoidance in the last Finance Act. It may be recollected that on the Report stage of the Bill, when I made a concession about a provision which was retrospective in character, I gave what I described at the time as a fair warning that similar latitude should not be expected in the future and that, if people persisted in devising these ingenious contrivances for defeating the intentions of the Legislature, they must not expect that they would escape retrospective legislation. In some quarters that warning was disregarded, and no sooner was the Finance Act upon the Statute Book than some highly artificial arrangements for circumventing its provisions were adopted in connection with particular kinds of one-man companies known as investment companies. I propose to take power to defeat that evasion. In order to enforce my warning of last year, I propose to make the remedies effective for purposes of Surtax for the year 1935–36. As this is a proposal for protecting the existing basis of taxation, the fruits of this are included in my estimate for Surtax.

There are one or two other proposals affecting Inland Revenue which will have to be dealt with in the Finance Bill. One of them, requiring a Resolution, is intended to prevent excessive allowances being given in respect of mills and factories in computing trading profits for assessment to Income Tax. Another will continue for five years the increased allowance for repairs from Schedule A assessments in arriving at the net assessment on which the owner pays the tax. In this case, as it is a relieving provision, no Resolution will be required.

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