HC Deb 01 July 1937 vol 325 cc2217-22

(1) For the purpose of the national defence contribution the profits arising from a trade or business in each chargeable accounting period shall be separately computed, and shall be so computed on income tax principles as adapted in accordance with the provisions of the Schedule (Adaptation of income tax provisions as to computation of profits) to this Act.

For the purpose of this subsection the expression "income tax principles" in relation to a trade or business means the principles on which the profits arising from the trade or business are computed for the purpose of income tax under Case I of Schedule D, or would be so computed if income tax were chargeable under that Case in respect of the profits so arising.

(2) For the purpose of the national defence contribution, the accounting periods of a trade or business shall Le determined as follows:—

  1. (a) in a case where the accounts of the trade or business are made up for successive periods of twelve months, each of those periods shall be an accounting period;
  2. (b) in a case where the accounts of the trade or business have been made up as aforesaid bat have ceased to be so made up, the accounting periods from the end of the last period of twelve months for which they were so made up shall be such periods not exceeding twelve months as the Commissioners of Inland Revenue may determine;
  3. (c) in any other case the accounting periods of a bide or business shall be such periods not exceeding twelve months as the Commissioners of Inland Revenue may determine;
and the expression "chargeable accounting period" means—
  1. (i) any accounting period determined as aforesaid which falls wholly within the five years beginning on the first day of April, nineteen hundred and thirty-seven; and
  2. (ii) in a case where any such accounting period falls partly within and partly without the said live years, such part of that period as falls within those five years.

(3) Where a chargeable accounting period is not a period for which the accounts of the trade or business have been made up, such division and, apportionment to specific periods of the profits and losses for any period for which the accounts relating to the trade or business have been made up, and such aggregation of any such profits or losses or any apportioned part thereof, shall be made as appears necessary Ito arrive at the profits arising in the chargeable accounting period.

(4) Any apportionment under the last foregoing subsection shall be made in proportion to the number of months or fractions of months in the respective periods.—[Sir J. Simon.]

Brought up, and read the First time.

Motion made, and Question proposed, "That the Clause be read a Second time."

6.50 p.m.

Mr. Pethick-Lawrence

There was an agreement yesterday that if we had a discussion on the new Clauses as a whole it should not be in any way repeated on the Second Reading of individual Clauses, and I have no wish to break that understanding in any way, but there was one matter which was not finally cleared up in that discussion yesterday, and I raise it now for the purpose of getting a little more information, and do not wish to go beyond it in the discussion of the Clause. The point concerned the interpretation of the words in line 9 of the Clause: or would be so computed if Income Tax were chargeable under that Case in respect of the profits so arising. The question asked was whether those words would catch the friendly societies, and the Chancellor then said that he did not think they were included, but that if there were any ambiguity on the point he would further consider it. I wish to ask the Chancellor whether he has now satisfied himself as to the precise effect of these words, and whether they will, in fact, embrace friendly societies.

6.52 p.m.

Sir J. Simon

I will answer quite briefly, because I agree with the right hon. Gentleman that there is an understanding that we shall not have a discussion of a general character. The answer to his question is that as we now have these Clauses framed friendly societies will not be caught. The reason I showed a little hesitation yesterday was that it seemed to me that there might be a misunderstanding if the words to which the right hon. Gentleman has referred stood alone. I was quite confident in my own mind that it would be found that friendly societies were not caught, but I agree that it was a discussible point and no one wants to leave it like that. If my right hon. Friend will turn to the new Schedule headed: Adaptations of Income Tax provisions as to computation of profits. he will see that what we are proposing to do to clear up this point completely is to put into the Schedule these words which are in paragraph 6: Subject to the provisions of the last foregoing paragraph, the profits shall include all such income arising from the trade or business as is chargeable to Income Tax under Case I of Schedule D, or would be so chargeable if the profits of the trade or business were chargeable under that Case, except income which is, or would be, exempted from Income Tax by virtue of section thirty-nine of the Income Tax Act, 1918, or section thirty of the Finance Act, 1921. If the right hon. Gentleman will look at the Sections of the Acts there referred to he will find that it will be absolutely certain that friendly societies are not within this new tax.

Mr. A. V. Alexander

Are those the Sections in the Acts of 1918 and 1921 which deal with industrial and provident societies?

Sir J. Simon

I cannot say at the moment, but it will be some time before we come to that Schedule. There is another case besides that of the friendly societies which will be covered.

Mr. Alexander

I would wish to safeguard the point, because we had in mind the moving of an Amendment to delete the Clause, and I might want to put down an Amendment on the Report stage.

Sir J. Simon

The Section, I find, refers to trade unions. It is rather difficult to imagine a trade union being taxed, but there is a provision in the Income Tax law to exclude it.

6.55 p.m.

Mr. H. G. Williams

I beg to move, as an Amendment to the proposed Clause, in line 38, to leave out "months or fractions of months," and to insert "days."

I think the purpose of this Amendment, which I am moving on behalf of my hon. Friend the Member for South Kensington (Sir W. Davison), is self-evident. It seems a little more simple to work this out on the basis of the number of days. In practice His Majesty's Paymaster-General pays salaries on the proportion of days, and I think the Government might as well collect the taxes on the same basis.

6.56 p.m.

The Attorney-General

The Clause, as drafted, follows not only the same lines as were adopted in the case of the Corporation Profits Tax but also the corresponding Income Tax provisions in the Finance Act, 1936. The difficulty arises when you have six months. If we take the monthly system, which is the one in the Clause, the six months are half a year. If you take days, you have to add them all up and put 365 underneath. The present method is one which is understood by accountants and for some special reason they desire it, and I suggest that we should stick to the practice of having months or fractions of months. As to the second Amendment in the name of the hon. Member for South Kensington (Sir W. Davison) I think that deals with the same point really as that of the Amendment below it in the name of the hon. and learned Member for Montgomeryshire (Mr. C. Davies), and my right hon. Friend is prepared to accept this one if the words "of Inland Revenue" are inserted after the word "Commissioners." I know that in making that statement I am going beyond the Amendment which is before us, but I thought it might not be out of order to let my hon. Friend know about it at this stage.

Mr. H. G. Williams

Owing to the fact that the existing bad practice is apparently so well established, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. H. G. Williams

I beg to move, as an Amendment to the proposed Clause, in line 39, at the end, to add: unless the Commissioners of Inland Revenue having regard to any special circumstances otherwise direct. I am moving this Amendment on behalf of the hon. and learned Member for Montgomeryshire (Mr. C. Davies).

Amendment agreed to.