NEW CLAUSE.—(Discount on payments of income tax in advance.) (Hansard, 1 July 1937)

§ Mr. Keeling
I beg to move, "That the Cause be read a Second time."
This Clause deals with a simple point. Under Section 159 of the Income Tax Act, 1918, if any tax under Schedule D is paid before it is due, the Inland Revenue may—not "shall"—allow a discount of 2½ per cent. per annum provided it is claimed at the time the tax is paid. The extent to which this provision is used is shown by the fact, as the Financial Secretary said in reply to a question, that £70,000 was paid last year in discount. Schedule D is payable in two instalments, in January and July, and as the assessments are usually received in the previous November, as much as seven months' discount can be claimed in respect of the second instalment. Assuming for the sake of a rough calculation that the average period of payment in advance is three months, we get the result that over £10,000,000 of Income Tax last year was paid in advance. Obviously the provision is valuable to both sides. A gilt-edged investment for a few weeks yielding 2½ per cent. per annum does not grow on every tree. There is also the advantage to the Revenue that they not only get the use of this money in advance, but, human nature being what it is, they probably get money which, if discount 2308 were not allowed, would not be paid until some weeks or months after the due date. Under the present provision, however, there are two pitfalls for the taxpayer. The first is that the discount cannot be claimed as a right. It rests with the Inland Revenue to say whether it shall be paid or not. The second pitfall is that the discount has to be claimed at the time of payment. If the taxpayer sends his cheque to-day and discovers to-morrow that he can claim discount, it is too late.
My new Clause is designed to meet both those points. I propose to substitute "shall" for "may," and I cannot think that will create any difficulty. One of those retired Income Tax inspectors whose experience in Income Tax practice is so useful to the citizen tells me that in the whole course of his experience there was never a case within his knowledge where this discount was refused if properly claimed. I feel confident, therefore, that my right hon. Friend will accept that part, at any rate, of the Clause. As regards the other point, I would remind hon. Members of an indignant letter in the "Times," to which attention was drawn in the House a few months ago, which was signed "Peer of the Realm." It was a bitter complaint of what the writer regarded as sharp practice on the part of the Inland Revenue, because he was refused a discount a few days after he had paid the tax. Perhaps the bitterness of the peer of the realm was increased by the knowledge that though peers are taxed like everybody else they have no hand in framing the taxes. Of course it was not really sharp practice, because the law says quite clearly that the discount must be claimed at the time of payment, but it 2309 has, I think, to the ordinary person who has not studied the statute, the appearance of sharp practice, for the reason that it differs from commercial custom. In business if a man buys goods on the terms that if he pays promptly he will get a discount he gets that discount whether he claims it or not. In these days of ever-increasing burdens on taxpayers I submit to my right hon. Friend that the relations between the taxpayer and the taxgatherer should be as sweet and reasonable as possible, and that the manners and customs of the Inland Revenue should be assimilated as far as possible to the manners and customs of the best commercial firms.
I have another reason for proposing this new Clause. The rule dates back 138 years. I have traced it back from the Income Tax Act, 1918, to Peel's Act of 1842 and to Pitt's Act of 1799. The provision in Pitt's Act, which is 39 and 40 Geo. III C. 22, S. 31, reads: If any person shall be desirous of paying the tax in advance at the Bank of England it shall be lawful for the cashier of the Bank of England on production of the notice of assessment to make an allowance of five per cent. per annum. In spite of the distrust felt by the hon. Member for South Shields (Mr. Ede) for archaic safeguards, the fact that a law is 138 years old is not necessarily in its disfavour. But in 1799, when that law of Pitt's was passed, cheques were not in use and payment in cash across the counter of the bank was the only method of paying Income Tax. I suggest that it is reasonable to assume that a decent cashier at a decent bank like the Bank of England would draw the attention of the man who was paying the tax in cash to the fact that he was entitled to a discount. It therefore seems unreasonable to maintain a rule made 138 years ago in the entirely altered conditions of to-day.

§ Sir J. Simon
I think the Committee are indebted to the hon. Member for an interesting speech and for the result of his researches, which take us back to the time of Sir Robert Peel and Mr. Pitt. The truth is that this is a very ancient arrangement, and the Royal Commission on Income Tax some years ago dealt with it in their report and expressed the opinion that any provision for discount was out of place in our present Income 2310 Tax law. But it is in fact in the Statute. I am not proposing, at any rate in this Finance Bill, to get rid of it. But there is a practical reason why I have no desire to encourage this. It is true that it is convenient if people more than punctually pay their taxes, because you have not got to pursue them, but, whereas the Exchequer can borrow on a Treasury bill at ½ per cent., the Treasury has to pay 2½ per cent. for the use of the money which is paid to it before the due date. I think I must leave the word "may," but our practice has been to allow it. There is, however, this point. If this is part of the Income Tax arrangements, I understand the feeling of somebody who, having paid a cheque, is reminded of this right but who, going the next day to ask for this concession, is refused it. That is what the present Statute amounts to, and it is not very desirable.
I should therefore be prepared to make a modification to this sort of effect: that there should be an interval—I do not think that it should be too long, say a month—after the date on which the tax has been paid during which it is open to the taxpayer to make application for the allowance to be made. I do not think that we can do that with quite trifling amounts. But if my hon. Friend will withdraw this proposal I will, on the Report stage, bring up a scheme on the basis I have described. I am not at all satisfied that the system of giving discount before the due date is in the interests of the Treasury. Still, there is something to be said both ways, and as long as it is on the Statute Book it is a little sharp to say to a man, "You would have been perfectly right if you had asked for it on the nail, but you cannot have it if you ask for it afterwards." If my hon. Friend will withdraw his Clause I will see what can be done.

§ Mr. Keeling
I think that the month suggested is rather a short time, and I would ask my right hon. Friend to consider before the Report stage—I do not ask for an answer now—whether it could be increased. Alternatively, I would suggest for his consideration that, in addition to that one month being given, instructions should be issued administratively—we do not want to change the law—to the Inland Revenue 2311 that if the amount of the discount exceeds some reasonable minimum, such as 10s. or £1, the taxpayer should be written to and told that the money is due. I would also ask the right hon. Gentleman to consider again whether he could not alter the word "may" so as to make the discount mandatory on the Treasury insttad of being an act of grace? I beg to ask leave to withdraw the Clause.