NEW CLAUSE.—(Relief of air-raid protection works from tax under Schedule A.) (Hansard, 27 June 1938)

§ Sir J. Simon
I beg to move, "That the Clause be read a Second time."
The Committee may remember that on the Second Reading of the Finance Bill I made an announcement which, I think, was widely welcomed, that we would, in the Finance Bill on the Committee stage, offer to introduce a Clause to secure that the annual value of property should not be increased either for Income Tax, Schedule A, or for rating by reason of expenditure on structural alterations of property made solely for the purpose of protection in the event of air raids. The Committee will, no doubt, recall that I made that statement. Sub-section (1) of the new Clause gives effect to the main purpose that: In estimating for the purposes of Income Tax under Schedule A the annual value of any building, no regard shall be had—

(a) to any room or other part of the building which has been added at any time after the building was first assessed to tax, or was included in the building before it was so assessed, solely for the purpose of affording protection in the event of hostile attack from the air, and is not occupied or used for any other purposes; or

(b) to any structural alterations or improvements of the building (not being the addition of any such room or other part as aforesaid) made, at any time after the building was first assessed to tax, solely for the purpose of affording such protection."

These words speak for themselves, and I hope that the Committee will think that they are proper provisions to make as they are very useful provisions for the purposes of assisting air-raid protection work. It is necessary to stipulate that the user shall be the sole user.
It really would be quite impracticable to give the concession so that it would cover premises which were not for the absolute use of air-raid protection, but could be used for other purposes as well. I ought also to call attention to Subsection (2): If, in any year of assessment for which the annual value of any building has been estimated in accordance with paragraph (a) of the last foregoing Sub-section, any room or other part of the building to which no regard has been had by virtue of that paragraph is occupied or used for any purpose other than the purpose of affording such protection as 1655 aforesaid an assessment or additional assessment shall he made so as to include in the annual value of the building the value of that room or other part. Sub-section (3) gives exemption from Schedule A tax in respect of any separate unit of assessment which is intended to be occupied and used solely for the purpose of protection against air raids. I gave an illustration on the Second Reading of a taxpayer who had in his garden a self-contained and separate shelter. In that event the shelter would not be assessed for Schedule A, and he would not have any tax to pay under that heading. The object of Sub-section (4) is to ensure that the Clause shall not have the effect of increasing the Income Tax charged in respect of mills and similar premises. Under the Finance Act, 1937, Section 15, in computing the profits for the purposes of Schedule D, a deduction is allowed in the case of mills and factories in respect of special depreciation of the building due to the machinery in it. In the type of case in question a deduction is made for Income Tax purposes of an amount equal to the repairs allowance or fixed proportion of the rating value of the premises, whichever is the less. Increases under Schedule A and the rating assessment would be reflected in the figure that represents these proportions, and, therefore, it would increase the deduction which could be made. The Sub-section provides against an increase of Schedule A assessment on account of air-raid precautions expenditure. We shall have a similar provision in the Rating Bill, which is to be separately introduced. We cannot make a provision as regards local rating in the Finance Bill, because it would be beyond the scope of the Bill, but I have already stated that it is intended to have a corresponding provision made which will apply to local rates. These are the only explanations that I need to give, and I hope the Committee will feel that even though this new Clause does not go to the full length that has been suggested in some quarters, nevertheless it is a very valuable Clause, and I am glad to be able to move it.

§ Mr. Wedgwood Benn
Would a company which carries on business abroad and is subject to British Income Tax receive the advantage of this allowance in their assessment?

§ Sir J. Simon
I may be wrong, but I do not see how Schedule A of Income Tax, which is a tax charged on the annual value of property in this country, could have any application to a company carrying on a business abroad. I think that is the answer to the right hon. Gentleman's question.

§ Mr. Bellenger
Should I be right in assuming that Schedule A tax in such a case would be dealt with in the same manner as local rates; that is, it would have to be paid on the property as an outgoing, with nothing to do with profits?

§ Sir J. Simon
I think that the cases are different.

§ Sir Ernest Shepperson
Can the right hon. Gentleman say whether any expense incurred in altering a house to meet air-raid precautions requirements would be permitted to be charged as a maintenance cost?

§ Sir J. Simon
That is a separate point and one upon which I have been questioned a good many times. I will send the hon. Member the reference to my answer, but broadly speaking it is this. A very wide construction will be put on maintenance expenses and there will be many cases, therefore, in which expenses will be deducted as maintenance. But what is not possible is to treat what is unquestionably capital outlay as though it was in the nature of a maintenance charge. That cannot be done.