HC Deb 28 June 1939 vol 349 cc500-12

7.12 p.m.

Mr. A. V. Alexander

I beg to move, in page 20, line 35, to leave out Subsection (1).

Perhaps there was no Clause in the Finance Bill when it was published which excited more public attention and more Press criticism than Clause 19, which seeks to provide statutory requirements for return of expenses above a certain amount and provides for them being brought into assessment for tax. I think with few exceptions Members in all parts of the House would have a great deal of sympathy with the main objective of the Government, namely, to deal with cases where people like directors or others take small fees but in fact make very large incomes by having large sums allowed annually as expenses. This Sub-section has given rise to a great deal of dubiety as to whether or not necessary and legitimate expenses of employés, or the representatives of trade and organisations would fall to be taxed quite unnecessarily, or that there would be such a vexatious requirement of returns as would be highly inconvenient and would perhaps cost the revenue more in collection than they would gain from it.

After the statement of the Chancellor of the Exchequer on the Second Reading of the Finance Bill in regard to this matter, we began to see a little daylight, but it was not specific enough. Since then, I have had consultations direct with the officials of the Board of Inland Revenue, and I must say at once that I am very much obliged to those officials for their careful attention and their great courtesy. In regard to employés who receive reimbursement of expenses legitimately incurred in the course of their occupation, or expenses on a fixed scale, paid to properly authorised representatives of firms or organisations, we understand now from the Board of Inland Revenue that there will be no requirement for a return to be made; but it is essential for them to have statutory powers to require returns of expenses of the kind I mentioned at the outset of my remarks, such as expenses which would be quite unjustifiable on any other ground than that they are an expansion of official income.

We have kept our Amendment to leave out Sub-section (1) on the Order Paper, because we should like an effective statement from the Government which will make it clear not only to those of us who arc connected with individual organisations but other people who are concerned about this matter, that there will be actual protection for the two classes of expenses I have mentioned, which might otherwise be mulcted in the operations of this Clause. I hope it may be convenient to the Financial Secretary to make such a statement to-night on this matter as will make it clear beyond peradventure to all who are concerned that the expenses of employés or of properly accredited representatives of firms and organisations, reasonable expenses or reimbursement of expenses incurred will not be the subject of return. A statement of that kind would be very reassuring.

7.19 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

I readily accept the suggestion of the right hon. Gentleman that I should make a statement, and I hope that what I may say will be both effective and lucid, and that if my right hon. Friend's statement the other day caused him to see a little daylight my remarks may dissipate what remains of his gloom. It is obvious that the objective of this Sub-section is to try and catch cases which have come to our notice, such as the case where the salary payment is £100 and the expenses £900. There is an even better illustration, if the Committee would like it, and that is where there was no remuneration at all, but the allowances were such that when at last a decision could be reached on the question of the amount to be assessed, they total led up to £2,000 a year. There is a loophole which ought to be stopped up. Incidentally, the very word "allowances" causes some people who receive them to think that because of the word itself the allowances are not ordinary income and that they do not need to disclose them as such. That is the broad purpose which my right hon. Friend wishes to secure by this Clause. It imposes no new liability, nor does it alter in any way the basis of tax.

The right hon. Gentleman has moved his Amendment in order to raise the question at issue. May I briefly say what the Sub-section does? It is divided into three paragraphs, (a), (b) and (c). Paragraph (a) deals with the question of expenses, whether they are reimbursements of specific expenses or whether they are a round sum. When there is no reason to doubt that these sums genuinely represent expenses in carrying out duties, there never has been in the past the power to tax them and it is not intended that there shall be in the future. Paragraph (b) deals with payments made not to an employed person but on behalf of an employed person. These sorts of payments are generally taxable emoluments, even if they are paid by the employer to someone else. Let me quote a case. Let us suppose that part of the emolument is the paying of rates on a house. The employer does not pay the rates to the employé but to the appropriate authority. That comes within the sphere of a taxable emolument of a pecuniary nature. It does not, however, apply to what one might call emoluments in kind, such as railway uniform, or the value of a house where a man is required to live for the purpose of his work, such as a railway servant. That is not a pecuniary emolument within the definition. Paragraph (c) looks rather queer when it says: Any payments made to employés in a trade or business for services rendered … whether the services were rendered in the course of their employment or not. That is meant to cover the case where the employé who is employed in a regular job for a certain purpose gets payment for doing something else which is not his ordinary job. Suppose I were a clerk in an insurance company, doing ordinary clerical work, and I managed to introduce business to the company, which had nothing to do with my actual clerical work, and the company gave me some payment or commission. That is what is meant by the words: whether the services were rendered in the course of their employment or not. That is, services other than the normal.

It is the intention of the Inland Revenue and of my right hon. Friend to try to deal with this matter in a reasonable way. Since the proposal was first made we have had an opportunity, as the right hon. Gentleman opposite said, of having conferences with a number of persons of a representative kind to see what it would be wise to exclude from the returns. If it is of interest, and perhaps it is, for the purpose of record, I might tell the Committee what notice we intend to send out to employers who have to make the returns, in order to give them an indication of what is required. I must not, however, be tied to the exact words, because there may be some amendment in drafting. This is what is intended. First: Any payments in respect of expenses which represent no more than the recoupment of, or provision for, expenses that were actually incurred by the employé in the performance of the duties of his employment need not be included in the return. I will pause there to amplify what that means. It secures the exclusion from the return of payments which are of the precise measure of the expenses actually incurred, whether they are moneys spent or payments in advance. The second provision is this: Where provision for expenses is made in accordance with a regular scale, any payments made under that scale need not be included in the return, provided that the employer will furnish to the Inspector of Taxes particulars of the scale and such other information as he may require as to the amounts paid in specified cases. It is true that a great number of employers who are concerned with this have a normal scale on which they pay so much a week for the expenses of their employ6s. This second provision means that, provided the scale is communicated to the Inland Revenue, payments made under that scale would not have to be returned. I would add that there is some virtue in the words: the employer will furnish to the Inspector of Taxes … such further information as he may require as to the amounts paid in specified cases"— because some of the dodgers we have been talking about may adopt a scale of their own, which would not be acceptable. It is, therefore, necessary to safeguard that point, but it does not apply to thousands of genuine persons who may be concerned. There was a scale of that kind in one case which concerned payment of expenses, the allowances for which were certainly not on the scale of railway companies or co-operative societies, or other organisations with which hon. Members are concerned. It calculated the allowances on a percentage of the business done. That was a very convenient scale to get out of paying taxation. Therefore, we consider it necessary to put in the safeguard that in specified cases further information may be required. The third provision deals with grants and allowances: All other payments for expenses and in particular all round sum allowances in respect of expenses (other than advance payments made to the employé subject to his repaying to the employer any excess of the amount advanced over the actual expenses) must be included in the return, if the aggregate amount of the payment to the employé for the year exceeds £25. Apart from "scale" payments round sum allowances may be excluded only if they are given subject to repayment of any amount in excess of expenses actually incurred; that means unless there is some sort of check by the employer or, alternatively, it may be that the employé gives a certificate to his employer from the business point of view. In that case it is not necessary to put that in the return.

From the conversations we have had I think I am right in saying that it is best to do this by administrative means and not by putting it into the Bill. The difficulty of putting it into. the Bill is great from the point of view of definition, and we do not want to have any possible loophole for the cases we want to catch. The Inland Revenue does give the benefit of the doubt to many people through their administrative powers of waiver. Under Section 105 it is only necessary for returns to be made in the case of persons who are getting over £125 a year, but, as a matter of fact, in the case of a married wage-earner it is not necessary to fill in a return if the amount earned is less than £225 per annum because no tax is payable by reason of the married allowance, and, therefore, it is waste of time to get that information. On the whole it is far better to allow the Inland Revenue to deal with the matter in this broad way. I have described the draft notice which it is intended to send to employers, and it has been discussed with the large number of persons more particularly concerned.

7.32 p.m.

Mr. Lathan

Hon. Members who are interested in the question of expenses will have heard with interest and pleasure the explanatory statement of the Financial Secretary, but there are still one or two points which need to be cleared up. Can the right hon. Gentleman tell the Committee whether it is intended to retain the limitation in the proviso to Sub-section (2)?

Captain Crookshank

The proviso in Sub-section (2) does not apply to Subsection (1) at all. I think the hon. Member is under a misapprehension.

Mr. Lathan

In that case I have been under a misapprehension, and from the information which I have supplied to the Financial Secretary there have been a good many other people concerned in this matter who have also suffered from the same misapprehension, including the Chartered Institute of Accountants and the Incorporated Institute of Accountants, both of whom in their journals have indicated the objections which could be raised to such a limitation which they believed was imposed by the Clause. However, we are glad to learn that it does not apply, and it will render it unnecessary for me to move my Amendment. I should also like an assurance that it is the intention of the Inland Revenue Department to hand the notices, of which the Financial Secretary has spoken, not only to the employers but to employés as well. The Financial Secretary referred to large employers, the railway companies, and insurance companies and co-operative societies, who employ hundreds and thousands of people, who will come within the arrangements under this Clause. I should like to know whether a statement made by the employing organisations as to the range of their scale allowances will be held to cover every individual coming within such an arrangement? If that is so it will simplify matters substantially.

7.35 p.m.

Mr. Simpson

The Chancellor of the Exchequer observed in connection with another Amendment that he did not desire to clutter up the Clause with unnecessary detail which might prevent him from catching the big fish. We are all in favour of catching the big fish, and our intervention on this Clause does not represent any opposition to the real purpose of the Chancellor of the Exchequer. But we did feel that as drafted it would involve an enormous amount of unnecessary work for no good purpose, and we are obliged for the statement which the Financial Secretary has made. I should like to ask whether we can take his statement as representing what I believe are known as taxation rules, which will be firm and definite in that sense. The right hon. Gentleman also made a reference to the £25 limit. We are not quite clear what is the purpose of that amount, and I hope he will amplify his statement in order that we may be satisfied that it does not represent an imposition which is unneces- sary and which might be unduly onerous in some cases.

Lieut.-Colonel Acland-Troyte

As far as I can make out, the Financial Secretary has met the point of my Amendment and, therefore, it will not be necessary for me to move it. I take it it means that local authorities are not to be worried with unnecessary returns, and I should like an assurance that the scale will include a mileage account. I do not think it will be necessary for me to move my Amendment, although I should like to reserve my right to do so until I have heard the right hon. Gentleman's reply.

7.37 p.m.

Mr. Mander

I want to support the introduction of this Clause from this point of view. Apart from the protection of revenue I think it will be effective, if it is properly used, in stopping that curse of industry, the bribery which, unfortunately, is still widespread in spite of the passage of the Prevention of Corruption Act and the activities of the Bribery and Secret Commission Prevention League. I have given a good deal of attention to this subject for a number of years with a view of finding out whether through revenue action or otherwise we could deal with this question. I would ask the right hon. Gentleman to consider very carefully how he frames his regulations, and that he will not do anything which will hinder the object which I am now suggesting. It is quite an easy thing for firms who do not perhaps themselves desire to be too closely associated with a system of bribery to give a salary and to give very large expenses to their employés out of which it is understood they are to be allowed to make certain illegal gifts. I hope the Treasury are going to watch this closely and that when they find the case of a small salary and very large expenses, they will use their powers to ask for the details of the way in which the money has been expended, and if in certain cases it has been given to other persons that they will ask for the names and addresses of those other persons with the object of getting the tax paid by the persons to whom the gifts are made.

They will find, I think, in cases of this kind that firms will be very anxious not to disclose the fact that they have been making illegal and corrupt gifts and will pay the tax themselves. I am sure that there are ways of obtaining the tax which it is well worth the time and the trouble of the Treasury to adopt. The Financial Secretary made some reference to "expenses incurred," and said that if a statement was made that a man had definitely used the money for paying his expenses it would be taken as sufficient. I hope that does not mean that the Treasury are not going to inquire into the matters to which I have been referring, and into the way in which the money has been expended when it bears a strange relation to the amount of the salary that is paid. I am quite sure that the Treasury are fully alive to this position and that they can form in their own mind what is a reasonable salary and what are reasonable expenses, and will know when to look further into the question of bribes.

I urge the Financial Secretary not to pigeon-hole this Clause, but to use the powers, which are undoubtedly given, to deal with this problem. I know that the Treasury are mainly and properly interested in getting money; they are not interested in the prevention of corruption or any illegalities of this kind; they want the tax. But I think this is one of the occasions when they can well use the getting of the tax as an opporunity for doing a great deal to make those persons who endeavour to obtain business by secret commissions smart very severely.

7.42 p.m.

Captain Crookshank

I am glad that the statement which I was authorised to make on this occasion has satisfied hon. Members. The hon. Member for Park (Mr. Lathan) asked whether the scale would cover everybody. Yes, it will give particulars of the scale from the top to the bottom.

Mr. Lathan

I do not think the right hon. Gentleman has understood my point. Take the case of a railway company. It would have 2,000 or 3,000 clerks and stationmasters, who would be on a definite scale of salary and allowances. If the declaration by the company is held to cover the whole of its employés, it would not be necessary for them to render an account.

Captain Crookshank

They will have to render the particulars of the scale, not of individuals. That is what I meant to convey. They would give the scale, but not everybody within the scale—it would be so much for this type of person and so much for the other type 0f person. When the hon. Member asks whether the circular will be available for employés, of course they will go to the employers, because they will have to make the return, but I have no doubt that individuals who may want to know any particulars will be able to find out. I do not think they are very much concerned. It is the employer who is concerned as it is his business to make the return. As to the employé, it is his business to return his income and salary if it is within Income Tax limits, but that is another story. It is the employer who has to make out this return.

Mr. Lathan

On the question of payments and allowances many people believe that in future they will be required as individuals to include them in their declaration of income. The Inland Revenue Department issues to each Income Tax payer a declaration as to income for the current year, and gives a circular with directions and advice. I am wondering whether the Financial Secretary can embody in that circular some direction and advice which would cover cases like this.

Captain Crookshank

The answer is that this Clause does not affect their position at all as it does not increase their liability to tax one way or the other. The hon. Member for Ashton-under-Lyne (Mr. Simpson) asked about the £25 limit. That was referred to in one of the paragraphs which I read from the proposed circular. I will not read the paragraph again, but round-sum allowances, other than certain payments, must be included in the return if the aggregate amount of the payments made to the employé in the year exceeds £25. I think that if hon. Members will take into account the three different items, they will find that the cases which do not come within them are very small in number. I know that there is anxiety lest there should be the necessity to make out very long lists, but I think hon. Members will find that the number of cases which do not come within one or other of the three paragraphs of the notice is not a large one.

Mr. Alexander

If we are to understand that the £25 limit is to apply only to the exceptions which are not found within the rule dealing with employés expenses or with the scale of charges, then I am satisfied. I am anxious that there should be no misunderstanding. A man may have been out travelling for his firm 100 days in a year and may have claimed £150 in a year, but that ought not to be returned, because certainly the man is no better off.

Captain Crookshank

I think it would perhaps be the better course if hon. Members would read what I said, because I was quoting from a draft circular which expresses our intentions, and reserve their rights to raise the matter on the Report stage. I think that might be a more convenient course. My hon. and gallant Friend the Member for Tiverton (Lieut.-Colonel Acland-Troyte) asked whether this would be satisfactory to local authorities. I can only say in reply to him that they have expressed themselves in that sense. As for the remarks of the hon. Member for East Wolverhampton (Mr. Mander), I know that he has for many years taken a great interest in the problem of corrupt practices, bribery, and so on, but I am afraid that information which is obtained by the Inland Revenue authorities can be used only for the purposes of taxation. They are not able to go into the other questions which the hon. Member raised, important though they may be.

Mr. Mander

I fully appreciate that. I was merely pointing out that if properly used, this Clause would make it much easier for the Treasury to obtain information about certain large-scale payments in the way of expenses, a portion of which is used as bribes, and that by asking for information on that, they might get the tax paid by a person to whom the gift is made or by the person who has made it. I ask the right hon. and gallant Gentleman to be good enough to say that he will consider the matter from the point of view of getting all the revenue possible on those lines.

Captain Crookshank

The hon. Member says that this could properly be done, but my suspicion is that it would be improperly done in the case to which he has referred. In conclusion, I repeat my suggestion that hon. Members should consider the statement I have made and reserve any further comments until a later stage. I feel confident that when hon. Members have considered my statement, they will not have any more comments to make.

Mr. Alexander

In view of what the Financial Secretary has said, I should think that it will not be necessary to move an Amendment on the Report stage. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.50 p.m.

Captain Crookshank

I beg to move, in page 21, line 11, after "of," to insert "all."

This Amendment is the first of a group of Amendments the object of which is to deal with a point brought to my right hon. Friend's notice by my hon. Friend the Member for Gloucester (Mr. Boyce). It may very well be that in some cases —.and in some quarters it is alleged to be the common practice —.services in connection with the formation, acquisition or development of businesses are frequently rewarded not by cash payments, but by options to take up shares in a company. These Amendments will make it possible to obtain information not only about options to take up shares, but also about other non-monetary consideration for services in these circumstances. The Amendments make it necessary for particulars to be given to the Inland Revenue authorities. The value of such consideration may not be capable of being given, because such considerations might be an option to take out shares, and the person giving it would not be able to say what was its value at that moment. I think hon. Members will agree that the Amendment will avoid the possibility of there being evasions.

Amendment agreed to.

Further Amendments made:

In page 21, line 11, after "payments," insert "or other consideration."

In line 12, leave out from "made," to "during," in line 14, and insert "or given."

In line 16, leave out "and the amounts of the respective payments," and insert: or the consideration given, and, in each case, stating the amount of the payment or giving particulars of the consideration, as the case may be.

Leave out lines 25 to 30, and insert: This Sub-section applies to any payment or other valuable consideration made or given after the fifth day of April, nineteen hundred and thirty-eight, in the course of the trade or business in question or in connection with its formation, acquisition, development or disposal, being a payment or consideration which is in the nature of a commission for services rendered, and is made or given to any individual who is not an employé of the person making the return." —.[Captain Crook-shank.]

CLAUSE, as amended, ordered to stand part of the Bill.

CLAUSE 20 ordered to stand part of the Bill.