NEW CLAUSE—(Amendment of Section 13, Sub-section (2) of 2 & 3 Geo. 6.) (Hansard, 1 July 1941)

§ Sir H. Williams
I beg to move, "That the Clause be read a Second time"
I think I can explain this new Clause quite simply. I have tabled it at the 1245 request of an accountant friend of mine who wrote to me some weeks ago pointing out a disability under which a number of companies for which he has acted have been suffering. The bulk of the people whom he advises are engaged in the cinema trade. He has not dealt with the great circuits, but the smaller undertakings, run by groups of local traders who desire to add to the amenities of a district. These people have had a rather difficult period during the standard years, with the result that many of them are on the minimum standard of £1,000, out of which directors fees have to be paid. That is the whole sum which is available for both fees and dividends. In a number of cases someone has to be employed as managing director, but as a result of certain existing regulations in that particular industry he has to be put on the board; therefore his salary is part of this minimum sum and is not a trading expense. The net result is that these people have been deprived of the opportunity of distributing little if any profits. It only applies to small companies, but I am sure it operates in a number of other industries as well as the cinema, although the particular example I have given came from my accountant friend who is concerned with the cinema industry. When the effect of tax is to deprive people of all income, then obviously the tax has been carried too far. The suggestion is a moderate one, namely, that the minimum standard should be raised from £1,000 to £1,500. It is not going to cost the Chancellor very much money, but it will help a number of people who are providing a useful amenity in many districts, who should at least have some moderate reward for their efforts.

§ Mr. Levy (Elland)
I beg to second the Motion.

§ Captain Crookshank
I am afraid I cannot speak with the same intimate knowledge of the details of the particular case raised by my hon. Friend the Member for South Croydon (Sir H. Williams). Therefore, I may, perhaps, be allowed to deal with the matter in more general terms. In this Sub-section we are dealing with cases where there is a minimum standard. Of course, that in itself is a rare case, because most companies will be either claiming a profit standard, or a substituted, or percentage standard based on capital. The new provisions as 1246 regards borrowed capital will still further reduce the number of organisations who will be on the minimum. As the law at present stands, where the business is carried on by a body corporate, other than a director controlled company, or where there are no working proprietors in the business, the minimum standard is £1,000. Where the business is carried on by an individual, partnership, or director-controlled company, there being one or more working directors, the minimum standard which can ordinarily be claimed is such sum not exceeding £6,000, as is arrived at by taking £1,500 for each working proprietor, subject to a possible further addition not exceeding £4,000 or £1,000 for each working proprietor in certain cases. I merely say that to show what is the position. The hon. Member wants to raise the sum, but on reflection I think he will be convinced that in working out this arrangement in the Act of 1939 this House attempted to make that more or less on an equal level, taking into account the different circumstances. That is to say, when £1,500 is the minimum standard, no deduction can be claimed in respect of remuneration paid to the individual, the partners or the directors of the director-controlled company.
In the case of the £1,000 minimum a public company is allowed to deduct directors remuneration in computing its profits before it gets to the £1,000. The balance is therefore more or less kept in line. If the individual proprietors take no active part in the business, but have a manager, they can claim to deduct the salary of the manager in computing profits. That, I understand, is the case, and has been all along. Possibly my hon. Friend's friends have not been quite seized of what it is possible to claim in their case. I would not take it further without knowing the circumstances, but, generally speaking, the two figures of £1,000 and £1,500 are in direct relationship with each other, because in the £1,500 case there is the element of remuneration of the proprietor of the business whereas in the £1,000 case there is not, on the ground that that can be deducted under existing arrangements before the profit standard is computed. If, as the result of the Clause, you raise the £1,000 to £1,500, naturally, and in logic, in order to keep the two on an even keel, you would also have to make some other arrangement and raise 1247 the £1,500 to some other figure so as to keep them in line. That, I am afraid, my right hon. Friend does not see it possible to do at present. It would not be a reasonable arrangement at this late stage to recast these careful arrangements which have been entered into, and are working, and I hope my hon. Friend will not press us, because my right hon. Friend cannot be pressed.

§ Sir H. Williams
My right hon. and gallant Friend seems to have made out a good case, but my information comes from a friend who has had the job of negotiating with the inspector of taxes, and his assessments in a number of cases in his experience seem to vary. I asked him if he would draft something in time for the Committee stage, but he was dilatory, and I have only been able to raise it to-day. I will send him a report of what my right hon. and gallant Friend has said. If it can be cleared up administratively, it will be, but, if the position is worse than my right hon. and gallant Friend thinks, I hope he will be prepared to receive representations so as to put the thing on a fair basis if it is not on a fair basis already. With this comment, I beg to ask leave to withdraw the Clause.