§ Paragraph II of the Seventh Schedule to the Finance (No. 2) Act, 1939, is hereby repealed. [Sir H. Williams.]
§ Brought up, and read the First time.770
§ Sir Herbert Williams (Croydon, South)
I beg to move, "That the Clause be read a Second time."
The point is quite a simple one. Under that paragraph, there was brought into operation what seemed a rather strange change. In determining whether someone has made a profit or not, it is not generally assumed that a profit has arisen until the article has been made and, indeed, delivered and invoiced. Here is a case where it is assumed that a profit has been made on articles in the course of manufacture. I never noticed it at the time, and I do not imagine that many people did, because when changes appear in the Schedules we sometimes miss them. It is wrong to assume that a profit has arisen until it has in fact arisen. I heard of a case the other day where a firm have to produce two lots of accounts. One is for purposes of Income Tax, in respect of which they have never assumed any profit on work in progress, and the other is for purposes of E.P.T., for which they have to assume a profit before the work is completed. It may be that the Chancellor will say that it is all right, that it will all come out in the wash next year; but I do not think a profit should be taxed before it has been made. I hope that the Chancellor will make some concession to remove what seems to me to be an absurdity.
§ Captain Crookshank
The hon. Gentleman does raise a point of some difficulty in regard to accounting periods; but suppose you have a contract for something which will take a long time to build —a battleship, say. At the end of the work there will be a profit on it, but it may be very hard to get hold of all that profit in one year when it has been accruing throughout the period. That is what was in mind when the paragraph was originally enacted. I think that, from the point of view of the taxpayer, it will be more advantageous generally that for E.P.T. collection should be done in this way. In respect of Income Tax, the question does not arise. I think the hon. Gentleman had better leave the matter where it is at present, and see how it works out.
§ Sir H. Williams
I fully appreciate the point made by my right hon. and gallant Friend in regard to cases where you are dealing with long contracts, like the construction of a battleship or some great 771 public works, which may extend over many years. In such cases there may be something to be said for this exceptional treatment, but in the case of an ordinary business, which each year gets orders for hundreds or thousands of pounds' worth of goods, delivering them every week, so that the process is more or less continuous, I do not think a profit should be deemed to have arisen until it has been made. In view of what my right hon. and gallant Friend has said, I will ask leave to withdraw the Clause now; but I ask him to consider the application of this to cases where the work is not a long time in progress.
§ Motion and Clause, by leave, withdrawn.