CLAUSE 8.—(Interest on unpaid Income Tax, Profits Tax and Excess Profits Tax.) (Hansard, 3 December 1947)

§ Major Haughton
I beg to move, in page 5, line 16, to leave out from "date," to the end of line, and to insert: when the assessment or direction becomes final and conclusive. This Clause deals with the provision for the application of interest at the rate of 3 per cent. on unpaid Income Tax, Profits Tax and Excess Profits Tax. There are a great many people who think that these Income Tax matters are complex, very difficult to understand and highly technical. I hope and believe that this Amendment can be explained simply. It seeks to limit the claim of the Crown for interest to the date when the appeal is determined, as opposed to the wording of Subsection (1), which says: … when the tax becomes due and payable until payment. There are many appeals, and it seems reasonable that interest should apply only when a final settlement has been reached, and after the appeal has been threshed out to a conclusion. I have been long enough a Member of this Committee to realise that it is very dangerous to prophesy on matters which one regards as principles, but when it comes to a question of fair play, I hope the Chancellor will see his way to making this concession.
I do not need to labour the point. We all know that there are different dates on which the different forms of tax fall due. Put briefly, where there is a dispute, at present the interest would be applied to the tax, but the Crown can claim interest on unpaid arrears, whereas the taxpayer cannot claim interest on overpayments. That indicates that the dice are weighted very heavily in favour of the Treasury.

§ Sir P. Bennett
I wish to support what my hon. and gallant Friend the Member for Antrim (Major Haughton) has said. It is clear that some misunderstanding has been created in the minds of many 441 people on this question of arrears of Income Tax. The business world feels very sore about it, and we hope that this Amendment will help to clear up the position. The previous Chancellor of the Exchequer made great play with the fact that in the good old days a mere £700 million was outstanding, whereas today there is some £700 million. It was not fair to suggest that the business world has suddenly become immoral, and has deliberately kept this money which ought to be paid into the Exchequer. It is also an insult to the Inland Revenue to suggest they have been so slack that they have allowed the outstanding contributions to multiply ten-fold without doing anything about it.
That is not the case at all. The position is totally different. Settlements have not been made because of the difficulties due to shortage of staff in the Inland Revenue and shortage of staff among accountants. The money has not been left outstanding, because many millions of pounds have been paid in under the system of tax reserve certificates. The taxation authorities have deliberately left settlements, knowing that the money was there, because it was more convenient to do so, owing to the difficulties connected with Excess Profits repayments, deferred repairs, and the whole complicated machinery arising out of wartime finance.
We are entitled to ask the Chancellor of the Exchequer to make it clear that the business world has not been doing wrong, and some statement of the net amount overdue, after outstanding settlements have been made and the whole thing has been cleared up, should be made. We should know what is outstanding after the tax reserve certificates have been deducted. The misapprehension created in the minds of the public should be removed. We feel that an injustice has been done to us, and I have enough Irish blood in my veins to make me boil when I think I am suffering under an injustice. When I first came to this House, the Government were being harassed because they were not paying their accounts. Time after time, Questions were put and statements made on behalf of companies who could not get their money out of the Government. We did not then say that the Government were keeping the industrialists waiting out of pure cussedness. We knew that the war had created difficulties, and that 442 when the system was working properly, the payments would be brought up to date.

§ Mr. Glenvil Hall
I think we can clear up this matter fairly simply, and without too much trouble or delay. I agree with the hon. Member for Edgbaston (Sir P. Bennett) that the facts should be made public, because they reflect no discredit on the Inland Revenue or on those who have anything to do with the collection of these taxes. The reports of the Public Accounts Committee and of the Comptroller and Auditor-General make it quite clear that the figures given are not the net but the gross figures of the actual tax due. A great deal of that money, as was made clear, was money which might or might not be due, because some assessments were open to query, and some were subject to an appeal, which might easily be successful.

§ Mr. Stanley
Can the right hon. Gentleman give the correct figures of the amount of money due and in arrears?

§ Mr. Glenvil Hall
So far as I have them, they are the figures which appear in the reports. The gross figure given for Income Tax, Surtax, National Defence Contributions and Excess Profits Tax is something like £780 million. That, of course, is staggering, and that is the figure which people have concentrated upon, because they thought that it was the total amount outstanding. Actually, as is made clear to those who have read the reports, the Excess Profits Tax arrears which were then collectable amounted to only £107 million, which puts an entirely different complexion on the matter.

§ Mr. Pitman
Were there not capital reserve certificates to cover much of that amount?

§ Mr. Glenvil Hall
If I had known that this was to be raised, I would have given the details.

§ Mr. Stanley
Will the right hon. Gentleman give the figures on Third Reading?

§ Mr. Glenvil Hall
Yes.

§ Sir F. Sanderson
Can the right hon. Gentleman go so far as to say that the amount of tax reserve certificates is in excess of the amount of tax outstanding?

§ Mr. Glenvil Hall
I would not like to commit myself, because I have not the 443 figures with me, but I agree that the figure was fairly substantial.

§ Sir P. Bennett
Will the right hon. Gentleman give the figures on Third Reading so that publicity can be given to the correct figures?

§ Mr. Glenvil Hall
I will take what steps I can. It may be out of Order to do that on Third Reading, but we will do what we can to call the attention of the public to the actual figures.
I will now come to the Amendment. As I understand it, the Amendment seeks to take out the words "due and payable" and to insert the words "final and conclusive." The effect is that the date at which interest on unpaid tax becomes chargeable would be that at which the assessment of tax becomes final and conclusive. I believe that hon. Members opposite are labouring under a misapprehension. This is how it works. A notice of assessment is issued, and the individual then has a right of appeal. Normally, he must appeal within 21 days, and if he does not appeal, the tax is fixed and becomes due and payable, but not necessarily at that time. The amount is fixed at that moment, but it is due and payable on certain later dates. In the case of Schedule D, these dates are in the following year. A man might receive an assessment in October of this year, and after the 21 days have elapsed, the assessment becomes final in November, 1947.
If this Amendment were accepted, the interest would begin to run three months after that date, providing that the amount was over 3,000, whereas the due and payable date is not until 1st January, and, if there are two instalments, not until 1st January and 1st July. Hon. Members opposite are therefore doing a disservice by this Amendment to those who become subject to this provision when it becomes law. We are proposing something very different, which we think is more reasonable; it certainly helps the individual concerned more than this Amendment. Therefore, we ask the Committee to reject the Amendment. I can give the assurance that if an appeal is lodged, the time will not begin to run until that appeal has been settled and agreement has been reached between the Inland Revenue authorities and the individual concerned.

§ Mr. Stanley
I was a little disturbed until the right hon. Gentleman got to his 444 final sentence. It was not until then that he gave us exactly what we were trying to obtain, perhaps wrongly, by this Amendment. We were not sure, and it certainly has not been said clearly before that this only ran from the time when final agreement had been reached between the Inland, Revenue and the taxpayer. Now we have the right hon. Gentleman's assurance that this is so, it would seem that the point raised in the Amendment has been covered.

§ Mr. Joynson-Hicks (Chichester)
I agree with what my right hon. Friend has just said, but I would impress upon the Financial Secretary that his interpretation of "due and payable" might not necessarily be the interpretation which the Inland Revenue or the law courts would put upon those words. I believe that the Solicitor-General would support me in this, and I ask the Government to look at these words again to make certain that their intention is carried out in such a way that it cannot be challenged by the courts.

§ Major Haughton
I beg to ask leave to withdraw the Amendment.

§ Major Haughton
I beg to move, in page 5, line 24, to leave out "unless."
This Amendment is related to the later Amendment on line 27, to insert: (c) if the taxpayer holds tax reserve certificates issued under a date prior to the date on which the tax became due and payable to an amount equal to the amount of the tax. The point of the Amendment is this: money is paid into the Treasury, and it seems unfair that when the Treasury holds money against an amount which may become due in taxation, interest should become payable over the period during which that assessment is subject to an appeal. The Crown already has the money by reason of the purchase of these tax certificates.

§ The Solicitor-General
The answer given by my right hon. Friend the Financial Secretary also covers this point. Either the matter is under appeal, in which case no interest runs, or it has been finally decided, in which case the tax reserve certificates can be surrendered in payment. Therefore, no question of interest will arise.

§ Mr. Stanley
I agree that this point is covered by the statement which the right hon. Gentleman made earlier, but I take this opportunity of repeating the fears expressed on this side of the Committee. We hope that the Solicitor-General will take the opportunity, between now and the Report stage, of making certain that the legal import of these words is the same as the wholly satisfactory statement made by the Financial Secretary.

§ Major Haughton
I beg to ask leave to withdraw the Amendment.

§ Mr. W. Fletcher
I beg to move, in page 5, line 26, to leave out "one thousand," and to insert "three hundred."
There is no doubt that where cases occur of non-payment of tax due, it is a severe crime against the State. That non-payment may be either deliberate or due to carelessness, and in each of those cases it is right that the parties should be brought into the open and pressure put on for payment. I cannot see why an arbitrary line should be drawn at the £1,000 level. The lower income groups are already well protected, but between £300 and £1,000 there must lie a large number of businesses which are not so small, and which are making between £1,000 and £2,000 per annum. Those businesses, for their own protection, should come into this category. There is no doubt that it is helpful to them that they should be more or less compelled, under penalty, to carry on their business in such a way that their accounts are well kept, that they are ready to pay tax after it has been settled and where it is due. The protection of small businesses is a matter to which we on this side of the Committee pay a good deal of attention, and it is for their protection that they should be included in this category. If it is wrong that there should be undue tax delays, either intentionally or through carelessness, the Chancellor, if he has devoted his attention to this question, should lower the figure. Incidentally, by doing so he might get a little more money.
We have heard many times the statement that new taxation should not harm those in the lower income groups, such as workers in industry. These workers are fully protected in this Amendment, but I beg the Chancellor to see whether the 446 line has not been drawn in such a way as to give the impression that it is only people above that line who commit these offences. It is difficult to get accurate figures, but we can see the amount coming in above the £1,000 mark and between £300 and £1,000. I cannot vouch for the accuracy of the figures, but it would appear that the amount between £300 and £1,000 is fully equal to, if not rather more than, the total amount above that line. I hope the Government are thinking of this matter on reciprocal lines. There are many people who have claims against the Government, and who have not been able, for many reasons, to get them settled in good time. Are they to be treated in the same way? Do the Government intend to impose upon themselves the same strictures and penalties as they do on firms and individuals? The Government protect themselves occasionally by a moratorium, or something similar, and claims which have been outstanding for five or six years should have full consideration.

§ Mr. Joynson-Hicks
I rise to support the Amendment, and to ask the hon. and learned Gentleman a question. The point I wish to make applies whether the amount is £1,000 or £300. It is by no means difficult to visualise a case in which a series of assessments has been made over a period of years. Assessments may have been made on a sum of £200 over five years, making a total of £1,000, dating back to 1940. Will the hon. and learned Gentleman tell me whether that complete series of assessments, totalling in all over £1,000 and being over three months in arrears from the date when they became due and payable, will become liable to interest, and if so, whether the whole £1,000 will become liable to interest? If they are paid off severally, as is generally the case, when the total falls below £1,000 will the balance cease to be liable for interest?

§ The Solicitor-General
If the hon. Member for Chichester (Mr. Joynson-Hicks) will look at the wording of the Clause, he will find the answer that he seeks. Before making any charge for interest, one has to have an individual assessment under which assessment a sum of over £1,000 is made payable. If the amount due is not paid within the specified time of three months, interest begins to run. With regard to the arguments adduced 447 by the hon. Member for Bury (Mr. W. Fletcher), we have been obliged by purely practical considerations to adopt a limit—a margin—below which we will not seek to impose interest. The reason we have been obliged to adopt a margin is that with the present shortage of staff the Inland Revenue Department cannot undertake all the extra work which would be involved if interest were sought to be levied on smaller sums. We have selected the figure of £1,000, having carefully estimated the sort of work which that would entail. The hon. Gentleman's Amendment suggests that we should substitute the figure of £300. The result of that would be, so far as we can estimate—it is difficult to do so with any degree of accuracy—100,000 extra cases; that is to say, the number of cases within the charge would be increased by 100,000 if we substituted the figure of £300 for £1,000.

§ Mr. W. Fletcher
I have made a considerable study of this with chartered accountants. The final notice has to be sent out in any case to these taxpayers, and so the added work would in reality be quite small. It needs only a notice on the final note that is sent out.

§ The Solicitor-General
The sending out of notices is not the only matter entailed. The amount has to be computed and collected. We have to compute and collect in all these extra cases the amount of interest, which may in individual cases be quite small, which would be involved by the extra number of cases brought within the sphere of the charge. We have appreciated the position, and having estimated what is within the limits of capacity of the present staff of the Inland Revenue Department, we have come to the conclusion that it would be quite impossible to undertake this extra work. It would mean that the work would fall seriously into arrears, and members of the Department would be hopelessly overburdened. Therefore, although I see the object behind the Amendment, I feel that I must ask the Committee to reject it because it would lead to an impasse.

§ Colonel Gomme-Duncan (Perth and Kinross, Perth)
Is not a question of principle involved? If interest is to be charged on £1,000 and upwards, and presuming that is justifiable, surely it is right 448 that justice should not be subjugated to administrative convenience. I cannot see why one lot of persons should be let off and not another lot. If a fellow is not paying Income Tax on £250, he is just as guilty as the man who is not paying on £1,000.

§ The Solicitor-General
This is not only a question of administrative convenience. To put this extra work on the shoulders of the Inland Revenue Department simply cannot be done.

§ Colonel Gomme-Duncan
Then the other chap should be let off, too.

§ The Solicitor-General
Urgent national necessity requires that there should be a charge of interest imposed in some cases. Bearing in mind all sorts of considerations that have been advanced, we have tried to find a reasonable limit beyond which we cannot go. We think that we can manage the imposition of this interest with a limit of £1,000, but we do not think that we can go further than that.

§ Mr. Stanley
I can only say that the Solicitor-General's answer, although it may be justified on the grounds of administrative convenience, goes a long way towards reducing the whole of this Clause to a farce. This was put to us in the original stages of the Budget as a matter of great importance. It was not so much the money that was to be collected as a result of this Clause, but the speeding-up that was to result. From that time on, every speech which has been made from the benches opposite has whittled down the importance of these arrears. The original figure of £700 million has been brought down. I overheard the hon. and learned Gentleman ask whether it had been stated in the Chancellor's speech that £700 million was the figure. I do not think that he recollects the statement that the Chancellor made last April on the same subject, when he made no such qualification as he made in November.
I have had the privilege perhaps of listening more to the ex-Chancellor on financial matters than the hon. and learned Gentleman has. Today that figure has been brought down to at least £100 million. We are told that with research into the amount of Tax Reserve Certificates available, the amount 449 of arrears will fall still further. Now we are told that the amount of the arrears represented by no fewer than 100,000 individuals is not to be touched by this Clause. We are left wondering how much this Clause can accomplish. I have no desire to favour in any way those whose liability for tax has been established and who are, therefore, liable for payments, but I wonder whether the great hammer of this Clause is not going to be applied to crack very small nuts, remembering, of course, that nuts today, under the administration of the Minister of Food, have a value which they never had before.

§ Mr. Selwyn Lloyd
I beg to move, in page 5, line 27, to leave out "one," and to insert "five."
I can put the argument in favour of the Amendment very shortly, because it follows directly on what has just been said. It never occurred to me, when studying this Clause, that administrative convenience could possibly have anything to do with its drafting in view of the complications to which we will come later on. No one could have thought that administrative inconvenience was the theme note of this Clause. My simple Amendment is solely in aid of administrative convenience to increase the total of interest owing from £1 to £5. What is the use of expending the time of valuably employed officials and an overburdened Department on collecting sums of interest which may be between £1 and £5? Would it not be very much better to fix the limit at £5? Really, everything that the Solicitor-General said on the last Amendment is in support of my Amendment.

§ The Solicitor-General
I can answer the hon. and learned Gentleman quite shortly on that. The £1 he knows is a de minimis provision and we feel that if we increase it to£5 the Clause would not afford sufficient spur. After all, if one looks at the figures and takes an imaginary set of circumstances, one gets this picture. Suppose a taxpayer owes over £1,000, it would be well worth his while to leave £500 unpaid for as much as four months, because by so doing that £500 would attract interest of not more than £5. If that were possible the requisite inducement to payment would not be forthcoming. Therefore we 450 feel that the figure must be placed lower than that. However, if it were placed lower than £1 a great deal of time would be spent in collecting minute sums. We think that £1 is the right, fair and sufficient limit, and, therefore, we ask the Committee to reject the Amendment.

§ Major Haughton
I beg to move, in page 6, line 2, to leave out from "direction," to the end of the line.
In moving two previous Amendments, I said that they could be explained quite simply and that there was no need to elaborate them a great deal, but in this case it would be a very great stretch of the imagination to say that the application of this Clause is likely to arise in any simple case of taxation. On the contrary, it arises in cases of great complexity and the litigation is spread over a number of years and concerns a number of accounts. Certainly it concerns Income Tax as well as Excess Profits Tax, and the Income Tax people may be withholding a final settlement until the Excess Profits Tax appeal has been settled.
Be that as it may, my Amendment is really based on two broad principles, the first being that where an appeal is spread over a number of years and where there are likely to be pluses and minuses, they shall be taken into account and there shall be a single final assessment. Otherwise, there could be the fantastic position of an overpayment of tax by the taxpayer at the end of the whale investigation, and yet there could have been a claim for interest by the Crown because in one year there was an underpayment. Leading on from that general principle, it is accepted that the Inland Revenue is one indivisible debtor to the taxpayer. My Amendment, to put it as simply as I can, seeks to ensure that when an appeal is at an end, whatever interest there may be shall be taken into account and that the various forms of taxation—Income Tax and Excess Profits Tax and also any minuses and pluses—shall be applied to the net amount.

§ The Solicitor-General
As I listened to the arguments of the hon. and gallant Member for Antrim (Major Haughton), I felt he was supporting the Amendment which follows this one rather than that to Clause 8, page 6, line 2. If hon. Members will look at the present Amendment, they 451 will see it is one which seeks to exclude the limitation to a single year in relation to this interest on repayment charges. The argument which the hon. and gallant Gentleman has adduced makes out a case for excluding the limitations referred to in the next Amendment, which would leave out lines 14 to 31, that is, a limitation to single taxes. I think I am right in saying that his arguments are really relevant to both Amendments, and can be taken entirely in the light of the same considerations. Therefore, I propose to address my remarks on this Amendment to cover both cases.
We feel apprehensive as to what the consequences might be of doing away with the two limitations—the limit to a single year and the limit to a single tax. We have in mind the sort of situation that might arise if there was, for example, an interest charge on Schedule D tax for 1948, and, say, in 1953 repayment of Income Tax was made in respect of Income Tax charges made in 1952. Supposing that set of circumstances did arise, if the Amendments are accepted and if there is no limitation, then the taxpayer could say, in respect of the interest which he paid as long ago as 1948, that he should have some repayment of interest because four or five or even more years afterwards he was found to be entitled to repayment in respect of a subsequent period. What we feel is that that would lead to an enormous amount of confusion, and, instead of getting some sort of finality, the taxpayer would never know where he stood with regard to the matter. That is one consideration that presses on us about this.
At a later stage I shall give the Committee an assurance which I hope will satisfy hon. Members opposite, and particularly the hon. and gallant Member for Antrim. Meanwhile, may I urge this situation. If one is trying to equate the position between the taxpayer and the Crown, and one says "If you charge interest on the taxpayer you should equally charge interest against the Crown and you should have a general setting-off on the basis of equality," then one is, in effect, saying that the Crown should pay interest, once the final amount of tax settled is agreed upon, if the Crown does not make payment of the amount at the end and any delay occurs.
452 But once the amount is agreed upon the Crown would make payment almost immediately, so that that particular consideration would not have practical import as far as the Crown is concerned. If, however, we are saying that, no matter what interval of time may have elapsed between the date when the tax becomes due and the date when the repayment becomes due, the taxpayer shall be entitled to set off against his interest on the tax the amount due to him and an equivalent amount of interest upon the repayment, then hon. Members are proposing to charge interest against the Crown by virtue of the fact that there has been a delay by the taxpayer to claim his repayment. That is really what one would have. That is a position which I do not think the Committee would regard as equitable.

§ Major Haughton
That does not necessarily arise. The hon. and learned Gentleman presupposes that those Acts deliberately deal with repayment of taxation, but in cases of appeal the grounds for appeal may be perfectly reasonable. All that my Amendment seeks to do is to say that the plusses and minuses shall be taken into account, and that the different forms of taxation shall also be taken into account, in the final amount of the settlement.

§ The Solicitor-General
I entirely understand the suggestion of the hon. and gallant Gentleman, and I appreciate the point. I venture to offer a practical solution of the problem which has been advanced. While an assessment is under appeal, no interest charge accrues. But the situation might arise that an amount can be owed by way of Income Tax in circumstances in which interest begins to accrue, while there was a claim to repayment with regard to some other form of tax, for example, Profits Tax. The taxpayer may go to the Revenue authorities and say: "You owe me so much." The Revenue authorities may, in those circumstances, say: "Having regard to the fact that repayment has been claimed, the taxpayer may defer payment of the amount which he owes by way of Income Tax." That is the sort of situation which may arise, and it is a practical situation which requires to be met.
453 That being so, I would offer this undertaking to the Committee, which I think meets the arguments advanced by the hon. and gallant Gentleman. I say this, and I phrase it carefully and deliberately: If some tax has been assessed and is due and payable to the Crown, and collection of the tax or part of the tax is, by agreement with the Inland Revenue, held over pending settlement of a claim to repayment of tax to which the taxpayer may be entitled, the amount held over for the period for which it is agreed to be held over can be treated for the interest charge as though the amount had been provisionally repaid and credited against the tax due and payable. In other words, if it has been agreed between the taxpayer and the Revenue authorities that the taxpayer has a claim and that he may therefore defer payment of some other form of tax, which payment he owes, then, if it is subsequently found that he is entitled to the repayment, it shall be treated as if it had been paid, with the result that to that extent interest on the other payment will not accrue.
I suggest that that is a practical and reasonable way of dealing with the points which have been made. I would ask the hon. and gallant Gentleman, upon the undertaking which I have given and have carefully phrased, to withdraw his Amendment. I would point out, by way of supplementation what I have said, that it operates not only as between years, so as to bridge the gap between years, but also as between taxes. Supposing there was one sort of tax which was due and there was a claim to repayment in respect of a different sort of tax, that would come within the scope of the undertaking. That is an undertaking which I can give as to the form of this Clause. I think it would be permissible to treat that as a provisional repayment.

§ Mr. Stanley
The hon. and learned Gentleman is an expert in these matters, and certainly the assurance given to my hon. and gallant Friend seems satisfactory, but when I was listening I found some difficulty in seeing how the hon. and learned Gentleman could give that assurance in view of the very express terms of the Clause in lines 14 to 31. Those words would appear expressly to forbid the very thing——

§ The Solicitor-General
Perhaps the right hon. Gentleman will allow me to add something. I will add this, that I will make certain that the undertaking can be implemented. I will look at the wording of the Clause and see that it does so.

§ Mr. Stanley
Of course, the easy way to make it certain would be by accepting the Amendment to leave out line 14 to 31.

§ The Solicitor-General
I will look into the matter.

§ Mr. Stanley
On the understanding that the hon. and learned Gentleman will look into this point between now and the Report stage, and will make certain that he can carry out his undertaking, perhaps my hon. and gallant Friend will withdraw his Amendment.

§ Major Haughton
I appreciate very much the way in which the point in my Amendment has been met by the Solicitor-General, and, therefore, I beg to ask leave to withdraw the Amendment.

§ Mr. Selwyn Lloyd
I beg to move, in page 6, line 37, to leave out from "section," to "shall," in line 38.
The purpose of the Amendment is to provide that anyone who has to pay interest shall be able to charge that interest against his profit and loss account. Why should not such interest payments be treated as charges against profits? If the taxpayer goes to the bank to borrow money to discharge his tax liabilities he has to pay interest on his overdraft. He can then charge that interest against his profit and loss account. If it is not convenient or profitable for him to go to the bank or to borrow the money in some way, the Inland Revenue may decide to give him time to pay. In those circumstances, why should not the interest which he will have to pay under the Clause be chargeable against his profit and loss account?
Is it the idea that this interest provision should be a penalty or a fine? That would be a most unfair attitude to take up. In a time of trade recession or if a business suffers some temporary disaster, it may be impossible for the taxpayer to meet his tax liabilities promptly. That happens in hundreds of cases. The Revenue in such cases is usually extremely reasonable about settling terms of payment. Under the Clause, those arrangements would 455 carry with them an interest charge. If they do, why should not the taxpayer be entitled to treat them as he would the interest paid to his banker or to someone else?
The right hon. and learned Gentleman is not supposed to be a great gambler. That can be readily understood because in this case he seems to be saying, "Heads, I win, tails you lose." If we look at the situation under war damage claims where the Government is the embarrassed debtor asking for time to pay, and pays interest upon the amount outstanding, the Government is careful to deduct Income Tax from the interest payment. That may not be an exact analogy but it is not very far wide of the mark.

§ Mr. Pitman
One point not brought out by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) is that this proposal is discriminatory. I am not using that word in a derogatory sense. The proposal is 6 per cent. or rather more than 6 per cent. when a company is making a profit. If it is not making a profit, the interest drops to 3 per cent. That is the reverse of what usually happens in the commercial world, where the greater the risk, the greater is the rate of interest. Companies who have made profit in the past and who are not making a profit now are just those who are likely to give trouble to the Chancellor over their payments. It seems bad to demand from one type of company twice the rate which is demanded from another type of company.

§ The Solicitor-General
There is a precedent for this in the old Excess Profits Duty of the 1914–18 war in which there was provision for the payment of interest at, I think, 4½ per cent. which was not allowed to rank as a deduction against Income Tax. The same could be said, I rather think, with regard to the interest on Death Duties. In this case, however, I do not rely upon precedent but upon the object of the Clause, which is to induce payment of arrears. If this interest charge were allowed to rank as a deduction, the inducement would practically disappear.
The interest charged is £3 on £100. The Amendment proposes first that that should rank as a deduction for purposes of Profits Tax, so that in any particular 456 sum of £3 we should first have to deduct 6s. It is then said that it should rank as a deduction for the purposes of Income Tax, so that makes a further deduction of £1 4s. 4d. Therefore, if it ranks for deduction for those two taxes we have to deduct from £3 the sum of those two figures, namely, £1 10s. 4d. Persons liable to Profits Tax and Income Tax would therefore only be paying interest at the net rate £1 9s. 8d. If a person paid Surtax and this ranked as a further deduction against Surtax, the net rate would be still further reduced according to the scale of Surtax paid.
We feel that to impose an interest charge on a non Surtax payer at the rate of £1 9s. 8d. per £100 is not a sufficient stimulus to him to pay up arrears. We must have a rate of interest which will be sufficient to afford a real spur and incentive to him to get the arrears cleared up or the Clause will not achieve its object. For those reasons we feel that this 3 per cent, interest should not be allowable as a deduction for the purpose of either of the two taxes.

§ Sir John Barlow (Eddisbury)
To follow to its logical conclusion the point made by the hon. Member for Bath (Mr. Pitman) and the reply to it by the Solicitor-General, on companies making a profit the real rate of interest would be something like 6 per cent. and the real rate of interest on the highest Surtax payers would be 120 per cent. If it is all allowed, as the Solicitor-General pointed out, it becomes a very small actual charge, but if it is charged in a way it is proposed in Clause 6, it becomes an extremely heavy tax in the case of the higher Surtax payers, possibly higher than was originally intended.

§ Mr. Selwyn Lloyd
I beg to move, in page 6, line 40, to leave out from "payable," to end of Subsection.

§ Mr. Selwyn Lloyd
I beg to move, in page 7, line 1, to leave out Subsection (7).
I ask the Solicitor-General to undertake to have another look at this Subsection, which provides that a collector's certificate shall be sufficient evidence of the amount due by way of interest and also of nonpayment. No one would object to a collector's certificate being evidence of 457 non-payment, but as to its being treated as evidence of the amount due by way of interest, I suggest that something has gone wrong somewhere. I admit that in the wording of the Subsection there is a saving proviso that if the contrary is proved then the certificate shall be overridden, but the position of the collector is that he is not a judicial or even a quasi-judicial person like the assessing Commissioners or, in some circumstances, an inspector. The computations of interest due may be complicated and controversial. As is apparent from the discussion on previous Amendments, we may have various counterbalancing factors. Is the collector the right man to give the certificate as to the amount of interest that is due?
According to the earlier part of this Clause, the Crown can go into any court to recover the interest, basing their case on the certificate. Presumably, the taxpayer will then have to open up the matter in front of the county court or high court judge. The elaborate procedure of the commissioners for dealing with appeals and arriving at the proper liability would be bypassed by going to a county court on a collector's certificate. In many cases the collector is not the person who really knows. He does not carry on his business or occupation in the same building even as the inspector, and he is simply a sort of post-office or a banker with regard to the actual handling of the money. I do not think it needs elaborating very much because all I ask the Chancellor to do is to reconsider the matter and decide whether he has got the certificate of the right person and whether he should in some way bring the Commissioners into this matter. If he were to do that he would remove certain apprehensions which have been aroused by these provisions. I am certain that he will agree with me that it is unsatisfactory as a general principle to allow this principle of subordinate officials certifying as to the amount of the taxpayer's liability.

§ The Solicitor-General
I will certainly consider very carefully what the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) has said and see whether any change is necessary in consequence of the arguments he has used, but I do not think any change is required. He may be under a slight misapprehension. The interest charge has first to be assessed in the ordinary way and only when it has been assessed and charged to the taxpayer does the question of court proceedings to enforce it arise. In other words, the figure has to be computed and notice has to be given saying that that is the figure assessed by way of interest on the tax- 458 payer. If the taxpayer does not then pay what is requisite, there must he some form of process to compel him to pay in the courts in the ordinary way.
Paragraph 7 (5) of Part I of the Tenth Schedule to the Finance Act, 1942, already contains a very similar provision—I do not say it is an identical provision—with regard to Income Tax. It contains the provision that a certificate of the surveyor—I quite follow the definition given by the hon. and learned Member for Wirral—together with a certificate of the collector that the tax has not been paid and that the amount mentioned in the certificate is due, shall be prima facie evidence that that sum is actually due from the taxpayer from whom it is sought to be recovered. We are seeking to adapt that procedure to what is after all a much smaller payment, simply an interest payment. The hon. and learned Member for Wirral will agree that it would be quite impossible to have a case like that formally proved affirmatively in each single instance. All this does is to. say that when a collector—who is defined in the Subsection as a person authorised by the Commissioners of Inland Revenue to act as a collector of taxes—comes to the court armed with that certificate it is prima facie evidence, and only prima facie evidence, that the amount is due.
If the taxpayer disputes it, it has to be proved formally, and established contrary to such evidence as the taxpayer can adduce in the ordinary way of proceedings in court. All this certificate will be used for is where the taxpayer does not dispute the amount due. This simply provides for formal proof, which proof can be displaced by anything the taxpayer himself advances on his own behalf, and if he disputes it the matter must be properly proved at trial.

§ Mr. Selwyn Lloyd
Do I understand that the hon. and learned Gentleman envisages that the certificate shall include particulars of the assessment, by whom it was made, when it was made, and in respect of what it was made? If that were to be the practice, I think it would meet my point. Otherwise, the collector would be under no obligation to say any 459 thing in the certificate except that so much interest was payable under the Finance Act.

§ The Solicitor-General
I do not know if the precise form of the certificate has been worked out, but I apprehend that it would contain the ordinary particulars showing when it became due. I cannot commit myself as to the form, but I apprehend that in the ordinary way it would contain the usual particulars.

§ Mr. Selwyn Lloyd
If the hon. and learned Gentleman will undertake to consider this question between now and the Report stage, I beg to ask leave to withdraw my Amendment.

§ Major Haughton
I beg to move, in page 7, line 12, at the end to add: (8) The Commissioners of Inland Revenue may withdraw any claim in respect of interest on proof by the person by whom the tax is payable that non-payment of the tax or delay in payment of the tax was due to delays in computing the tax which were beyond the control of that person. In these days, when, as we all know, there is great congestion of work in the Inland Revenue, it seems reasonable that there should be some discretion and, this Amendment merely seeks to suggest that discretion shall be vested in the Commissioners to waive interest in cases where the taxpayer can show that he could not prevent the arrears arising.

§ The Solicitor-General
I think the answer to the case made by the hon. and gallant Gentleman is that, beyond doubt, in the circumstances he envisages, no interest would be chargeable. No interest arises unless there has been a final assessment, or, as to any part of an assessment which is being disputed, until the appeal is disposed of. In those circumstances, I think the hon. and gallant Gentleman will agree that his Amendment would serve no purpose.

§ Mr. Pitman
I am not sure that the hon. and learned Gentleman is entirely correct. Supposing a well-intentioned taxpayer had actually sent a cheque in payment for the tax due, and that cheque happened to be in the mailbag which interested somebody, and was extracted. There could then have been a non-payment of tax due, over which the person concerned would have no control.

§ The Solicitor-General
The Amendment simply deals with delays in computing the tax, and would not cover the point raised by the hon. Member for Bath (Mr. Pitman).

§ Major Haughton
I beg to ask leave to withdraw the Amendment.

§ Mr. Howard (Westminster, St. George's)
If the principle contained in this Clause is correct, why is it limited to Schedule D?

§ Mr. Glenvil Hall
The short answer is that under Schedule E arrears hardly arise because tax is deducted at the time when wages are paid. Schedule A is a different thing altogether, and the amounts chargeable are very much less. It is under Schedule D that the largest arrears occur, and that is why it has been confined to Schedule D.

§ Colonel Gomme-Duncan
I may be wrong, but I do not think I am, in feeling that in this Clause we are up against a flagrant injustice. If I am wrong, I hope the Solicitor-General will tell me so. I cannot see that a man who owes a lot of Income Tax is any less or more guilty than a man who owes a little. He should be treated on exactly the same footing. If it is a question of convenience, the matter should be dealt with so that neither party suffers. I think we are going to put on to the Statute Book something which is flagrantly unjust, and I would like to be assured that I am wrong.