§ The first matter with which I want to deal on the Inland Revenue side is one 70 which has been much complained of, and quite rightly too; that is the extravagant way in which, in recent years, companies have made expenses allowances to their directors and senior officials. It is perfectly legitimate, of course, to deduct, by way of expenses, a reasonable expenditure upon necessary entertainment; but this right has been noticeably abused by extension to cover the ordinary living expenses of many persons, who are either directors or employees of the companies. This must be brought to an end. Under the existing law, it falls upon the Inland Revenue authorities to prove that the payments are not necessary business expenses, and because of the difficulty of substantiating the case it often happens that these payments go untaxed. The majority opinion in industry condemns this practice, but there can be no doubt that many individuals are circumventing the law, and are succeeding in maintaining a lavish standard of living at the cost of the taxpayer.
§ I propose, therefore, with immediate effect, that all expenses allowances given to directors and others, and all disbursements for their benefit, shall be assessed on the recipient of the benefits under Schedule E, and it will then be incumbent on the recipient, if he maintains that any part of his expenditure has been incurred for business purposes, to prove, in the words of the general Schedule E rule, that this expenditure has been "wholly, exclusively, and necessarily" incurred in the performance of his duties. There is no intention to interfere with legitimate expenditure so incurred, but I hope that these new provisions will put a stop to the present bad practices. Since the proposal is designed to check an abuse, I do not anticipate any substantial new revenue from it. I put it at £250,000 for a complete year, and 150,000 for this year.
§ Before I leave this subject, I will mention one other device which people may be tempted to adopt. That is to dress up what really is remuneration in a non-taxable capital form; for instance, as compensation for loss of office, or as payment in consideration of a restrictive covenant on an individual's employment. Such devices, by which a man aims to evade paying his fair share of Income Tax, are intolerable in our present state of affairs and I must give warning that the position 71 Will be closely watched, and that the Government will not hesitate to propose legislation, with retrospective effect, to deal with any such devices.