§ 8.15 p.m.
§ Mr. Selwyn Lloyd
I beg to move, in page 37, line 11, to leave out "whether before or."
There are on the Order Paper a considerable number of Amendments to Clause 48, and I suggest it would be for 126 the convenience of the House that all these should be considered together. There are really three points dealt with, which I can explain as I go along, if that is for the convenience of the House.
This is not a very controversial matter, nor, I am afraid, is it a very interesting one, but it deals with the settlement of appeals. I am certain that hon. Members will have studied with great attention the provisions of Clause 48 and will have seen that it deals with a number of matters. Subsection (1) provides that where notice of appeal has been given, but before it has been heard, an agreement has been entered into between the Revenue and the appellant, that agreement should operate as if it was the decision of the Commissioners or the Board of Referees. It provides the procedure for all appeals relating to Income Tax, Sur-Tax, the Profits Tax and the Special Contribution.
Subsection (2) extends it to claims for relief from E.P.T., and Subsection (3) gives 21 days in which to repudiate the agreement. Subsection (4) refers to verbal agreements after the passing of the Act, and provides for notice to be given in writing confirming them. Then, subsection (5) refers to the withdrawal of notice of appeal, and subsection (6) includes agreements made by agents. Those are the provisions of the Clause as a whole, and, of course, they do constitute a diminution—
§ Mr. Deputy-Speaker (Major Milner)
I am sorry to interrupt the hon. and learned Gentleman, but I understood that it would be convenient to discuss the first two Amendments together, and that the rest were more or less consequential. Is the hon. and learned Gentleman now referring to the last Amendment to line 30, to leave out subsection (6)? Is it necessary to go through them all in detail?
§ Mr. Selwyn Lloyd
With great respect, Mr. Deputy-Speaker, I was trying to discuss all three points together. Out of the nine or ten Amendments, there are really only three points.
§ Mr. Selwyn Lloyd
They are all consequential.
127 I was saying that this does amount to a diminution of the rights of the taxpayer, because at present and until now, the law has been that, if the taxpayer discovers that some adjustment is open to him before the appeal is actually heard, he can raise it, even though an agreement has already been entered into. If an agreement has been entered into with the full knowledge of those concerned, it seems to me not very easy to argue that that agreement should not be binding, or for the general proposition that, once a person has agreed to something, it should still be necessary to go through the machinery of appeal. I do not dispute that it may be a very good thing to make such an agreement binding. But up to now that has not been the law. The law has been that even though a person has entered into an agreement, nevertheless, there would have to be the hearing before the Commissioners or before the board of referees. I do not dispute the purpose of the Clause, although I think it would have been better had it awaited a general clean-up of the tax laws. However, the Government have inserted the Clause and we must deal with it.
The three points with which my series of Amendments are designed to deal are these. First there is the retrospective point. As the Clause is at present drawn, it will apply to agreements entered into before the passing of this Bill. That seems to me, again, to be quite wrong, because when the agreements were entered into it was well known and understood by the parties concerned that in spite of the fact that there was an agreement, there was, nevertheless, going to be an appeal at which the appellant would have a chance of raising some further point. Although it does not sound as though there is a great deal of equity in that, in point of fact, it has been of considerable benefit to taxpayers.
Even though they entered into an agreement, nevertheless, when it was subsequently found that they could get some benefit from another provision, they could raise that point. It is quite wrong to give agreements entered into before the passing of this Bill the final force. That is retrospective legislation which I think is wrong and very bad in principle. That is the point with reference to the series of Amendments which relate to 128 the words "whether before or after." I should have thought that the Government ought to have been content to make this change date from the passing of the Bill.
The second series of Amendments are designed to deal with what I would have thought was a point of common sense. As the Clause is at present drawn, an oral agreement is sufficient. It would have been much safer and wiser, and would have saved time, controversy, and possibly a good deal of litigation if a provision had been inserted that the agreements must be put in writing. At the moment, it covers any sort of oral agreement. It means that any man's accountant can make an oral agreement which can have the force of excluding any future right of appeal. It may be quite right that that agreement should be binding, but for the sake of avoiding uncertainty, heart burning and litigation it would have been much better to make this Clause apply only to written agreements.
The third point deals with the question of agents being entitled to make agreements. Here we come back to the old point that what is sauce for the goose is sauce for the gander. The Government insist that when a person makes an Income Tax claim, he must sign it himself. When we had a Debate the other night on a new Clause about information being supplied in connection with Income Tax repayments, there was strenuous opposition from the Government Front Bench to the suggestion of an hon. Member on this side that the attorney's certificate should be sufficient for the Inland Revenue. Having refused to permit any claim to be put forward on behalf of the taxpayer through his attorney, the Government now say that in this matter, which may be convenient for the Commissioners of Inland Revenue, the agent's agreement shall be deemed to be adequate. That seems to me to be quite inconsistent and quite illogical. If agents are not to be allowed to bind their principals so far as claims are concerned, they should not be allowed to bind their principals so far as appeals are concerned.
Those are the three points. There is one other observation I wish to make with regard to the retrospective point. Subsection (4) says:The preceding provisions of this Section shall in relation to an agreement which is 129 come to after the passing of this Act and is not in writing have effect subject to the following provisions.It then sets out the procedure for a confirmatory notice in writing. It seems to me that if for every oral agreement entered into after the passing of this Bill a confirmatory notice in writing is required, it is wholly wrong to make the Clause retrospective and to make it cover oral agreements entered into possibly six months before the passing of this Bill. This is not a party matter or one for undue controversy. I think it would be an improvement if the Government agreed not to make the Clause retrospective, to exclude oral agreements, and to say that all agreements must be in writing, and to delete the provision whereby an agent is entitled to make an agreement.
§ Lieut.-Commander Braithwaite
I beg to second the Amendment.
I think that these Amendments would improve the Clause and the understanding of it by those who will have to operate it. I do not propose to re-open the argument about retrospection. It has come our way during the course of previous discussions, and even today the Solicitor-General made a concession on this very matter. I hope he will not be weary of well doing and will be able again too meet us on these Amendments.
On the subject of oral agreements, I am sure the right hon. and learned Gentleman will see the force of the argument. The difficulty about oral agreement which one so often finds is that there is a difference of opinion as to just exactly what has been said or agreed to, and in matters of this sort, involving as they do claims and the payment of money, and so on, I am sure the right hon. and learned Gentleman will see that such agreements should be in writing. The agency point also I believe to be a good one. I can see no argument which would run counter to that of my hon. and learned Friend as to why the taxpayer should be in a worse position than the tax commissioner. We think that these Amendments will tidy up the Clause and make it more workable, and we hope the Government will accept them.
§ The Solicitor-General
I think that there is an adequate answer to each of three points made by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) 130 and supported by the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite). One of the reasons for this Clause is that it has on occasions happened that a taxpayer, having been assessed, gives notice of appeal and then an agreement is come to as to the proper amount of his liability. That has happened in the past and it will happen in the future. Attempts have been made in cases where it has happened in the past to say that where there is an agreement, but where the matter has not finally gone to appeal, there has been no final determination of the matter and that therefore it is still open, and that if hereafter any decision should be given in the courts which enables the taxpayer to say that he is liable to pay less tax, he throws aside the agreement and relies upon the decision which may have been arrived at many years later.
One of the objects of the Clause is to prevent that happening Once an appeal has been entered and has been disposed of, it gives rise to the situation I have been describing. Unless it has been heard and determined, the agreement has no real effect and is of no real avail at all. That is why a taxpayer who has entered into an agreement of that sort is not, as the law stands, precluded hereafter from taking advantage of any decision which may be taken in the courts, no matter how long after, to say that he ought to be assessed at a less amount. The Exchequer could do the same, but of course it does not. It could be two-way traffic, but in fact it is only one-way traffic; it has only been done by the taxpayer. One of the objects of the Clause is to stop that.
As I have understood the arguments from hon. Members opposite, there is no dispute that in the case of agreements entered into hereafter, this Clause is useful and necessary because it effects that purpose. If that is so, it ought to apply to agreements entered into before this Bill becomes law. Suppose that five years ago a taxpayer entered into an agreement and paid his tax upon the basis of the agreement entered into. Suppose that a decision is given in 1950 or 1951 which says that he should have paid less; he is in a position which is much more favourable to him than a taxpayer who has not entered an appeal at all or who 131 has entered an appeal and has had the appeal finally decided. A taxpayer whose liability simply depends upon the agreement can tear up the agreement but the taxpayer who has had the matter decided by a final appeal cannot do so, and that is obviously inequitable to the taxpayer who has proceeded with the appeal and has had it decided. Equally this is inequitable to the taxpayer who has not appealed at all but who has been content with the original assessment.
In making this Clause retrospective we do no more than put the taxpayer who has entered into an agreement in exactly the same situation as a taxpayer who has either not appealed at all or who has taken his appeal for final determination. It cannot be justified on any view of justice or fairness that a taxpayer who has got the tax gatherer to enter into an agreement with him, which it is thought or intended by both at the time should finally dispose of the matter, should be able to tear the agreement up at a later date, whereas a taxpayer who has had his position decided on appeal cannot do that. Justice requires that one should equate the position of those two taxpayers. That is all we are doing by making this legislation retrospective.
That is my answer to the first argument which was advanced about the retrospective operation of this Clause. As I say, if the taxpayer is to be entitled to tear up the agreement, so should the Exchequer, and it is obviously an unsatisfactory state of affairs that there is no finality about an agreement of this sort and that it can be disregarded years afterwards by either side. That is what we want to stop, by making this Clause apply not only to agreements entered into hereafter but to agreements which have been entered into heretofore.
The next point which was made was that this Clause should only apply to agreement in writing. If I am right on the first point, if I have made a case for making it retrospective for the reason that I have given, then unless it applies to all agreements whether they are in writing or not, it loses half its effectiveness, because many of these agreements are not entered into in writing. They are entered into as a result of discussion. There may be a minute—no doubt there is a minute—but there is nothing 132 exchanged and nothing which can be pointed to as a formal agreement in writing embodying the terms which have been arrived at.
If we excluded agreements which have not been reduced to writing, we should be robbing the Clause of half its effectiveness. It does not impose any hardship upon the taxpayer whose agreement has not been entered into in writing, for this reason: if the Revenue contends that there was an agreement, it is for the Revenue to show there was. Unless they can show by conclusive contemporary correspondence or something of that sort that there was an agreement entered into, the Revenue cannot hold the taxpayer to the supposed agreement.
The operation of this Clause to agreements not in writing entered into before the Bill becomes law does not put any burden upon the taxpayer. If the Revenue cannot show that there was an agreement, and cannot point to some evidence which establishes beyond doubt that an agreement was entered into, not in writing, the Revenue cannot rely upon the provisions of this Clause at all. It is upon them to show that there was an agreement and, if they say there was one, the taxpayer can dispute it and say there was not.
In so far as agreements entered into hereafter are concerned, we incorporate the provision which we cannot incorporate with regard to agreements entered into before; with regard to agreements not in writing entered into hereafter, we say that the Clause shall not apply to them unless there is, in effect, a notice which confirms it. If the hon. and learned Member will look at subsection (4) he will see that the provisions shall not apply unless there was a confirmatory notice establishing the fact that an agreement has been entered into. We have done that as a matter of precaution with regard to agreements entered into hereafter but, as a matter of necessity, it is impossible to make the same requirement with regard to agreements heretofore.
§ Mr. Selwyn Lloyd
Why does the right hon. and learned Member make that proviso for agreements entered into hereafter?
§ The Solicitor-General
For the purposes of greater certainty hereafter we 133 think it desirable that there should be a confirmatory notice. It would be desirable if we could retrospectively say that everybody was to give a confirmatory notice, but obviously we cannot do that because we cannot put time in reverse and enact something to happen which, in fact, did not happen.
§ Mr. Selwyn Lloyd
If the right hon. and learned Gentleman thinks it necessary to have this confirmatory notice of agreement in the future, would it not be very much better to drop the retrospective element and so have the same system for all?
§ The Solicitor-General
First, I did not say "necessary." We thought it was desirable and preferable. Secondly, as I have already explained, if we do not make the Clause retrospective we leave out half of its effectiveness. If my arguments have not carried conviction I am afraid it would not help very much to repeat them all over again.
With regard to the third point, the question as to whether agreements entered into with agents should come within the scope of the Clause. It is, of course, common practice for taxpayers, particularly those who pay substantial sums of taxation, to have their tax affairs adjusted by somebody who acts on their behalf—a solicitor or an accountant or something of the sort. We believe that taxpayers would probably very much prefer not to be drawn into this matter personally when in point of fact, they had empowered an accountant or an agent to dispose finally of the tax liability for them. For those reasons we think it is desirable, in the interest of the taxpayers themselves, that an agreement entered into by an agent duly authorised by them so to do should be effective. If the agent enters into an agreement without having the authority so to do, it is not an agreement which binds the taxpayer himself.
Reference has been made to the arguments I used the other day with regard to an agent being allowed to make claims for certain purposes under Section 24 of the Finance Act, 1920, but, as I explained, there were specific reasons for that. As the House will remember, I said it was necessary for such a claim that the total amount of the taxpayer's income from all sources and the total amount of his income liable to United 134 Kingdom tax should be taken into account and, as the total amount of income from all sources would be primarily a knowledge within the possession of the taxpayer himself, who, ex hypothesi, was overseas, we thought it was desirable, as has always been the case, that a claim made on his behalf and not signed by him should not be accepted as constituting a valid claim for the purpose of that Section. Thus, the considerations which applied in the case of that Section are not applicable here at all.
§ Lieut.-Commander Braithwaite
Can the right hon. and learned Gentleman enlarge on the question of what is, in fact, a valid oral agreement within the meaning of this Clause? For instance, supposing the inspector had an entry in his journal saying that at such and such a time on such and such a day he telephoned Mr. X who agreed his liability as so and so; is that an effective oral agreement? Or is it a conversation followed by a note by the inspector to Mr. X saying, "Confirming our telephone conversation of this day, such and such an agreement has been made"? Is that a valid oral agreement or must it be made in the presence of witnesses?
§ The Solicitor-General
The note is not an agreement at all. The note may be evidence that an agreement has been entered into, but an agreement can be entered into either in writing or orally, and if two people in conversation do, in fact, agree upon a particular thing, that is a perfectly valid agreement. There are certain provisions in the law that in some particular cases—some cases relating to the sale of goods, and so on—there must be agreement in writing, but subject to that requirement, which is not applicable to this particular case, an oral agreement—that is to say, an agreement in fact arrived at in conversation between two persons—is quite as effective as a written agreement.
§ Mr. Birch
I am not quite happy about this. As I understand it—I am not a lawyer—under the existing law accountants and other agents have no power to bind their clients in matters of Income Tax claims. The Solicitor-General said he would rather deal through accountants and other agents. That may well be so, but I do not know that the clients would also rather be 135 bound by an agreement entered into by those agents without knowing what that agreement was. As I understand it, they are not so bound at the monent, but they will be so bound under this Clause.
I also thought that there was great force in what my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) said about the retrospective aspect of this Clause. That is implicitly admitted by the Government, because they say that in future such agreements will have to have some legal basis for them, whereas agreements entered into in the past can be raked up whether there is any legal agreement or not. That does seem to me to raise great possibilities of injustice and of doubt about what has gone on in the past. Also it is going to make people extremely unwilling in the future, I suggest, to enter into such agreements, if they are to be treated in this way. I am inclined to think that this Clause will clog the wheels of the Inland Revenue, and that it may cause considerable injustice, particularly where unreliable agents have been operating.
§ Amendment negatived.