§ Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Snow.]
§ 9.52 p.m.
§ Mr. Mott-Radclyffe (Windsor)
This is not the first time that the question of arrears of tax on Service pay has been raised in this House. We had a long discussion on this subject, as the Financial Secretary to the Treasury will remember, during the Committee stage of the Finance Bill. As a result of that discussion the Chancellor of the Exchequer made some welcome concessions. If I recollect these concessions correctly, they were to the effect that while outstanding payments on arrears of tax have to be met, no further claims would be made after 6th July, 1949.
Tonight I am not concerned with the liability to arrears of tax on pay received. What I am concerned with is the method of assessing these arrears, or rather some of the unfortunate results of these methods. It would be quite unfair to underestimate the difficulties in which the Inland Revenue authorities are placed. It was not an easy matter to collect and to collate all the details of each individual's pay in the Services from the various commands both at home and overseas, particularly during the war years.
The rates of pay sometimes differed between one area and another, and between one type of Service and another. There was also the difficulty of the temporary rank and the substantive rank. There was staff pay and what was called Colonial allowances. If I recollect correctly, the Colonial allowances were taxable up to 1943, but were tax-free from 1943 to 1946 and from 1946 onwards they were merged into what were called local overseas allowances and were tax-free again. Quite obviously there must be a very considerable time lag in order to collect all these details and to make anything like a correct assessment.
Having said that, I think it is equally fair to say that as the war began 10 years ago and ended 4 years ago, if the task of the Inland Revenue is difficult, the plight of the ex-Service man is much more difficult. Many of us were quite 487 unable to keep details of the pay we received month in and month out, and very few of us in the Forces during the war kept all our old pay slips. Following demobilisation, most of us, after a reasonable period, thought that all the tax deductions had been correctly assessed. It therefore comes as a great hardship when suddenly, out of the blue, an ex-Service man is faced with a demand for arrears of taxation going back to 1939 or 1940, when he is in no position to challenge the accuracy or otherwise of the assessment. It is extremely important—and this is the subject to which I want to call the right hon. Gentleman's attention—to reduce to a minimum the chances of error in assessing the arrears of tax.
If the House will forgive me a personal note, I have had a fortunate experience—though so far as the Chancellor of the Exchequer is concerned, it is an unfortunate experience—with my own arrears of taxation. For over a year, a very persistent but polite inspector of taxes had been pressing me to pay arrears of tax alleged to be due on my pay, going back to 1940 or 1941 and amounting to some £109. I challenged the accuracy of the assessment, and after a great deal of correspondence I received a few months ago an extremely apologetic letter from the Income Tax inspector informing me that the War Office had overlooked a direct payment made by me in 1944, which, together with various other discrepancies, on both sides of the balance sheet, meant that instead of owing the Treasury £109, I was owed and received £3. I was in the happy position of being a creditor instead of a debtor; my adverse balance of payments had become a favourable balance of payments for the first and last time in my life. I use these technical phrases in preference to simple jargon so that the right hon. Gentleman can the more easily understand what I am talking about.
Had I not resisted with equal persistency the demands of the inspector, I should have paid, and paid quite wrongly, the sum of £109. As a result of this, I began to ask myself how many other individuals were similarly placed, either because they had not kept their records to check the accuracy of their assessment, or because their persistency was 488 not equal to that of the inspector in putting forward his demands. I started a few inquiries, and I put down a Question to the right hon. "Gentleman on 27th October. I asked:if he will give an estimate of the total sum collected by the Inland Revenue authorities during each of the last three financial years as arrears of tax alleged to be due in respect of Army, Navy and Air Force pay; and what proportion of each of these sums has subsequently been found to be based upon incorrect assessments.To which he replied:I regret that the information for which the hon. Member asks is not available. Cases of the kind that he has in mind have been rare; incorrect assessments have generally been adjusted before collection of the tax."—[OFFICIAL REPORT, 27th October, 1949: Vol. 468, c. 177.]I wonder just how rare they have been. I wrote a letter to the Press on the subject, and as a result I have been absolutely inundated with letters from ex-Service men all over the country. The point I want to make is this. Suppose that I or any other individual concerned were still serving in the Forces, the arrears of tax alleged to be due, which in my case I successfully disputed, would have been deducted from the pay months ago. I would like to quote, from a very large post-bag, three typical cases.
It being Ten o'Clock, the Motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Pearson.]
§ Mr. Mott-Radclyffe
I have picked out three cases in completely separate categories in order to give the right hon. Gentleman some idea of the disquiet which exists among the very large section of ex-Service men who are faced with demands for arrears of tax. The first case I wish to quote concerns a former Army officer who received in February this year an assessment from the Income Tax authorities alleging that he owed £127 on 2½ months' pay, which amounted to £309 at the end of his service in 1947–48. When he disputed these figures the Inland Revenue merely informed him that they had been given the figure of £309, and that there was nothing they could do about it. It so happens that this ex-officer, unlike most, had kept all his pay slips and was able to prove conclusively that instead of receiving £309, he had actually 489 received £170. The excuse in this case put forward by the paymaster's office was what was called "a machining error." I wonder how many of these machining errors are made. This man, who deserved well of his country, is no machine; he is a worthy individual.
The next case concerns a former officer of the Royal Marines, who was taken prisoner at Crete. His wife worked during the war as a lecturer at one of the universities. Both the tax office—in this case at Nottingham—and the Director of Naval Accounts were well aware of this. Last year a claim for underpayment of tax on their joint incomes was put in, amounting to £261. That figure was subsequently raised to £296. At various times the Director of Naval Accounts quoted various figures for arrears of tax on this ex-officer's Service pay, at one time as low as £88. It is clear that in this case there is no proper co-ordination between the Director of Naval Accounts and the tax authorities in Nottingham. If £296 is correct, and neither he nor I know whether it is, how can this ex-officer pay? His wife is no longer earning. They have had considerable expense in setting up a post-war home, and £296, if that is the correct figure, can only be paid out of his savings, if he has any.
The third case concerns another ex-Service man, who merely received a revised post-war credit slip which had been adjusted by deducting the amount alleged to be owed by him in arrears of tax. That raises a big issue. Is it legitimate that post-war credits, when they are due to be repaid, should be adjusted automatically up or down according to whether or not arrears of tax are alleged to be due? That seems to be a high-handed method of dealing with anybody. Such highhanded treatment contrasts rather strikingly with what the right hon. Gentleman said on the Second Reading of the Married Women (Restraint Upon Anticipation) Bill, on 7th November. Referring to the Mountbatten Estates Bill he said it was required… because changed circumstances and modern taxation made it absolutely essential for Lady Mountbatten to have greater control over the money which had been left to her."—[OFFICIAL REPORT, 7th November, 1949; Vol. 469, c. 1011.]I do not think any further comment is necessary on that score.
490 It is quite clear that the machinery for assessing these arrears of tax leaves a good deal to be desired. The impression created, rightly or wrongly, is that at least a proportion of the assessments are computed in a rather haphazard fashion. I do not in any sense mean to suggest that the haphazard methods are deliberate. Rather are they due to lack of coordination between one Service Department and the Treasury and to the fact that the Inland Revenue officials are grossly overworked.
From my knowledge of these cases I should say it is quite obvious that there have been great discrepancies. I do not suggest for a moment that they are intentional. No one wishes to make it easier for anyone to evade payment of taxes legitimately due, but it is extremely important that no sense of grievance should be engendered in the mind of the individual concerned. In other words, not only is justice to be done but justice must seem to be done, because our very complex taxation system can only work properly if there is a sense of confidence between the tax payer and the tax collector, in precisely the same way as law and order can only be preserved in a country when there is full co-operation between the police on the one hand and the public on the other.
It is for this reason that I ask the right hon. Gentleman to look more closely into the present machinery for assessing these arrears of tax, and to see that the errors which occur are reduced to a minimum. Where a case of genuine hardship can be proved, and where it is clear that there is inability to pay, I would urge that such cases should be treated with the utmost possible sympathy.
§ 10.8 p.m.
§ Mr. Joynson-Hicks (Chichester)
I should like to say how exceedingly glad I am that my hon. Friend the Member for Windsor (Mr. Mott-Radclyffe) has raised this question tonight. It is a matter which to my knowledge is troubling a very great number of patriotic and loyal people, who desire to be honest with the Inland Revenue, to pay their taxes and fulfil their duties as citizens of this country. On the other hand, despite all their proper endeavours, feelings and responsibilities they consider they are being ill treated by the Inland Revenue Department. The trouble really goes back 491 to the times of difficulty in the war, when we all know and appreciate the tremendous strain under which the Inland Revenue Department were working, and the difficulty they had in properly preparing assessments.
That is not any cause for them to be blamed, and I do not think anyone would blame them at all; but where the trouble arises is that in these after years the faults which occurred then in the Inland Revenue Department are now being found out or have been found out during the intervening periods, and have resulted in many, particularly ex-Service men, being required to contribute more money in taxation. Generally, the man has left the Services and has returned home to try to settle down in family life. Very often he has to create a home and start to educate his children. Suddenly, this bombshell is thrown at him by the Inland Revenue Department asking him to pay arrears of tax at a time when he is least in a position to do so.
Having regard to the seriousness of the matter, there is nothing I know that the average citizen can do about it except argue with the inspector of taxes or pay. If he pays it is going to create very great hardship for him and his family. If he argues with the inspector it very seldom achieves any result. I frankly confess that I do not know whether this is so or not, but I was wondering whether a taxpayer in those circumstances has any right of appeal to the Commissioners for complete investigation of the assessment upon which the old arrears are based. If he has, I do not believe that there is one ex-Service man taxpayer in 100 who knows of it. If he has not, then there should be some form of tribunal to which these people can appeal to satisfy themselves and to put their minds at rest, and also to put at rest the mind of their inspector of taxes that they are being properly assessed and that there is a proper liability to pay.
I cannot overstress the seriousness of the hardship which is being caused by these late assessments which fall upon men when they cease to receive the substance of the income on which they are assessed, and when they are probably incurring considerably greater liabilities than they had when they were receiving the income. The Financial Secretary to the Treasury may remember a case about 492 which we had considerable correspondence, one of the most unhappy cases I have ever come across. It was the case of an ex-Service man of the Royal Marines who joined up again at the beginning of the recent war. Eventually, at the age of about 50, he went, I think, into the fire service of the Royal Marines, where he was earning very substantial emolument. His wife was in one of the Services at the same time, earning a separate income. Between them, they were getting very good money.
Apparently what happened—and I am not quoting because I have not got the matter at my fingers' ends—is that there was an error in the assessment of their tax, probably due to the fact that the Inland Revenue had failed to regard them as husband and wife. That resulted years afterwards in the realisation of a serious liability. At that time the man suffered a renewal of an old Service injury, with the result that he lost his highly-paid job in the Royal Marines. He had to move his home at very considerable expense from Scotland to Sussex. His wife came out of the Service, and their total income was reduced to a very much lower level than when the tax was levied upon them. Just at that moment the authorities demanded the arrears of taxation, which were found to have existed years before. Although the right hon. Gentleman did what he could to alleviate the blow, the liability continued to be upon them.
There should be some machinery whereby these matters could be re-opened and reconsidered, so that if there is any blame upon the taxpayer or the Inland Revenue the tribunal could have discretion, to the end that justice might be achieved.
§ 10.15 p.m.
§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
We are really discussing a very narrow point, the liability of ex-Service men for arrears of tax, with particular reference to the assertion, which was made by the hon. and gallant Member for Windsor (Mr. Mott-Radclyffe) that in all too many cases the assessments proved to be incorrect, and that the individual concerned, not having kept his pay slips and not knowing what he had received, paid the demand, without knowing whether it was right or wrong.
493 The last time we really debated this, apart from the Debate on the Finance Bill to which the hon. Member for Windsor (Mr. Mott-Radclyffe) referred, was in July last year when the hon. Member for Streatham (Sir D. Robertson) raised it and made, what I thought not unusual for him, a very wild and irresponsible speech during which he referred to the Inland Revenue and to those of us who happen at the moment to be at the Treasury as "bloodsuckers." As a result we had, as we do after some of these Debates, a very large postbag which was rather insulting and derogatory. I do not think that after tonight's Debate we shall get letters of that kind because the hon. Member for Windsor and the hon. Member for Chichester (Mr. Joynson-Hicks) made very reasonable speeches and, indeed, put their case with great clarity and force.
The hon. Member for Windsor indicated the fundamental difficulty which both the Inland Revenue and the Service Departments have been up against when trying to assess correctly, as they do, the liability of those serving to tax. During the war Service personnel were not subject to P.A.Y.E. Many of these difficulties—they are difficulties—which have arisen are due to that fact. Provisional deductions had to be made by the Service paying officers more or less on the information which the individual concerned had given them. As the hon. Member for Windsor pointed out, things moved rather swiftly during the war for some people. When the husband entered the Forces the wife sometimes went into work, and that fact might not have been brought to the attention of the Service paying officer, and therefore, as was the case with the Royal Marine who went North, it was. not until later that the Service paying officer began to catch up on the real situation.
Service paying officers and the Inland Revenue have to abide by the law, and if the incomes of husband and wife come to more than was at first indicated, at some time a new assessment has to be raised and an attempt made to get payment of the tax which is due on their joint income. It may often be that the individual concerned, being a man of great ability, receives rather rapid promotion and it takes time for the authorities concerned to catch up on 494 the extra emoluments which he earned. As a result, and because we had both the Service paying officers, who often had difficulty in tracing the individuals concerned because they went overseas or otherwise moved about, and also the Inland Revenue, grossly understaffed as it was during the war, arrears began to pile up, and in the years immediately after the war when many millions of men were being demobilised fairly rapidly it was difficult to catch up on the true assessments of very large numbers of ex-Service men.
As the House knows, as a result of that, in 1947 and 1948, a great deal of publicity began to be focused on this matter because men who had returned to civilian employment not unnaturally resented being faced with new assessments years after the actual pay had been received either by them or by their wives. Not all of them, believe me, were as innocent as they pretend to their Members of Parliament; they knew very well that unless they were lucky the Inland Revenue would one day catch up with them. However, it is true to say that many of them were quite unaware—they were otherwise engaged—of the legal liability that they were piling up against themselves.
As the House will remember, during the Debates on the Finance Bill this year great pressure was put on my right hon. and learned Friend to stop assessments on ex-Service men. After much debate, and some hesitation, he agreed that as from 6th July, 1949—the date when the promise was made—no further assessments would be raised on them. Although perhaps that was an act of justice in the sense that we felt an end had to be put to these assessments at some time, it created a good deal of ill-feeling amongst those who, unfortunately, had their assessments raised before 6th July or, what was much more to the point, amongst hundreds of thousands of ex-Service men who had settled for their arrears before July, 1949. We have had in the Treasury a large postbag from individuals who felt that they had a grievance because they were not amongst the lucky few who were outside the limit and could thus take advantage of what my right hon. and learned Friend had promised.
495 All that is by the way, and is some explanation of how the present unsatisfactory situation has arisen. The point arises, what can we do about it? What I have to tell the hon. Member and the hon. Member for Chichester is that the remedy lies in the hands of the individuals concerned. I am glad to think that their number is dwindling. It arose exclusively out of the circumstances and difficulties associated with the war. Therefore, there must be a fairly early period to these difficulties and to the letters which hon. Members receive.
I want to emphasise that the mistakes are much rarer than the post bag of the hon. Gentleman would lead the House to suppose. He quoted three letters and I assume they were the three best examples he could cull from the letters that had come to him. It is our information, which is correct as far as I can ascertain, that the number of individuals whose assessments have been wrong is not as great as some would have us suppose. In addition to the reasons I have indicated, it is human to err, especially when cases are dealt with not by the Inland Revenue solely but by the Service paying officer first and, following him, by the Inland Revenue. It is only fair to the Inland Revenue to say that nearly all these difficulties have arisen owing to wrong information being given by the Service paying officer to the Inland Revenue. In order to be fair to the Service paying officer, it should be said that he himself has often had insufficient information given to him upon which to base the assessment which he has to pass on to the Inland Revenue.
§ Mr. Mott-Radclyffe
Would the right hon. Gentleman deal with the weak link, which is the lack of co-ordination between the Service paying department and the Inland Revenue Department?
§ Mr. Glenvil Hall
I want to say to the hon. Gentleman—and I would like to feel that it would also go out to those men who are feeling a sense of grievance—that they have the remedy in their own hands. If, when they get this assessment, they are in any way unsure or doubtful about its validity, they should immediately query it with the Inland Revenue. The Inland Revenue, far from objecting to its being queried, would welcome such action 496 because, although this may strike some hon. Members as strange, the Inland Revenue do not want to extract by mistake Income Tax from men who served in the Forces. They are only too willing—I can say this on behalf of the Treasury and of the Inland Revenue—when a man comes to them with a genuine feeling that his assessment is wrong, to look into it again. They will not only do that, but will go once more—and more than once, if necessary—to the Service paying officer so that he may check his records. If it will help, the Inland Revenue are very willing to put the man concerned in direct touch with his old battalion headquarters or Service paying officer so that, by personal interview or by letter, they will be able to go into the whole question and to check the figures.
§ Mr. Joynson-Hicks
Can the right hon. Gentleman deal with the point whether an ex-Service taxpayer has a right of appeal to his commissioner of taxes or to anybody else?
§ Mr. Glenvil Hall
Of course, all taxpayers have a right of appeal against an assessment. To many of these ex-Service men, however, the difficulties—for one thing they may be in jobs and may not want to take the time off—of going to the expense of an appeal to commissioners would to them be not worth while. What we are proposing—
§ Mr. Glenvil Hall
Yes, all taxpayers have that right. What I am proposing is a much simpler and more straightforward method: that they should go to the Income Tax inspector who raises the assessment on them. I can assure hon. Gentlemen that these inspectors are very reasonable people. When anyone talks to them with nothing to hide they are most friendly and helpful. Men who follow this procedure will find that the Inspector of Taxes is willing to go into the figures again and, if necessary, to carry the matter further with the appropriate Service department.
When payment is proved to be due, it is normally quite outside the province of the Inland Revenue to forego it. Under the law, only in certain circumstances can the Inland Revenue allow tax which 497 is due to go unpaid, and, moreover, they have to report to the Comptroller and Auditor-General all cases where for one reason or another tax has not been levied. What the Inland Revenue does, however, is to temper the wind to the shorn lamb, and where the individual's circumstances have changed, as, for example, in the case mentioned by the hon. Member for Chichester, the Revenue are very willing to spread what tax may be due for past years over as long a period as possible. I do not think from my experience—which is now beginning to lengthen out—that many ex-Service men have found their local Inspector of Taxes unreasonable in this matter.
Post-war credits can, under the law, be taken in satisfaction of arrears of tax 498 for a certain year, and I am surprised that in the case which has been mentioned the inspector took the post-war credit without consulting the individual concerned. Normally he informs the individual what he proposes to do, and as the individual does not know when he will get his post-war credit anyway, he much prefers to have his arrears wiped off against the problematical time when he will receive his post-war credit.
§ The Question having been proposed at Ten o'Clock and the Debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at Half-past Ten o'Clock.