HC Deb 19 June 1950 vol 476 cc951-6
The Solicitor-General

I beg to move, in page 25, line 2, after "greater," to insert, "or less."

Would it be convenient if, in moving this Amendment, I also gave reasons for the Amendments proposed in line 6—to leave out from "deduction," to "and," in line 7, and to insert: shall be deemed to have been improper to the extent of the excess or, as the case may be, to have been insufficient to the extent of the deficiency"; and in line 12, to leave out from "if," to "and," in line 13, and to insert: no deduction had been made or, as the case may be, if there had been made a deduction smaller by the amount of the said excess or greater by the amount of the said deficiency."?

The Chairman

Yes.

The Solicitor-General

This action was, I think, initiated by the hon. and learned Member for Northants, South (Mr. Manningham-Buller). It is to make a change on the following lines in Clause 31. Clause 31 provides that where a trader during war—broadly speaking, that is the period in question—has written down a debt owed to him by some enemy debtor and subsequently that debt is recovered, the writing down is written up in the light of the recovery which is to hand. It is the case, of course, that a recovery may raise the amount of which is less than the written down value of the debt. In other words, the trader may have written down £1,000 to £500 in 1943 and have allowed that writing down in the preparation of his returns and then, in 1946, he may have recovered £600 in respect of the debt. As the Clause stands, he would have £100 written back to that year, 1943, and be charged tax on that £100.

The series of Amendments, the first of which I now move, is designed to deal with this situation. Instead of getting the recovery in 1946 or £600, he may get a recovery in 1946, say, of £200. The sum of £200 will show that the original writing down of the debt from £1,000 to £500 was not enough, and that it should have been written down from £1,000 to £200, and that his tax return in 1943 should have been made on the basis of including only £200 in the computation of his profits.

We seek by these Amendments to say that if he makes a recovery later which is less than the written down value of the debt—supposing he has written down the debt to £500 and he only recovers £200—he shall be entitled to have his 1943 accounts—I take that year purely as an example—further written down, that he shall be entitled to say, "I did not write down that £1,000 sufficiently. I wrote it down to £500 and it transpires that I should have written it down to £200. I claim further relief of £300 in respect of my tax return liability for 1943." These Amendments enable him to do that. The words "or less," which by the first Amendment we propose to insert after "greater," relate to the case where recovery is less than the written down value of the debt. The two further Amendments to which I have referred are so worded as to give him the right to claim a further writing down to which he would have been entitled had he known that his debt was worth only £200. This is a measure of retrospective relief in favour of the taxpayer.

Mr. Manningham-Buller

I must just say "Thank you" to the Solicitor-General for so fully adopting our proposals which appeared on the Order Paper some time ago, and also for his clear exposition of the effect of the Amendments which we proposed. The subsequent Amendments which we are discussing with this one are merely a re-wording of Amendments which we put down. The Solicitor-General has given a most lucid and detailed exposition of the precise effect of the addition of the words "or less" to this Clause, and I would not seek to add anything to his explanation as to exactly what the addition of "or less" does.

Amendment agreed to.

Further Amendments made: In page 25, line 4, leave out "remains unwritten off after," and insert: is still not written off after effect has been given to. In line 6, leave out from "deduction." to "and," in line 7, and insert: shall be deemed to have been improper to the extent of the excess or, as the case may be, to have been insufficient to the extent of the deficiency.

In line 12, leave out from "if," to "and," in line 13, and insert: no deduction had been made or, as the case may be, if there had been made a deduction smaller by the amount of the said excess or greater by the amount of the said deficiency."—[The Solicitor-General.]

7.45 p.m.

The Solicitor-General

I beg to move. in page 26, line 5, at the end, to insert: (3) In ascertaining, under subsection (2) of this section, the amount of any recovery, there may be deducted from the amount or value of what is obtained any expenses incurred in obtaining it, and references in the said subsection to the amount or value of what is obtained shall be construed accordingly: Provided that, to the extent that any expenses so deducted go to reduce the sum which is to be treated under that subsection as the amount of a recovery in respect of a debt, claim or property wholly or partly written off in the manner specified in subsection (1) of this section—

  1. (a) no deduction shall be allowed for the expenses in computing for excess profits tax or profits tax purposes, the profits or losses arising from any trade or business in any accounting period or in computing, for the purposes of income tax for any year of assessment, the profits or gains or losses of any trade; and
  2. (b) the expenses shall not be included in computing the expenses of management in respect of which relief may be claimed under section thirty-three of the Income Tax Act, 1918;
and the payments and repayments of tax falling to be made under sub-section (1) of this section shall be adjusted accordingly. The object of this new subsection is to provide that expenses of recovery should be deducted from the amount of the recovery. That proposal was made by an Amendment, in page 25, line 22, at the end, to insert "less the expenses of obtaining it," which stands in the name of the hon. and learned Member for Northants, South (Mr. Manningham-Buller). We seek by this subsection to achieve the purpose which I feel sure the hon. and learned Member had in mind. We had to put down our own new subsection instead of accepting his Amendment because we had to meet the position that supposing expenses incurred in effecting the recovery were allowed as a deduction against the amount of the recovery—in other words supposing that in recovering £200 debt a trader had to spend £50 and supposing that was deducted from the £200—the trader should not again get the same deduction of £50 as an expense against his profits. Obviously he cannot have the relief twice. He can have it either as a deduction against the amount of the recovery or as a reduction in the computation of his profits. Our new subsection simply says that the expense shall be deducted from the recovery and that it shall not be deducted again as an expense in the carrying on of his business. That is in order to prevent him getting double relief. With that object in mind, this Amendment carries out what I think the hon. and learned Member had in mind.

Amendment agreed to.

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. John Foster (Northwich)

I felt it was in keeping with the temper of the Committee not to take up any time with the Amendment standing in my name, in page 26, line 2, to leave out from "section," to the end of the subsection. I merely ask the Solicitor-General, who has so far proved so accommodating, to look at the drafting in one or two places in this Clause? I feel sure that he will do so. I would draw his attention to page 24, line 26, where the word "profits" comes twice. That is rather awkward. My second point concerns line 30 which refers to a debt or claim "owed by or on a person…." We can see what it means but it is an offence against the good grammar which I learned at school. One can make the most awful mess of prepositions, such as the example provided by the child who said to his mother "Where did I get the book I am being read to out of from?" Then there is a sentence at the top of page 26, line 3, which says: the total amount thereof exceeds or, as the case may be, exceeds that part of …. What it means is that where the total amount absolutely exceeds or partly exceeds. I am sure that the Solicitor-General will have sympathy with the points I have raised and will see whether the drafting cannot be made a little more attractive.

The Solicitor-General

The words "profits, profits or gains …" were used because we were referring to the Profits Tax, which talks about profits, and also to Income Tax, which talks about profits or gains. Therefore, to be artistically in order we have to use the words "profits, profits or gains …" With regard to the words, "on a person", the hon. and learned Gentleman wanted to have the word "made"; we could not accept the word "made" because that would exclude potential claims. The words "claims made on a person," exclude claims which may be made on people. I am sorry, but we cannot accept the second suggestion. With regard to the third suggestion we mean exactly what we state. We are therefore grateful for the hon. and learned Member for looking into the matter with such minuteness, but after careful consideration of the result of his researches we still prefer that our form of wording should be retained.

Mr. Maudling

There are two small points which I wish to raise. Supposing there was the case of an investment of shall we say, £100,000 which had been written down in 1946 to £25,000. Another £100,000 as invested, and as a result of that the object in which the money is invested is built up and there is a recovery of £150,000. That recovery really springs from the subsequent investment. I understand that 50 per cent. of the recovery would become liable to tax, being treated under lines 34 to 42 as being attributable to the original investment. I hope the Solicitor-General will consider that. The second point is that I believe the main object of departing from the now normal procedure in the valuation of trade debts in this case is to include them for E.P.T.

During the Spanish war certain debts were written down excessively and subsequently recoveries were made, and if this principle were applied to the Spanish war debts those written down debts would retrospectively be increased in value. The standard profit of the companies concerned for the bare years for E.P.T. would be increased and would effect the E.P.T. computations for subsequent years. They are small points but I should be grateful if they could be given a certain amount of consideration.

The Solicitor-General

The changing in the standard of profit of a company as it was eased during the Spanish civil war is something entirely outside the-scope of this Clause. I do not think any practical case is likely to arise. With regard to the other case where there is. an investment of £100,000 written down to £25,000 and, as a result of further expenditure, £150,000 is recovered, as the hon. Gentleman says, that will be dealt with in the concluding words of subsection (2). The £150,000 would be apportioned to the original written down investment and the new expenditure embarked upon in order to see what was a fair division and what should be attributed to the old investment.

Mr. Maudling

Do I understand that a proportion of the profit on the investment would have to be determined solely upon the size of the expenditure on the investment, but the investment would be taken into account as well?

The Solicitor-General

It depends on what was meant by the value of the debt. The word "value" would have to be taken into account.

Clause, as amended, ordered to stand part of the Bill.