§ Sub-paragraph (2) of paragraph 5 of the Tenth Schedule to the Finance Act, 1948, shall be amended by adding at the end of the fifth line the following words "or which were companies under the same beneficial ownership conducting separate stages or departments of what was in substance one trade or business.—(Mr. Touche.]
§ Brought up, and read the First time.1681
§ This new Clause is a rather technical one, but it has the merit of raising rather a short point. It does not affect many taxpayers, but it is a question of simple justice for at least one of my constituents. The purpose of Schedule 10 of the Finance Act, 1948, was to exempt from Special Contribution full working directors in private controlled companies. This relief applies to the case of a director working for two or more companies forming a group, and where a number of miscellaneous companies are kept together solely by the presence of a holding company.
In the case I have in mind, the business consists of the manufacture and sale of electricity cables. One company manufactures and transport them for sale to the other company, and half shares in the business are held by the same full-time working director, who has no other business. He therefore works entirely for this business. The Board of Inland Revenue hold that the personal work of the director has no right to relief because the two companies do not form a group. I submit this is hardly carrying out the undertaking given by the Solicitor-General on 22nd June, 1948, when we discussed this matter on the Report stage of the Finance Bill, 1948. He then said:
Where we find a person in a group of companies who gives substantially the whole of his time to the service of the group—we will endeavour to give him the relief to which the Schedule affords."—[OFFICIAL REPORT, 22nd June, 1948; Vol. 452, c. 1304.]
§ It has been held by the Inland Revenue that this relief cannot be given where there is only in substance one business and the two separate stages are carried out by different companies. This is essentially a case intended to be covered by the exemption given by the Schedule. There seems to me no equitable reason for refusing the relief in this Clause. It carries out the assurance given by the Solicitor-General and I hope the Government will accept it. It will mean justice for one of my constituents and help to make the Solicitor-General an honest man.
§ The Solicitor-General
When we were discussing the Special Contribution, it was represented that directors who gave their whole time to a company which was virtually their own family company should 1682 be allowed to treat dividends from that company as earned income and therefore free from the operation of the Special Contribution. We applied that first to full-time working directors of director-controlled private companies. That was how we sought to define the kind of company we had in mind. We thought it analogous to the personal trading undertaken by a director under circumstances in which it would be right to treat the dividends of a company as his earnings.
Then it was represented to us that directors might give the whole of their time to more than one company. For that reason we sought to expand a single company into a group of companies. I frankly recognise that when one tries to encircle a group of companies, there are bound to be cases just outside. I am afraid this is one of these cases. When we expanded the definition of the company we tried to make it clear what we were putting inside the circle and what outside. We laid down that each of the companies must be a private company, not an investment company, in which the directors had a controlling interest; that the companies must be either a holding company and one or more subsidiaries or subsidiary companies of the same holding company; and that the directors must work full time in the actual management and control of the companies taken together.
The situation which the hon. Gentleman who moved this new Clause described was not one in which it could be said there was a group. Certainly the two companies were connected; but when we formulated the definition we had to be clear in our own minds what we were putting in. The case the hon. Gentleman instanced of his constituent is clearly outside the definition. The Special Contribution was imposed some two years ago and operated for only one year, and I feel it would be unreasonable now to ask us to reconsider that definition, which was fully discussed when we formulated the clauses of the Bill which imposed the contribution. To ask us to redefine companies which are to be regarded as forming a group for the purpose of exemption would be unreasonable and impracticable. For those reasons, I am sorry to say I feel we cannot now re-open the definition we agreed on then, in Committee and subsequently on Report, and 1683 therefore I regret that I must advise the Committee to reject the new Clause.
§ Question put, and negatived.
§ Lieut.-Commander Braithwaite
May I ask for your guidance, Sir Charles? Without reflecting on the Chair's power to select admendments, I would respectfully call your attention to the fact that, of five Clauses dealing with post-war credits none has been called. Is there no method by which we can have an opportunity of discussing this question?