§ Reasonable professional fees in respect of the preparation of income tax returns shall be an allowable charge in the calculation of taxable income.—[Mr. N. Macpherson.]
§ Brought up, and read the First time.
§ Mr. Niall Macpherson (Dumfries)
I beg to move, "That the Clause be read a Second time."
If it is a virtue, this Clause does not involve an intolerable complication. The meaning is plain upon the face of it and those hon. Members who have their Order Papers in their hands will understand it right away.
The principle upon which the Clause is based is simply that of equality of treatment of the subject. The present position is that traders are allowed to deduct in the calculations of their taxable income professional fees that are charged in respect of the preparation of income tax. The reason they are allowed to do that is, quite frankly, a matter of convenience to the Treasury, the reason being that it is not possible to discriminate 1689 between charges that are made for the auditing of accounts and charges that are made in respect of the preparation of Income Tax returns. In a recent case, which was Smith's Potato Crisps Ltd. versus the Commissioners of Inland Revenue, Lord Porter, in what might be described as one of his obiter dicta, made it quite clear that the principle was violated by this practice. But the principle has now turned round the other way because the effect of the practice that has arisen is that another principle is now violated—that people are now treated in different ways, and dependent on whether they are or are not traders.
I submit that an entirely false principle is now being followed and that the only true principle is to allow everybody to be treated in the same way. There were additional advantages in establishing that principle in this case. There was a time when it was possible for the inspectors of taxes to give considerable assistance to those making returns and to give them guidance in the preparation of their Income Tax returns, to make quite certain that they gained the benefit of all the allowances to which they were entitled. In fact, that is no longer now happening, or it is happening to a decreasing extent. The result is (hat when cases are taken by the taxpayers to accountants, the accountants almost invariably find a great many allowances to which the taxpayer is entitled are not being claimed.
It is obviously to the advantage of the Inland Revenue authorities themselves that the tax returns should be presented in the proper form. Therefore, it is to their advantage that where possible and where desirable expert assistance should be made available in the preparation of returns. If the expert assistance is so made available it will obviously save the taxpayer a great deal of money in the long run, simply by reason of the fact that it will save tax inspectors and their staffs a great deal of time. So, in this case, principle and expediency do combine together and I would commend the Clause to the Solicitor-General.
§ The Solicitor-General
This, again, is a Clause which I cannot recommend the Committee to accept. The argument upon which it was advanced was this: that trading companies are treated upon a 1690 different footing from private persons in relation to expenditure incurred in preparing tax returns. The hon. Member for Dumfries (Mr. N. Macpherson) referred to Lord Porter's speech in the case of Smith's Potato Crisps. I rather think that he misunderstood what Lord Porter said. What he said was that an ordinary trading concern in the conduct of its undertaking necessarily must incur expenditure in preparing its trading accounts and that the fee payable to accountants to prepare those accounts was one which normally also included the preparation of their Income Tax returns.
In practice, it is impossible and impracticable to distinguish that portion of the fee referable to the preparation of the trading accounts—which is allowable—and the portion referable to the preparation of the Income Tax returns which strictly—says Lord Porter—is not allowable. A proposal to depart from this fundamental principle of our Income Tax law is really based on a misunderstanding of what Lord Porter said.
A trading concern is, in practice, allowed to deduct the expenses of preparing Income Tax returns for the very special reason I gave and that does not obviously apply in the case of private persons. Here, again, is a problem which might well form the subject of recommendations by the Tucker Committee. The question has been raised in previous Finance Acts as to whether the cost of a successful appeal in an Income Tax, Surtax or Excess Profits Tax matter should be allowed as taxable expenditure in the computation of profits. Indeed, that was the problem which the House of Lords were investigating in the Smith's Potato Crisps case. It is possible that the Tucker Committee might make recommendations with regard to this expense. If they recommended that the expenses of successful appeals should be deductable expenses, then it may well be—I do not want to commit myself one way or the other—that the expenses in preparing an Income Tax return or a Profits Tax return would be an expense which stood upon the same footing.
§ This Clause is based on what I submit is a misconception of the reasoning in Lord Porter's speech. It would depart from what is a clear principle in our Income Tax law, that one treats as deductions 1691 expenses which are really expenses incidental to the carrying on of the trading concern. In present circumstances—and by that phrase I refer to the fact that the whole matter may well form a subject of investigation by the Tucker Committee—I feel that the proposal in the Clause is one which I cannot ask the Committee to accept.
§ Mr. Bracken
I think the right hon. and learned Gentleman would do great service to my hon. Friend, and indeed to the Committee, if he would call the attention of the Tucker Committee to his speech as it will be reported in HANSARD. A recommendation of that kind, even a qualified one, from the right hon. and learned Gentleman to that eminent lawyer and his colleagues might enable my hon. Friend to accept the right hon. and learned Gentleman's explanation. Will he see that a copy of HANSARD, with the speech suitably marked, is sent to the Tucker Committee?
§ Mr. Hugh Fraser (Stafford and Stone)
I do not think that the Committee is very much impressed by this constant reference by the Treasury Bench to various committees. When a problem arises which they are incapable of resolving they refer to this or that committee. It seems to me that the case presented here by my hon. Friend is an eminently reasonable one. It is most difficult for an ordinary person to deal with Income Tax and all the other taxes which fall upon him. These matters are so immensely complicated that what is urgently needed is a simplification and codification of the whole system. That is what the Government should seriously consider, instead of constantly referring to these various committees while being unable to make up their minds on the simplest problems.
§ Mr. Boyd-Carpenter
I think we should hear a little more from the Solicitor-General on this point. He referred continually to the Tucker Committee, but have we any reason to believe that the Tucker Committee will go into this particular question at all? My right hon. Friend put a very reasonable suggestion to the Solicitor-General, which would have made it quite certain that the Tucker Committee would have this matter 1692 before it. The right hon. and learned Gentleman did not even rise. I am glad to see that he is about to rise now.
§ The Solicitor-General
My failure to rise was not due to any wish to be discourteous. This question of whether the expenses of successful appeals should be allowed is one which is very much discussed, and I have no doubt that the Tucker Committee have it in mind. I shall certainly take steps to call the attention of the Tucker Committee to the point raised by this Clause.
§ Mr. Boyd-Carpenter
May we have that clear? The Solicitor-General referred to the important question of the cost of successful appeals. That, however, is totally different from what is in this Clause. Do I understand the Solicitor-General's assurance to be that the subject matter of this Clause—the preparation of Income Tax returns—will be specifically drawn to the attention of the Tucker Committee?
§ Mr. Nabarro
There are a couple of points in the Solicitor-General's reply which, I think, merit the attention of the Committee. First, audit fees and accountancy fees are charges which a company is permitted as a charge for the purpose of Income Tax, Profits Tax, E.P.T., and N.D.C., whereas a private person is not so permitted. That seems quite intolerable.
The second point that merits attention is the fact that during the last 15 or 20 years the increase in the complexities of direct and indirect taxation have been such that it now defies the ability of the ordinary private citizen to understand taxation law. For instance, it will no doubt be of interest to the Committee to recall that between 1934 and 1937 a very extensive professional committee, under Lord Macmillan, sat for 3½ years on the codification and simplification of taxation.
§ Mr. Douglas Houghton (Sowerby)
It was nine years, and the committee presented a report on which nothing was done.
§ Mr. Nabarro
My point has been stolen. I grant that they sat in all for nine years, but the operative period was between 1934 and 1937. The remainder 1693 of the period was before 1934 and was purely of a preparatory character, which reiterates my point that the complexities of direct and indirect taxation are such that it defies the ability of the ordinary citizen to compute his tax liability without professional assistance. I believe that it is in the public interest that chartered accountants or incorporated accountants should be in a position to advise on each and every occasion where guidance is wanted, and that the fees involved should be admitted as charges against tax payable.
§ Mr. G. P. Stevens (Portsmouth, Langstone)
Since I understand that the Solicitor-General is to draw the attention of the Tucker Committee to the report of this Debate, I think it should go on record that it is not altogether true to say that professional charges of this nature cannot be separately shown. It is the normal professional practice to render three separate bills; one for audit charges, one for accountancy charges, and the third for taxation charges.
§ Sir John Mellor (Sutton Coldfield)
I should have thought that this was a question which the House of Commons could have decided for itself without the assistance of anyone. It is a matter of common knowledge that it is essential for anyone whose affairs are complicated to seek professional assistance. The Government has accepted the principle under the Town and Country Planning Act in the preparation of claims on the £300 million fund. There, professional assistance is allowed for, and a contribution can be obtained in the preparation of claims on forms S.1 and, now, L.39. Having accepted that, why should the Government jib now? The only reason is not merely because it is income tax but because it is a larger matter. Under the Town and Country Planning Act, the cost of making a contribution to professional fees will be relatively small. In Income Tax it will be larger.
The Solicitor-General dealt with this as a matter of principle. If so, the same principle should apply to both. I should like to know how he is to distinguish between the contribution of professional fees incurred on the £300 million fund, and professional expenses for advice on Income Tax matters. Unless he can distinguish between those two I do not 1694 think any argument of principle put forward holds water. This is a matter we are quite competent to decide for ourselves, without the assistance of any committee, however eminent. [HON. MEMBERS: "Divide."] I should like an answer. It is a straight-forward point, and I think the Solicitor-General should answer it.
§ Mr. Macpherson
In view of the attitude the Solicitor-General has taken, and in recognition of the fact that he has undertaken to lay this before the Tucker Committee, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.