(1) Where under the provisions of Part I of the Income Tax Act, 1945, a balancing charge is made on any person the amount of additional tax which that person may be required to pay by reason thereof shall not exceed the total sum of the additional amounts of tax for which that person would have been liable if the excess part of the annual allowances which the balancing charge represents had in each relevant year of assessment not been allowed.
(2) For the purposes of this section a balancing-charge shall be deemed to represent an excess of allowance rateably spread over all years in which an annual allowance was made for the writing-off of the asset in respect of which the balancing-charge is imposed.—[Mr. Bell.]
§ Brought up, and read the First time.
§ Mr. Bell (Buckinghamshire South)
I beg to move, "That the Clause be read a Second time."
This is directed to a small, narrow point of law which, I think, does a considerable injustice to a small category of taxpayers. The balancing charge to which the new Clause refers are balancing charges made on a taxpayer when he has written down the assets of an industry by what turned out to be, when the assets were sold, an excessive amount. It is a method by which, as the Committee will be aware, the Treasury seeks to recoup itself. In the case of a limited company which is liable only to Income Tax and not to Sur-tax, the method by which the balancing charge is computed again causes injustice to the company which is the taxpayer; but 1684 where the taxpayer is either a private individual or a partnership, the method of computation imposes on him an injustice which this Clause seeks to remedy.
Depreciation allowances are calculated over a number of years—it may be a considerable number of years—and when the balancing charge is made by the Treasury, it is added to the assessment for the current year. In that way, although relief would be obtained year by year, by depreciation allowances as a relief against Income Tax the excess of allowance is aggregated, and the charge on him is a balancing charge in one single year. The assessment is made up not only of the Income Tax which he has saved by the depreciation allowances, but also charged on Sur-tax, which does not represent anything he ever paid to the Treasury. I think the Solicitor-General will agree that he has no answer on the merits of this Clause. It is a recognised anomaly in the incidence of Income Tax law. The only defence of which I know that could be made of what is a way of levying a fine on the taxpayer by making him pay a sum he is not due to pay is that it would make a lot more work for the Treasury if they had to recoup the balancing charge in the way suggested by the Clause.
The suggestion is simply that a taxpayer should be entitled to appeal against the assessment on the ground that he is being made to pay through the tax more than he has saved by his depreciation allowances. It may seem to be a small matter to some hon. Members. I would, however, remind them that it is not the limited company which is affected, but the small ordinary trader or the small business partnership, who have levied upon them a balancing charge. I know of a case in which a man who was in a modest way of business had a bill for £500 sent to him which he could not reasonably have anticipated unless he had been a chartered accountant and knew of this peculiar anomaly in the law of England.
I hope that the right hon. and learned Gentleman, when he replies, will say that he will try to meet this point, and will not simply say it is going to cause too much work for the Income Tax authorities. I appreciate the force of that argument. This proposal means that they would 1685 have to look back over the assessments of a number of years. But I should like to remind the Solicitor-General that the computation of this balancing charge involves looking back over years of assessments.
Actually, under Section 17 of the Income Tax Act of 1945, which imposes this charge, it is laid down, in sub-section (4) that certain amounts may not be exceeded by the balancing charge. For instance, it may not exceed the amount of any additional deductions allowed to the taxpayer under Section 18 of the Finance Act, 1932; it may not exceed the amount of any relevant exceptional depreciation allowance, and so on. There are many listed. Therefore, a taxpayer may always appeal against his assessment for balancing charge upon the ground that it exceeds those total sums. If he does so, the Income Tax authorities have to look back through their records for all the relevant years to see whether in fact the charge has been computed accurately. That being so, I think it greatly weakens the argument that the Committee ought not to accept this new Clause because it would entail additional work for the tax authorities.
The Solicitor-General may also say that an Amendment roughly on these lines was moved in Committee on the Finance Bill in 1945, and was not accepted by a Conservative Chancellor of the Exchequer, Sir John Anderson. I have read the report of that Debate with some care, and it appears to me that during the Debate the minds of all concerned were rather dominated by the fact that in 1945 we were at the end of a period of war, with very high taxation, and it was confidently expected that taxation would come down year by year, and that therefore the taxpayer might benefit by having these assessments made on him all in one year. But Sir John Anderson did not know then that in a few months an unfortunate change of Government would destroy that confidently anticipated prospect of steadily declining taxation. Therefore, the expected advantage to the taxpayer of having his balancing charge assessed in one year has not been realised so that one of the reasons which prompted Sir John Anderson to refuse the Amendment five years ago does not apply now.
I hope that the Solicitor-General will accept this new Clause, because it may 1686 be that his refusal to do so will imply that he expects that another change of Government is about to take place, and that a period of declining taxation is about to set in. I hope he will accept the new Clause, because it really is not a desirable thing that an admitted and clear injustice should be accepted as a permanent feature of our taxation simply because to correct it would mean some strain upon the staff of the Inland Revenue.
I would emphasise to the Solicitor-General that there is no other method of taxation which is calculated in this peculiar way so as to impose what is really an undeserved charge on the taxpayer. These balancing charges, introduced in 1945, are themselves a refinement of tax extraction. I know that it may well be said that there is a balance to set off, but as all prudent firms write down assets as much as possible, the balancing charges must outweigh the balancing allowances. This is a refined way of extracting the last penny from the taxpayer, and if that is to be embarked upon, should not a little trouble—
§ Air-Commodore Harvey (Macclesfield)
On a point of order. May we have your permission, Sir Charles, to stop hon. Members opposite from giggling and making strange noises while my hon. Friend is speaking?
§ The Deputy-Chairman
There is a great deal of noise; I found difficulty myself in hearing what was being said.
§ Mr. Bell
At least, Sir Charles, I am sure that the Solicitor-General has been listening with his usual courtesy, and I know that, as always, he will give the greatest attention to the points which are being made. I apologise for taking up the time of the Committee—[Interruption]—hon. Members opposite do nothing to help—but this new Clause, which I hope I am moving as briefly as may be, is upon a matter which is of importance, not perhaps to hon. Members opposite, but to a great many ordinary law-abiding citizens who are willing to pay tax but who feel resentment when they get a large bill which represents nothing more nor less than a "kink" in the Income Tax legislation.
It is no joke for a £500 bill for tax to fall on a small business man 1687 because of these allowances which are lumped in the one year's demand, so that he is pushed over the £2,000 level and is expected to pay this large, unexpected sum. I mentioned earlier the man who had sold his business and retired but did not think of this charge which would come along one year later. I know that the Solictor-General will agree that this is something which we ought to cure if we can, and I hope he will say that we are not going to rely on procedural difficulties to prevent action, but that we will really remedy this injustice if it can be done.
§ The Solicitor-General
We have listened to a very careful and full argument on a complicated problem, but I must tell the Committee that I feel that the situation is very much as it was when an almost identical proposal was made in May, 1945, by the hon. and learned Member for Hove (Mr. Marlowe) to the then Chancellor, Sir John Anderson. Sir John, in reply, said that if the proposal were accepted, this would involve an almost intolerable complication; there would be an impossible position if one had to write back the accounts of small businesses and traders for many years, as the proposal involved. It would be an almost intolerable complication to administer.
Although it may be to the disadvantage of a taxpayer to have the whole charge attributed to a single year, it may be to his advantage to have a large balancing allowance attributed to one year. The way the hon. and learned Member for Hove tried to get over the difficulty was to give the taxpayer an option. If the taxpayer has an option to spread back balancing charges and balancing allowances, then one must equally give the Revenue an option to spread back balancing charges and allowances when it suits them, because it is not fair to give an option to only one side and not to the other. The result would be really that the whole thing would become intolerably complicated.
In regard to the whole proposal, I cannot recommend the Committee to accept this Clause, but this is the kind of problem which the Tucker Committee, which is investigating Income Tax, would naturally take into account. I should have thought that, even if it were 1688 at first sight practical to accept this proposal, it would be premature to do so before the recommendations, if any, on this point by the Tucker Committee are known, and for this reason I hope the Committee will agree that this Clause ought not to be accepted.
§ Mr. Bell
Before the Solicitor-General sits down, may I ask him whether it is not a fact that the earlier Amendment to which he referred was one for writing back for six years, at taxpayer's option, the balancing charge for a taxpayer, including limited companies? Is it not a fact that the proposal which I make need only apply to private persons and partnerships, and would therefore apply to a small category of taxpayers and would remedy this grievance with a minimum of inconvenience.
§ The Solicitor-General
Sir John Anderson described the process of writing back the balancing charges as appallingly complicated. It would be still more complicated to write back balancing allowances which this proposal would have to include if it were to be regarded as in any way complete.
§ Question put, and negatived.