Sixth Schedule.—(TRANSITIONAL PROVISIONS IN CONNECTION WITH INCREASE IN RATE OF PROFITS TAX.) (Hansard, 19 June 1951)

§ Mr. G. P. Stevens (Portsmouth, Langstone)
I beg to move, in page 50, line 8. at the end, to insert: (c) where no dividend has been declared or paid by the body corporate, unincorporated society or other body, for a period of not less than two years before the tenth day of April, nineteen hundred and fifty-one, or where the body corporate, unincorporated society or other body, did not exist prior to the first day of January, nineteen hundred and fifty, any dividend declared by the holy corporate, unincorporated society or other body, not more than six months after the end of a chargeable accounting period ended prior to the tenth day of April, nineteen hundred and fifty-one, and assignable thereto shall be deemed to be a distribution in respect of that chargeable accounting period. 476 I seem to be the last of the Mohicans. Clause 24 of the Finance Bill provides that the rate of Profits Tax in respect of profits earned in any chargeable accounting period ending after 31st December, 1950, shall be at the rate of 50 per cent. instead of at the previous lower rate of 30 per cent. But paragraph 2 of the Sixth Schedule extends that principle considerably further. [Interruption.]

The Deputy-Chairman
Order. I cannot hear what is being said.

§ Mr. Stevens
It provides that if a dividend is declared which shows an increase as compared with the dividend declared in respect of the previous chargeable accounting period, the increase of the dividend from the previous lower rate to the higher rate shall be charged at 50 per cent. instead of 30 per cent., the rate attaching to the chargeable accounting period during which the profits were made. I am sorry if this is a bit complicated.
I wonder if the Chancellor has considered two categories of companies which are going to be severely hit by this Schedule. I refer in the first place to companies which did not exist prior to 1st January, 1950, and therefore could declare no dividend prior to that date, and also those companies which were only just within that period getting on to a profit earning and thus a dividend paying basis. I do not feel that it was the Chancellor's intention that any dividend, however modest, should be taxed at the higher rate. Obviously, where no dividend has been paid even 1, 2 or 5 per cent. does constitute an increase and, therefore, as it stands the 50 per cent. rate will apply. I hope the Chancellor will consider these special cases where no question of upsetting his policy applies in any shape or form and will accept this Amendment.

§ The Attorney-General
I am sorry to say we feel that this is a proposal we could not very well accept. I would begin, however, by saying that in the case of companies formed after 1st January, 1950, paragraph 2 of the Schedule would not operate in any case, because there would not have been time for there to have been a previous accounting period. The excess has to be taxed by reference to a comparison with a previous accounting period, and in the case of a company 477 only formed after 1st January, 1950, there would not have been time for there to have been two accounting periods to be compared with each other.
Where one has the case of a company formed earlier than that which has not in fact paid dividend, we feel the proposal is not a reasonable one because, after all, paragraph 2 only applies in the case of dividends declared after Budget day. If the hon. Member for Langstone (Mr. Stevens) will be so good as to refer to my right hon. Friend's Budget statement, he will see that there is a very clear indication in that statement as to what the position will be with regard to dividends declared after Budget day. It is clearly intimated by my right hon. Friend that the same scheme which had obtained on the occasion of the previous increase in Profits Tax was to be reproduced. In other words, a charge would fall on dividends declared in excess of a previous period after Budget day.
In those circumstances, those companies that declared dividends after Budget day did so in the full knowledge of the tax consequence which must ensue if a dividend is declared in excess of that in what is described as the previous chargeable accounting period. We feel, therefore, that there is no case for asking for what is a special tax exemption when they knew perfectly well the tax consequence would be an increased Profits Tax falling upon dividends declared after Budget day.

§ Mr. Stevens
I do not accept the explanation in any way at all, but owing to the lateness of the hour, and for no other reason, I beg to ask leave to withdraw the Amendment.