§ Amendments made: In page 105, line 2, after "elects," insert" paragraph (a) of."
In page 105, line 3, after "paragraph," insert:
and the corresponding part of paragraph (c) of that sub-paragraph."—[Mr. Maudling.]
§ Mr. Maudling
I beg to move, in page 106, line 1, to leave out from "If," to the second "the," in line 3.
1508 When my right hon. Friend saw this Amendment in the name of my hon. Friend the Member for Altrincham and Sale (Mr. Enroll), he decided to accept it, and also placed on the Paper the Amendment in page 120, line 23, to leave out paragraph 5, which is consequential.
The effect of these Amendments is, briefly, that a taxpayer is given the right to elect whether the annual allowances in connection with mines and oil wells should be taken into account or ignored for the purposes of the E.P.L. As the Bill stands, the taxpayer has to exercise the right of election within 12 months of the end of the first accounting period, and these Amendments give him the right of election within 12 months of the end of the E.P.L. period. As the Bill stands, the taxpayer is asked to make what is rather a leap in the dark, and we consider that 1509 it would be fair to him that we should accept this Amendment, and that in page 120, line 23.
§ Amendment agreed to.
Further Amendment made: In page 106, line 11, at end, insert:
(3) An election under sub-paragraph (2) of this paragraph shall be made either—
§ Mr. Maudling
I beg to move, in page 106, line 15, at the end, to insert:5.—(1) Where the standard profits for a full year of a body corporate whose trade or business consists wholly or mainly in the ownership or operation of ships fall to be calculated by reference to its profits for the standard years, and in computing those profits a deduction is made under paragraph 1 of Part I of the Eighth Schedule to the Finance Act, 1947, on account of any annual allowance made for income tax purposes in respect of any of its ships, then if—
an additional deduction shall be made under the said paragraph 1, in computing the body corporate's profits or loss for that chargeable accounting period, of an amount equal to the difference between the deduction (if any) so made in respect of that ship and the deduction which would have been so made in respect of that ship but for the operation of the said 1510 paragraph (6) or the said section two hundred and eighty-eight:
- (a) the body corporate has made an election under paragraph 2 of Part I of the Sixth Schedule to the Finance Act, 1949, or section two hundred and eighty-two of the Income Tax Act, 1952 (which provide for an alternative method of calculating annual allowances); and
- (b) by reason of the operation of paragraph (6) of Rule 6 of the Rules applicable to Cases I and II of Schedule D or of section two hundred and eighty-eight of the Income Tax Act, 1952 (which restrict the making of annual allowances) any deduction which, in computing the body corporate's profits or loss for a chargeable accounting period, would otherwise fall to be made as aforesaid in respect of that ship is not made or is reduced,Provided that—
- (i) where the deduction made in respect of that ship in computing the said profits for the standard years is itself reduced by reason of the operation of the said paragraph (6), the additional deduction shall be reduced in the same proportion; and
- (ii) where the body corporate has made an election under paragraph (a) of subsection (4) of section thirty-six of this Act, the additional deduction shall be calculated, under the preceding provisions of this paragraph, as if the year specified in the election were not a standard year and shall then be halved.(2) In relation to a body corporate which is a member of a group within the meaning of the Twelfth Schedule to this Act, the reference to this paragraph to an election under paragraph (a)of subsection (4) of section thirty-six of this Act shall be construed as a reference to an election made under paragraph (a) of sub-paragraph (4) of paragraph 9 of the said Twelfth Schedule and the first reference in this paragraph to its profits for the standard years shall be construed as a reference to its share in the composite figure determined under sub-paragraph (1) of the said paragraph 9.Although this Amendment appears long and complicated, it deals only with a relatively narrow point, but one which is of great importance to the shipping industry. My hon. Friend the Member for Bodmin (Mr. D. Marshall) has pointed out that their depreciation allowances are normally calculated on what is known as the "straight line" basis and that, in the case of the shipping industry, there are a number of valuable ships whose depreciation allowance might wholly expire in between the beginning of the standard period and the end of the chargeable period. In such cases obviously the shipping company concerned might be called upon to pay Excess Profits Levy merely by reason of the fact that the depreciation charge on a particular ship had expired in the interim.
This Amendment proposes that in the chargeable period the same depreciation allowance shall be given in the case of a ship with depreciation on the straight line method as is given in the standard period, thus ensuring a proper comparison between the profits of a standard period and the profits of a chargeable period.
§ Amendment agreed to.1511
§ Mr. Maudling
I beg to move, in page 107, line 18, to leave out "the standard period," and to insert "a standard year."
This Amendment is consequential upon the change in the standard period whereby, instead of having a consecutive period of three years, there is to be a choice of two out of three years.
§ Amendment agreed to.
Further Amendment made: In page 109, line 10, after "year," insert:
and as if for 'two years' there were substituted ' one year'."—[Mr. Maudling.]
§ Mr. D. Marshall
I beg to move, in page 109, line 13, at the end, to insert:(iii) a body corporate whose trade or business consists wholly or mainly in the ownership or operation of ships, may within twelve months from the commencement of the first chargeable accounting period of the trade or business or such longer period as the Commissioners may in their discretion allow, by notice in writing to the Commissioners, elect that the provisions of this paragraph shall apply, notwithstanding that a requirement was made for excess profits tax purposes under paragraph (a) of subsection (1) of section thirty-seven of the Finance Act, 1946, but relief for such purposes was either not claimed by or not allowed to the body corporate in respect of the full amount of the costs of repairs and renewals deferred until after the end of the period for which the excess profits tax was chargeable.This is, by nature, a complicated Amendment, dealing with the deferred repairs in relation to the shipping industry. It conforms more or less exactly to the Amendment that was standing on the Order Paper during the Committee stage but which was not selected, and the alterations are designed only to follow exactly the same form of words contained in the Amendment which the Chancellor has just moved with regard to the shipping industry.
Paragraph 11 of the Ninth Schedule, on page 108 of the Bill, makes provision that expenditure on repairs and renewals during the 10 years from 1st January, 1940, to 31st December, 1949, shall be averaged over those 10 years. During the standard years many companies were undertaking arrears of repair work which was deferred during the war years, with the result that the actual expenditure in the years 1947-1949 was much larger than normally would be the case. Consequently the profits of those standard years would have been artificially de- 1512 pressed; but it must be remembered that the shipping industry, of all industries, was perhaps most affected by those years.
Not only did the ships themselves have to run in the vital needs of this country during the war, so that repairs could not be done at that time, but immediately after the war the repair yards were full, dealing with these very necessary ships in order to get our Mercantile Marine once more on a proper basis, and so the repairs could not be done then. In consequence of that, the actual amount of repairs during that period of years when they were carried out would naturally be excessive.
The point I wish to make here is that during the E.P.T. period nearly all the ships in our Mercantile Marine were either requisitioned by the Government or were operating under controlled rates of freight, so that the industry was subject to either a very low E.P.T. or no E.P.T. at all. In consequence it was only necessary for those companies which were liable to E.P.T. to allocate a portion of their repairs in order to wipe out the E.P.T. position altogether. [Interruption.] This is an important point, and no hon. Member can suggest that in our invisible exports shipping is not a great factor.
I want to point out to the Parliamentary Secretary to the Ministry of Civil Aviation that the effect of paragraph 11 (b) is to exclude those companies which, although still having large amounts of deferred repairs, have not in fact identified them. The Minister may argue that identification of those repairs can now take place; but that is an impossible task because the ship repairers at that time—and it is a long time ago now—in a number of cases did not itemise these amounts, nor apportion these charges so as to eliminate from them the cost of work.
I suggest that if the Minister cannot accept the Amendment which is on the Paper, he can at least assure the House that the principle which this Amendment contains will be agreed by him so that this matter of substance can be adjusted, and the shipping companies in these circumstances can have a choice based on a standard profit from which has been eliminated any charge for repairs in excess of the average.
§ Colonel Sir Leonard Ropner (Barkston Ash)
I beg to second the Amendment.
This Schedule provides mechanism by which profits are to be calculated for the purpose of assessing the amount payable under the Excess Profits Levy. Paragraph 11 of the Ninth Schedule is intended to provide a comparatively simple method of determining the amount which may be fairly charged against the profit of the standard years on account of repairs and renewals. I know that paragraph 11, as it has been drafted, is a genuine attempt to frame a formula which, in its application, will be fair to all concerned and easy to operate. Unfortunately, it does not succeed in this. Unless this Amendment is accepted, special and peculiar difficulties will be faced by the shipping industry.
I think I ought to make it clear that to the best of my belief—perhaps I ought to add, to the best of my understanding—the addition of these words to this paragraph will not cost the Exchequer anything, nor will it have the result of the shipping industry gaining financially. On the other hand, if the Amendment is accepted it will greatly simplify the work involved in determining the standard of profit of many shipping companies. This relief would surely be welcomed not only by the shipping companies but by the already over-worked staff of the Board of Inland Revenue.
The difficulty which it is desired to remove arises from the fact that paragraph 11 (b) as it stands has the effect of preventing many shipping companies from applying the remaining provisions of paragraph 11 because a technical requirement was made for E.P.T. purposes under Section 37 (1, a) of the Finance Act, 1946. It may be said that that is precisely what is intended, but the matter is not so easily disposed of. The reason the shipping industry desires this purely administrative concession will be made clear if I give an example of the sort of difficulties which will arise if the Chancellor cannot accept the Amendment.
Subsequent to the war, the ships of many liner companies were re-converted from troop-carrying to peace-time purposes, and during the process of re-conversion both deferred repairs and alterations and improvements were carried out on these ships simultaneously. At that time and in such cases the cost 1514 involved in respect of deferred repairs was often such a high percentage of the total amount expended on the ships that neither the companies nor the Board of Inland Revenue took much trouble, if any, in assessing the precise amount attributable to deferred repairs.
All that was needed then was to satisfy both the Board of Inland Revenue and the companies that the cost of deferred repairs was sufficient to extinguish E.P.T. liability if such was the case. In extreme cases, but cases which were not uncommon, the cost of the deferred repairs on one ship of a fleet was sufficient to extinguish the E.P.T. liability of all the ships of the fleet.
In the case of a number of ships, therefore, there was no need for the company to give any consideration at all to the question of the separate costing of deferred repairs. There is no doubt that, technically, a requirement was made in all these cases, but it was never necessary to complete the calculations. Even some years ago the calculations would have been extremely laborious, but today they would be even more troublesome, and I honestly think that in a number of cases they would not be possible.
Our proposal would have the effect of extending to shipping companies the opportunities of applying the much simpler mechanism which is defined in paragraph 11.
§ 7.15 a.m.
§ Mr. Maudling
This is a matter of considerable importance to the shipping industry and I will try to explain a complicated subject.
§ Mr. A. C. Manuel (Central Ayrshire)
In view of the length of the Sitting, I should like to move the Closure.
§ Mr. Maudling
Although this Amendment is not acceptable to the Government, the effect my hon. Friends have in mind can be obtained under paragraph 9 of the Ninth Schedule. At the end of the war, many companies found it necessary to carry out deferred repairs over a period of time that included the standard years. Unless some provision is made to write these back into the war period, it may mean an unfair deduction. In cases where application had been made to write these back for Excess Profit Levy 1515 purposes, the adjustment was made for purposes of Profits Tax in the years 1947, 1948, and 1949, and therefore, for E.P.L. purposes, in the standard period.
The difficulty arises where the application had not been made to write these things back, and in these circumstances provision is made in the Bill for a rule-of-thumb method to be applied, and for allowances for repairs granted in the standard period to be apportioned to two-tenths of the total expenditure of the company on repairs over the period of 10 years from the beginning of 1940 to the end of 1949. This rule-of-thumb method has the disadvantage that it may give a concession to the taxpayer larger than he is entitled to ask for, and therefore it is not possible to extend the method to cases where, in fact, a claim has already been made for wear and tear to be written back.
I can assure my hon. Friends that the particular position and problem of the shipping industry in this matter has been called to the attention of the Government, and it can be met under paragraph 9 of the Ninth Schedule, which provides that expenses which are not properly attributable to a particular year can be written back into the year to which they should be properly attributed. That, in fact, would produce the effect my hon. Friends have in mind, and I hope that after the assurance I have given them—that the particular case they have in mind will be considered under paragraph 9 of the Ninth Schedule—they will be prepared to withdraw their Amendment.
§ Amendment, by leave, withdrawn.