§ Mr. Maudling
I beg to move, in page 45, line 19, to leave out subsection (4), and to insert:(4) Where an accounting period of a body corporate begins before but ends within the first of the standard years, and another accounting period of that body begins within but ends after the other standard year, the fact that sufficient accounts are available as to the part of one of those accounting periods which falls within a standard year shall not be treated under subsection (3) of this section as a special circumstance affecting any apportionment of profits or a loss for that accounting period unless the accounts were drawn up before the end of the year nineteen hundred and fifty-one and sufficient accounts so drawn up are also available as to the part of the other accounting period which falls within a standard year:Provided that where the standard years are not consecutive years this subsection shall apply to each standard year separately as if all the references to a standard year referred to it.The purpose of this Amendment is quite a simple one. It is really consequential on the fact that instead of a single period for the standard period, the periods of 1947, 1948 and 1949, companies are being given the opportunity of choosing 1947 and 1949. The main purpose of Clause 39 is to cover the position where an accounting period of a company overlaps the calendar year on which the standard period is based. What happens when the accounting year runs from, for example, June, 1946, to June, 1947. and again from June, 1948, to June, 1949? 809 There is an overlap at either end of the single period.
Now when a company can choose as a standard, in a single consecutive period of three years, any two years with an interval in between, namely 1947 to 1949, there are overlaps which will be treated in exactly the same way by the Amendment, as overlaps at the beginning and end of the consecutive three-year period were treated in the original Clause. In fact, this Amendment is consequential upon the alteration of the standard of years.
§ Amendment agreed to.
Mr. H. Wilson
I beg to move, in page 45, line 30, at the end, to add:(5) Notwithstanding anything previously in this section contained, a body corporate an accounting period of which begins before but ends after the first day of January, nineteen hundred and fifty-two, and which establishes to the satisfaction of the Commissioners that, owing to trading conditions peculiar to the industry in which the body corporate is engaged, its profits in respect of that part of its said accounting period which began on the first day of January, nineteen hundred and fifty-two (herein referred to as the nineteen hundred and fifty-two period), as computed in accordance with subsection (1) of this section would be less by not less than thirty per cent. than its actual profits in respect of the corresponding period in the year nineteen hundred and fifty-one, shall be entitled to elect that in respect of the nineteen hundred and fifty-two period its liability if any to the excess profits levy shall be charged in respect of its actual profits computed as aforesaid in the nineteen hundred and fifty-two period:Provided that this subsection shall be of no effect in any case in which the result of its application would or might be that the liability to the excess profits levy or to any other tax of that body corporate or of any other person would be greater than if this subsection had not been enacted.I and my hon. Friends are concerned, not with the determination of the standard period, but with the position in the current accounting period. I hope to be able to put the point briefly to the hon. Gentleman. He will be aware that the accounting period of many firms does not coincide with the calendar year. I will take for illustration firms whose accounting period ends on 31st March, though the argument applies equally to firms whose period ends on 30th April, or on any other date in 1952.
In the Bill as it now stands the calculation of the firm's profits for the calendar year 1952 is made partly by reference to a proportion of the accounting period 810 ending in 1952. It may be in the period ending on 31st March. As I understand the Bill, it will be necessary in estimating that part of the profits to take the quarter of the year ending on 31st March. The hon. Gentleman will be aware, and this has been the subject of debate on earlier parts of the Bill, that there are many firms, especially in the textile and clothing industries, and the whole range of consumer goods industries, whose profit rate for the year ended 31st March, 1952, or at a later period, has been extremely varied.
In the earlier part of the year they were perhaps making profits which were in excess of the standard based on the three years, or two years, selected from 1947, 1948 and 1949. But in the fourth quarter of their financial year they may be making smaller profits, or even, in the textile industries, in many cases a loss. It seems to me and to my hon. Friends wrong that a Bill which provides for a levy on excess profits should be based on the calculated excess profits for the calendar year 1951, and not on the real figures. What we have in mind is an attempt to provide some sort of option for a firm which can say that in the first quarter of 1952 it is doing badly for reasons outside its control.
One can see the practical difficulties and objections immediately. The hon. Gentleman may say that few firms will have an account covering the actual period of the first quarter of 1952, or the first half of 1952 for firms whose accounting period ends on 30th of June. But I can assure him that many firms took the Chancellor of the Exchequer seriously when he made his original announcement about the Excess Profits Levy on 6th November. He announced that this Levy would operate from 1st January, and many firms thought that that might mean that he would base his Levy on the actual earnings from 1st January and not on some calculated figure.
I do not know if it is the majority. But very many firms did actually close their books in order to take a quick record of the position on 31st December, 1951. Many had a stock valuation, which was of course essential to establish the trading position of the firms, and I would say, that many, especially those whose profitability varies, are in a position to 811 show their accounts for the first quarter of 1952.
It may be that the right hon. Gentleman will recognise this as a valid point. I think some concession would have to be made to satisfy all that the Chancellor has said about charging excess profits in 1951, profits due to re-armament and so on. It may be that he will say that the Amendment is not in the right form. We would prefer a simple option and to be able to say that a firm may select, instead of one quarter of the actual profits over their accounting period, the actual profits for the first calendar quarter, or whatever period is involved.
The reason why we did not put that in the Amendment is because of the seasonal problem. There are many firms whose profits vary over the year between one period and another—perhaps ice-cream firms, unless they have a lucrative sideline, which have lower profits in the winter than in the summer. It may be argued that firms which had a stock valuation on 31st December, 1951, did not do so on 31st December, 1950. That is a valid argument, but I am sure that most firms would be in a position to make a statement to the Commissioners which would be sufficient and satisfactory to take advantage of the Amendment.
It may be that the right hon. Gentleman is prepared to accept the principle —I hope he is—but may want to look at the drafting: I am sure that my right hon. and hon. Friends would understand that. But I do suggest to the Committee and to the Chancellor that there is an important point of principle here and that many firms which have been caught by the slump in the consumer goods industries will be treated badly if, in fact, they have to take a quarter of their actual earnings over their accounting period instead of the actual earnings in the first quarter of the year.
§ Mr. Maudling
The right hon. Gentleman is on a good point here, and the reason why we do not accept his Amendment is because, as I hope to show, it is unnecessary. The problem he expounded is that if one has an accounting period overlapping the beginning of the excess profits period at the beginning of January one might find a substantial fall in the first three months of 1952, and if one has to take the average and 812 the first quarter as being the profits in the first calendar months of the year one might be charged on more than the profits earned.
I am assured that firms which have accounts available as at 31st December, 1951, with proper stock figures and so on, will be able to treat that actual profit for the first three months of 1952 as the basis for the Excess Profits Levy assessment, If they can produce the actual figures, that will be the "special circumstances," in the words of subsection (3), and the averaging position, which as the right hon. Gentleman rightly says would in some cases be quite unfair, would not apply.
The right hon. Gentleman referred to the question of seasonal trades, and there is a point there. People who have a low trade at one period of the year and a higher trade at the other period may want to take their actual profits for the first quarter and the average in the last quarters of the chargeable period.
It may be that it will be necessary at the end of the E.P.L. period to see that people who have chosen to be taxed on their actual profits and not made subject to a calculation for a broken period at the beginning of the E.P.L. period will also have to be charged on the actual profits and not on the average period. That will get out of the difficulty of seasonal trade. We do not think that this Amendment is necessary, because I can assure the right hon. Gentleman that where a proper account, made up as to the 31st December, 1951, can be produced, and where definite figures can be given for trade during the first quarter of this year, then the averaging provision will not apply. I hope the right hon. Gentleman's points have been fully covered.
I am very much obliged to the hon. Gentleman for his reply. Am I right in saying that a firm which is in a position to produce satisfactory balance-sheet results for the first quarter, taking a particular time for any calculated chargeable figure for the calendar year 1952, can take the actual figure for the first quarter and three-quarters of the next 12 months for the remaining part of 1952?
§ Mr. Maudling indicated assent.813
The purpose of our Amendment was to give the firms I have described the option of using the actual results instead of the calculated results for the first quarter. I am not sure if the Clause to which the hon. Gentleman referred does, in fact, give firms that option, or whether it is entirely at the discretion of the Commissioners. I think it is an important distinction and, if it is to be at the discretion of the Commissioners, we should know in what circumstances the discretion would be exercised. The hon. Gentleman said that if a firm can produce actual figures instead of calculated figures, it can use those figures instead of the calculated figures. The way he put it suggested, I think, that there was an option at the disposition of the firm, but from the way the Bill is drafted it would appear that it is entirely at the discretion of the Commissioners. That is a point which should be cleared up.
§ Mr. Nabarro
We have had this point in principle on several occasions before. The Profits Tax was introduced on the first day of the calendar year and the whole question of split chargeable accounting periods arises on that occasion. Can the hon. Gentleman say whether there are any difficulties in splitting the chargeable accounting period for assessments of Profits Tax for previous years? If there is not any difficulty about the figures, why need there be any difficulty on the assessment to E.P.L. from the January 1st?
§ Mr. Maudling
The governing factor in this matter is the decision in the case of Jenkins Productions, Ltd. v. the Inland Revenue Commissioners (1944) (I. ALL. E.R. 610; 29 T.C. 142), where it was held that if the taxpayer was able to produce an account for a broken period, even though he did not normally make up his accounts on that basis, the existence of the special account of itself must be regarded as a "special circumstance."
In other words, the taxpayer should be able to claim for that period and base his accounts on actual profits. It must be shown that the actual account was produced at the end of 1951, not accounts produced now or estimates made now. In these circumstances, the taxpayer should be able to claim that he should be treated in that way.
§ Sir F. Soskice
The answer is not quite satisfactory, because the hon. Gentleman started by accepting the case on its merits. He said that my right hon. Friend was on a good thing. In other words, he conceded that the case on merit is made out, and that therefore if any provision is necessary to answer it, that provision should be made in the Bill. Then he goes on to say that no provision is necessary.
He must have in mind Clause 39 (3), which undoubtedly is a discretionary Clause. It gives the Commissioners a discretionary right. He calls attention to a case decided in 1944, before this Bill was even introduced. The whole point of my right hon. Friend's Amendment—to which I have also appended my name—is that it is designed to give the company in question, which can satisfy the requirements as to proof, a positive right to elect.
There is a big difference between giving a company a right to elect and giving it simply a hope that the Commissioners will, in their discretion, decide in its favour. They are not bound to decide in its favour. It may be they are bound to consider circumstances of a particular kind, special circumstances within the meaning of subsection (3). Even if there is a special circumstance the Commissioners still have discretion to exercise, and they must still exercise that discretion; and if there is a special circumstance under the plain provision of subsection (3), they are still not hound to give the company the remedy it seeks.
It seems an illogical position, if the hon. Gentleman says that the case is proved on its merits, that he should then hesitate to provide, by accepting the Amendment, that the company should be given the right that corresponds to these merits, and try to say that the company is sufficiently met if it has merely a hope that the Commissioners will agree with the view it puts forward. There is a fundamental difference between the Amendment and subsection (3). I press the Parliamentary Secretary to reconsider this point.
§ Mr. Maudling
I assure the right hon. and learned Gentleman that, where these accounts can be produced, most assuredly the taxpayer will be given the opportunity of basing his tax liability on the actual 815 profits in that period. I will see if that is not covered by the actual wording in the Clause. But the Amendment itself is by no means satisfactory as it stands, because it only gives the taxpayer this right when profits have fallen by so much as 30 per cent., whereas, as I understand it, the taxpayer will get this if profits have fallen by less than that. So it may be said that the position is more satisfactory as it is than it would be under the proposals contained in the Amendment.
§ Sir F. Soskice
Does not the hon. Gentleman appreciate that if the profits have fallen by less than 30 per cent., with the Amendment in its present form, the taxpayer could still apply to the Commissioners to exercise their discretionary powers? It is not as if the Amendment takes any right away from the taxpayer. He can still ask for relief under subsection (3). The Amendment says that if there is a fall as big as 30 per cent. the company has a right which cannot be withheld from it.
The hon. Gentleman must surely know that he cannot control the Commissioners in the exercise of their discretion. If the Commissioners are given a discretion to exercise, it is their duty to exercise it, whatever the hon. Gentleman may say with the best will in the world, and he cannot control them.
§ Mr. Gaitskell
Can we have an answer from the Parliamentary Secretary on that? My right hon. and learned Friend has made the position quite clear. There is all the difference in the world between the discretion which the Commissioners have under the Bill as it stands, and the right which, under my right hon. and learned Friend's Amendment, the firm would have itself to choose between the alternative methods of calculating its liability. It may well be that there are drafting faults and deficiencies in the Amendment. That is very often the case. but if the hon. Gentleman would give an undertaking that between now and Report he will consider this point, and meet us fully so that the firm has the right, and it is not merely left in the hands of the Commissioners, then my hon. Friends may be prepared to withdraw the Amendment.
§ Mr. Maudling
I think we have the same object in mind. I did believe it 816 was covered by the Clause, but certainly, in the light of the weighty opinions expressed, I will look at the drafting and see if it can be improved.
§ Mr. Mitchison
I should like to hear from the Solicitor-General on this. It appears to be a matter of law from Jenkin's Ear onwards. It appears to be a matter well within the cognisance of the Government beforehand. Cannot we have an authoritative exposition from the Solicitor-General?
Mr. H. Wilson
I should like to ask the Parliamentary Secretary another question, apart from the assurance which we think he has given. I may not have heard him accurately, but I think he did refer to the necessity, if this Clause is to be invoked, of actual returns being available already for the period ending 31st December which will enable, by a simple process of subtraction, the firms to give the figures for the first quarter of 1952. But I was not quite clear when he introduced that qualifying clause in his remarks.
For instance, take the case of a typical textile firm which might have at the end of December valued stocks—and certainly they would be valued downwards—and which takes out all the necessary figure for the preparation of accounts which they do not actually publish or produce a completely audited set of accounts for the period up to 31st December. Many firms did this last December. The accounts would not be audited as at 31st December, but they would have the figures vouched for. I take it if these figures were accurate at that time they could be assembled, audited and submitted. If that is the position, then in view of the assurance given by the hon. Gentleman that he does accept the principle of the Amendment and is prepared to look again at the question of the discretion of Commissioners, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
§ Mr. Grimond
May I ask the Parliamentary Secretary whether it will be possible to give any assistance under this Clause to firms which are making profits by new processes? I think he will 817 probably agree that if it could be done it would be desirable. They are, of course, the typical expanding firms we are all anxious to help. It might be done by a deduction in the computation of their profits of a percentage of any profit made by the sale of goods manufactured by a new process or under a new patent. It might be possible at least to make such a deduction in cases where the patent has been sealed. I think there are objections to that particular suggestion, because there will be some processes for which patents have not been taken out and which will be difficult to identify.
I know that the Parliamentary Secretary has given some thought to this matter, and he may be able to suggest some other way in which these firms could be assisted. They are the typical firms which need a proportion of their profits to build up their businesses, and which are perhaps seriously affected by the levy, even with the concessions granted by the Chancellor.
§ Mr. Maudling
My right hon. Friend gave careful consideration to the suggestion in the Amendment standing in the name of the hon. Gentleman, but after all the concessions he has made, designed to assist developing companies, it would not be possible to adopt the suggestion of the hon. Gentleman for one outstanding reason. That is, that if a concession were to be given in the case of a patent, there would be many other equally good claims.
§ Mr. Percy Wells (Faversham)
It is one of the consolatory features of debates on the Finance Bill that from time to time attention should be drawn to the masterpieces of erudite and recondite drafting which distinguish this Measure each year. If one looks at Clause 39 (1) it will be seen what an achievement has been reached this year. The Clause says:
"Subject to the provisions of this Act and, in particular, to the provisions of the Eighth Schedule to this Act, the profits or loss of a body corporate "—
§ Mr. Wells
In my submission, Sir Charles, one cannot look at this Clause without referrring to the Eighth Schedule to see the meaning attached in this Clause 818 to the purposes given to it. Therefore it is necessary, by way of definition, to look at the Schedule. If one looks at that, hoping that here at last one will find something easy and simple for the taxpayer to follow, one finds in paragraph 1:
"The profits or losses shall be computed without abatement and including franked investment income, that is to say, as if subsections (1) to (3) of section thirty- three of the Finance Act, 1947 (which provide for an abatement of profits for"—
§ Clause, as amended, ordered to stand part of the Bill.
§ Mr. Gaitskell
I beg to move, "That the Chairman do report Progress, and ask leave to sit again."
We have made considerable progress this afternoon and evening, and we have covered in all eight Clauses, including the greater part of the major Amendments proposed by the Chancellor. Apart from a brief, regrettable interlude, which was happily brought to a conclusion by the intervention of the Chancellor, we have had harmonious and constructive debates. In the circumstances, I hope the Chancellor may feel that we might adjourn for the evening.
§ Mr. R. A. Butler
I should like to have an interchange with the right hon. Gentleman on this matter. I think it would be reasonable to go on to our usual hour of 11.30, which might enable us to get another Clause at least. However, without wishing to inconvenience the Committee, I should like to ask him whether we could, by arrangement on either side of the Committee, retain the hon. Members who are interested in these subjects and finish the business Amendments; without wishing, of course, to go any further with the Schedules. We have Monday and Tuesday before us and all the new Clauses in which hon. Members take a great interest, as well as the new Clauses on the Excess Profits Levy, and these very difficult Schedules.
As we have to get the Bill before Whit-sun if we are to give time for the Report stage and fulfil the terms of the Act under which financial business is carried on, we are working to a time-table. I do not want to be unreasonable. If the right 819 hon. Gentleman thinks that that arrangement would not work, I sugest that we should continue until our usual hour. If he thinks that the arrangement would work, and as these are purely business matters, we could sit for another hour or so and finish the Amendments and let those who are not experts in these business matters go. I think that that would be a reasonable arrangement. If that will not work, then the right hon. Gentleman must say so, and we must go on until our usual hour.
§ Mr. Gaitskell
The right hon. Gentleman is, as usual, most courteous. There is a considerable difficulty about his proposal. He describes these as business Amendments, meaning, I suppose, that they are not controversial in any way and that we can merely talk them over and come to some agreement on them. Sometimes that is the case but, unfortunately, it is not always so. There are some Amendments here which we could not treat as purely business Amendments. They are of considerable concern to a number of hon. Members and they cannot be left, even if it were right that they should be, to a small group of experts. If we do not get satisfaction on them we might wish to divide the Committee.
In the circumstances, therefore, I suggest that we proceed until 11.30. I do not think my hon. and right hon. Friends would object to that. We think that the proposition that we should go on as a small group, letting everybody else go home, is not feasible in the circumstances. I am sorry. In the circumstances I beg to ask leave to withdraw the Motion.
§ Motion, by leave, withdrawn.