HC Deb 26 May 1952 vol 501 cc1052-4
The Solicitor-General

I beg to move, in page 99, line 6, at the end, to insert: (b) half the amount (if any) of any deductions based on, or losses incurred in, any accounting period ending at or before the relevant date (as defined in the provisions of this Act applicable to the body corporate) and carried forward under paragraph (3) of Rule 6 of the Rules applicable to Cases I and II of Schedule D or section thirty-three of the Finance Act, 1926, to the extent that they have not been taken into account in previous accounting periods and do not exceed half the profits (if any) for the accounting period. This Amendment is proposed to meet a position to which attention has been drawn. It is a small point, but one which must be corrected. The Committee will understand that the profits for the purpose of assessing the standard of undistributed profits and over-distributed profits are taken at 50 per cent. to allow for the fact that they bear Income Tax or the undistributed rate of Profits Tax first, which amount together to about that figure. But where losses or unexhausted capital allowances for wear and tear are carried forward into the period for which undistributed profits are to be computed, they reduce the tax payable on undistributed profits to below 50 per cent., and indeed might eliminate it.

It would be unfair to force the concern where that has happened to bear a deduction of 50 per cent. from its profits on account of tax which it has not been liable to pay. This Amendment corrects that anomaly by adding to the half profits for the relevant period half any losses or capital allowances carried forward from any accounting period, ending at or before the relevant date, into the period for which undistributed profits are computed so far as they have not been taken into account in previous periods and do not exceed half the profits as computed for the accounting period.

I hope that I have made the point plain. It is a small point which is certainly most complicated. The Amendment puts the position right in this respect.

Sir F. Soskice

Can the hon. and learned Gentleman give an example Of expenditure carried forward from a previous year half of which is to be computed for this purpose? What type of circumstance has he in mind? Is such a person not in the same position as a trader who, in some instances, is entitled to carry forward from the previous year unallowed expenditure in the year in respect of which the authorities were computing his over-payment or under-payment of Profits Tax? Could the hon. and learned Gentleman not give us an example?

The Solicitor-General

The right hon. and learned Gentleman will no doubt recollect that we have made provision for the carrying forward of losses.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 99, line 38, to leave out "paid," and to insert "borne."

This Amendment deals with a very small point concerning Surtax paid by one-man companies. The point which has been raised is that on occasions, for convenience, the company pays the Surtax on behalf of the member, but recoups itself later out of the dividend due to the member. In that particular type of case, the company has not really paid away its profits to the extent of Surtax charges, and it would not be proper to treat its undistributed profits as having been diminished by that amount. The Amendment, by substituting the word "borne" for the word "paid," makes it clear that, in this type of case, the undistributed profits will not have been reduced by reason of the Surtax paid but later recovered from the member.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 99, line 45, to leave out "eighteen," and to insert: fifteen, or, as the case may be, ten. This Amendment is consequential on the change of the overriding limit from 18 to 15 per cent. and to 10 per cent. in the case of a company with business overseas.

Amendment agreed to.

The Solicitor-General

I beg to move in page 100, line 6, after "Act," to insert: and the paragraph of that Schedule which relates to allowances and charges under sections three, seventeen, twenty-eight and thirty-seven of the Income Tax Act, 1945, or sections two hundred and sixty-seven, two hundred and ninety-two, three hundred and eight and three hundred and eighteen of the Income Tax Act, 1952. This Amendment is consequential on the new paragraph to the Eighth Schedule which has been put down in order that balancing allowances and charges and capital sums received for the sale of patents shall not be taken into account for Excess Profits Levy purposes.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 101, line 14, at the end, to insert: Provided that "net," in relation to share interest paid, without deduction of income tax, by a registered industrial and provident society within the meaning of section four hundred and forty-six of the Income Tax Act, 1952, means after deduction of an amount equal to income tax on the amount of the payment, at the standard rate in force at the date of payment. This Amendment covers a point raised by co-operative societies. Under the Income Tax Acts, they are required to pay their share interest in full without deduction of tax, and this Amendment makes compensatory provisions to ensure that they are not penalised so far as the Excess Profits Levy is concerned in consequence of having to pay interest without deduction of tax.

Amendment agreed to

Schedule, as amended, agreed to.