§ Mr. Jay
I beg to move, in page 15, line 16, after the first "a" to insert "full."
This Amendment, like all other Amendments, attempts to help the Government and to improve the Bill, but whereas most of the others were designed to improve the policy, this is designed to improve the grammar and the drafting. It seems to us that this part of the Schedule needs a correction of an oversight by the Government and, if they have not committed an oversight, we should at least be clear what is meant by it.
663 This Schedule deals with the repayment of a loan which, when made to the proprietor of a business, was treated as a dividend distribution and thereby attracted Profits Tax. As we understand, the Schedule is intended to refund him the appropriate amounts of Profits Tax when that loan is repaid. So far as we can understand the wording, the Schedule is drafted on the assumption that the loan is always fully repaid in one sum. That is the point at issue. We want to ask the Chancellor, if he is to reply to this not very major matter, what would happen under this wording if a loan were partly repaid and not fully repaid in one sum? Is it intended that there is the possibility of a part refund? If so, how would it be calculated, because it does not appear to us that there is any provision for calculating the part under the Schedule as it stands? Or is there to be no refund of Profits Tax until the whole loan is repaid?
That seems to us to be somewhat obscure, and I hope that the Government will be able to accept our way out of the difficulty. No doubt the Chancellor or the Solicitor-General has one of those briefs saying, "This Amendment must be resisted." I hope that on this occasion they will not accept that, but will apply their minds to our suggestion and finish the discussion by actually accepting an Opposition Amendment.
I am sorry—perhaps I should say that I am glad—that the Financial Secretary is not at the moment with us. I should have hated to see him again standing alone on the burning deck and being unanimously opposed by what we have learnt is a party which is entirely united on all minor matters, including the Budget. However, we are not to see that spectacle, and I hope we shall all finish up in harmony with the acceptance of the Amendment.
§ The Solicitor-General (Sir Harry Hylton-Foster)
I should hate to deny the right hon. Member for Battersea, North (Mr. Jay) any pleasure, but, for reasons which I will give him in a moment, it is not possible to accept the Amendment. I hope to convince him to such an extent that he himself would not desire me to accept it.
664 With regard to the particular question which he raised, Section 36 (3) of the 1947 Act is always construed on the basis that, when part of a loan is repaid, a corresponding proportion of the increased tax due to the inclusion of the loan in the gross distributions is treated, for the purpose of this kind of provision, as the right amount to secure the repayment of tax. That is what happens.
What is wrong with the right hon. Gentleman's Amendment is that it does not do what he desires it to do. It would not have the effect of doing anything at all except of securing that relief would be given at the wrong rate in respect of partial repayment.
I will try to explain the matter very shortly by reference to an example. Let us suppose that in 1953 a company made a loan of £2,000 to a member, and there is a repayment of half the loan, £1,000, after the date in the paragraph, the end of October. That is an easy example. Let us see what happens. The increase in tax there due to the loan was £400, being 20 per cent. at the then rate on the £2,000. An appropriate proportion of half of it would be £200 of tax. If the paragraph applies, we get the right result, because if £1,000 is repaid after the end of October, 1955, one would calculate the gross amount by which one is to reduce the relevant distributions by reference to the then current rate of 25 per cent. if one is taking £200 as the tax equivalent and using the multiple here, the gross relevant distribution would be reduced by four times £200, which is £800, and the tax result is, in effect, to relieve the company of 25 per cent. of £800, which is £200, the right result.
The effect of the right hon. Gentleman's Amendment is that one goes back, as regards a partial repayment, to the old law. The effect would be that paragraph 2 of the Schedule would apply not to a partial repayment but only to a full repayment, and in that case one would have to calculate the rate in relation to partial repayment by reference to the rate current in 1953. The result would, of course, be to give the company an unjust excess of relief, which I know is not what the right hon. Gentleman wants. Therefore, I am compelled to deny him the joy of having his Amendment accepted.
§ Mr. Jay
I am glad to have given the Solicitor-General an opportunity to 665 address us. On this Bill he has not equalled the record put up by some Solicitor-Generals on Finance Bills.
He says that the law, as it stands, is always construed in such a way as to provide for part repayment of these loans. Does he mean by that simply that the courts or the tax collectors construe or interpret the law in some way different from the way in which the Statute actually stands, or does he mean that the construction which he puts upon it is the actual meaning of the words which are, in fact, now the law on the point?
§ The Solicitor-General
I should have to have notice of that question in order to look up the court authority about it, but without hesitation I give the right hon. Gentleman two assurances—one which he would care about and the other which he would not. One is that the Revenue authorities so construe it, and the other is that I myself so construe the Statute in its effect.
§ Amendment negatived.
§ Bill to be read the Third time upon Monday next and to be printed. [Bill 81.]