Third Schedule.—(PROFITS TAX (PROVISIONS CONSEQUENTIAL ON CHANGE OF RATE OF TAX OR OF RELIEF FOR NON-DISTRIBUTION.) (Hansard, 11 July 1956)

§ Mr. H. Brooke

I beg to move in page 58, line 42, at the end to add: 6.—

(1) Where the dividends of a body corporate, unincorporated society or other body which are assignable to any accounting period beginning before the end of October, nineteen hundred and fifty-five, and were declared before the seventeenth day of April, nineteen hundred and fifty-six,—
1. (a) exceed the governing total for that accounting period; and
2. (b) include dividends declared after the twenty-fifth day of the said month of October, and paid after the beginning of the said month of April;
then, notwithstanding anything in paragraph 4 of the Second Schedule to the Finance (No. 2) Act, 1955, the dividends so declared and paid (if the body or society so elects) shall to the extent of the excess—

(i) in determining the gross relevant distributions to proprietors for the chargeable accounting period ending at the end of March, nineteen hundred and fifty-six, be included as a distribution for that chargeable accounting period; and
(ii) in determining those for any other chargeable accounting period, be left out of account.

(2) Sub-paragraphs (2) to (5) of the said paragraph 4 (which define "the governing total" and other expressions) shall apply for the purposes of this paragraph as they apply for the purposes of that.

489 This Amendment deals with a matter of almost inscrutable complexity, but I hope, in a very few words, to be able to make the point sufficiently clear to the House. It follows from the fact that the Profits Tax on distributed profits has twice been increased within a comparatively short time. In this Profits Tax legislation we have the concept of excess dividends, and if this Amendment were not made there would be an anomaly in that excess dividends declared before this year's Budget day for periods beginning before the end of October, 1955, would be treated differently according to whether they were paid before or after the beginning of April, 1956.

If they happened to be paid before the beginning of April, the excess dividend would be taxable at 27½ per cent., and if they were paid after the end of March, the excess would be taxable at 30 per cent. When the dividend was declared it must have been before the Budget day and the company could have no knowledge of the likelihood of the Profits Tax being altered. It seems that this is a clear anomaly. Our attention was drawn to it by a Clause put down in Committee, but not selected, by my hon. Friend the Member for Langstone (Mr. Stevens). I would stress again that this only affects dividends declared before Budget day. There can he no loophole here at all, and I think that it is desirable, if I have made the position sufficiently clear—I do not know whether I have—that in the general interest that the anomaly should be removed.