New Clause.—(EXEMPTION FOR CERTAIN CHARITABLE ORGANISATIONS.) (Hansard, 16 July 1957)

§ Mr. McKay
I beg to move, That the Clause be read a Second time.
In Northumberland, particularly in the mining villages, it is the custom to have organisations set up for the special purpose of helping old people at Christmas and also to give them a free treat in the summer time. There has been a general feeling in the county—and I think that the same applies to the whole of Durham and probably to nearly all of the mining areas—that there was no necessity for such organisations to take any action so far as the tax law was concerned.
They have gone on obtaining funds for these special purposes, never expecting that they might, in certain circumstances, have to pay Income Tax. Recently however, in one part of my constituency, where one of these organisations had been set up for the special purpose of giving treats to aged people and also for providing trips in the summer time for old people and school children, the Income Tax authorities found that there were times when it was getting interest on money deposited in the bank which had accumulated largely as a result of the miners in the villages having contributed regularly by means of a levy on their wages for these objects.
Naturally, the organisations which are arranging for these trips and treats deposit the money in the bank until the time arrives when these trips or special 1037 treats take place, and the interest accumulates. In this case the Income Tax authorities went back six years and are taxing this small village organisation £22. The whole of the money had been obtained in the way that 1 have described. There is no doubt that the whole of the work has been on a voluntary basis, that the money has been voluntarily contributed, and that the objects are entirely charitable.
It appears, from what I have been told by Income Tax officers, that the reason the organisation was taxed was that it had no rules and regulations and had not been registered, and on those grounds it was not exempt from tax. The Income Tax authorities are apparently pressing the fight and insisting that the £22 must he paid. It may be said in reply that there is no doubt that if the organisation had taken the necessary trouble it would be recognised as a charitable organisation and be free from tax. The whole point is that, to keep within the regulations, as I understand it, the organisation has to be registered, proper rules have to be drawn up, trustees must be appointed and a certain rigmarole has to be gone through.
People concerned in these local charitable organisations are not considering the law. They know what they are doing, which is simply trying to help old people and young children, and no one dreams that there is any possibility that, because people are putting a little money aside pending the arrival of the date for the various treats, the money will accumulate interest and be liable to tax.
My object is to draw attention to this case and also, if possible, to have the position made more flexible, in the sense that there should not be imposed upon these little charitable organisations the necessity for drawing up regulations, being registered, appointing trustees and so on, all in legal fashion. There are hundreds of such organisations in Northumberland and Durham, and I have heard of very few which have gone through the process of registration. Many of them, quite probably, would be liable to tax if the whole thing were investigated. Yet such a consequence would be against the whole principle of the general law itself, which exempts charitable organisations from Income Tax.
1038 I want the matter to be ventilated, and I want the Government to look at the matter with a view to making the requirements sufficiently elastic, so that, even when a little charitable organisation has not gone through all the legal processes, a liability to tax should not be imposed when the authorities are satisfied that, in reality, it is entirely a charitable organisation.

§ Mr. Norman Dodds (Erith and Crayford)
I beg to second the Motion.
Anyone who has heard the speech of my hon. Friend the member for Wallsend (Mr. McKay) must be rather puzzled and, if what he says is true, shocked that such a thing could occur. As my hon. Friend has indicated, there are men and women who want to help others less fortunate than themselves. Some of these people, out of their goodness of heart, are prepared to give up a great deal of time for that object, but the majority of them do not understand the law and cannot be bothered with trivialities of the sort described by my hon. Friend. It is to be expected in our present state of society that there must be rules and regulations, but there can be occasions when these things are carried too far.
I have known my hon. Friend long enough to realise when he has a good case and when he is deeply disturbed, as he is about this matter. If what he says is correct, this sort of thing may apply at any time to any similar organisation. Therefore, in seconding the Motion, "That the Clause be read a Second time," I ask the Government to give an explanation which will remove the doubts and fears of all who are concerned to see charitable work of this kind maintained and developed in our country.

§ Mr. Powell
The terms of the proposed new Clause cover many types of purpose, some of which, I am advised, might well be charitable and thus exempt from tax under the law as it stands, some of which certainly never have been held to be charitable and so exempt, and some of which have probably been held to be charitable until the famous decision known as Baddeley v. Commissioners of Inland Revenue about two years ago, the effect of which was to show that certain activities, including the promotion of moral, social and physical wellbeing and the provision of facilities for social and physical training and recreation, 1039 were not, as they had hitherto been supposed to be, charitable.
Since that decision, a great deal of study has been devoted to putting the law regarding charities on a more definite and satisfactory basis. It is fully recognised by the Government that the situation could not possibly be left in the situation in which the Baddeley case left it. It is, however, a most complex and difficult subject which must be treated as a whole. I was able to tell the House two or three months ago that good progress was being made and, although I could not, and still cannot tonight, announce the Government's conclusions, the work is nearing completion.
I must, therefore, advise the House that, until we can deal with the problems of the definition of "charitable purpose" which draw with them the appropriate tax treatment as a whole, which we can do only in the light of the Baddeley decision and as a legislative act, it would be quite wrong to take particular aspects, however deserving—I have no dispute with the hon. Member for Wallsend (Mr. McKay) about that—

§ Mr. Dodds
Would the hon. Gentleman say that, in the meantime, until the matter is decided, the tax authorities will be asked to be very reasonable, particularly in the kind of case referred to by my hon. Friend the Member for Wallsend?

§ Mr. Powell
Of course, the tax authorities must administer the law as it is made known at the time, and there are very narrow limits within which they can and, indeed, ought to exercise discretion.
As I say, this is a subject which requires to be looked at and treated as a whole. I must, with some regret, advise the House that, until that is done, it would be wrong to take certain aspects of it, however meritorious, and deal with them in isolation.

Mr. H. Wilson
I am glad to hear the Financial Secretary address himself in that spirit to the purpose of the new Clause moved by my hon. Friends the Members for Wallsend (Mr. McKay) and Erith and Crayford (Mr. Dodds). Clearly, there is a very strong case for something to be done. It is quite undesirable, and 1040 outside the intention of Parliament, and, I am sure, outside the desire of the Board of Inland Revenue, that cases of this kind should attract Income Tax. But, as the hon. Gentleman says, the Board of Inland Revenue has to administer the law as it understands the law to be. The only real substantial challenge on the point was settled in a way which, as he fairly says, leaves the law in a most unsatisfactory state. It is good to hear that the work is nearing completion and that something will, perhaps, be done certainly not later than the next Budget, whenever that may be.
I hope that my hon. Friend will meanwhile, if the Treasury is agreeable, seek the advice of the Treasury, which will, I know, be helpful on this point, to see how the liability under the law of the organisation to which he referred might be mitigated. We had a debate last year on the question of the taxation of small lotteries run for charitable purposes, of football pools for football club supporters' clubs, political bodies and, above all, church and educational bodies and charities. On that occasion, the Solicitor-General, if I remember rightly, was very helpful in saying that there was a way round liability for Income Tax. He was not sure whether it was his duty as Solicitor-General to advertise the fact in the House, but on that occasion he did tell us about it. I am sure that, if his speech—delivered, if I remember aright, on 10th July last year—is studied, the sponsors of this kind of organisation might find that it was possible to put themselves outside the tax jurisdiction.
In addition, as the House will be aware, very largely as a result of that debate last year, the Board of Inland Revenue has made new regulations bearing on the position of charitable and other small lotteries, football pools and so on. I have, in fact, drawn the attention of my hon. Friend the Member for Wallsend to the announcement made by the then Chancellor of the Exchequer on 14th December last year in a written answer to the hon. Member for Southampton. Test (Mr. J. Howard), pointing out that, by a rearrangement of some of these schemes, any taxable profit—it is rather silly, really, to call it taxable profit—any surplus which has possibly attracted tax could be reconstituted so as to form a donation.
1041 8.0 p.m.
I am sure that if my hon. Friend and those who have inspired him to introduce the Clause were to seek the advice of the Treasury, they could probably be given advice about how to conduct their affairs in such a way as not to attract tax on something which, I am sure, the Chancellor does not to wish to attract tax, until the day, referred to by the Financial Secretary, when the Treasury is in a position to present new and more radical changes in the tax law. It would be wrong, I am sure my hon. Friend would agree, to try to prejudice the whole reconsideration of the law affecting charities on this one case. I hope, therefore, that my hon. Friends will accept the assurance which we have been given by the Financial Secretary.

§ Mr. McKay
I hope that the Financial Secretary will look into the case which I have mentioned, of which his Department has particulars, and I trust that he will have some influence in getting the demand withdrawn. In the circumstances, I beg to ask leave to withdraw the Motion.