HC Deb 15 April 1958 vol 586 cc64-6

Next, I come to a considerable reform in company taxation. The Royal Commission on Taxation recommended, and I now propose to the Committee, that the two rates of Profits Tax at present charged by reference to distributed and undistributed profits of a company shall be replaced by a single rate to be levied on the whole of a company's profits.

This is generally agreed to be a desirable reform. Those responsible for the management of industry and commerce have emphasised to me most strongly that it would strengthen the financial structure of industry, improve the supply of capital to firms which need it most, and help to remove distortions in company finance. This will all help in modernising and expanding our industrial system. It will also greatly simplify the tax code and the work of administration. The existing provisions for exemptions and abatements to companies with small incomes will continue.

To maintain the present yield of Profits Tax—about £275 million a year—a flat rate would need to be set at about 10½ per cent. I propose, in fact, to set it at the more convenient figure of 10 per cent. The change will operate as regards profits from 1st April, 1958, the tax on which, broadly speaking, will not be payable until next year. This will cost a negligible amount this year, £10 million next year and £16 million in a full year. After the profits to 31st March, 1958, have been dealt with, the contingent liability for payment of Profits Tax at subsequent distributions or liquidation will cease. This should remove a source of apprehension in the case of companies which have ploughed a big part of their profits back into the business and should enable them to face the future with greater confidence.

I am well aware that, although the yield of the duty will remain broadly the same, there will, nevertheless, be some differences of incidence as between different sections and units of industry. Some that make lower distributions will pay rather more Profits Tax than hitherto. Some that make higher distributions will pay less. Only a few will break exactly even. The Royal Commission was, of course, aware of these effects when it made its recommendation. They are effects which must be faced if we are to change to a system which, I believe, is generally recognised to be sounder in the long run. I consider that they should be faced now.

I propose, at the same time, to give effect to the recommendations of the Royal Commission that all loan or share interest paid by building societies, cooperative societies and all loan interest paid by the nationalised industries should be deducted in computing their profits. These bodies will then pay profits tax at 10 per cent. on their properly computed profits. There will be other consequential amendments of the Profits Tax law; in particular, a provision to protect the yield of revenue in the current year by countering any attempts to allocate normal dividends out of last year's profits which should bear 30 per cent. tax to current periods.