HC Deb 02 July 1958 vol 590 cc1377-98

Section twenty of the Income Tax Act, 1952 (which provides for a return of current year's chargeable income under respective schedules), shall be amended by adding a new subsection (5):— (5) Where a person supplies business accounts to support a formal statement, or in lieu of one, the accounts shall be

  1. (a) accompanied by a decalaration signed by the person upon whom the notice has been served as to the accuracy and completeness of the underlying records, and
  2. (b) deemed to be a statement delivered within the meaning of subsection (1) of this section."—[Mr. Houghton.]

Brought up, and read the First time.

Mr. Douglas Houghton (Sowerby)

I beg to move, That the Clause be read a Second time.

The new Clause deals with the signature of business accounts submitted for Income Tax purposes. It proposes nothing elaborate. It is a requirement which seems perfectly reasonable that a taxpayer submitting business accounts for tax purposes should be asked to put his signature to a positive statement covering such major points as that all stock has been included in the stock figure, that the cash takings have been recorded in the books and that the stocktaking has followed some stated method of valuation.

After what was said yesterday by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) about recommendations of Royal Commissions, I am somewhat hesitant in relying upon the fact that this was a recommendation of the Royal Commission. My right hon. Friend said that recommendations of Royal Commissions were not Holy Writ. I am sure that the Committee agrees about that. Even if they were, there would be a disposition in some quarters to ignore them, perhaps especially on the benches opposite.

I remember that last evening, however, the Chancellor turned to the Royal Commission recommendations for most of his case on the unification of the Profits Tax. For this purpose, therefore, I think I shall trim my sails according to the prevailing wind and rely on the fact that this was a recommendation of the Royal Commission. It was one of a number of recommendations made by the Royal Commission to check information, and Chapter 33 of the Final Report of the Royal Commission deals exhaustively with various ideas which were canvassed for putting a check on tax evasion. The recommendation which is embodied in the new Clause is in paragraph 1058 on page 322.

In an earlier paragraph, 1053, the Royal Commission recommended that every trader should be required by law to keep records of his transactions—in other words, to keep simple accounts. Last year I moved a new Clause to implement that recommendation, but it was resisted by the Government. While I regret that decision, I would point out that the present proposal in no way depends upon the acceptance of the other. Many taxpayers already submit accounts in connection with their tax assessment, without any obligation to do so by law. It is a convenient, efficient and satisfactory way in which their liability can be correctly determined. Of those who already submit accounts in connection with their trade returns, some prepare their own, which for convenience I will call home-made accounts, and others go to professional accountants who prepare them in the conventional way.

I do not think it is necessary to dwell upon home-made accounts in this connection, because I believe that where a taxpayer, probably a shopkeeper or a person in a small way of business, keeps his own books and accounts, makes them up and sends them to the inspector of taxes along with the return, the Inland Revenue requires the taxpayer to sign the accounts and probably also to answer quite a number of questions on how they are made up and what sort of books he keeps. The Inland Revenue has no power to require a taxpayer to do anything about accounts unless it uses the powers which are given to it under Section 31 of the Income Tax Act, 1952, which gives the Commissioners of Inland Revenue, but not local inspectors, the power to require the production of books of account. I think there is also another provision under which the Additional Commissioners may issue what is called a precept for accounts in certain cases of appeals, but, normally, the Inland Revenue has no power, and does not exercise any power, to require taxpayers to produce accounts. On the other hand—and quite properly, I think—it does its best to persuade taxpayers whose businesses are expanding, and whose accounts are perhaps bearing obvious signs of being prepared at home, to take proper professional advice and to have the job done properly.

Mr. Stevens

The hon. Member is absolutely right in what he said, but is there not also in practice another sanction which the inspector has when in doubt? He issues an assessment substantially higher than the circumstances may warrant and it is up to the taxpayer to refute the figures given in the assessment.

Mr. Houghton

I freely acknowledge that the Inland Revenue often recommends to the Commissioners that an estimated assessment should be made and that it is frequently of such dimensions as to cause the taxpayer a certain amount of shock. He reacts to that, and the Inland Revenue then may ask the Commissioners to issue a precept for accounts or to use the other powers of Section 31 of the 1952 Act to which I referred.

I will not ask the Committee to dwell upon that, because I am dealing with accounts which are prepared by professional accountants, which bear the certificate of the accountants in proper form and which are submitted to the Inland Revenue, usually by the accountants on behalf of their client for tax purposes. It is those accounts which the Royal Commission recommended should be signed by the taxpayer verifying that the accounts are complete and fully disclose the extent of his business activities. The Royal Commission took the view that it would not be an imposition on taxpayers to require them to do this, that it would be reasonable to do so, and they thought it would be useful as a deterrent against evasion if this rule were introduced.

The Royal Commission put it in quite simple terms. It said: If a certificate cannot be signed, the accounts cannot even be expected to be correct. The Commission went on to say in paragraph 1059: The requirement would have the advantage that it would bring explicitly to the mind of the trader the importance of his records being complete on these points; and considering that according to some of our witnesses a great deal of evasion begins with carelessness and neglect rather than with deliberate cheating, it would tend to protect him before it is too late. By the phrase "before it is too late" the Commission means that he may be under-assessed for a period of years and then he may ultimately be confronted with a heavy liability and a back duty case.

It may be argued that the professional standards and integrity of accountants are by themselves a safeguard against inaccurate or fraudulent accounts. There are at least two accountants in the Committee at this moment, and, speaking for myself, I should be very interested to hear what they have to say about that. The accountant usually certifies that the accounts which he is submitting are true and correct according to the books and records that have been shown to him, and that to the best of his knowledge and belief they represent a true account of his client's affairs. But in the presence of accountants, not to mention business men, I need not dwell on the possibilities of accountants not being in full possession of the facts and figures at the time they draw up the accounts.

This certificate which is asked far would be an additional assurance to the professional man as well as to the Inland Revenue. But I do not want to minimise for a moment the value and importance of what I would describe as the standards of dual responsibility of the accountancy profession—a responsibility to their client and a responsibility to the Revenue. This dual responsibility, in which both the Inland Revenue and the client can rely on the integrity of the professional adviser, is unique as far as my investigations go, in fiscal machinery throughout the world.

Mr. Cyril Osborne (Louth)

Is the hon. Gentleman aware that sometimes accountants' charges are so severe that we are tempted to think that they are charging us more than the Inland Revenue people do?

Mr. Houghton

I am sure that at times there are very frank conversations between taxpayers and their accountants. On the whole, I think it would be difficult to take the view that as a result of that taxpayers are paying too much——

Mr. Gerald Nabarro (Kidderminster)


Mr. Houghton

—or paying more than they ought to be paying, perhaps I should say.

Mr. Nabarro

That is different.

Mr. Houghton

The hon. Gentleman knew in what context I was speaking.

The accounts are part of the statutory declaration of total income, and this statutory declaration of total income is at the very root of our system of self-assessment. The individual return is and always has been the basis of the Income Tax system. I know that its importance in some respects is modified by P.A.Y.E., tax deduction at source, but in this field—that is, of taxation of profits and gains—there is no doubt that the return made by the taxpayer is all-important especially when it is accompanied by a statement of accounts. These accounts are part and parcel of the tax return and should be signed with a suitable declaration, as the return form itself has to be signed by the taxpayer.

5.45 p.m.

That is the case for this proposed new Clause. I think that its acceptance depends upon whether the Committee believes that what the Royal Commission recommended as part of its attempts to check tax evasion will assist in this purpose without imposing an unreasonable requirement on the taxpayer. I cannot honestly believe that there would be any objection to asking a taxpayer personally to sign accounts which are submitted on his behalf. If they are reinforced by the signature of the taxpayer, who has a closer knowledge than the accountant and a heavier personal responsibility for his affairs, then I think it would be an appropriate requirement to impose.

I hope, therefore, that the Financial Secretary will feel able to respond to this fresh attempt on rather new ground to get some of the Royal Commission's recommendations on the Statute Book in the limited time that we have available for discussion of the Finance Bill.

Mr. Diamond

I believe that a responsibility rests on all of us who were here at two o'clock this morning, and who are likely to be here at two o'clock tomorrow morning, to speak very shortly. Therefore, I should like to support strongly, but briefly, what my hon. Friend the Member for Sowerby (Mr. Houghton) has said.

May I make it clear that although in a previous incarnation I had the responsibility of putting forward in this Chamber from time to time the views of the accountancy profession as a whole, I have not been approached by the profession on this occasion and I have not the slightest idea what the profession as such may feel about this Amendment. Of course, the accountancy profession has its own means of approaching the Chancellor and the Treasury direct.

Speaking for myself, as a Member of Parliament with a little knowledge of these matters, I support the Clause entirely because it gives that added sense of responsibility which we should all wish to encourage. This deals with a rather limited section of cases—not the very small trader who prepares his own accounts, for he almost invariably, though perhaps not legally required to do so, signs his own accounts, and if he chooses to prepare his own figures and do his own battle with the Inland Revenue unaided, that is his misfortune.

I doubt whether the Inland Revenue has any complaint at all, having regard to the fact that it will undoubtedly collect more tax from the taxpayer who prepares his own accounts than from the taxpayer who takes professional advice, by and large, assuming them all to be honest and straightforward.

We are not dealing with the larger case of the limited company, where the balance sheet has to be signed by the directors who accept responsibility for the balance sheet itself. We are dealing for practical purposes with the rather limited area of the small trader or professional or business man who has a firm of accountants to prepare his accounts and who in normal circumstances does nothing, so far as the balance sheet is concerned, beyond listening to his accountant explaining it to him, saying as usual, "I do not understand these things. I leave it all to you", and the accountant doing his best to see that it is understood and accurate, and submitting it on his client's behalf.

So far as these cases are concerned, the suggestion is a suggestion of the Royal Commission. The Chancellor has many times in these debates told us that he pays great respect to the views of the Royal Commission, and, I am sure, will do so on this occasion, also. It would do nothing but good that clients should feel themselves more closely associated with the accountant who produces the accurate records. It does not derogate to the slightest extent from the reputation or integrity of members of the accountancy profession that they should have this additional assistance and close relationship between their clients and themselves. It is not asking the client to do too much to say that he is responsible for the underlying record.

It is not like asking him to sign a balance sheet which he necessarily does not understand, although it is well-known to all of us that we sometimes are asked to sign documents prepared by our lawyers many of which are pages long. They get most impatient if we proceed to read them word for word before signing; indeed, none of us laymen could possibly understand the full implications of every legal document which is put before us to sign. We have to accept a certain amount on trust. Why do we go to a professional man if we are not prepared to do so?

I do not think that it is asking too much to impose a new responsibility on the client to sign a statement to the effect that the underlying records are accurate and have been fully produced to the accountant. I think that it would associate the client himself more closely and assist the Inland Revenue in signing such a certificate, because an accountant's certificate is a thing of many colours. An accountant takes the precaution of certifying only what is well within his capacity to certify. I do not think that a certificate of the kind associated with the standard company balance sheet would normally be the kind of certificate which a practising accountant uses in the case of a small trader. He will vary his certificate according to circumstances, and, of course, the certificate itself does not mean everything.

I freely admit that I myself have on occasions invited a client to sign, in addition to my own signature. He has signed a balance-sheet, because I thought it was appropriate in a case like that that he should join with me and, by this act of signing, should identify himself more closely, and have it brought more closely to his mind that he was being responsible for what was done. Only too frequently the trader or taxpayer leaves it to his accountant. It is a satisfactory state of affairs that the accountant should be regarded both by the taxpayer and by the Inland Revenue as a person to whom it can be left. These things are rather left to the accountant and the person concerned is inclined to be a little irresponsible. These difficulties stem, in the first place, from irresponsibility, but they sometimes get to a more regrettable stage in their irresponsibility, and it is a pity that persons who are inclined to be a little irresponsible should fall back on the accountant, saying, "We do not have to bother about this; it is no concern of ours; be will sort it all out." I think that it will be of assistance to the accountant that the taxpayer should have this matter brought more closely to his mind.

I share the views of the Royal Commission on this matter. I cannot see—as the Royal Commission said, and I agree with what it said—that it would tend to hamper the accountants, or that it would hamper the inspectors. I should have thought that they would have welcomed it. I cannot see that the proposal would to any extent be derogatory to the status of the accountancy profession. I therefore hope that the Government will be able to accept it.

Mr. Simon

This new Clause is founded on two quite separate recommendations of the Royal Commission. The first, which is contained in paragraph 83 (b) of the summary of recommendations, is that a taxpayer who submits business accounts to an inspector of taxes should be required to give a personal certificate as to the completeness of the underlying records on which the accounts are based.

The second, which is contained in paragraph (b) of the proposed now subsection, contains a completely independent recommendation that a trader who submits inaccurate accounts should be liable to the same penalties as a taxpayer who enters an inaccurate figure of profits in a formal return. I see that both hon. Members who have spoken on the proposed new Clause, both of whom have great knowledge of this matter, agree that these are quite separate recommendations of the Royal Commission.

We have all been placed in a rather embarrassing position, so far as the recommendations of the Royal Commission are concerned, by the pronouncements of my right hon. Friend and of the right hon. Member for Bishop Auckland (Mr. Dalton). The answer is the one that we all adopt—that the recommendations of any Royal Commission, and particularly a Royal Commission of the eminence of that on Taxation of Profits and Income, which went into the matter with such great care, should be treated with the greatest deference, and that, prima facie, its views are entitled to very great weight. That, however, does not mean that one is not entitled, and even bound, to exercise an independent judgment and scrutiny, and it is in that spirit that I propose to examine these two proposals.

I examine them in the light of the desire, on which we are all united, that what we want to do is to prevent tax evasion. We want to prevent taxpayers evading their liabilities and thereby throwing their burdens on the rest of the community. So far as the first recommendation of the Royal Commission, contained in paragraph (a), is concerned, the proposal is open to objection. The objection is that, in the view and experience of the Inland Revenue, it will not have the effect which we all desire. The Royal Commission issued a warning. Referring to the certificate, the Report says: Its value would indeed be less the more that the signing of it came to be regarded as a matter of course. It is true that the Royal Commission thought that that situation would not obtain, but I am bound to warn the Committee that the experience and view of the Inland Revenue is in the opposite direction. They have had some experience of adopting some such expedient, and I expect that the hon. Member for Sowerby (Mr. Houghton) will remember Form 81.

I am told that it used to be a matter of course that on that form, which had not statutory backing, the trader was asked to certify, in effect, that the records on which the accounts were based were complete and accurate. At one time, that form was used as a matter of course, and the experience of the Inland Revenue was that traders tended to sign it as a matter of course. That was the first disadvantage. Secondly, accountants tended to resent further inquiries which looked behind the signature after that form had been signed.

As a result of that, the practice was changed, and nowadays the form is used selectively. It is used only in cases in which the inspector has some particular reason for seeking some further assurance. It has been the experience that the discriminating and carefully timed use of the form is far more efficacious in the prevention of evasion and in drawing the importance of the accuracy of the accounts to the attention of the trader.

I think perhaps that, if that was true so far as the use of Form 81 was concerned, it would be even more true if we had a universal provision on the lines suggested in paragraph (a). It is the view of the Government that it would be a far less effective check on unreliable accounts than the present discriminating and carefully timed use of the form.

There is another matter, on which I do not put anything like the same weight, but mention it for what it is worth. It is our fear that it might in some measure be interpreted by the less careful and responsible type of accountant as relieving them from the obligation of checking themselves their clients' records. As I say, I do not regard that as having anything like the same weight as the first consideration I mentioned, but it is because our view is that the proposal in paragraph (a) would impede rather than assist the drive against evasion that I cannot advise the Committee to accept it.

6.0 p.m.

Paragraph (b) provides a far more efficacious provision and, I believe, a workable one, namely, that accounts should rank as a return for the purposes of the assessment and penalty provisions of the Income Tax Acts, so that, if a trader submits false accounts, he will be liable to the same penalty as if he had entered an inaccurate figure of profit in a formal return. We regard it as reasonable that a taxpayer who puts in a false account should be liable to the same penalty as if he had entered an incorrect figure of profit in a formal return, and I am, therefore, prepared to accept in principle that recommendation of the Royal Commission and that part of the new Clause.

I ought to warn the Committee that the matter will require careful drafting. The hon. Member for Sowerby will not take it amiss if I point out one, at least, of the defects in the drafting of the present new Clause, quite apart from the fact that it hangs on paragraph (a). The new Clause as drawn would apply only where a taxpayer has been required to make a return under Section 20 of the Income Tax Act. Returns under that section are normally required only from companies and partnerships. Individuals are required to make returns under Section 19. It would obviously be anomalous to leave them out. For that reason, therefore, and for the other reasons I have given, I ask the hon. Gentleman to consider withdrawing his new Clause on the assurance that we propose to deal with the second part of it and implement that by a Government Amendment on the Report stage.

Mr. Cronin

My hon. Friends who have spoken in favour of the new Clause will be gratified that the Financial Secretary has seen fit to accept the principle of paragraph (b) of the recommendation of the Royal Commission, but I do not regard it as entirely satisfactory that he should reject the equally helpful paragraph (a). Some of the arguments the hon. and learned Gentleman put against it really do not bear very close examination. He suggested that to sign the accounts would soon become a matter of course and, therefore, the signature would not have the psychological effect we wish it to have. Exactly the same argument could, surely, be applied to signing the ordinary return of income itself which every taxpayer has to make. If one should not sign the accounts, why sign the actual return of income? The hon. and learned Gentleman further said that accountants would resent this apparent extra check on their work.

Mr. Simon

I said that accountants did resent the general use of Form 81 which has been in use so far.

Mr. Cronin

I accept that correction. We have just had my hon. Friend the Member for Gloucester (Mr. Diamond), a distinguished accountant, speaking in support of the new Clause, and he certainly did not express any resentment. Among hon. Gentlemen opposite, there are several distinguished members of the profession, and none has come here to protest against the new Clause. It is very difficult to follow the argument. The Financial Secretary has not produced any substantial evidence to indicate that accountants feel in that way.

The hon. and learned Gentleman said that the less responsible accountant would not trouble to check his clients' accounts if he found that the accounts were certified by the client. That seems to be an extraordinary reflection on the profession, and I am surprised that there was no interruption at that stage of his speech, particularly since many hon. Gentlemen opposite must use the services of accountants to a substanial extent.

The actual signature of business accounts has a most important psychological effect. The Royal Commission came down decisively in favour of the signature of the actual accounts. As hon. Members know, in many trades and some professions large sums of cash change hands. It is quite natural for people to forget that they have received large sums of cash. I think it was Freud who made extensive researches into these things and pointed out that we often forget what we do not wish to remember, things which cause us inconvenience. I suggest that a signature would be of substantial help in causing taxpayers to recollect matters such as sums received in cash.

The same argument applies to the quite large sums under the head of expenses which hon. Members of the Committee know are not always incurred wholly, necessarily and exclusively for the purposes of a man's profession or business. A signature would be very helpful in drawing a taxpayer's attention to the importance of keeping his own accounts in an accurate and careful manner. The consequent prevention of carelessness and neglect would be in the taxpayer's own interest.

I can see no possible disadvantage, and even the Financial Secretary went only so far as to say that he did not think that this particular remedy would be efficacious. He did not point to any disadvantage to the Government, to accountants, to inspectors of taxes or to the Inland Revenue. We have here something which a large part of the Committee regards as a useful reform, something backed by the Report of the Royal Commission, and something which the Financial Secretary himself cannot argue would cause any disadvantage. I cannot see that there is any satisfactory explanation for the Government not accepting the new Clause in toto.

Mr. Donald Chapman (Birmingham, Northfield)

I have considerable sympathy with what the Financial Secretary said, and I feel that we ought to consider very carefully whether to press the matter any further. In my view, the hon. and learned Gentleman is right in the way he sorted out the emphasis of the two signatures, the automatic signature of the account and the "challenge" signature, so to speak, which is involved in the use of Form 81.

I ask the Committee to consider the case of a man deliberately setting out to deceive the Revenue, particularly in cash transactions, which give most trouble here. If he feels that everybody is signing his accounts automatically, as proposed, he will quite happily sign anyway. He sets out to deceive. He has the cash and wishes to conceal the fact. His signature on the accounts, if everybody else signs, will add no great burden to his conscience.

On the other hand, if, on suspicion by the inspector, he is presented with Form 81, he knows perfectly well what is involved, and his accountant will very likely tell him, "This is a challenge to you now. There is some suspicion about you and you had better be careful before you sign this form." Perhaps it is not put as strongly as that, but there is a difference in emphasis between the automatic signature and what I call the "challenge" signature.

There is a third point which has not been made and about which I am not happy. There are cases in which an accountant has a sort of roving commission over the affairs of his client and, in fact, very largely keeps the books. It often happens, as I understand, in cases where an accountant is dealing with perhaps an aged person or someone in considerable difficulty in even looking after their own books. How far the responsibility for the actual collection of the figures is divided between the accountant and the person in whose name the return is being made with regard to the underlying records might lead to some difficulty, because the person concerned was not really keeping his own accounts.

I put these last two points as a sort of make-weight for my general argument. In certain cases I could not possibly certify as being part of a correct underlying record a certain account because, in fact, those records are kept by the accountant. That is in cases where an amount for depreciation is written into the accounts and all sorts of weird and wonderful calculations have been made on a basis which I do not understand about the amount due to be debited for depreciation, and I should not like to certify that the records underlying that are accurate. That I leave entirely to my accountant, and there are calculations in my account which I do not understand and would not claim to be able to certify. On the whole, I think that possibly we ought to accept what the Financial Secretary has said.

Mr. Diamond

I should like the Financial Secretary to consider this matter again. As he says, there are two points at issue. I did not say a word about paragraph (b) because I regard that as a small and unimportant technicality which I felt certain the Government would accept. It is a pure technicality and does not require argument, and is merely in order to redress an omission in the original structure. The faot that a man is responsible for what he says in his Income Tax return but not responsible for the figures that go with it seems to me to be an unreasonable situation and possibly a legal lacuna which I thought the Government would naturally wish to fill.

Therefore, we are concerned with the other part of the proposal. The reason why I detain the Committee a moment longer is that the Financial Secretary's arguments, with the greatest deference, are insubstantial. The inspector of taxes, from whom the Financial Secretary draws his information, considers the matter in a different light from the accountant. One accountant can only have the experience of one accountant, but the Inland Revenue has the experience of dealing with many accountants. Therefore, one can only speak from one's own experience.

I thought that the argument the Financial Secretary adduced about familiarity breeding contempt was insubstantial. It may be true that the Inland Revenue during the period that it conducted this experiment—I do not know the details of how it worked and how long it lasted—came to certain conclusions. It may be equally true that other persons in considering the experiment might have drawn different conclusions. The only principle that emerged from what he said was that if one is required to sign documents year in and year out then no attention is paid to one's signature. As my hon. Friend the Member for Loughborough (Mr. Cronin) said, this would invalidate the request for a signature in respect of one's Income Tax return or, for that matter, anything else. It is an unreliable argument, and I hope that the Financial Secretary will reconsider it again.

Secondly, the argument that certain accountants resented this procedure is no doubt a statement of fact that is quite easily understandable when a selective issue of a particular form is concerned. When certain accountants are called upon in certain cases to ask their clients to sign a particular form which no other client is called upon to sign, it is regarded with perhaps slight resentment.

Mr. Simon

I said the opposite. When it was a general requirement accountants tended to resent inquiries which looked behind it.

6.15 p.m.

Mr. Diamond

I accept that as a statement of fact, but I again repeat that I do not regard it as important, and certainly once it was part of the law that every client should sign his accounts there would no longer be any ground for resentment. Resentment only arose because the Inland Revenue appeared to be doing something more than the law entitled it to do.

Therefore, I come back to the main point that I made earlier, and perhaps I may say a word to explain why I am pressing the matter. I do not think, although my hon. Friend the Member for Northfield (Mr. Chapman) gave some indication of it, that the real separation between the client on the one hand and the accounts produced by the accountant on the other is fully appreciated. My hon. Friend said that he would not care to take responsibility for some simple figures of depreciation which he said he did not understand. He is a very intelligent man. He is a Labour M.P. What further evidence need be produced? But the ordinary taxpayer—and I must be careful about this—is not even a Conservative M.P., and he is much less able to understand a balance sheet and profit and loss accounts and how they are prepared than my hon. Friend, who said he could not understand what I would regard as a fairly simple matter.

We are considering for this purpose the average taxpayer—not the small man, the bigger man, or the company, but the medium-sized trader. He regards this process as a method by which somebody, an accountant, takes over the responsibility of agreeing with the Inland Revenue what his contribution to the Exchequer should be. [An HON. MEMBER: "Oh."] My hon. Friend says "Oh", but, with deference, he is not an average client. He is an M.P. and can understand the matter a great deal more that the average client.

The average businessman is mostly-concerned with how to get his tax liability settled, and he regards that as an external matter. Because it is regarded as an external matter, the Inland Revenue is mistaken in the view and advice that it has no doubt given to the Financial Secretary that the signature of accounts as recommended by the Royal Commission should not be accepted. The real advantage would be that in every case the client would realise that he has a measure of responsibility and that the figures which are being prepared are not a piece of magic that he does not understand, but something in which he has to play a part, and he would realise that the Government and the system of collecting tax depend on him.

Therefore, although my hon. Friend proposes to agree to half a loaf rather than no loaf, I hope he will find it possible to press this matter, because it is a wholesome and good point. It has been recommended by the Royal Commission and it would be a great step forward in stopping tax evasion.

Mr. Eric Fletcher (Islington, East)

I cannot claim to speak as an accountant, but I can claim to speak as one who has had some special experience from time to time in advising traders and others concerning their accounts submitted for tax purposes. In that connection, I have had the advantage of a certain amount of experience with different firms of accountants. For what it is worth, my experience coincides entirely with that of my hon. Friend the Member for Gloucester (Mr. Diamond).

Within my own knowledge and experience, I am unhesitatingly of opinion that the advice tendered by the Royal Commission is right. I believe that there are numerous cases in which the conscience of those who have to render accounts for tax purposes would be affected if they had to sign accounts when it is not affected in existing circumstances where they leave the preparation and signature of their accounts to the accountants.

I do not say that a number of traders deliberately shield behind the preparation of their accounts by accountants, but I do say that there is an inevitable tendency in a certain number of cases for people to be indifferent, forgetful or casual by sending their papers to an accountant and then dismissing the matter and thinking that they have thereby relieved themselves of the responsibility of applying their mind and their conscience in the way in which they would have to do if they were confronted with something to which they had to append their signature.

Therefore, I thought it right to give the Committee the benefit of my views based on my experience in this matter. I very much hope that on further reflection the Treasury will agree that the recommendations of the Royal Commission on this subject are well founded and that it would be of benefit to the Inland Revenue if the whole of the new Clause were accepted.

Mr. Houghton

I apologise to the Committee for having tied the new Clause to the wrong Section of the Income Tax Act, 1952. The risk of errors and omissions in preparing home-made accounts appears to apply to the preparation of home-made new Clauses, of which this is one.

I referred in my remarks to the need to make the submission of accounts an integral part of the rendering of an Income Tax return. That matter was referred to, as the Financial Secretary has pointed out, in paragraph 1057 of the Royal Commission's Report. What disappointed and confused me about the hon. and learned Gentleman's reply was the way in which he appeared to have separated paragraphs (a) and (b) in the new Clause. I should have thought that they went together.

The Royal Commission said: … accounts submitted in support are not in law themselves a return, although in many cases the words that the taxpayer uses in referring to them have the effect of incorporating them in and so making them part of a return. The Royal Commission went on, however, to say: We think that there is no place for fine distinctions on this point and we recommend that the law should be amended so as to provide that whenever a taxpayer submits accounts to an assessing authority, either in support of a figure that he has returned or in lieu of a formal return, the accounts should rank as a return for the purposes of the assessment and penalty provisions of the Acts. That is the clue to this part of the new Clause. It is important, the Royal Commission recommended, that the accounts should rank as a return for penalty purposes and leave no shadow of doubt about it. If the accounts are to rank as part of the return for penalty purposes, how can they do so until they are signed and how can they be signed until the taxpayer is required to sign them? As we have pointed out, many taxpayers submit through accountants accounts which they do not personally sign. Those accounts, the Royal Commission felt, stood in doubt as a part of the declaration of the total income of the taxpayer within the Act. The Royal Commission wished it to be put beyond any doubt that they were so included.

It distresses me to hear the Financial Secretary suggest that the signing of documents can become a matter of course. As my hon. Friend the Member for Loughborough (Mr. Cronin) pointed out, if the signature of accounts is to become a routine matter of course, why do we require the taxpayer to sign his return form? That is a matter of course, too. Not until we have the signature can we tie the taxpayer down to his declaration.

Although the Financial Secretary has kindly offered to consider drafting a new Clause for later consideration when dealing with paragraph (b) of the Clause, that is not enough. The two things must go together. If a taxpayer puts his signature to anything as a matter of course, at least the Inland Revenue can confront him with his signed declaration. That is important. Many declarations that we sign may be a matter of course to our own mind, but the authorities to whom we render our signatures have certain statutory rights when we have made those declarations. We have discharged the responsibility in law and we must stand by it. Surely that applies to what we are proposing here.

I hope, therefore, that the Financial Secretary will be able to assure the Committee that if he is taking something back for fresh consideration, it will be the two proposals and not only the second one, which would be ineffective without the requirement in paragraph (a). Otherwise, it would mean that only when the Inland Revenue asks the taxpayer to sign the

accounts will the Revenue have the right to proceed for penalty purposes upon any false declaration that is made. All taxpayers should conform to this requirement on the accounts in the same way as they conform to the requirement on the form of declaration itself. Therefore, unless the Financial Secretary has something more satisfactory to offer to the Committee, I am bound to advise my hon. Friends to divide on the new Clause.

Question put, That the Clause be read a Second time:—

The Committee divided: Ayes 178, Noes 222.

Division No. 187.] AYES [6.27 p.m.
Ainsley, J. W. Harrison, J. (Nottingham, N.) Oliver, G. H.
Albu, A. H. Hastings, S. Oram, A. E.
Allaun, Frank (Salford, E.) Hayman, F. H. Orbach, M.
Allan, Arthur (Bosworth) Healey, Denis Oswald, T.
Awbery, S. S. Henderson, Rt. Hn. A. (Rwly Regis) Owen, W. J.
Bacon, Miss Alice Herbison, Miss M. Padley, W. E.
Balfour, A. Hewitson, Capt. M. Paget, R. T.
Bellenger, Rt. Hon. F. J. Robson, C. R. (Keighley) Palmer, A. M. F.
Benson, Sir George Holman, P. Pargiter, G. A.
Bavin, Rt. Hon. A. (Ebbw Vale) Houghton, Douglas Parkin, B. T.
Blackburn, F. Howell, Denis (All Saints) Paton, John
Blenkinsop, A. Hoy, J. H. Pearson, A.
Blyton, W. R. Hughes, Emrys (S. Ayrshire) Peart, T. F.
Boardman, H. Hughes, Hector (Aberdeen, N.) Pentland, N.
Bottomley, Rt. Hon. A. G. Hynd, H. (Accrington) Plummer, Sir Leslie
Bowden, H. W. (Leicester, S. W.) Hynd, J. B. (Attercliffe) Popplewell, E.
Brockway, A. F. Irving, Sydney (Dartford) Price, J. T. (Westhoughton)
Broughton, Dr. A. D. D. Isaacs, Rt. Hon. G. A. Price, Philips (Gloucestershire, W.)
Brown, Rt. Hon. George (Belper) Janner, B. Probert, A. R.
Brown, Thomas (Ince) Jay, Rt. Hon. D. P. T. Proctor, W. T.
Burke, W. A. Jeger, George (Goole) Pursey, Cmdr. H.
Butler, Herbert (Hackney, C.) Jeger, Mrs. Lena (Holbn & St. Pnos, S.) Rankin, John
Callaghan, L. J. Jenkins, Roy (Stechford) Redhead, E. C.
Champion, A. J. Johnston, Douglas (Paisley) Reeves, J.
Chapman, W. D. Jones, David (The Hartlepools) Reid, William
Chetwynd, G. R. Jones, J. Idwal (Wrexham) Reynolds, G. W.
Clunie, J. Kenyon, C. Rhodes, H.
Collins, V. J. (Shoreditch & Finsbury) Key, Rt. Hon. C. W. Robens, Rt. Hon. A.
Corbet, Mrs. Freda King, Dr. H. M. Roberts, Goronwy (Caernarvon)
Craddock, George (Bradford, S.) Lawson, G. M. Robinson, Kenneth (St. Pancras, N.)
Cronin, J. D. Ledger, R. J. Shinwell, Rt. Hon. E.
Crossman, R. H. S. Lee, Frederick (Newton) Silverman, Julius (Aston)
Lee, Miss Jennie (Cannock) Simmons, C. J. (Brierley Hill)
Darling, George (Hillsborough) Lever, Leslie (Ardwick) Skeffington, A. M.
Davies, Ernest (Enfield, E.) Lewis, Arthur Smith, Ellis (Stoke, S.)
Davies, Stephen (Merthyr) Lindgren, G. S. Sorensen, R. W.
de Freitas, Geoffrey Lipton, Marcus Soskice, Rt. Hon. Sir Frank
Delargy, H. J. Logan, D. G. Sparks, J. A.
Diamond, John Mabon, Dr. J. Dickson Stones, W. (Consett)
Dodds, N. N. McAlister, Mrs. Mary Stross, Dr. Barnett (Stoke-on-Trent, C.)
Donnelly, D. L. McCann, J. Summerskill, Rt. Hon. E.
Dugdale, Rt. Hn. John (W. Brmwch) MacDermot, Niall Swingler, S. T.
Ede, Rt. Hon. J. C. McInnes, J. Taylor, Bernard (Mansfield)
Edwards, W. J. (Stepney) McLeavy, Frank Taylor, John (West Lothian)
Evans, Edward (Lowestoft) MacPherson, Malcolm (Stirling) Thomas, George (Cardiff)
Fernyhough, E. Mahon, Simon
Fletcher, Eric Mallalieu, E. L. (Brigg) Tomney, F.
Foot, D. M. Mallalieu, J. P. W. (Huddersfd, E.) Ungoed-Thomas, Sir Lynn
Fraser, Thomas (Hamilton) Mann, Mrs. Jean Viant, S. P.
Gaitskell, Rt. Hon. H. T. N. Mason, Roy Warbey, W. N.
George, Lady Megan Lloyd (Car'then) Mikardo, Ian Watkins, T. E.
Gibson, C. W. Mitchison, G. R. Weitzman, D.
Gordon Walker, Rt. Hon. P. C. Monslow, W. Wheeldon, W. E.
Grenfell, Rt. Hon. D. R. Morrison, Rt. Hn. Herbert (Lewis'm, S.) White, Mrs. Eirene (E. Flint)
Grey, C. F. Moyle, A. Willey, Frederick
Griffiths, David (Rother Valley) Neal, Harold (Bolsover) Williams, David (Neath)
Hall, Rt. Hn. Glenvil (Colne Valley) Noel-Baker, Francis (Swindon) Williams, Rev. Llywelyn (Ab'tillery)
Hamilton, W. W. Noel-Baker, Rt. Hon. P. (Derby, S.) Williams, Rt. Hon. T. (Don Valley)
Willis, Eustace, (Edinburgh, E.) Woodburn, Rt. Hon. A. TELLERS FOR THE AYES:
Wilson, Rt. Hon. Harold (Huyton) Yates, V. (Ladywood) Mr. Short and Mr. Deer.
Winterbottom, Richard Zilliacus, K.
Agnew, Sir Peter Gower, H. R. O'Neill, Hn. Phelim (Co. Antrim, N.)
Aitken, W. T. Graham, Sir Fergus Orr, Capt. L. P. S.
Allan, R. A. (Paddington, S.) Grant, Rt. Hon. W. (Woodside) Orr-Ewing, Charles Ian (Hendon, N.)
Alport, C. J. M. Grant-Ferris, Wg. Cdr. R. (Nantwich) Osborne, C.
Amory, Rt. Hn. Heathcoat (Tiverton) Green, A. Page, R. G.
Anstruther-Gray, Major Sir William Grimond, J. Pannell, N. A. (Kirkdale)
Arbuthnot, John Grimston, Hon. John (St. Albans) Partridge, E.
Ashton, H. Gurden, Harold Peel, W. J.
Atkins, H. E. Harris, Frederic (Croydon, N. W.) Pickthorn, K. W. M.
Baldock, Lt.-Cmdr. J. M. Harris, Reader (Heston) Pilkington, Capt. R. A.
Baldwin, Sir Archer Harrison, Col. J. H. (Eye) Pitman, I. J.
Barber, Anthony Harvey, Sir Arthur Vere (Macclesf'd) Powell, J. Enoch
Barlow, Sir John Heald, Rt. Hon. Sir Lionel Price, Henry (Lewisham, W.)
Barter, John Heath, Rt. Hon. E. R. G. Profumo, J. D.
Batsford, Brian Henderson-Stewart, Sir James Ramsden, J. E.
Baxter, Sir Beverley Hesketh, R. F. Rawlinson, Peter
Beamish, Col. Tufton Hicks-Beach, Maj. W. W. Redmayne, M.
Bell, Philip (Bolton, E.) Hirst, Geoffrey Rees-Davies, W. R.
Bell, Ronald (Bucks, S.) Hobson, John (Warwick & Leam'gt'n) Renton, D. L. M.
Bennett, F. M. (Torquay) Holland-Martin, C. J. Ridsdale, J. E.
Bevins, J. B. (Toxteth) Holt, A. F. Roberts, Sir Peter (Heeley)
Bidgood, J. C. Hope, Lord John Robinson, Sir Roland (Blackpool, S.)
Biggs-Davison, J. A. Horobin, Sir Ian Rodgers, John (Sevenoaks)
Bishop, F. P. Howard, Gerald (Cambridgeshire) Roper, Sir Harold
Black, C. W. Hughes-Young, M. H. C. Ropner, Col. Sir Leonard
Bonham Carter, Mark Hutohison, Michael Clark (E'b'gh, S.) Scott-Miller, Cmdr. R.
Bossom, Sir Alfred Hyde, Montgomery Sharples, R. C.
Boyle, Sir Edward Hylton-Foster, Rt. Hon. Sir Harry Shepherd, William
Braine, B. R. Iremonger, T. L. Simon, J. E. S. (Middlesbrough, W.)
Bralthwaite, Sir Albert (Harrow, W.) Irvine, Bryant Godman (Rye) Spearman, Sir Alexander
Bromley-Davenport, Lt.-Col. W. H. Jenkins, Robert (Dulwich) Speir, R. M.
Brooke, Rt. Hon. Henry Jennings, Sir Roland (Hallam) Stanley, Capt. Hon. Richard
Browne, J. Nixon (Craigton) Johnson, Dr. Donald (Carlisle) Stevens, Geoffrey
Bullus, Wing Commander E. E. Johnson, Eric (Blackley) Steward, Harold (Stockport, S.)
Burden, F. F. A. Joseph, Sir Keith Stoddart-Scott, Col. Sir Malcolm
Butcher, Sir Herbert Kaberry, D. Storey, S.
Campbell, Sir David Kerr, Sir Hamilton Stuart, Rt. Hon. James (Moray)
Cary, Sir Robert Kershaw, J. A. Studholme, Sir Henry
Channon, Sir Henry Kimball, M. Summers, Sir Spencer
Chichester-Clark, R. Lagden, G. W. Sumner, W. D. M. (Orpington)
Leather, E. H. C. Taylor, Sir Charles (Eastbourne)
Clarke, Brig. Terence (Portsmth, W.) Leavey, J. A. Taylor, William (Bradford, N.)
Cole, Norman Leburn, W. G. Teeling, W.
Conant, Maj. Sir Roger Legge-Bourke, Maj. E. A. H. Temple, John M.
Cooke, Robert Linstead, Sir H. N. Thomas, Leslie (Canterbury)
Cooper-Key, E. M. Lloyd, Maj. Sir Guy (Renfrew, E.) Thompson, Kenneth (Walton)
Craddock, Beresford (Spelthorne) Lucas, Sir Jocelyn (Portsmouth, S.) Thompson, R. (Croydon, S.)
Crowder, Sir John (Finchley) Lucas, P. B. (Brentford & Chiswick) Thorneycroft, Rt. Hon. P.
Crowder, Petre (Ruislip—Northwood) Lucas-Tooth, Sir Hugh Thornton-Kemsley, Sir Colin
Davidson, Viscountess McAdden, S. J. Tiley, A. (Bradford, W.)
D'Avigdor-Goldsmid, Sir Henry Macdonald, Sir Peter Tilney, John (Wavertree)
Deedes, W. F. Mackeson, Brig. Sir Harry Turner, H. F. L.
Digby, Simon Wingfield McKibbin, Alan Turton, Rt. Hon. R. H.
Donaldson, Cmdr. C. E. McA. Mackie, J. H. (Galloway) Tweedsmuir, Lady
Drayson, G. B. McLaughlin, Mrs. P. Vane, W. M. F.
du Cann, E. D. L. Maclean, Sir Fitzroy (Lancaster) Vaughan-Morgan, J. K.
Dugdale, Rt. Hon. Sir T. (Richmond) MacLeod, John (Ross & Cromarty) Vickers, Miss Joan
Duncan, Sir James Macmillan, Rt. Hn. Harold (Bromley) Vosper, Rt. Hon. D. F.
Duthie, W. S. Macmillan, Maurice (Hallfax) Wade, D. W.
Eden, J. B. (Bournemouth, West) Maddan, Martin Wakefield, Edward (Derbyshire, W.)
Elliott, R. W. (Ne'castle upon Tyne, N.) Maitland, Hon. Patrick (Lanark) Wakefield, Sir Wavell (St. M'lebon)
Emmet, Hon. Mrs. Evelyn Markham, Major Sir Frank Wall, Patrick
Errington, Sir Eric Marlowe, A. A. H.
Farey-Jones, F. W. Marshall, Douglas Ward, Rt. Hon. G. R. (Worcester)
Fletcher-Cooke, C. Mathew, R. Ward, Dame Irene (Tynemouth)
Fraser, Hon. Hugh (Stone) Maudling, Rt. Hon. R. Watkinson, Rt. Hon. Harold
Fraser, Sir Ian (M'cmbe & Lonsdale) Morrison, John (Salisbury) Webbe, Sir H.
Gammans, Lady Nabarro, G. D. N. Whitelaw, W. S. I.
Garner-Evans, E. H. Nairn, D. L. S. Williams, Paul, (Sunderland, S.)
George, J. C. (Pollok) Nicholson, Sir Godfrey (Farnham) Wills, Sir Gerald (Bridgwater)
Gibson-Watt, D. Nicolson, N. (B'n'm'th, E. & Chr'ch) Wilson, Geoffrey, (Truro)
Glover, D. Noble, Comdr. Rt. Hon. Allan Wood, Hon. R.
Glyn, Col. Richard H. Noble, Michael (Argyll) Woollam, John Victor
Godber, J. B. Nugent, G. R. H.
Gough, C. F. H. Oakshott, H. D. TELLERS FOR THE NOES:
Mr. Legh and Mr. Bryan.