§ Sir E. Boyle
I beg to move, in page 29, line 6, after "vocation", to insert:during any period before the discontinuance (not being sums otherwise chargeable to tax)".I think it might be for the convenience of the House if we also considered the next four Amendments to Clause 31.
The purpose of these Amendments is to guard against a possible misinterpretation, which I will explain in a few words. The first of this series of Amendments states that the Clause will apply only to sums not otherwise chargeable to tax; this is a Clause on which, if I remember rightly, we had some controversial discussion during the Committee stage, when the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) had something to say about it. The Clause does not seek to tax a receipt which has escaped a charge to tax merely because at some stage in the life of the business the earnings basis was not adopted.
The Clause could be incorrectly interpreted as meaning that, if at any time during the life of the business the earnings basis was used, post-cessation receipts arising because the taxpayer was subsequently put on a cash basis were chargeable to tax. The Clause in the original form lent itself to this interpretation. That was because subsection (2) says that where the profits or gains for any period before discontinuance were computed by reference to earnings, all post-cessation receipts are to be taxed under the Clause in so far as they were not brought into account in computing the profits or gains for that period or any subsequent period.
As those words stood, it could be maintained that where a professional man started off by being assessed on the earnings basis and then changed to the cash basis, all his post-cessation receipts would be taxable because they were not brought into account for a period during which the cash basis operated and because there was a period when he was assessed on the earnings basis.
Indeed, since the publication of the Bill, this interpretation appears to have been quite widely adopted. It has given rise to considerable misunderstanding about the scope of the Clause, and it is for that reason that we are now moving the Amendments. We are, I think, all 618 clear as to the purport of the Clause, but we are ensuring that, whatever view hon. Members take, the Clause does in fact do what it is intended to do.
There is one other point. The insertion in the Clause, by way of the Amendment to page 29, line 6, of the words:not being sums otherwise chargeable to taxis desirable to make it clear that the Clause in no way affects the position of sums chargeable to tax under the existing law. A person who buys from an author an interest in copyright is already taxable on the royalties arising therefrom. Incidentally the recommittal Amendment to Clause 32, page 30, line 20, ensures that if a retired trader or professional man sells the right to any post-cessation receipt, the sum chargeable under the Clause is the consideration which he receives for the assignment. It follows that the person to whom it is assigned cannot be charged.
An argument might be advanced that the purchaser of the right to receive royalties had acquired the right to sums arising from the carrying on of the author's profession, and that the provision of Clauses 31 and 32 taken together mean that he could not be charged to tax on the royalties as they come in. By specifying, as we are doing in this first Amendment, that the Clause shall not apply to sums otherwise chargeable to tax—that is the second half of the Amendment to page 29, line 6—we secure that no such argument could be sustained. It is for those two reasons, and not to make any alteration in the substantive meaning of the Clause, that we have put down these Amendments.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
Having heard many speeches from the Financial Secretary, I should like to tell him that I have heard none from him in the last few days which have given me so much satisfaction as the last one. I should like to thank him unreservedly.
§ Mr. Mitchison
That is very nice. I should like simply to say that, apart from the sufficiency or insufficiency of the Clause as a whole, which we are not discussing now, these two points are points on which I agree with the hon. Gentleman. The sense of the Committee was that which has been indicated and clarified by these Amendments.
§ Amendment agreed to.619
§ Further Amendments made: In page 29, line 7, leave out "any period before the discontinuance" and insert "that period."
§ In line 11, leave out "that period or any subsequent" and insert "any."
§ In line 13, leave out from "where" to "were" in line 14 and insert: "those profits or gains."
In line 16, leave out "that period" and insert:
any period before the discontinuance."—[Sir E. Boyle.]
§ Sir E. Boyle
I beg to move, in page 29, line 41, to leave out from "itself)" to "and" in line 44 and to insert:which, if the trade, profession or vocation had not been discontinued, would have been deducted in computing for tax purposes the profits or gains of the person by whom it was carried on before the discontinuance, or would have been deducted from or set off against those profits or gains as so computed.This is a drafting Amendment which covers two points which I ought briefly to explain. As the House is aware, subsection (4, a) of Clause 31 is intended to allow the taxpayer to set off against any post-cessation receipt post-cessation expenses and any unrelieved loss of business at the time of discontinuance. During the Committee stage my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) suggested that the wording of the subsection was not sufficient to allow a deduction for unrelieved losses. My right hon. and learned Friend the Attorney-General, in winding up the debate, said that he would look at the drafting.
There was, I think, a real doubt on this point, for the following reason. As originally drafted, subsection (4, a) provided for a deduction for any loss which would have been deducted in computing the taxable profits of the business if it had not been discontinued; but Section 342 of the 1952 Act provides that such losses may be deducted from or set off against the profits on which the taxpayer is assessed—that is to say, the loss is not deducted in computing the assessable profits but is set against those profits after they have been computed.
This Amendment puts the matter beyond a peradventure by making subsection (4, a) refer to a loss, expense or debit which would have been deducted 620 in computing the profits of the business during its life or would have been deducted from or set off against those profits as so computed.
While we were at it, we took the opportunity also to remedy another defect in the subsection. In effect, it referred to loss, expense or debits incurred by the person chargeable in respect of post-cessation receipts; and, therefore, the original wording might have failed to give an executor who got in a post-cessation receipt, and was charged under the Clause, relief for losses or expenses incurred by the professional man himself. To remedy this, the Amendment makes the subsection refer to losses and expenses which would have been allowed in computing the profits of the person by whom the business was carried on. Once again, this does not in any way alter the original purport of the Clause, but it deals with the point raised by my hon. Friend the Member for Langstone and, as I have said, we have in other respects taken the opportunity to make the subsection perfectly clear in its purpose.
§ Mr. Powell
In the temporary absence of my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), I thank my hon. Friend the Financial Secretary for having put down this Amendment, which makes it absolutely clear that any losses or expenses can be allowed which would have been allowed if the business had continued.
§ Amendment agreed to
§ Sir E. Boyle
I beg to move, in page 30, line 2, to leave out "he" and to insert:the person who carried on the trade, profession or vocation.This is a drafting Amendment to subsection (4, b) to remedy a defect similar to that dealt with by the second limb of the Amendment to subsection (4, a) which we have just discussed. I do not think I need give the House any further explanation.
§ Amendment agreed to.
§ Sir H. d'Avigdor-Goldsmid
I beg to move, in page 30, line 19, after "sixty" to insert:nor to sums received after that date being sums of which the value has been assessed to estate duty.621 This Amendment is intended to avoid a situation which I mentioned in Committee and on which I have had correspondence with my right hon. and learned Friend the Attorney-General, namely, the case of a professional man who died when in partnership and on whose estate Estate Duty was paid on payments to be received after his death. Those payments now, under this Clause, have been caught for Income Tax.
I take the point that the original assessment for Estate Duty would probably have taken into account that such payments might be caught for Income Tax because that was the position ruling, as I understand it, until the Cheyney case this year. Since the Cheyney case, these payments have been made free of duty. Therefore, the Amendment would particularly bite on deaths occurring between the judgment in the Cheyney case and the presentation of the Bill when, presumably, assessment for Estate Duty would be made on payments which would, in the then state of the law for that relatively short period, be free of Income Tax. Now, they are caught for Income Tax, and I should be glad to hear a public assurance that people will not be caught in this way.
§ Sir E. Boyle
My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has explained clearly the purpose of the Amendment, which is to cancel the Income Tax charge because for the future the Estate Duty valuation in the sort of case which we are considering will take account of Income Tax. We have considered this point carefully, but I think that to cancel the Income Tax charge in respect of all deaths before the coming into force of the Clause would be unjustifiably generous, because in most cases the Income Tax liability has been allowed for and there is no overcharge.
There is the further point to which my right hon. and learned Friend the Attorney-General drew attention—that such a provision would mean exempting copyright royalties, which might continue to come in for the next thirty or forty years. Apart from royalties and similar receipts, the Clause will be of very limited application, and it is likely to be exceptional for it to bite on anything but the recovery of a bad debt which had been 622 written off for tax purposes, and cases in which a debt written off as had can he seen to be good at the time of death are rare cases.
As the Amendment is worded, it does not limit the exemption to cases in which death occurred before 6th April, 1960, but in effect allows it in all cases, without time limit, where the value of post-cessation receipts has been assessed for Estate Duty, and it would effectively remove discontinuance through death from the ambit of Clause 31.
I understand the interest of my hon. Friends the Members for Walsall, South and Wolverhampton, West (Mr. Powell). We have had correspondence on this matter. I think that, as worded, the Amendment is too generous in relation to the Clause, and for that reason I am afraid that on this occasion I cannot make a speech which will please my hon. Friends as much as did the last which I made.
§ Mr. Powell
Before he sits down, will my hon. Friend make one point a little clearer? I understood him to say that in most cases Estate Duty would have been assessed on the basis that tax would be payable on the receipts. Are there cases since the Cheyney case in which Estate Duty has been assessed on the higher basis, that is, on the assumption that the tax would not be payable on these receipts, because at present in such an instance there would, in effect, be a double charge?
§ Sir E. Boyle
I cannot answer that question off-hand. I take the importance of the point and I will look into it and give my hon. Friend an answer. This is a matter which we shall take into account when administering the Clause.
§ Sir H. d'Avigdor-Goldsmid
In view of the assurance which we have had from my hon. Friend and because we have served a useful purpose in ventilating the Government's views on this matter, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.