§ 3.46 p.m.
§ Mr. Geoffrey Stevens (Portsmouth, Langstone)
I beg to move, in page 25, line 5, after "vocation" to insert:of which the profits or gains are".This is really a drafting error. I suggest that it is not possible to levy Income Tax on a trade, profession or vocation, but only on the profits or gains arising therefrom. For that reason, I hope that the Government will accept the Amendment.
§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
I agree with the purpose that my hon. Friend the Member for Portsmouth, Langstone (Mr. G. Stevens) has in mind, and also with the reasons that he has adduced in support of it. I would advise the Committee to accept the Amendment.
§ Amendment agreed to.
§ Mr. G. R. Mitchison (Kettering)
I beg to move, in page 25, line 14, to leave out from the beginning to "all" in line 16.
§ The Chairman
It might be convenient to discuss with this Amendment those in page 25, line 17, after "computing", to insert "by reference to earnings"; in line 18, to leave out "that period or any subsequent" and to insert "any"; and in page 25, to leave out lines 20 to 26.
§ Mr. Mitchison
As you have observed, Sir Gordon, these Amendments go conveniently together. The Clause is said by the rubric to deal withReceipts accruing after discontinuance of trade, profession or vocationWe were told that it has been occasioned by two cases in which authors or artists, if I may use those words, had died, and the question arose whether or not they could be taxed on the earnings that accrued after their death. In those two 687 cases a noble effort was made to substantiate that what had originally been earnings had, by then, become the fruits of copyright, or something like that. The effort failed, and in both cases the decision was against the Revenue.
I shall refer to that in a little more detail in a moment, but perhaps we might first see what the Clause does, and what the effect of this Amendment is. Subsection (1) is not affected. Subsection (2) is the only subsection that is altered by this Amendment, and, if so altered, would read like this—and it may be for the convenience of the Committee if I read it out in that form:Subject to the provisions of subsection (3) of this section, this section applies to the following sums arising from the carrying on of the trade, profession or vocation, that is to say"—The Committee will notice that, so far, there has been no change, but the subsection would then go on to read:all such sums in so far as their value was not brought into account in computing by reference to earnings the profits or gains for any period before the discontinuanceThat would be the end of the amended subsection, and it is the only subsection amended.
The effect, as I understand it, is this. The subsection as it stands begins by applying its provisions to "…profits or gains…computed by reference to earnings…" In both the cases to which I have referred there was computation in that way. That means, of course, that the earnings for the fiscal year are estimated, whether or not they have been handed over in cash to the taxpayer. In an earlier case, this method was called by Mr. Justice Rowlatt "assessment by bookings", and I think that that is a simple way of looking at it.
The alternative method of assessment is to assess on a cash basis, that is to say, although the work may have been done in one fiscal year, the assessment is not made until the remuneration for the work comes in in cash to the taxpayer. We can call that the assessment by payments. Perhaps it would be convenient if we called the two methods assessment by bookings—"bookings" or "earnings", I mind not which, though "earnings" is the word used in the subsection—and assessment by payments.
688 Coming to the earnings assessment, we find it provided in paragraph (a) that the application is to all sums which arise from the carrying on of a trade, profession or vocationin so far as their value was not brought into account in computing the profits or gains for that period or any subsequent period before the discontinuanceIn the two cases referred to, it was discontinuance by death, but it could be discontinuance by retirement or abandonment of the trade or, of course, discontinuance by the trade ceasing to be carried on by one person and beginning to be carried on by someone else, whereupon, subject to some exceptions and other provisions in the Bill, the first person would discontinue.
We come now to payments, paragraph (b),where the profits or gains for any period before the discontinuance were not so computed"—that, I think, means, in effect, where the taxpayer was assessed on a payments basis—any sums which, if those profits or gains had been so computed, would not have been brought into the computation for that period because the date on which they became due … fell after the discontinuanceI have omitted a few words, but I think that I have got the hang of it sufficiently, and I hope that I have explained my view of it to the Committee with as much clarity as is possible.
When one comes to the payments basis, the fact that the earnings were before the discontinuance is immaterial and on the payments basis a person who, by death or otherwise, gives up his vocation is no longer liable to pay tax on the fruits of his earnings before discontinuance. Obviously, he cannot do it when he is dead, but it refers, of course, to executors, as in the two cases I have mentioned. I trust that I have made the point tolerably clear and explained my view of it, at any rate.
I do not think that I need go into the details of the two decisions, except to mention one point. Both cases went to the House of Lords, and the earnings in both were held by the House of Lords to be assessable under Case II of Schedule D, which, broadly speaking, covers the earnings of professions. They were held not to arise from any property 689 in copyright or any contract with the publishers, publishers being concerned in both cases. That is the type of receipt that we are considering. It is true that Case I is mentioned, also, but for what I have to say now I think Case II is the one which matters.
I turn now to the effect of the Clause. When the Chancellor of the Exchequer introduced it, my right hon. Friend the Member for Huyton (Mr. H. Wilson) asked about lawyers. The Chancellor's reply was that he would see when the Bill came forward that they were a different matter. I will deal with the Bar for a moment. In respect of barristers, the assessment is invariably or almost invariably made on the payments basis. Accordingly, the position is this. Assume someone earning year by year at the Bar whatever it may be. His fees a re booked in the usual way by the clerk in his chambers. He then discontinues his profession. When he has so discontinued, notwithstanding that the fees have been booked and may actually be received, he will not be taxed on the fruits of those earnings.
On the other hand, if the taxpayer had been an artist or an author, as in the two cases which went to the House of Lords, then the taxation would be not on the payments basis but on the earnings basis and, accordingly, this Clause would now apply to him. Although, in the past, he would not have been liable for tax on the fruits of his earnings after discontinuance the effect of the Clause, broadly speaking, subject to some exceptions, would be to tax him on the fruits of his earnings.
I cannot believe that the Committee as a whole will feel that that either is fair or looks fair. We are dealing with cases which resemble one another in the type of thing which happens, the discontinuance by death or abandonment of a vocation of some sort. The distinction which is drawn by the Clause depends entirely, as I see it, on the difference between the two bases of assessment. The Government may say, "That may be so, but it is inevitable that members of the Bar"—they are not the only ones, but I take them as one instance—"should be taxed on payments and there are difficulties in dealing with their fees falling to be paid after they have given up the profession".
690 That may be said, but it does not appeal to the ordinary man, who will feel that there is no essential difference between the giving up of the profession of author and the giving up of a profession which, because of its character, has been assessed in a different way, and a difference in the form of assessment, whether necessary or not, should not be allowed to affect the merits of the decision we are invited to take.
Substantially, the merits of the decision seem to be that, where a man has been carrying on a trade, profession or vocation, and he ceases to carry it on, he should not thereby escape tax on what comes to him out of that trade, profession or vocation even though he has, in fact, discontinued. Of course, it is perfectly obvious that the Clause is introduced to deal, among other things, with abuses or possible abuses. Once one accepts the principle that discontinuance means no further liability for the fruits of previous activity, then, if one takes the simple case of a change in the identity of traders, one can easily have abuse, deliberate or other—and it can quite readily be deliberate.
I need not go into the matter in detail but it is quite clear that, if the business as a business remains substantially the same, and is passed from one person to another, then, without this Clause, there is a real risk of the Revenue being defeated in what is a right claim by a somewhat fictitious change, though a real one in the eyes of the law, in the identity of the trader. One can see that and there have been provisions in this correction dealing with changes in partnership with the same sort of point in mind.
§ 4.0 p.m.
§ Mr. Stevens
I have no wish to dispute anything that the hon. and learned Member has said. I have followed his argument with much interest. It may well be that he will deal later with the question which I propose to ask him. I understand that the essential difference between a barrister and another person is that a barrister cannot sue for his fee and, therefore, the fee is not even a debt due to him. I believe that that is an important point.
§ Mr. John Diamond (Gloucester)
Can my hon. and learned Friend say, out of his deep knowledge of the Bar, 691 whether a barrister is able to spend his fee although he cannot sue for it?
§ Mr. Mitchison
I think that the question of my hon. Friend the Member for Gloucester (Mr. Diamond) answers itself. I was proposing to deal with the point raised by the hon. Member for Portsmouth, Langstone (Mr. Stevens), but I cannot say that I regard it as a very substantial or essential one. I doubt whether the Government would wish to rely on it.
The words used are "becoming due", or "being ascertained as due", or something of that sort. It can be said that, technically, no barrister's fee ever becomes due. It is agreed, noted down and finally paid, but I do not think that one ought to found a substantial difference in the results of taxation on what is a very technical point depending on the inability of members of the Bar to sue for fees.
I believe that this does not only apply to barristers. I fancy that Fellows of the Royal College of Surgeons or, perhaps, the Royal College of Physicians are in the same position under a professional convention of some sort and that they never sue for fees, although whether any of them has tried to do so and been defeated I do not know.
I do not think that the Committee would want to come to a decision on a very technical matter which relates to another side of the activities of the Bar. However, I want to make this clear. I gave the Bar only as an instance and because I know a little about it, but the same sort of point may arise in connection with other professions. The substantial point, I think, is this: is it possible to assess these earnings in any other way than on a payment basis? In some cases it is very difficult.
I can think of cases in which it might be difficult, but I see no difficulty with regard to the Bar or, I imagine, with regard to most professional earnings. Earnings at the Bar normally are agreed before the work is undertaken. They are noted by the solicitor and the barrister concerned and they are then regarded as a debt of honour, subject to this, that the solicitor may not be able to recover from his client. That does happen and there would have to be adjustments, but I imagine that there 692 are always bound to be adjustments when one is assessing on an earnings basis. There are provisions for bad debts in the Income Tax Acts. I can see no great practical difficulty in the matter. I am told that it is not as easy as it looks and probably the Financial Secretary will tell me that it is much more difficult than I suppose. However, I must leave it to him to say so and to explain why.
What I read as an abbreviated Clause is, as a piece of legislation, clear enough. There is no doubt what it means. The difficulty may be administrative, but we have not only to do the right thing between one type of earnings and another but to appear to be doing it. It will be very unpopular and misunderstood in the country if we take steps to cover, let us say, authors and artists and leave out some of the other professions. It is something that we ought not to do if we can possibly avoid it.
If there are administrative difficulties, I cannot believe that they are insuperable, or that they are of a character that cannot be solved by suitable arrangements. It might be necessary further to amend the Clause or insert a further Schedule, but I doubt it. I should have thought that the right course was to accept the Amendments which simplify the wording of the Clause considerably and then to give effect to them even though it may be a little more difficult than to give effect to the Clause as drafted by the Government.
I appeal to the Government to look at this matter with an open mind and not to stick to what they have put in the Bill simply because they have put it in the Bill. There is a very strong case for the Amendments on grounds of fairness and of appearing to be fair. I am sure that the Financial Secretary will understand that I have no intention of stabbing my own profession in the back. I am very proud of the small part that I have had to play in it. I have always been very interested in it and have enjoyed it very much. I realise that the effect of these Amendments, if carried, will be to deprive the Bar of one fiscal advantage that they and perhaps other people have at present, but I do not think that when we are discussing fiscal provisions we ought to let that kind of thing weigh with us too much.
693 I cannot believe that the effect of a change of this sort would be to ruin the profession, or to deprive us of a proper judiciary in ten years' time. It might possibly have the result of making members of the Bar provide year by year for the payment of Surtax, and perhaps for their retirement, a shade more carefully than they do at present.
I have heard it said that the great defence of these payments being exempt from taxation is that they enable retiring barristers to pay their last year's Surtax. If that is so, it is a rather poor defence. The same sort of thing applies to people carrying on other vocations who are assessed on an earnings basis, but there is no reason why bad habits should not be changed if that is the right course.
I therefore repeat my entreaty to the Government to look at this matter with an open mind and to consider the broad merits of the case which I have put forward, and not to try to get out of fairness by raising minor points which they know can be met.
§ Mr. Eric Fletcher (Islington, East)
I have some hesitation in intervening in this debate, because I have the highest regard for my hon. and learned Friend the Member for Kettering (Mr. Mitchison). He is a very distinguished member of the legal profession. I admire his courage in moving this Amendment, which is contrary to the interests of the profession of which he is such a distinguished ornament.
I am not entirely convinced by what he has had to say, and I am waiting with great interest to hear what the Financial Secretary has to say. But there are other considerations. I have given a great deal of thought to this question. I can understand that on certain general grounds there are arguments for bringing barristers into the same position as other persons with regard to receipts accruing after the discontinuance of their profession. The Royal Commission considered the matter in great detail, and, in paragraph 261, said that, on balance, it thought that the post-cessation receipts of a barrister were indistinguishable from similar receipts in other professions, and that they should be treated in the same way. There are, therefore, weighty arguments in support of the point of view put forward by my hon. and learned Friend.
694 I have no direct interest in this matter. I am merely a very humble member of the junior branch of the legal profession, and in that capacity I happen to have had some dealings with barristers—both Queen's counsel and junior—and I know the general prejudice that exists not only in the House of Commons but among the public, about the Bar. It is fair to observe that certain considerations should be borne in mind on the other side of the argument. The Bar of England, which has a very long history, has long enjoyed and suffered from the fact that its members can never sue for any fees due to them. It is true, not only technically but in practice, that all they receive by way of fees are honoraria. If their fees are not paid, there is no contractual basis which entitles them to recover those fees.
That is right, but it is important to stress the fact, because barristers are, therefore, in a totally different position from that of any other person in this country, whether he practises a profession, a trade or an occupation. Anybody else who is unpaid can sue for his fees and recover them.
§ Mr. Fletcher
I will just say this to my hon. Friend. The economic circumstances of today are such that very few contractual debts remain unpaid. During the inter-war years there were many bankruptcies and many cases of default by debtors, but today one of the things that distinguishes civilisation from the civilisation of the thirties is the fact that debts of all kinds are regularly and promptly paid. Speaking as a practising solicitor, I recall that before the war much of my time was occupied in pressing people to pay their debts. That does not happen today. Most people now pay their accounts almost as a matter of course, as soon as they come in.
There is one exception to that rule. Barristers are not paid regularly or promptly. Sometimes they are not paid at all. This may be a good or a bad system, but the Committee should at least acknowledge the fact that many barristers do a great deal of work for 695 which they are never paid and for which they have no legal right ever to recover payment.
§ Mr. Fletcher
Yes, but I am now talking only of barristers. I am convinced that barristers suffer from a disadvantage as compared with all other members of the community, in that they cannot sue or recover fees due to them.
It is all very well for my hon. and learned Friend and other hon. Members to say that there is a moral obligation upon solicitors to pay banisters their fees, even in circumstances where the solicitor is unable to recover the money from his client and must, therefore, pay the barrister out of his own pocket. In the majority of cases when a member of the Bar knows that that is the position he neither insists upon nor expects the solicitor to pay those fees.
I am not here to defend the present position in our legal profession. On more than one occasion, as the Attorney-General knows, I have said that the system is by no means perfect. I recognise that it has advantages, due to the great traditions of history, whereby barristers and Queen's counsel have a privileged position in the law courts. This is a great advantage for the community, since it constitutes a specialised class from which alone judges are selected. I acknowledge the great benefit which the community derives from the fact that we have a judiciary which is entirely independent of both Parliament and the Executive. That is something of which any student of our constitutional history should be proud.
But conditions are changing. Everyone knows that the legal profession is at present suffering from certain hardships. I am speaking now of barristers. Everybody knows that difficulty is being experienced in recruiting young men to the profession. I believe that the day will come when we will recognise that there are certain advantages in fusion between barristers and solicitors, and that we might have a system comparable with that which operates in the United States of America—which has a judicial system of which it can well be proud—and various Continental countries.
696 But for the moment we are wedded to a system which has endured for many years, one of the essential ingredients of which is that barristers can receive only honoraria, and cannot sue for fees. The risks involved in entering the profession at present are considerable.
§ Mr. Gordon Walker (Smethwick)
If it is argued that because barristers cannot sue their post-cessation earnings should be tax-free, why should not all their earnings throughout their life be tax-free? Why should they not get the whole of their income tax-free, because they cannot sue? I cannot see why the principle should be applied after they retire and not during their active life.
§ Mr. Fletcher
I am grateful to my right hon. Friend for raising that question. The distinction is that in so far as they are recipients of income while they are working it is night that, although their fees are not contractually enforceable, they should be taxable. It would be quite unjust if barristers were exempted from Income Tax merely because the payment of their fees was not enforceable. Under the Income Tax code, income is income, whether or not fees can be recovered by process of law.
§ Mr. Mitchison
Perhaps my hon. Friend will accept what the Royal Commission said on this point, in paragraph 261, namely:On this issue his post-cessation receipts seem to us to be indistinguishable from similar receipts of other professions and we think that they should be treated in the same way
§ Mr. Fletcher
That is paragraph 261, on which I have already commented.
I appreciated at the outset that, if I wanted to present this argument, I should have to deal with the recommendations of the Royal Commission. I put this forward merely because I think that it is a matter of general interest and not a matter of party political controversy.
The Royal Commission states that post-cessation receipts are indistinguishable from similar receipts of other professions. I think that the real distinction is this. Whereas, while they are pursuing a profession and deriving an income, and, therefore, it is perfectly proper that they should pay Income Tax and Surtax on everything that they 697 receive, whether it was contractually enforceable or not, as a result of the profession which they follow, if they cease to practise and are no longer members of the Bar, subsequent sums paid to them are, as a matter of law, paid gratuitously.
Artists and similar people can sue for money due to them, but if a member of the Bar ceases to practise he not only has no legal right to enforce any claim but he has no longer any moral claim for it, because although the argument is that while he is continuing his practice, although he has no legal right, he can enforce a moral right against solicitors—because otherwise they could be condemned for being somewhat unethical—that argument no longer applies in the case of a barrister who has retired and who has ceased to practise.
It seems to me, in my humble and limited scope, that there is a distinction here, and that there are considerations of justice, considerations of constitutional practice and theory, considerations of maintaining the independence of the Bar from which the judiciary is selected, quite apart from those put forward by my hon. and learned Friend. I hope that the Chancellor will bear all these things in mind in any decision that he reaches on this matter.
§ The Financial Secretary to the Treasury (Sir Edward Boyle)
We have listened to a most interesting and very brave speech from the hon. Member for Islington, East (Mr. Fletcher) and I think that as a result of his remarks I can address the Committee at rather shorter length than might otherwise have been the case.
The effect of the Amendment of the hon. and learned Member for Kettering (Mr. Mitchison) would be to extend this Clause so as to charge all post-cessation receipts on businesses or professions the profits of which had been computed on the cash basis or, if we prefer to use the hon. and learned Gentleman's phrase, on the basis of assessment by payments.
I would remind the Committee what this Clause is seeking to do. This is one of several anti-tax avoidance Clauses. The earnings basis is recognised as normally the best method of computing the profits of a trade or profession; on the earnings basis, the amounts are credited in the account for the year in which they 698 are earned. Where this basis has been adopted, receipts may sometimes come in—the Committee has heard of the Leslie Howard and Peter Cheyney cases —after the trade or profession ceases to be carried on, which, because of their uncertain nature, cannot be included in profits until they take shape as payments, and cannot be assessed after the business has ceased because the trade or profession no longer exists. It is receipts of that kind which will be taxed under the Clause.
What the Clause does not seek to do is to tax post-cessation receipts which arise merely because the cash basis is adopted. I will try to make the point even clearer. The Clause imposes a charge only on two types of case. The first is the Peter Cheyney type of receipt, that is to say, on commission not becoming due until the business in which it was earned had ceased to be carried on. Secondly, there are receipts—such as the recovery of debt wholly or partly written off as paid during the life of the business.
I should like to say a word about the cash basis of assessment, or assessment by payments, to which the hon. and learned Gentleman referred. I think that it is generally recognised today that although it is not so satisfactory as the earnings basis, the cash basis is used fairly widely in the professions. Although I am not a lawyer myself I think that I am right in saying that this at one time or another has been blessed and recognised by the courts.
As the hon. Gentleman the Member for Islington, East said, barristers cannot sue for their fees and, therefore, they can only be assessed on the basis of their receipts; and the cash basis is then the only legal method of computing profits. [An HON. MEMBER: "Why?"] Because they cannot sue for their fees. They can only be assessed on the basis of their receipts, and, therefore, the only legal method, in view of the position of the Bar, is on the basis of assessment by payment.
§ Mr. Mitchison
I hope that the Financial Secretary will be a little clearer on that. The Royal Commission considered this point. It did not think much of it and came to the conclusion which I have just mentioned. I do not think much of it, either. I hope that the Financial Secretary will explain why 699 members of professions including the Bar cannot be assessed on an earnings basis.
§ Sir E. Boyle
I was coming to the question of the Royal Commission, which the hon. and learned Gentleman and the hon. Member for Islington, East also raised. It is perfectly true that it is inherent in the system of assessment on the cash basis that some receipts escape tax on the cessation of the profession. On the other hand, the freedom from tax of the post-cessation receipts is balanced by a double charge if the cash basis is first adopted; the Revenue always insists on the earnings basis in the opening years of any profession, except in the case of barristers, with the result that, whenever a taxpayer changes over to the cash basis, earnings which are unpaid at the change-over are, in effect, taxed twice.
In its final Report the Royal Commission recommended that all post-cessation receipts should be taxed on receipt. There are serious difficulties about this suggestion in relation to a receipt arising merely because the tax basis was adopted. I think it fair to say that the Royal Commission took no account of the duplicated charge in the opening years of the profession, to which I have just referred. We have to remember—and I think that the hon. Gentleman the Member for Islington. East alluded to it—that professional men on a cash basis look forward to their post-cessation receipts as a perfectly legal tax-free nest egg for their retirement, and to make this change here and now would, as, I think, the Royal Commission recognised, defeat their expectations in a very sharp way.
§ 4.30 p.m.
§ Mr. Douglas Jay (Battersea, North)
Will the Financial Secretary recall that what the Royal Commission said was that two things should be done simultaneously: first, that the post-cessation receipts of 'barristers should be taxed; and, secondly, that assessments should be made of the superannuation payments? One was done in the 1956 Act. That strengthens the argument for what we are asking, that we should now carry out the other proposal.
§ Sir E. Boyle
I will come to this question about barristers, because I am fully aware that the fact that barristers are 700 excluded from the ambit of this Clause has attracted a good deal of comment outside.
I would say two things about barristers. The first is that since barristers are assessed on a cash basis, surely it is reasonable that they should receive no worse treatment than professional men generally who are also assessed on the cash basis. I do not see how we can make an exception of barristers.
The second point is this—and this is the more important—that we are, after all, here dealing with one important Clause which deals with the problem of tax avoidance, and there cannot be any question of barristers practising the tax avoidance devices which have made it necessary to bring in this Clause.
I would just remind the Committee of what my right hon. and learned Friend the Attorney-General said on Second Reading of the Bill:The Government have been asked why Clause 30 does not apply to lawyers. The Leslie Howard and Peter Cheney cases established that book royalties paid after the death of authors were not subject to Income Tax. Following upon those cases, some authors have found it wise to discontinue their profession as authors and to become the employees of companies which they form and to write for the companies. …The barrister is not in a like position, The barrister who has built up a practice cannot cease his profession and then do the work of a barrister as an employee or partner. In fact, practising barristers do not cease to practise just for tax avoidance reasons"—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 1039.]That is the nub of the matter, and the object with which this Clause has been brought in, to combat tax avoidance, cannot apply to barristers. Therefore I do not believe that there is any reason at all why we should single out barristers for especially unfavourable treatment with regard to the cash basis.
§ Sir E. Boyle
It is not unique at all.
As I explained in the earlier part of my speech, the effect of the Amendment would be to charge the post-cessation receipts on businesses or professions the 701 profits of which had been computed on the cash basis. The Clause does not seek to tax post-cessation receipts which arise merely because the cash basis was adopted.
We believe that the Clause would be-perfectly satisfactory to deal with the problem of tax avoidance as it stands. We therefore do not think that there is any need in any way to discriminate against barristers. We think that it would be quite possible to achieve the objects of the Clause without extending its ambit by this method in the Amendment, which I ask the Committee to reject.
§ Mr. Diamond
I must say that I hope that the Financial Secretary understands the distinction that he is trying to make, because I fail to do so. I fail to understand how he can allege that we are singling out barristers for especially unfavourable treatment. What is happening is that the Government themselves are singling out barristers for specially fair treatment. I think that there needs to be a good deal more explanation.
The Amendment, as we all know, relates mainly to barristers who, we have heard, have a specially privileged position because they cannot sue for their fees. The first answer to that is that, of course, nobody is made to pay tax on any fees he does not get whether he sues for them or not. He is asked to pay tax only like any other taxpayer on income which comes into his hands at the time he has to pay it. Many taxpayers have to pay tax on income long before the money comes into their hands, in many cases. The barrister under this Amendment is only required to pay tax like any other citizen when the cash comes into his hands and is available for spending.
The difficulty here is a difficulty of measurement, but a difficulty of measurement only. It is certainly a little difficult, at a particular accounting date, to measure with precision what the income of a particular year is. This is a problem with which every accountant and every inspector of taxes is faced with regard to almost every business every day, the problem of measurement. One has to do the best one can.
But, for the Bar, they have continued this special privilege of being allowed to be taxed on a cash basis, knowing full well that the result will be at the end of the period that post-cessation
702 receipts will be tax-free. Surely, as we are dealing with a Bill which is intending to stop tax avoidance, it is unfair to the profession of the Bar, the senior legal profession, to let it be widely known that they alone are singled out for this preferential treatment. Far from what my hon. Friend the Member for Islington, East (Mr. Fletcher) said about this Amendment being against the interests of the Bar, I would say that it is in their own interests that the Bar, which exists to help achieve justice in this country, should not be the one profession singled out to be above the law. I should think that in their interests it should be clearly known and in everybody's knowledge that they are covered by the same legal requirements of every subject.
There is a slight technical point which has been raised about double taxation in the opening years. With deference, I think that the Financial Secretary was wrong in two respects. He was wrong when he said that this was the only legal method. I doubt whether he could give us that Section of the Act which states that barristers must be assessed by this method. He was quite wrong in saying that this is the only legal method. There is nothing to stop barristers being assessed on the income basis if they want to. This is a convenient method, but it surely cannot be alleged to be the only legal method of assessing barristers.
The Financial Secretary was surely quite wrong in saying that barristers, or professions other than the Bar, who wish to be assessed on a cash basis, had been assessed on the income basis in the opening years. This has applied only as a matter of practice in fairly recent times. There must be many who are assessed on the cash basis who were always assessed on the cash basis, including the years in which they started to practise.
This question of double taxation is a tiny and almost irrelevant point which, it is admitted on both sides, does not apply to the Bar. The Bar has always been assessed on the cash basis, and at the end of the period they are still left with a good deal of indebtedness in what has not been received and has not been subject to tax. I am surprised at my hon. Friend the Member for Islington, East attempting to distinguish with such precision between indebtedness and what 703 might be sued for. Of course, a barrister cannot sue for his fees, but surely we are not going to say that every solicitor responsible for the payment of fees is not going to pay an honest debt, a debt which is due, merely because he knows the barrister cannot sue? What extraordinary relationships exist between the two wings of the legal profession.
§ Mr. Diamond
Everybody knows that this is a debt which is due. The fact that a man cannot sue for it merely puts it in the same category of debts of masses of businesses which find that for purely practical reasons they cannot sue, otherwise they will not get any more business. Any number of professional people know that if they sue a client, that will be the last time they will see that client. This is only for a purely practical purpose and it is not peculiar to barristers.
As for the allegation that barristers who want to be singled out for this special treatment and to be regarded as above the law because they are incapable of tax avoidance, I should think that those who say it require a good deal more evidence about human beings. Let us take the simple case of an extremely busy silk who is coming towards the end of his practice and earning £20,000 a year gross. He has about two years' fees owing of £40,000, and he has a clerk who, like his boss, is very busy. Who will blame this busy silk if he omits to tell his clerk in the closing period of his practice to send out bills to solicitors all the way round and encourage them by all means to pay the fees?
Who is to blame him if he omits to do that and allows the fees to accumulate a little, in the knowledge that if they are paid on the day that he ceases practice, they are subject to tax and possibly Surtax, but if they are paid in a following period they will cease to attract tax altogether? Who would say that the barrister, especially if he is practising in the tax Bar and knows about all these things, would never consider his own advantage in that way? It is due to the Bar to make it clear that neither it nor Parliament wants it to be singled out for special treatment under the law.
§ The Attorney-General (Sir Reginald Manningham-Buller)
I listened to the hon. Member for Gloucester (Mr. Diamond) making his ninth speech on the same subject last night. I cannot say that I congratulate him on making his tenth speech. [An HON. MEMBER: "On a different subject"] It is on an entirely different subject, but on this subject I can find little substance in what he says. He is wholly wrong. He makes out that the barrister is in a special position in the matter of tax law, and he used the phrase that this was the one profession to be singled out to be beyond the law. That is not the case at all.
Many professions and people are taxed on a cash basis instead of on an earnings basis, and barristers are one section of the community who are taxed on a cash basis. Ever since the Income Tax law first started people have not been required to pay Income Tax except on income, and the receipts which have come in after the profession or the occupation has been discontinued are not, in the absence of special provisions, subject to tax, because they are no longer income receipts.
It has always been the fact that barristers cannot sue for fees and we are not now discussing whether that is a good or bad thing. My hon. Friend the Financial Secretary said quite correctly that one consequence of that is that one can really assess barristers only on a cash basis. But it is a great mistake to think that they are the only persons who are assessed on a cash basis. I did not intend to speak in this discussion, but in view of the observations which the hon. Member for Gloucester thought fit to make about the Bar I thought that I should do so to correct a wrong impression from which he was suffering.
The question raised by the Clause is not whether receipts after the termination of professions and occupations assessed on a cash basis should now be made liable to Income Tax where they never have been. The question here is something quite different—the avoidance operations which can be deliberately entered into and are quite distinct from true post-cessation receipts as a result of the two test cases in the House of Lords to which the hon. Member referred.
This is the whole object of the Clause. It is to tax that kind of what I might 705 call deliberate tax avoidance. The hon. Member for Gloucester thought fit to give an example of the sums which he thought might be involved when a barrister ceased to practise. The sort of estimates that are made of the sums not taxed as post-cessation receipts in my profession are very much exaggerated. The right hon. Member for Smethwick (Mr. Gordon Walker) appears to want to say something. If she wishes to interrupt I will give way.
§ Mr. Gordon Walker
If the right hon. and learned Gentleman wants me to interrupt. I will. It makes no difference at all to the principle if every case is as large as my hon. Friend the Member for Gloucester (Mr. Diamond) said, or only some cases are as large.
§ 4.45 p.m.
§ The Attorney-General
I was not suggesting that it made any difference to the principle. I was making that observation and I was entitled to make it. This is a relevant circumstance and at would be wrong if it were thought that large sums of money are involved in that kind of post-cessation receipts. I should not like it to go out from the Committee that the barrister is being singled out for special treatment. His treatment is exactly the same as that of any other professional man who is assessed on a cash basis. There may be a question whether one should alter the system of tax legislation generally.
§ Mr. Roy Jenkins (Birmingham, Stechford) rose—
§ The Attorney-General
I should like to finish a sentence before I give way.
One could make an alteration generally and, if one liked, tax as income something never regarded as income since Income Tax started, but that would be for general application. There is no ground for singling out the barrister
in this respect. [An HON. MEMBER: "Deal with the Amendment"] I am not now dealing with the Amendment. I am replying to the speech of the hon. Member for Gloucester.
§ Mr. Jenkins
Then will the right hon. and learned Gentleman give examples of other categories of people who, like barristers, are taxed on a cash basis on cessation?
§ The Attorney-General
There are many other professions. Many architects, for instance, are taxed on a cash basis. There are also engineers. The hon. Member can find that out. I am quite sure that that is so, and the effect, of course, is exactly the same.
§ Mr. Diamond
Will the right hon. and learned Gentleman answer two questions about fact, in case I was wrong in what I said about Inland Revenue practice? I am asking this as one speaking to the Amendment and, therefore, I am asking for information which can be obtained from the official advisers. Am I wrong in thinking that the Bar is the only profession in which every member is assessed on a cash basis? Am I wrong in thinking that the Bar alone has the advantage that every new practitioner is allowed to be assessed on a cash basis without being assessed on an income basis in his opening years? Will the Attorney-General answer those two specific questions?
§ The Attorney-General
Both specific questions are already covered by what I said. The right hon. Gentleman the Member for Smethwick is muttering, if he wishes to interrupt, perhaps he will rise. He keeps on muttering when I am endeavouring to answer questions. I wish that he would stop it. It is a regular habit of his and a bad one.
I covered the points which the hon. Member for Gloucester has just put to me. I pointed out that as a barrister cannot sue for his fees—and this goes to the root of it—he has no earnings in that category which can be assessed as earnings. Nothing comes in which can be treated as earnings. It is the case —and I do not personally see how it adversely affects the position one way or another—that the barrister can be assessed legally only on a cash basis.
§ Mr. Diamond
The right hon. and learned Gentleman has not answered my question. The Financial Secretary to the Treasury knows that he has his Parliamentary Private Secretary sitting behind him. The information should be placed before us when Parliament is being asked 707 to pass legislation which affects particularly a special profession. Is it or is it not the case that the Bar is the only profession every single member of which is assessed on a cash basis?
Is it, or is it not, the case that it is only the Bar of whom every single member is assessed on a cash basis? I know that there are practitioners in other professions who are assessed on a cash basis, but my information is that it is only the Bar of which every member is assessed on a cash basis. Most important of all, is it not the case that it is only the commencing barrister who under the new practice of the Revenue is not required to deal with his earnings on an income basis?
§ The Attorney-General
I thought that I had specifically answered the hon. Gentleman's questions. I am sorry if I did not make myself clear. It follows from what I said that the barrister, as he can only be assessed on a cash basis, is always assessed on a cash basis. Every barrister is, from the beginning to the end of his career. That answers that question, and I have answered it before.
The second question is whether there are any other professions where all the members can be taxed only on a cash basis. The answer is that there are no other professions of which I am aware whose members are not able to sue for their fees.
§ The Attorney-General
The bookmaker may be one example. The hon. Gentleman asked whether there was any other profession where all the members were assessed on a cash basis. Where a profession can sue for its fees, then I apprehend that some of them may be on the earnings basis.
§ Mr. Jay
I cannot congratulate the Attorney-General, either on his speech or on his answers. What he has done is to give the technical reasons why barristers' post-cessation receipts are not at present subject to tax, but that is what the Royal Commission did. Having done that—and this is Lord Radcliffe, when all is said and done—it said:We appreciate that the peculiarity of his position means that he could not be required to compute his profits on an earnings basis, even if the Revenue desired to challenge the 708 present practice. But it does not seem to us that that has any real bearing upon the question whether, when his fees do come in, they should escape taxation as income because he is no longer in practiceIt went on to propose that those fees when they came in should be subject to tax.
Secondly, the Royal Commission then said, as the only qualification of that, that something should be done by way of superannuation concessions to help the barristers and other self-employed persons of the same kind to meet the need for income after retirement. The Royal Commission said that those two things should be done complementary to one another. As we know, in the 1956 Act the Government accepted the second proposal but we still have not had the first proposal made by the Royal Commission accepted. That strengthens the case further.
Thirdly, we now have a situation in which the Government have come along and propose to remove this anomaly, this specially privileged position, from all other professions, but they are in practice singling out—whatever be the precise legal position—the barristers and possibly —this is the effect of the Clause—a few other fringe professions, and a small minority of persons.
If this goes through in this form this will become a major scandal in our tax system. When one hears it seriously argued, as I have, that we cannot get men to accept appointments as judges, or that we will not be able to get them unless they know that this special concession relates to barristers only, and when one hears it said that the Government have to keep this special discrimination in favour of this one profession or else they will not be able to recruit people into the Bar, it seems that we have reached a point which is exceedingly shocking to everybody in this Committee who is not a lawyer. I hope, therefore, that we shall contemptuously reject the Attorney-General's argument and carry the Amendment to a Division.
§ Mr. Gerald Nabarro (Kidderminster)
I intervene because I received a letter from my right hon. and learned Friend on this very point. I warned him in my original letter to him on behalf of solicitors that in connection with this Clause and this Amendment I would put one 709 or two questions to him. My right hon. and learned Friend said that he did not apprehend that there would be much difficulty in answering my questions.
Of course there is not. There is a technical and historical reason for barristers being placed in this unique position, but I ask my right hon. and learned Friend whether it is strictly true, in this year of grace, to say that a barrister, because he cannot sue for his fees, is in this special position? In the overwhelming majority of cases, when the brief is taken the barrister's fees are guaranteed by the solicitor briefing him.
§ Mr. Nabarro
My hon. and learned Friend says that is wrong, but that is my information. As a layman I ask my right hon. and learned Friend a reasonable and genuine question about this. There is evidently one fiscal law for barristers and another fiscal law for solicitors. I was informed only this morning that the Law Society has made powerful representations to my right hon. and learned Friend on this point, so I am not expressing a view only as a layman.
I repeat that it is not possible for me as a layman, either in a personal capacity, or in a business capacity on behalf of a company, to employ the services of a barrister without going first to a firm of solicitors.
§ Mr. Nabarro
I may be inaccurate in what I am saying. I do not know. I am a layman, and I am not being mendacious. My hon. and learned Friend said I was wrong, but in my experience with lawyers I have never been able to go direct to a barrister. I have had to go to a solicitor first to employ a barrister for me, and in effect the solicitor guarantees the barrister's fees and he pays them out of his moneys and then submits his account to the client.
710 In such circumstances, and having regard to what the Royal Commission said, I do not think that it is good enough to go on relying on the technical reason which has been advanced for the last twenty to thirty years that, because of an historical accident—and that is all it is—the barrister should be placed in this unique position.
We all know that in the Committee today, and in the House of Commons, the overwhelming majority of members fall into one of two categories. They are either members of trades unions, or trade union officials, on the one hand, or they are lawyers on the other hand. Lawyers are the most powerful vested interest in the House and in this Committee. There is no doubt about that, and my right hon. and learned Friend, as the Attorney-General, is regarded as the senior legal luminary. I am already collecting black looks from my hon. Friend the Member for Darwen (Mr. Fletcher-Cooke). He is another section of the vested interest.
I have no objection to this practice being continued if there are valid and practical reasons for doing so, but I do not like it going on year after year because of what is nothing better than an historical accident—that is all. For the reasons adduced by the right hon. Member for Battersea, North (Mr. Jay), and because of the recommendation of the Royal Commission, I should like my right hon. and learned Friend to answer this question. As a layman I believe that the overwhelming majority of cases produce a situation whereby the barrister's fees are guaranteed by the solicitor. In those circumstances it is not good enough to say that a barrister should have these post-cessation earnings tax free as a unique case simply on the ground that he cannot sue for his fees.
§ 5.0 p.m.
§ Mr. Enoch Powell (Wolverhampton, South-West)
Before my right hon. and learned Friend the Attorney-General replies to my hon. Friend the Member for Kidderminster (Mr. Nabarro), will he clear up something which was not made clear in the course of his speech? He referred to members of a number of professions who, like barristers, are assessed on a cash basis. He referred to certain architects, engineers and others, 711 who are in the same position as barristers in that they are assessed on a cash basis. What I want to be clear about is whether in its present form the Clause will allow their post-cessation receipts to continue not to be taxed.
§ The Attorney-General
The answer to the question of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) is that the effect of the Clause is such that their position will remain unchanged and they will not be taxed. The answer to my hon. Friend the Member for Kidderminster (Mr. Nabarro), who wants elucidation of the position of the Bar and its relationship with solicitors, is that there is nothing in the shape of a guarantee. I am sure that, with his business capacity, even if my hon. Friend got a guarantee he would not feel very happy, unless he could also sue if the guarantee was not kept.
§ Mr. Mitchison
I moved the Amendment in as quiet and unprovocative a manner as I possibly could. I did so deliberately, because this kind of thing arouses a lot of heat among members of the Bar and I thought that there was some heat, very naturally, in the reply of the right hon. and learned Gentleman the Attorney-General. I expected it and I think none the worse of him for it.
We are talking about income and we have been told that post-cessation receipts are not income. They do not attract Income Tax, but that does not mean that they are not income, for the things which attract Income Tax are very odd, indeed. It is extraordinary that anybody should suggest that barristers are the only people who cannot recover their earnings.
There was once a man called Smith who carried on a boot-legging trade in Canada. When the authorities tried to collect Income Tax from him, he said, "You cannot do that because you will be partners in my crime "The revenue authorities in Canada said, "We do not mind about that; it is income and we want the tax on it" They took him to the Privy Council and got their tax. I imagine that if Mr. Smith had tried to recover his earnings as a bootlegger, he would have found it difficult in Canadian courts. Moreover, I fail to see how Mr. Smith could have been assessed on an 712 earnings basis. I should have thought that bootleggers were almost inevitably assessed on a cash basis. To proceed up the scale a little, what about "bookies"? I do not know what a bookie's earnings are, but I know that bookies cannot recover debts in a court of law. Yet it is income and assessed as income in the tax he has to pay on his earnings as a bookie.
§ Mr. Mitchison
I agree. The Attorney-General is perfectly right, he could not be assessed on his earnings.
The position, therefore, is not that barristers are the only people concerned. The position was quite correctly stated by the Royal Commission. The only profession which has always computed its profits for taxation on a cash basis is that of barristers. It might be said that boot-legging, or even bookmaking, was not a profession.
However, we are dealing not only with the Bar, but with some cases in other professions, architects being an obvious instance. I should have thought it possible—I say no more—that there might be the same position among doctors, but barristers are the only profession which has always done it. The public, which in some ways is a trifle allergic to lawyers, does not like to feel that lawyers are getting special treatment and particularly does not like to feel that when lawyers are fully represented in the House of Commons.
I am not for a moment saying that members of the Bar in the House of Commons do not put their duties as Members of Parliament first. I think that they all do, but all of them, including the Attorney-General, should consider whether it is in the best interests of the Bar in the long run that the Bar should have a privileged position, as it has to some extent.
I have been looking at the membership of the Royal Commission. Its members were not ignorant of the law or of taxation practice. Indeed, it would have been rather odd, considering the purposes for which they were appointed, if they had been. The first chairman was Lord Cohen and the second was Lord Radcliffe, and Mr. James Millard 713 Tucker was a member of the Commission all through. Those people are not expected to be ignorant of what goes on at the Bar. After all, they have spent their lives at the Bar. They said:We appreciate that the peculiarity of his position—that is, the barrister's position—means that he could not be required to compute his profits on an earnings basis, even if the Revenue desired to challenge the present practice".That may well be so. When I was moving the Amendment, I said that I appreciated that there might be some administrative difficulties and considerable administrative changes. However, the Commission went on:But it does not seem to us that that has any real bearing upon the question whether, when his fees do come in, they should escape taxation as income because he is no longer in practiceThat is the short and simple point which we are considering not only in relation to the Bar but in relation to other people who may be similarly affected. The Commission's conclusion was:On this issue his post-cessation receipts seem to us to be indistinguishable from similar receipts of other professions and we think that they should be treated in the same way".There comes a time when people who are learned in these things, or have great technical or administrative experience, raise all sorts of complicated issues and difficulties and when the people who know most about it and the ordinary man in the street often agree over the heads of the other people.
This is a simple matter and the issue is simply whether the receipts of people who are at present assessed on a payment basis, including the one profession which has always been assessed in that way, but including others, should be distinguished from other professions in the matter of these receipts. That is the point and there is a very clear answer to it, the answer given by the Royal Commission which included a very high judicial authority as its chairman and one learned member of the Bar who knew, if not more, then certainly as much as anyone else at the Bar about Income Tax. It is nonsense to say that we can continue the distinction on the highly technical and rather archaic point that barristers cannot sue for fees—nor can a bookie.
714 I ask the Committee in this matter to take a rather broader view than same hon. Members, including my hon. Friend the Member for Islington, East (Mr. Fletcher) have taken so far. There is a very simple point here and as a House of Commons we ought to take it. We have had rather unconvincing speeches from members of the Government. I have the feeling that they did not really believe in their briefs. I am not suggesting that they were insincere or anything of that sort, but they carried no conviction with me.
The simple point is whether people who get an income in the ordinary sense of the word, through fees received for their professional activities after having ceased to exercise those activities, should be taxed on those receipts. Surely it is the worst possible answer to say "Yes", if they are assessed on an earnings basis, and "No", if they are assessed on a payments basis.
Who cares, on a question of morals, whether it is earnings or payments? The real point is, ought we to accept one group of people who are only distinguishable on the technical ground or only distinguishable because they have succeeded so far in being distinguishable? It is in the worst interest of a noble profession—and I say that advisedly—that its members should rely on the sort of defence that the Government and some hon. Members opposite have put up on their behalf today.
I urge the Committee on a matter of this sort to take the law into its own hands and to say, "We think it right that these post-cessation receipts should be taxed in the same way for everybody," because, as the Royal Commission found, in plain English, they are indistinguishable whatever the form of assessment may be.
As to the other point, which has been answered by my hon. Friend, it is perfectly true that the Royal Commission made a reservation in connection with superannuation provisions, but the fact is that these superannuation provisions have since been met and it is only this ridiculous anomaly which persists and which would persist if the Clause went through unamended.
I ask the Committee to exercise a little more sense, if I may say so, on this matter and to do the right thing. It is perfectly obvious what that is.
§ Mr.Anthony Crosland (Grimsby)
On a point of order. There are a large number of barristers on the benches opposite and I feel very disinclined to express my own view on this extremely difficult Amendment without knowing how barristers on the Government benches feel about it. We had the benefit of about eighteen hours—
§ Mr. Gordon Walker
Would it be the case that a bookmaker, who, I understand, cannot sue for collection of bets which form a large part of his income, would have his post-cessation receipts from betting tax-free? As far as I can see, bookmakers and barristers seem in this respect to be on exactly the same footing in that they cannot sue, in the case of barristers for the whole income and in the case of bookmakers for a large part of it. Would a bookmaker also have his post-cessation debts tax-free?
§ The Attorney-General
Any person assessed on a cash basis, bookmakers and everyone else, will not have to pay tax on any receipts which come in after they cease to carry on their profession or occupation. That applies to bookmakers assessed on that basis and to anyone else.
§ Mr. Gordon Walker
That does not quite answer my question. Is it general that bookmakers are so assessed or do barristers have the double disability of not being able to sue and being taxed on a receipt basis? Are bookmakers normally taxed on receipts?
§ Mr. Fletcher
Surely before the Committee comes to a decision on the Amendment we are entitled to have some clarification. It really is a very serious point which my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) has just raised.
§ The Attorney-General rose—
§ Mr. Fletcher
Before the right hon. and learned Gentleman replies and in order that he may have time to collect his thoughts and give us a considered reply, may I remind him that a great 716 many of us have been spending a considerable time considering the Betting and Gaming Bill, as a result of which we shall shortly have an entirely different system in this country under which betting offices will be legalised and under which there will be a system of registration of bookmakers. Are the Government going to tell us that one result of the Betting and Gaming Bill is to be that bookmakers shall be registered and controlled and that their profits shall be known and that the public will have information about the profits of bookmakers in the future?
§ 5.15 p.m.
§ The Temporary Chairman
I must ask the hon. Member to relate what he is saying to the Amendment under discussion. We are not discussing the Betting and Gaming Bill.
§ Mr. Fletcher
I am relating my argument to what I regard as the very pertinent question put to the Attorney-General by my right hon. Friend. My right hon. Friend inquired, and I would like to know for my own guidance, whether there is any distinction between the position of bookmakers and barristers. Hitherto this debate has been conducted on the basis that barristers are in some particular and privileged category.
My right hon. Friend asked what the position was in regard to bookmakers. Hitherto, as I understand it, they have been taxed on a cash basis. As a result of the Betting and Gaming Bill it looks to me as if, in future, they are likely to be taxed on an entirely different basis for the reason that, in future, they will be registered and obliged to render accounts and therefore may well be taxed on a different basis. That being so, in the case of bookmakers who have been taxed on one basis there will probably arise the question of cessation. May we know whether, if they claim a cessation because we are going to establish a different basis of taxation, they will have the same privileges as are indicated in the Bill with regard to barristers?
§ The Attorney-General
Perhaps I could answer this question in so far as it really relates to the debate and again repeat my answer to the right hon. Gentleman. Apparently, I have not made it clear to him. No doubt, that was my fault. I do not hope to satisfy the 717 right hon. Gentleman. That would be hoping for too much.
In answer to the hon. Gentleman and also to the right hon. Gentleman, the answer is that anyone who is assessed for tax on a cash basis will not be taxed on receipts which come in after cessation. That is absolutely clear. Whether or not they are assessed on a cash basis does not solely depend on whether they can sue for fees for work done. There are those who can sue when they are still assessed on a cash basis.
The answer about post-cessation receipts applies to all assessed on a cash basis. I really cannot make it clearer than that. If the question is asked whether bookmakers can sue in respect of bets and recover them, the answer is that they cannot because of the Gaming Act.
§ Mr. Frank Bowles (Nuneaton)
May I ask the right hon. and learned Gentleman another question? Can a person cease his profession more than once?
§ Mr. Bowles
My right hon. Friend says "Yes". Therefore, a person could leave the Bar, become President of the Board of Trade and then, when he ceased being President of the Board of Trade, could go back to the Bar and then, again, become a director of Shell and get his lump sum free of tax over and over again. Can the right hon. and learned Gentleman clear up that point?
§ The Attorney-General
We are now descending into details of hypothetical cases. Yes, a person can cease to practise a profession more than once. That has been done; I can think of one or two such occasions when that has happened. But the point which my hon. Friend made on the Clause is—
§ The Attorney-General
No, oddly enough it was not.
The point which my hon. Friend made was that this Clause is directed to stop what is a new form of tax avoidance arising out of the decision in the Cheyney case, in particular, since when, particularly in the writing profession, the practice has developed of ceasing to carry on that profession and of forming a one-man company and becoming the em- 718 ployee of that company and writing for it. It is to try to stop that kind of deliberate avoidance, not the fortuitous circumstance of a barrister ceasing to practise and becoming the President of the Board of Trade but deliberate avoidance, that this Clause has been designed.
§ Mr. Roy Jenkins
It is clear that the Attorney-General is more closely informed about the affairs of barristers than about bookmakers or any other category. This is, perhaps, reasonable and not unnatural. The right hon. and learned Gentleman has not, however, applied himself to giving us a clear view of exactly how the cash rule applies and whether it is a reasonably equitable rule or simply a matter purely of accident which is extremely fortunate for one profession and, on the whole, unfortunate for everybody else in the same category.
For example, is it open to an individual whose earnings may be equally or more hazardous than those of a barrister to apply to exercise an option to be assessed on a cash basis rather than an earnings basis? There might well be people in this category. As the Attorney-General told us, the Clause was designed to stop a certain form of tax avoidance developed by some authors. Certainly, we are entirely in favour of stopping that. We are a good deal more enthusiastic about stopping tax avoidance of any sort than any hon. Members opposite, except the Government Front Bench, have shown themselves throughout these proceedings.
One can imagine the position of an author who certainly has no desire to indulge in particular manœuvres to obtain tax avoidance advantages but who, at the same time, may or may not have royalties from, say, the Soviet Union. If the royalties are not paid, he is not remotely in a position to sustain an effective action for legal recovery of those earnings. What happens if they happen to come in after he has ceased to practise as an author or even if he happens to have died? I should say that these clearly were far more hazardous earnings than the normal run of a barrister's fees.
If an author finds himself in that position, can he apply to be treated on a cash basis and, therefore, to have the 719 same advantages as apply to barristers? We ought to have information about this from the Attorney-General. He has not told us much about the detailed position of other professions or given any justification for the existence of the cash as opposed to the earnings rule, except simply to state that this is an immutable law and is something which we should accept.
On the earlier stages of the Amendment, the Attorney-General appeared to think that truculence was a substitute for reason. On the prod of mutterings, as the right hon. and learned Gentleman called it, of my right hon. Friend the Member for Smethwick (Mr. Gordon Walker), the Attorney-General gradually became more agreeable as the Clause went on. But he still has not given us much information about the position. A great number of hon. Members on this side, and, I would have thought, on the Government side, too, feel extraordinarily unhappy after hearing the arguments about the special favourable position in which barristers find themselves.
There are a great number of hon. and learned Gentlemen whom I see in varying positions on the benches opposite—
§ Mr. Jenkins
I would not for one moment dream of suggesting that the hon. Member for Kidderminster (Mr. Nabarro) was in any way learned. Although he sometimes forgets it, the hon. Member is not the only Member in the House, nor even the only Member on the benches opposite. I see some around him who certainly are entitled to the designation of both hon. and learned.
There is the difficulty that if we have, perhaps, a thin Committee on this fine May afternoon, the Amendment may be resisted with the majority being largely made up of hon. and learned Members opposite. The rule is quite clear that hon. Members of the House who have an interest are not thereby prevented from voting, although in any local authority it would be regarded as most improper that this should be done. I ask hon. and learned Members opposite, bearing in mind particularly their judicial position, to consider whether, in 720 view of the strong feelings which have been expressed and the special pleas which have been put forward on their behalf by the Attorney-General—special but wholly unconvincing—it would not be more becoming for them to abstain from voting when the Division comes and to let the matter be decided by a vote of those Members of the House who, although honourable, are not learned.
§ Mr. William Clark (Nottingham, South)
May I ask my right hon. and learned Friend a question? If a professional man apart from a barrister is at present on the cash basis as opposed to the earning basis, can the Inland Revenue at any time say to him, "You must change your basis from cash to earnings"?
§ Mr. E. G. Willis (Edinburgh, East)
This is most unsatisfactory. I have listened to the debate and to the Government Front Bench spokesmen. As a layman, I have not heard any convincing argument on this matter. It is true that the Financial Secretary to the Treasury tried to produce arguments, which were promptly destroyed by his right hon. and learned Friend the Attorney-General, who knocked away the only argument about the double payment when the change was made. So that we have had two conflicting arguments put to the Committee from the Government Front Bench.
When, because of the lack of information and the lack of reasonable argument, hon. Members have tried to obtain information to enable them to make up their minds, the Government Front Bench refuse to give it to them. Are we supposed to vote on the basis of not being given the information for which we are asking? This is a most discourteous way to treat the Committee. When the hon. Member for Nottingham, South (Mr. W. Clark), on the Government side, asks from the back benches for information, the least the Government should do would be to give the information. A lot of conversation and muttering and running to the Box is going on, but the results of it all are not being made available to the Committee. We ought to be told something 721 more. If this is the best way the Government Front Bench can treat the Committee, it is up to the Committee to try to obtain what it wants.
§ Sir E. Boyle
I will try to be brief, informative and not at all truculent. There are certainly circumstances in which the Revenue will make a man go back from the cash basis to the earnings basis. The Revenue always tries, however—and I am sure that it speaks the truth about this—in assessing a man's earnings, to arrive at the conclusion which is the fairer basis of the two.
I reminded the Committee when I spoke about an hour ago on the Clause that in the opening years of a profession other than the profession of a barrister, the Revenue always insists upon the earnings basis. I also reminded the Committee that when a man goes from the earnings basis to the cash basis, that involves that earnings which are unpaid at the change-over are, in effect, taxed twice. That answers one of the points raised by the hon. Member for Gloucester (Mr. Diamond). I hope that with this explanation and answer to the points which have been raised, the Committee may now be ready to come to a decision on the Amendment.
§ Mr. Mitchison
We all noticed that the Financial Secretary pointed out that this rule did not apply to the Bar. He said, "professions other than the Bar".
§ It is fair to say, as did the Royal Commission, that the Bar, for good or for ill, has always been assessed on a payment basis and not on an earnings basis. I think I am right in saying that, with that exception, the earnings basis is the usual basis and that it rests with the inspector or the Revenue authorities whether a man should be allowed to be assessed on a cash basis. The Financial Secretary will correct me if I am wrong.
§ My second point is a quite small one. It has been said by several speakers from the Government Benches that the object of the Clause was to stop discreditable avoidance of tax. It is only fair to say, in connection with that, that in both the cases that went to the Lords there was no suggestion whatever of any avoidance or anything of the sort, and accordingly, if and in so far as this Clause brings into the Revenue net cases strictly comparable with those two, it will he dealing with thoroughly honest and not in any way dishonest people.
§ The Attorney-General indicated assent.
§ Question put, That the words proposed to be left out stand part of the Clause:—
§ The Committee divided: Ayes 198, Noes 126.723
|Division No. 95.]||AYES||[5.30 p.m.|
|Agnew, Sir Peter||Campbell, Gordon (Moray & Nairn)||Farey-Jones, F. W.|
|Aitken, W. T.||Carr, Compton (Barons Court)||Fisher, Nigel|
|Allan, Robert (Paddington, S.)||Cary, Sir Robert||Fletcher-Cooke, Charles|
|Allason, James||Channon, H. P. G.||Fraser, Ian (Plymouth, Sutton)|
|Alport, C. J. M.||Chataway, Christopher||Freeth, Denzil|
|Amory, Rt. Hn. D. Heathcoat (Tiv'tn)||Chichester-Clark, R.||Gammans, Lady|
|Atkins, Humphrey||Clark, Henry (Antrim, N.)||Gardner, Edward|
|Balniel, Lord||Clark, William (Nottingham, S.)||Glover, Sir Douglas|
|Barber, Anthony||Cleaver, Leonard||Glyn, Sir Richard (Dorset, N.)|
|Barlow, Sir John||Collard, Richard||Goodhart, Philip|
|Barter, John||Cooper, A. E.||Grant, Rt. Hon. William (Woodside)|
|Batsford, Brian||Cooper-Key, Sir Neill||Grant-Ferris, Wg Cdr. R. (Nantwich)|
|Beamish, Col. Tufton||Cordeaux, Lt.-Col. J. K.||Green, Alan|
|Bell, Philip (Bolton, E.)||Corfield, F. V.||Gresham Cooke, R.|
|Bell, Ronald, (S. Bucks.)||Courtney, Cdr. Anthony||Grimston, Sir Robert|
|Bennett, F. M. (Torquay)||Craddock, Beresford (Spelthorne)||Grosvenor, Lt.-Col. R. G.|
|Biggs-Davison, John||Crosthwaite-Eyre, Col. O. E.||Hall, John (Wyoombe)|
|Bingham, R. M.||Cunningham, Knox||Hamilton, Michael (Wellingborough)|
|Birch, Rt. Hon. Nigel||Curran, Charles||Hare, Rt. Hon. John|
|Bishop, F. P.||Currie, G. B. H.||Harris, Frederic (Croydon, N. W.)|
|Black, Sir Cyril||Dalkeith, Earl of||Harris Reader (Heston)|
|Bossom, Clive||d'Avigdor-Goldsmid, Sir Henry||Harrison, Brian (Maldon)|
|Bourne-Arton, A.||de Ferranti, Basil||Harrison, Col. J. H. (Eye)|
|Box, Donald||Digby, Simon Wingfield||Harvie Anderson, Miss|
|Boyle, Sir Edward||Doughty, Charles||Head, Rt. Hon. Antony|
|Braine, Bernard||Drayson, G. B.||Hendry, Forbes|
|Bromley-Davenport, Lt.-Col. W. H.||du Cann, Edward||Hiley, Joseph|
|Brooman-White, R.||Duthie Sir William||Hill, J. E. B. (S. Norfolk)|
|Bullus, Wing Commander Eric||Errington, Sir Eric||Hinchingbrooke, Viscount|
|Burdon. F. A.||Erroll, F. J.||Hobson, John|
|Holland, Philip||Marlowe, Anthony||Smyth, Brig, Sir John (Norwood)|
|Hopkins, Alan||Marshall, Douglas||Spearman, Sir Alexander|
|Hornby, R. P.||Marten, Neil||Speir, Rupert|
|Howard, Gerald (Cambridgeshire)||Mathew, Robert (Honiton)||Studholme, Sir Henry|
|Howard, Hon. G. R. (St. Ives)||Matthews, Gordon (Meriden)||Summers, Sir Spencer (Aylesbury)|
|Howard, John (Southampton, Test)||Maydon, Lt.-Cmdr. S. L. C.||Sumner, Donald (Orpington)|
|Hughes-Young, Michael||Morrison, John||Tapsell, Peter|
|Hutchison, Michael Clark||Mott-Radclyffe, Sir Charles||Taylor, W. J. (Bradford, N.)|
|Iremonger, T. L.||Nabarro, Gerald||Temple, John M.|
|Irvine, Bryant Godman (Rye)||Noble, Michael||Thatcher, Mrs. Margaret|
|Jackson, John||Page, A. J. (Harrow, West)||Thomas, Peter (Conway)|
|James, David||Page, Graham||Thompson, Richard (Croydon, S.)|
|Jenkins, Robert (Dulwich)||Pannell, Norman (Kirkdale)||Thorneycroft, Rt. Hon. Peter|
|Johnson, Dr. Donald (Carlisie)||Pearson, Frank (Clitheroe)||Thornton-Kemsley, Sir Colin|
|Kerans, Cdr. J. S.||Peel, John||Tilney, John (Wavertree)|
|Kershaw, Anthony||Pickthorn, Sir Kenneth||Turner, Colin|
|Kimball, Marcus||Pilkington, Capt. Richard||Turton, Rt. Hon. R. H.|
|Kirk, Peter||Pitman, I. J.||van Straubenzee, W. R.|
|Kitson, Timothy||Pitt, Miss Edith||Vaughan-Morgan, Sir John|
|Lambton, Viscount||Powell, J. Enoch||Vickers, Miss Joan|
|Lancaster, Col. C. G.||Prior, J. M. L.||Wakefield, Edward (Derbyshire, W.)|
|Legge-Bourko, Maj. H.||Prior-Palmer, Brig. Sir Otho||Ward, Dame Irene (Tynemouth)|
|Legh, Hon. Peter (Petersfield)||Proudfoot, Wilfred||Watkinson, Rt. Hon. Harold|
|Lewis, Kenneth (Rutland)||Redmayne, Rt. Hon. Martin||Watts, James|
|Lilley, F. J. P.||Rees, Hugh||Webster, David|
|Linstead, Sir Hugh||Ridley, Hon. Nicholas||Wells, John (Madstone)|
|Litchfield, Capt. John||Ridsdale, Julian||Whitelaw, William|
|Loveys, Walter H.||Robinson, Sir Roland (Blackpool, S.)||Wilson, Geoffrey (Truro)|
|Lucas, Sir Jocelyn (Portsmouth, S.)||Roots, William||Wise, A. R.|
|Lucas- Tooth, Sir Hugh||Russell, Ronald||Wolrige-Gordon, Patrick|
|McAdden, Stephen||Scott-Hopkins, James||Woollam, John|
|MacArthur, Ian||Sharples, Richard||Worsley, Marcus|
|McLaren, Martin||Shaw, M.||Yates, William (The Wrekin)|
|Maclean, Sir Fitzroy (Bute & N. Ayrs.)||Simon, Sir Jocelyn|
|Maddan, Martin||Skeet, T. H. H.||TELLERS FOR THE AYES:|
|Maginnis, John E.||Smith, Dudley (Br'ntf'd & Chiswick)||Mr. Finlay and Mr. Gibson-Watt.|
|Manningham-Buller, Rt. Hn. Sir R.||Smithers, Peter|
|Markham, Major Sir Frank|
|Ainsley, William||Hamilton, William (West Fife)||Peart, Frederick|
|Albu, Austen||Hannan, William||Plummer, Sir Leslie|
|Allen, Scholefield (Crewe)||Hayman, F. H.||Probert, Arthur|
|Benn, Hn. A. Wedgwood (Brist'l S. E.)||Henderson, Rt. Hn. Arthur (Rwly Regis)||Proctor, W. T.|
|Benson, Sir George||Hill, J. (Midlothian)||Redhead, E. C.|
|Blackburn, F.||Holman, Percy||Reynolds, G. W.|
|Blyton, William||Houghton, Douglas||Robens, Rt. Hon. Alfred|
|Bowden, Herbert W. (Leics, S. W.)||Hughes, Emrys (S. Ayrshire)||Robinson, Kenneth (St. Pancras, N.)|
|Bowen, Roderic (Cardigan)||Hunter, A. E.||Rogers, G. H. R. (Kensington, N.)|
|Bowies, Frank||Hynd, H. (Accrington)||Ross, William|
|Brockway, A. Fenner||Hynd, John (Attercliffe)||Silverman, Julius (Aston)|
|Butler, Herbert (Hackney, C.)||Irving, Sydney (Dartford)||Silverman, Sydney (Nelson)|
|Butler Mrs. Joyce (Wood Green)||Janner, Barnett||Skeffington, Arthur|
|Callaghan James||Jay, Rt. Hon. Douglas||Snow, Julian|
|Castle, Mrs. Barbara||Jenkins, Roy (Stechford)||Sorensen, R. W.|
|Corbet, Mrs. Freda||Johnson, Carol (Lewisham, S.)||Steele, Thomas|
|Crosland, Anthony||Johnston, Douglas (Paisley)||Stewart, Michael (Fulham)|
|Grossman, R. H. S.||Jones, Rt. Hn. A. Creech (Wakefield)||Stones, William|
|Cullen, Mrs. Alice||Jones, Dan (Burnley)||Strauss, Rt. Hn. G. R. (Vauxhall)|
|Darling, George||Kenyon, Clifford||Strouss, Dr. Barnett (Stoke-on-Trent, C.)|
|Davies, Harold (Leek)||Key, Rt. Hon. C. W.||Summerskill, Dr. Rt. Hon. Edith|
|Deer, George||King, Dr. Horace||Swingler, Stephen|
|Delargy, Hugh||Lewis, Arthur (West Ham, N.)||Taylor, John (West Lothian)|
|Dempsey, James||Loughlin, Charles||Thompson, Dr. Alan (Dunfermline)|
|Diamond, John||Mabon, Dr. J. Dickson||Thomson, G. M. (Dundee, E.)|
|Dodds, Norman||MacColl, James||Thornton, Ernest|
|Driberg, Tom||McInnes, James||Wade, Donald|
|Ede, Rt. Hon. Chuter||McKay, John (Wallsend)||Warbey, William|
|Edwards, Walter (Stepney)||McLeavy, Frank||Weitzman, David|
|Evans, Albert||Mallalieu, E. L. (Brigg)||Wells, Percy (Faversham)|
|Fernyhough, E.||Marquand, Rt. Hon. H. A.||Wells, William (Walsall, N.)|
|Fitch, Alan||Mendelson, J. J.||Wheeldon, W. E.|
|Foot, Dingle||Millan, Bruce||White, Mrs. Elrene|
|Forman, J. C.||Mitchison, G. R.||Wigg, George|
|Fraser, Thomas (Hamilton)||Morris, John||Wilkins, W. A.|
|Gaitskeil, Rt. Hon. Hugh||Moyle, Arthur||Williams, W. R. (Openshaw)|
|Ginsburg, David||Oliver, G. H.||Willis, E. G. (Edinburgh, E.)|
|Gordon Walker, Rt. Hon. P. C.||Oram, A. E.||Wilson, Rt. Hon. Harold (Huyton)|
|Gourlay, Harry||Pannell, Charles (Leeds, W.)||Woof, Robert|
|Griffiths, Rt. Hon. James (Llanelly)||Pargiter, G. A.||Zilliacus, K.|
|Grimond, J.||Parkin, B. T, (Paddington, N.)|
|Hale, Leslie (Oldham, W.)||Paton, John||TELLERS FOR THE NOES:|
|Hall, Rt. Hon. Glenvil (Colne Valley)||Pavitt, Laurence||Mr. G. Lawson and Dr. Broughton.|
I beg to move, in page 26, line 11, to leave out from "where" to the end of line 14, and to insert:all credits and liabilities accruing during that period as a consequence of the carrying on of the trade, profession or vocation are brought into account in computing those profits or gains for tax purposes, and not otherwise".This Amendment provides for the redefinition of the earnings basis. The reason is that the Clause as drafted defines the computation of profits on the earnings basis—I quote from subsection (5)—as a computation by referenceto the incomings, credits, outgoings and liabilities accruingduring the period for which the profits fell to be computed.
It has been pointed out that the words, "incomings and outgoings" may introduce some uncertainty. There is the possibility that the wordsincomings, credits, outgoings and liabilitiesmay be treated as disjunctive, so it might be argued that a person not on the earnings basis was on the earnings basis because his profits were computed by reference to his incomings, that is, his cash receipts, and his outgoings, that is, his cash payments. In fact, it is not necessary to refer to the incomings and outgoings in defining the earnings basis because they are, in effect, included in credits and liabilities, so in any case the omission of the words improves the subsection and I commend the Amendment to the Committee.
§ Amendment agreed to.
§ Mr. Barber
I beg to move, in page 26, line 15, after "sum", to insert:received in payment of a debt".This small Amendment is designed to guard against any possibility that the existing words in the second half of subsection (5) shall be capable of any misconstruction. This part of the subsection is designed to ensure that all bad debt recovery will be treated as post-cessational receipts. Were it not for the insertion of the proposed words there is just a possibility that it might be argued that the effect of the wording restricts the operation of the Clause to bad debt recoveries only.
§ Mr. Mitchison
May I express the hope that, this being the Government's thinking period, they will start thinking earlier next time?
§ Amendment agreed to.
§ 5. 45 p.m.
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. Nabarro
I rise only to put the remainder of my questions to my right hon. and learned Friend the Attorney-General on the matter that was the subject of a particular controversy over an Amendment to this Clause moved by the Opposition. The Law Society, on behalf of an overwhelming majority of solicitors in this country, has made powerful representations to my right hon. and learned Friend—I am informed—on the question of the unique position of barristers as to post-cessation earnings and the fact that similar arrangements do not apply to solicitors when a partnership is ended and there are post-cessation receipts in those circumstances.
Would my right hon. and learned Friend be agreeable to placing in the Library of the House the representations made to him by the Law Society and the detailed answer he sends to them in order that every hon. Member may see for himself why there is a distinction between barristers and solicitors and members of other professions? I said earlier that I regarded this as an historical accident. I have just voted with the Government—
§ Mr. Nabarro
No, it was not an historical accident on that occasion; it was quite premedidated, I can assure my hon. Friend.
The reason why I voted for the Government is very simple to explain. This information was sent to me only four or five days ago. There is a long history associated with the unique position—as I call it—of barristers in this context and I think that the Government ought to have more time than four or five days to consider it. I am particularly interested in whether my right hon. and learned Friend will give the assurance I seek that 727 he will place in the Library, in a convenient position for access by all hon. Members these representations of the Law Society on behalf of the solicitors and the detailed and considered reply he sends to them. We have not ended the matter here. The Government's defence of the position of barristers to which I have been listening in the last hour or so, to express it in the most charitable way, was a pretty feeble defence, and I think this position—
§ Mr. Nabarro
I think that the Government ought to be given time to consider it. This is the first time for years that this matter has been raised—
§ Mr. Nabarro
It is the first time, if I may correct the hon. and learned Gentleman, that it has been raised for years in Committee on the Finance Bill. I cannot concern myself directly with the deliberations of the Royal Commission; I can only study its Report.
I do not think that the Government have heard the end of it. I think that we shall have this before us again next year, because of the reply which was given today which, to a large number of laymen, was not logical, satisfactory or conclusive. I do not want to express myself one way or the other but merely to quote the words of my right hon. and learned Friend from a letter delivered to me at the letter rack half an hour ago. My right hon. and learned Friend, writing in the first person, said:I do not feel in the least alarmed at the possibility that to enlighten yourself"—that is me—as to the legal profession you may feel disposed to ask some questions! I do not apprehend that there will be much difficulty in answering themMy right hon. and learned Friend answered very shortly one question which I put to him, but writing nasty letters to his colleagues does not help to solve the problem and I want to see the—
§ Mr. Nabarro
No. I occasionally write nasty letters to my right hon. and learned Friend; it is quite mutual.
728 I wish to enlighten myself properly. I want to know what the Law Society did say on behalf of the solicitors, and particularly I want to know what my right hon. and learned Friend replied. Then I shall be able to judge whether the defence to the Amendment put by the Opposition was entirely satisfactory.
§ Mr. Stevens
I wish to raise a very different point. Subsection (4, b) provides that any capital allowance under Part X or Part XI of the Act of 1952 which has not been set off against previous profits at the date of discontinuance may be carried forward and the earnings or receipts after discontinuance may be reduced by the unexpended balance of these capital allowances. I am not clear that the balance of ordinary losses unused at the date of discontinuance can similarly be carried forward.
I have read subsection (4, a) with care, and at first sight it seems to be the answer to my point, but I am fairly sure in my own mind now that that is not so. Subsection (4, a) provides thatany loss, expense or debit…incurred by him which would have been deducted in computing for tax purposesmay be changed. I am not sure that an assessable loss for tax purposes can be "incurred for tax purposes". I do not quite know the object of subsection (4, a). It does not seem to cover the point I have in mind. I hope that the Attorney-General will assure me and make sure that an unused balance of loss can be carried forward and set off against earnings or receipts subsequently coming in.
§ Mr. Powell
Before we part with this Clause I wish to refer to subsection (6), which has aroused considerable anxiety. Subsection (6) specifies the material date which determines whether sums are to be taxable as a result of this Clause or not and the material date is the date of the receipt of the sums. It would appear to be more logical and equitable that the material date should not be that of the receipt of the sums, which is something over which the taxpayer has no direct or necessary control, but the date of the discontinuance, which is the decision which he takes that has these consequences.
Where the discontinuance took place before Budget day, it took place as 729 a result of a decision taken by the taxpayer in the light of the law as it then stood. The Resolution which this Committee passed on Budget day, and this Clause in fulfilment of it, alters that law and may thereby in many cases have substantially altered the considerations which led a taxpayer to discontinue, or to discontinue on a particular day. I apprehend that this may apply in many cases—determination, for example, of partnerships where a consideration passed in view of the determination and where the discontinuance was decided upon at a particular moment of time, quite properly, in regard to the tax consequences as then known.
What I wish to put to my right hon. and learned Friend the Attorney-General, or to my right hon. Friend the Chancellor, is that the material date ought equitably in this context to be the date of the decision, whether it is the decision to discontinue or, perhaps, the undertaking of an obligation to discontinue. At any rate, it should be the point of time at which the taxpayer last has the matter within his own control.
§ Sir H. d'Avigdor-Goldsmid
I wish to support my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) because I have heard of two important cases in which very considerable injustice is being done by the particular point to which he referred.
The first case is that of a partner in a firm of solicitors, who died in 1955. In preparing the Estate Duty affidavit, account was taken of outstanding debts and work in progress which would be realised subsequent to the date of death on the basis that such debts and work in progress would not be subject to Income Tax and Surtax. Estate Duty was paid on that basis. That seems a clear case on the present wording of the Clause. Having paid Estate Duty, the subsequent payments would be liable to Surtax.
The second case is not quite so glaring, but it goes back even further. It refers to an accountancy partnership which was the subject of a cessation so far as one of the partners was concerned in 1951, but it continues to realise sums related to work in progress outstanding at the date of cessation.
I mention those two points—although, frankly, the second one can only be a small one—because I have personal 730 knowledge of both these cases. They are true cases and I feel that there may be many such cases which will be still adversely and unfairly affected by insisting on the date as it stands.
§ The Attorney-General
I am sure that my hon. Friends realise that there is no intention here to do anything which is in any sense unfair, but, in answer to the points raised by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), I should point out that there is a real difficulty here.
Take, for instance, the discontinuance by death, which gave rise to the Leslie Howard case and the Cheyney case. If we take that date of discontinuance we may have all one needs for receipts coming in, and they may be very substantial, for the next thirty or forty years. It would seem right in theory that those receipts should be subject to tax. Take the case of a voluntary discontinuance which has operated before 6th April, 1960, There, again, we may have receipts of what is really an income character coming in over a long period of years. So I do not think it would be right to take the date of discontinuance as the material date for the purpose of subsection (6). My hon. Friend the Member for Walsall, South drew attention to two cases which I should like to look at to see in what respect they could be met and to consider them. I do not expect for a moment that he expects me to give a detailed reply to those detailed cases to which he drew attention.
In reply to the point raised by my hon. Friend the Member for Portsmouth. Langstone (Mr. Stevens), the words in subsection (4, a) were meant to cover losses and to enable losses to be carried forward if they could have been deducted from the assessable profits of the continuing business if the business had continued to be carried on. If there is any doubt about it we shall certainly look at the terms to make sure that that happens.
My hon. Friend the Member for Kidderminster (Mr. Nabarro) is not here —[Interruption.] Oh, he is here. I am sorry that he did not read the letter to which my letter was a reply. His letter had a very ominous threat in the last 731 paragraph. Nor did he refer to the fact that my answer was somewhat facetious, as I think he would see from the apostrophes I put at the end of the phrase when I said that I was not frightened of his questions. I assure him that the fact is the Law Society has not written to me, so I cannot publish in the Library any letter it has written to me. All I have seen is the letter that the Society sent to my right hon. Friend the Chancellor, and in that letter the Society does not refer to the unique position of barristers because, as I say, it is not unique.
§ Question put and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.
§ Clause 31 ordered to stand part of the Bill.