§ Motion made, and Question proposed, That the Clause stand part of the Bill.
§ Mr. Douglas Houghton (Sowerby)
I never like to see a wasted brief, especially on the Finance Bill, and I am sure that the Government Front Bench will not mind if I ask them what this Clause does and why. It seems to me that it deals with the valuation of work in progress on discontinuance of a profession, similarly to the valuation of stock in trade on the cessation of a business, which is provided for under Section 143 of the Income Tax Act, 1952.
It seems to say that if the work in progress is sold to somebody else, and if the price which is paid for it is debited in the accounts of the purchaser, then an equal amount should be credited to the profession which has ceased. But if there is no such transfer in those circumstances, then the valuation must be at arm's length on market value. That is what my book tells me that this is all about.
Is this to remedy a weakness, or to fill a gap in the law, or is it something which has been going wrong, or have the hands of the Inland Revenue been palsied by the uncertainty of the law? I am sure that we have just enough time to have a most enlightening comment from the Government Front Bench.
§ Mr. Barber
The purpose of the Clause is almost precisely as the hon. Member for Sowerby (Mr. Houghton) put it. It is to ensure that the valuation of work in progress takes place on a similar basis to the valuation of stock, which is provided for, as he rightly said, under Section 143 of the 1952 Act. There is one difference of significance which I think I ought to point out. As he realises, under the law as it stands, if a profession is discontinued then work in progress is valued according to the cost of the work.
734 While the hon. Gentleman rightly points out that under the Clause it will be valued under subsection (1) according either to the price received or to the open market, a choice is given under subsection (3), so that the professional man, if he wishes, instead of having his work in progress valued on that basis, may elect to pay at the time, or after the discontinuance, and in respect of discontinuance, tax in respect of the cost of the work in progress; and then, at a later stage, if he disposes of or transfers the work in progress, he would pay the tax on the additional sum as a post-cessation receipt.
Mr. Bruce Milian (Glasgow, Craigton)
Can the Economic Secretary explain exactly what is the "actual cost"? This is rather an indefinite term. It may be prime cost or actual cost including overheads. Is there a recognised definition? I refer him to subsection (3).
§ Mr. Barber
Again, I must be frank with the Committee. The "actual cost" of the work, as far as I understand itߞI do not know whether this is contained in any other provision of the Income Tax Actߞsimply means the cost to the person concerned of producing the work. That is a question of fact, and if there were any dispute between the Revenue and the taxpayer it would have to be decided by the Appeals Commissioners.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.