Clause 24.—(PROVISIONS AS TO ASSESSMENT UNDER SCHEDULE E.) (Hansard, 8 June 1961)

§ Sir Eric Errington (Aldershot)
May I ask whether my hon. Friend the Financial Secretary to the Treasury can give me some information about this Clause? I think that it bears reference—I am not quite certain—to a case that I have forwarded to him which dealt with the situation that arose where two people received a bonus emolument after the end of the year.
One of them was assessed by means of P.A.Y.E. while the other was assessed in the normal way. The result was that the one who was assessed under the P.A.Y.E. scheme was able to get the benefit of the additional amount on which he was assessed in his Income Tax. Meanwhile, the other person, who was assessed in the normal way, could not reopen the assessment.
I would like to know from the Solicitor-General whether that is a position which is cured by this Clause because the two people concerned normally received equal remuneration but as a result of this technicality one was liable for a 1543 greater measure of tax than was the other.

§ Mr. Houghton
I should like to follow the hon. Gentleman the Member for Aldershot (Sir E. Errington) who, in effect, asked the Solicitor-General to tell the Committee a little more about the background to this proposal.
Is it based on deliberate tax avoidance, that is to say, the payment of remuneration covering a number of years past—years out of date for assessment—or is it, for example, something incidental to a recent decision of the courts? I think that there was some question of transfer grants in the Civil Service which were regarded for quite a long time as taxable and then a decision was taken that they were not.
I understood that, owing to the P.A.Y.E. arrangement, in a number of cases the Schedule E assessments had not been legally made and confirmed. In those cases it seemed possible for the taxpayer concerned to reopen the assessments for those years and ask for a certain tax charged on those allowances to be discharged, having regard to the decision of the court regarding the status of these allowances for Income Tax purposes.
I have only a vague idea about this, but it would be interesting to know why this Clause is in the Bill this year, for it has not been included on any previous occasions. Is there anything substantial behind it? Is there a new threat, or is it merely to tidy up something which has been discovered in the course of ordinary business?

§ The Solicitor-General
The Clause is designed to remove a number of minor anomalies that have become apparent in the provisions as to assessment under Schedule E.
The first of the subsections relates to the sort of situation to Which my hon. Friend the Member for Aldershot (Sir E. Errington) drew attention. Subsections (2) and (3) relate to a different matter and hang together, and subsection (4) to yet another matter.
Subsection (1), as I said, relates to the sort of situation which the hon. Member for Aldershot described. What happens is that, where tax is collected under P.A.Y.E., normally there is no 1544 formal assessment made, although the taxpayer can at any time, within five years, demand a formal assessment of tax. If a taxpayer has been formally assessed and the assessment is regarded as settled, he cannot reopen the assessment. If, however, he has not been assessed, he can, at any time within five years, demand an assessment. Therefore, there is liable to be the anomalous position, which my hon. Friend indicated, in which there is a change in practice which follows from a decision of one of the superior courts.
The taxpayer who has not been formally assessed can then demand an assessment which will take advantage of the changed rule of practice in his favour, while somebody else in an exactly comparable position will be precluded if he has been formally assessed to tax. Subsection (1) removes that anomaly and ensures that the rule of practice shall be that which obtained at the expiration of the period of twelve months immediately following the year of assessment.
There is also a proviso against retrospection. That deals with the matter to which both hon. Members drew attention. I do not know whether the Committee would like me to deal with the remaining subsections. If not, I am well content to sit down.

§ Mr. Houghton
We are getting along very well. Does what the Solicitor-General has just said mean that in these cases taxpayers will be treated alike whether a formal assessment has been made, or otherwise?

§ The Solicitor-General
Yes. The actual provision is that where the income which was taken into account under P.A.Y.E. is assessed more than a year after the tax year to which it relates, the assessment is to be based on the practice prevailing twelve months after the end of the tax year and not according to the practice at the later date when it is assessed. So that the man who has been formally assessed and the man who has not been formally assessed are treated comparably.

§ Mr. Mitchison
This means, does it not, that at the end of the year there was a practice, a decision of the court shows that that practice was wrong and there is then another practice? In the circumstances which the right hon. and 1545 learned Gentleman has indicated, both taxpayers are assessed on what has been discovered to be the wrong practice.

§ Mr. Selwyn Lloyd
I beg to move, That the Chairman do report Progress and ask leave to sit again. We have made satisfactory progress today in spite of the amount of time we spent on the last day's business, and I think it appropriate to move this Motion.