HC Deb 26 June 1963 vol 679 cc1450-7
Mr. Barber

I beg to move, in page 14, line 33, at the end, to insert:

In line 7, leave out "or" and insert 'and".

In line 10, leave out from "year" to end of line 12.

Mr. Barber

This Amendment to subsection (2) of the Clause again fulfils an undertaking which I gave in Committee, when the point was raised by my hon. Friend the Member for Nottingham, South (Mr. W. Clark). Other hon. Members, on both sides, have since written to me about it. As the House knows, assessments under Case VIII are to be on a current year basis, but to prevent a break in collection it is necessary to provide a legally enforceable liability to pay tax on 1st January in the current year notwithstanding the fact that the true liability cannot be ascertained until the following year.

Subsection (2) of the Clause deals with the problem by providing that a provisional enforceable assessment under Case VIII can be made in the year of assessment on the assumption that all relevant facts are the same as in the previous year. The Amendment provides that if before 1st January in the year of assessment a taxpayer shows to the satisfaction of the inspector of taxes that since the beginning of the preceding year of assessment he ceased to possess any property the income from which is assessed under Case VIII, and the aggregate of his gross rents and other receipts from property which he has received or is likely to receive in the current year of assessment is less than the aggregate of the preceding year and would not have been less if he had not ceased to possess the property, the provisional assessment may be reduced in proportion to the reduction in his gross receipts.

This is a little difficult to follow merely by listening to what I am saying. I can, if necessary, if any hon. Member desires, elaborate the sum which has been done, but I think that anybody who reads tomorrow what I have just said will come to the conclusion that this provides a simple rule dependent only on gross rents and other receipts which are capable of fairly accurate estimation and avoids going into details of expenses.

Mr. Graham Page (Crosby)

As my hon. Friend the Financial Secretary to the Treasury has said, under subsection (2,a) the tax will be leviable on the assumption that one's income from this source is the same as in the previous year. Thus, to take an example, on 1st January, 1966, a demand will arrive for tax payable on the income to which one was entitled during the year 1964–65. That will not be merely an assessment. It will indeed be a demand, because tax will be leviable not only on the income of the previous year, but on the income to which one was entitled in the previous year. Again, the tax is charged not on the rents actually received, but on the rents which one is entitled to receive.

9.15 p.m.

This will be something of a shock to taxpayers who happen to have dropped their rent income in one year. Suppose, for example, following the dates I have just given, that during the year 1965–66 properties have been empty which were fully let the previous year. The taxpayer is to be charged on a figure of rent which he received in the previous year, but in this particular year he is called upon to pay he may have to do complete exterior repairs or even substantial structural repairs—heavy expenses. It may even have been a case of a reducing rent. Frequently property is let at a high rent for the first few years, and, at a certain break in the term, the rent drops to a lower figure. Even if that has happened, he will still have to pay on the previous year and only be able to claim it some months later.

Mr. J. J. Mendelson (Penistone)

Can the hon. Gentleman quote examples of where this drop in rent occurs at present?

Mr. Page

It is not an uncommon provision in leases. I dare say the hon. Gentleman is thinking of cases the other way round, where there is a small rent to start with and it is increased, but it is a common form to have a high rent to start with and for it then to drop. It does occur. That is not the only instance where a taxpayer will be in some difficulty in paying tax out of money he has not received in cash. I have already mentioned heavy expenses during one year.

It would be reasonable, if he foresees this coming in a year, to put in a statement to his inspector of taxes saying, "This is what I estimate my income will be this year. Let me pay on account on 1st January on the basis of this figure." According to this Amendment he can do that if he shows that he has disposed of the property, but only if he shows that he has disposed of the property, during the year. That comes in sub-paragraph (i) in this Amendment. So the first thing he has to do to get any relief from this is to show that he has disposed of the property. This is the only occasion on which he will be granted relief from paying tax on the basis of rent which he was entitled to receive the year before.

My Amendments to the Amendment would, in effect, delete sub-paragraph (i) and leave the Amendment so that if the taxpayer can show that the aggregate of the rents and receipts relevant for purposes of Case VIII to which he has become and is likely to become entitled in the current year and…that that aggregate is less than the aggregate of such rents and receipts to which he became entitled in the last preceding year he would pay on account a figure, to put it briefly, which would be settled by the authorities, a reasonable figure in accordance with his estimate of what his income would be.

I should have thought that that would have been a fair and reasonable way of dealing with the matter, and certainly no loss to the Revenue. The matter is adjusted at the end of the year, but it does avoid the hardship which may occur by the taxpayer having to pay out large sums in tax in respect of money which he may not have received in cash.

Mr. Houghton

I think that the hon. Gentleman the Member for Crosby (Mr. Graham Page) is carrying this a little too far. The basis of assessment in Case VIII, as the hon. Gentleman has explained, is the rent receivable in the preceding year, but that is merely for the purpose of making an assessment in advance of the conclusion of the year of assessment. It is not a final assessment; it is a provisional assessment because, under Clause 16(2,b) it is clearly stated that tax shall be leviable on the basis of rents receivable in the preceding year but that any necessary adjustments shall be made after the end of the year, whether by way of additional assessment, repayment of tax or otherwise, to secure that tax is charged by reference to the rents or receipts to which the person assessed becomes entitled in the year of assessment.

Mr. Graham Page

The word "leviable" is used. Surely that means that if it is leviable on 1st January it is payable on 1st January, and is not a mere assessment of what a person has to pay.

Mr. Houghton

I agree. There would not be much purpose in making a provisional assessment unless one were going to make a payment on it, otherwise it would be a purely theoretical exercise. If we accept that that is the proper basis of assessment of the rents receivable in the year of assessment—which I believe to be the proper basis—we have to find some basis upon which tax can be levied during the year of assessment, subject to subsequent adjustment after the profits for the year can be ascertained. The hon. Member for Crosby is quite right in saying that on the provisional assessment, which is based on the rents receivable in the preceding year, tax will be paid on 1st January in the year of assessment, and that the adjustment will be made after the end of the year of assessment. I hope that I am right about that.

In his Amendment the Financial Secretary has met the point that if, in the year of assessment, profits are lower because some property has been disposed of, it seems unfair to continue a provisional assessment on the basis of the rents receivable in the preceding year, when it is known absolutely and clearly that the rents receivable in the year of assessment are bound to be lower because of that disposal of property.

This is bringing forward into Case VIII a form of cessation provisions providing that a person shall not be assessed in the year of assessment on the basis of the preceding year in respect of some source of income that has gone. But, for practical reasons, that is restricted to the disposal of property, and not merely to the reduction of the rent receivable on property from another hazard which may lead to a reduction in the profits in the year of assessment. The question is how far we ought to make adjustments in the year of assessment by reference to changes in the level of income subsequent to the preceding year.

The hon. Member for Crosby is seeking to extend this concession to anything that may have led, or may lead, to a reduction of income in the year of assessment, by reference to the amount receivable for the preceding year. That seems to run the risk of an enormous number of adjustments midway between the making of the assessment on the basis of the preceding year and the adjustment to be made anyhow after the year of assessment is ended. On administrative grounds alone that is a most formidable proposal.

The next question is whether it is justified, having regard to the basis on which the tax is to be levied. To have disposed of property and, therefore, to have disposed of a source of income is one thing, but merely to have had a reduction in income by reference to other factors on the same property is a different thing. It is all very complicated, and none of us wants to do any harm to those who will be affected by provisions of this kind.

I think, also, that many discoveries will be made in the operation of this new Case VIII, We cannot pretend—I keep saying "we", I speak as a Member of the House—that we shall have got everything right and no difficulties will arise. I think they are bound to arise. I fear that I cannot advise my hon. Friends to support the Amendment of the hon. Member for Crosby, on the ground that the hon. Gentleman is carrying this process of midway adjustment rather further than the circumstances justify, and that this would open up operations which would be gone over once, twice, possibly even more times, in the course of a year in order to get the amount of the assessment absolutely right for the year of assessment. That, I think, is asking too much, though I fully understand the point made by the hon. Gentleman.

If we are to take the properties of the current year as the basis of assessment and the profits of the preceding year as the provisional basis on which to operate, it is necessary to reduce the occasions on which that provisional assessment is altered during the currency of the year of assessment, when it is all to be reviewed and adjusted as soon as may be after the year is ended.

Mr. Barber

With the leave of the House, I should like to say a word about the Amendments introduced by my hon. Friend the Member for Crosby (Mr. Graham Page). Put briefly, the effect of them would be that if the taxpayer showed that for any reason at all his gross receipts from property in the current year were likely to be less than in the preceding year, the amount of assessment would be reduced in proportion to the reduction of his gross receipts. As was pointed out by the hon. Member for Sowerby (Mr. Houghton), this would remove the condition that it is only where a taxpayer ceases to possess some of his property and an income fall is due to that fact, that relief, provided by the Amendment I moved a short time ago, is to apply.

Although I recognise that there may be some cases which would benefit by the Amendment of my hon. Friend, I think that they would be few in number. After all, there would not usually be a fall in the gross receipts from property except where the taxpayer had disposed of some property, or there was the sort of special arrangements to which my hon. Friend referred. I am in a difficulty, because I sympathise with what was said by my hon. Friend and what was said by the hon. Member for Sowerby. I have a good deal of sympathy with the objects of my hon. Friend and the approach which he set out so logically to the Committee. But I think it goes a little too far. It would leave considerable scope for argument as to the anticipated fall in income.

The hon. Member for Sowerby was on a good point when he indicated—I hope I understood him right—that to do as my hon. Friend suggests might well undermine the firm basis of liability which is necessary in order to prevent a break in the collection of tax on rents and other income from property. I should like to give my hon. Friend an assurance in order to go some way to quell his concern.

9.30 p.m.

A statutory rule to cover all variations in receipts from property as compared with the preceding year would be too hampering to the collection of tax, but applications can always be made to the Inland Revenue to hold over tax in cases where hardship is alleged. Any such applications, I can assure my hon. Friend, would be sympathetically considered under the Inland Revenue's general power of care and management.

I think my hon. Friend will agree that we have gone some way in the Amendment in the name of my right hon. Friend to meet the most important cases my hon. Friend had in mind. I have had the advantage of discussing this matter with him. With that assurance, I hope he will not press his Amendments but that the House will accept the Amendment in my right hon. Friend's name.

Amendment agreed to.