HC Deb 26 June 1963 vol 679 cc1473-80
Mr. du Cann

I beg to move, in page 26, line 18, at the end to insert: Provided that the provisions of Schedule (Transitional allowances for annual value of trade premises) to this Act shall have effect for allowing deductions, in the cases there provided, by reference to deductions which would have fallen to be made if the said section 136 had applied for the years 1963–64 and 1964–65. This Amendment introduces an entirely new Schedule called Transitional Allowances for Annual Value of Trade Premises. It is Amendment No. 57, which deals with a transitional problem arising out of the abolition of Schedule A. The House will remember that my hon. Friend the Member for Nottingham, South (Mr. W. Clark), who is not in the Chamber at present, moved an Amendment dealing with the point in Committee. In reply, the Solicitor-General admitted that there was a problem and promised that it would be carefully considered before Report. His remarks are recorded in Hansard, 16th May, 1963, column 1668. Accordingly, the hon. Member for Nottingham, South withdrew his Amendment.

The problem concerns the treatment of a trader who owns his trade premises. There could be cases of difficulty, as my hon. Friend the Member for Nottingham, South illustrated. This is the difficulty. It could perhaps arise when the trader ceases to occupy the premises for the purpose of his trade, as, for example, when he sells them. The reason the problem arises is this. Normally, as the House will be well aware, because we have discussed this matter on several occasions, a trader is assessed on the profits, not of the year of assessment, but of a basis period which is normally his accounting year ending in the preceding year of assessment. The annual value of business premises which is deductible in computing the profits for any period is the annual value for that period. Thus, the annual value of premises owned and occupied for trade purposes in year one is deductible in computing the profits which form the basis of assessment for year two. It follows that when a trader sells his trade premises, but continues to carry on his business, he gets an allowance for the annual value of a year or more after he has sold them. This balances the fact, that, if he acquires the premises when he was on the preceding year basis, he would normally not get a deduction until a year or more after the date of acquisition. This system is well known to the House. That is the existing law—that is to say, before the introduction of the Bill. If, therefore, the trader is deprived of a deduction for annual value without further relief, he will be unfairly treated by reason of the Schedule A abolition. As long as he owns the premises, there is no inequity because the loss of the Schedule D deduction is balanced by the fact that he pays no Schedule A. But immediately he sells the premises he would cease to pay Schedule A in any event and would still, under the old system, get a Schedule D deduction for twelve months, and perhaps longer.

Therefore, to meet this inequity, the Schedule which is introduced by the Amendment provides briefly that when premises cease to be occupied by the trader for trade purposes he gets a deduction broadly equal to the deductions of which he is being deprived on the change of system. No relief, of course, will be due if he ceases to occupy the premises at the same time as he ceases to carry on the trade. The point is to ensure that such a person in circumstances which I have attempted to describe would be no worse off under the new system than he would have been under the old.

I have spoken in the main of traders, but the relief will apply equally to a person carrying on a profession or vocation assessable under Case II of Schedule D. It would cover, for example, farmers, doctors and other professions of the same sort. In view, therefore, of the fact that the Amendment is proposed to meet a point that was raised in Committee, I hope that it will have the approbation of the House in general.

Mr. John Diamond (Gloucester)

The matter is a little technical and one cannot necessarily digest everything that is said at the moment one hears it. One appreciates the purpose of the Amendment and it is, perhaps, a pity that the hon. Member for Nottingham, South (Mr. W. Clark) could not be in his place this evening to acknowledge the consideration that has been given by the Economic Secretary to the request made by the hon. Member in Committee.

The Amendment is clear. I hope, nevertheless, that when we deal with the Schedule, the Economic Secretary will not feel that he has exhausted everything that could be said on the matter. The Schedule is long and detailed and there are various points in it which, perhaps, need full explanation. In the hope that we will reach the Schedule the earlier the shorter I speak. I will leave it at that for the moment.

Mr. du Cann

If it would be for the convenience of the House, I am certainly ready to undertake to do my best to explain any points in the Schedule which the hon. Member would wish me to do.

Amendment agreed to.

Mr. Barber

I beg to move, in page 26, line 26, after "that", to insert: (a) this subsection shall not apply to any payment to which section 180 (mineral rents and royalties, etc.) of the Act of 1952 applies; (b) This Amendment simply corrects a drafting flaw which inadvertently altered the law. Without the Amendment, certain taxpayers would, in affect, get relief twice over.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 26, line 31, to leave out from the beginning to the end of line 22 on page 27 and to insert:

  1. (3) Where, in relation to any land used in connection with a trade, profession or vocation,— 1476
    1. (a) tax has become chargeable under section 22 (except subsection (5)), 23 or 24 of this Act on any amount (disregarding any reduction in that amount under paragraph 8 of Schedule 4 to this Act), or
    2. (b) tax would have become so chargeable on that amount but for the operation of section 22(5) of this Act or the said paragraph 8, or but for any exemption from tax,
    the previsions of Schedule (Allowance of trading deduction where premium &c. paid) to this Act shall have effect, in the cases there provided, for allowing deductions calculated by reference to that amount in computing the profits or gains of the trade, profession or vocation.
  2. (4) Where during a period in the five years ending with the year 1962–63 any premises were occupied by a person for the purposes of a trade, profession or vocation carried on by him, and payments relating to the premises made by him during that period in respect of maintenance, repairs or insurance were not deducted in computing the profits or gains of the trade, profession or vocation chargeable under Case I or II of Schedule D, he shall be entitled to a deduction in computing those profits or gains for the year 1963–64 of any amount by which the aggregate of the payments exceeds the aggregate of so much of the relief which was or, on a claim in that behalf, could have been allowed to him under sections 99 to 101 of the Act of 1952 as related to the premises and it attributable to any part of the said period.
The Clause deals with amendments to the computation of business profits under Cases I and II of Schedule D. They are required in consequence of the abolition of Schedule A and the introduction of the new system of taxing income from real property. The point arises not only where the relief is given for premises which are occupied for the purpose of trade, which has been done, but also for premises let by a trader for less than the commercial rent in consideration of being tied premises. Examples are filling stations and public houses. This has been accepted by my right hon. Friend and this Amendment putts that into effect.

The Amendment, therefore, gives, firstly, relief to traders in respect of certain payments which under the Bill become chargeable on the recipient; and secondly, it gives relief to the trader in regard to certain expenses on repairs to business premises. The Amendment refers to the second of the new Schedules, and the effect of the Amendment with the new Schedule is to extend that relief to the tenant in respect of amounts chargeable in respect of business premises under Clauses 23 and 24 which we have just been discussing. It may be easier for the House and more convenient if we wait till we deal with the terms of the Schedule itself.

The object of Clauses 23 and 24 is to prevent the lessor from avoiding tax on premiums by dressing up a contract into some form not involving premium. That is really tax avoidance, and the Clause imposes, therefore, a liability under Case VI, but since the liability of one party to a contract should be matched by relief to the other party, who is the tenant, therefore the trader who is a tenant of business premises in respect of which charges are imposed under Clauses 23 and 24 gets that relief. Therefore, accordingly subsection (3) provides that that deduction be made in the calculation of profits under Cases I and II of Schedule D of the tenant of business premises in respect of the premium charged under Clause 22 or the amount charged under Clause 23 or Clause24. That is the effect of the Amendment.

Mr. Callaghan

Could the Solicitor-General tell us what is the difference between the original subsection (3) and the new subsection (3) he has proposed?

The Solicitor-General

With the leave of the House, the point was that relief was given under the original subsection for premises occupied for the purpose of trade. That is what is in the Bill at present. The Amendment takes it a stage further and also gives relief where premises are let by a trader for less than the commercial rent in respect of the consideration of their being tied premises. That is what it adds to what is already in the Bill.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 27, to leave out lines 27 to 32.

This deals with persons who are treated as carrying on the business of dealers in land. Under the present law, a dealer must bring all premiums and similar receipts into computation of the profits chargeable under Case I. Clause 29(4), as at present in the Bill, provides that only the excess of any such receipts over the amount chargeable under Case VIII is to be treated as receipts of trade under Case I. The Amendment does not touch this, but subsection (4) also deals with the calculation of the amount to be taken for the purposes of trading profit as the value of the reversion to a lease, and the effect of the Amendment is to omit that part of subsection (4) which deals with the calculation of the reversion.

10.30 p.m.

The present principle as decided by the courts—I do apologise to the House, for this is a complicated matter—is that when regarding the dealer in land and his tax position we have to divide the property into two interests, first the lease, and secondly the reversion. Where he grants a lease at a premium he has disposed of the lease and has kept the reversion, and is therefore liable only on the profits on the sale of the lease. This involves the more complicated matter of dividing the cost to the dealer into two parts—first, the cost of the interest represented by the lease and, secondly, the cost of the reversion. Each must be taken as a proportion of the total cost.

That was the principle. It was thought that subsection (4) should deal with that, but on reflection it has been thought that that is not so, and that it is better to keep the old principle. By Clause 22 part of the premium is taxed as though it were rent, and only the balance will come into Case I. The amendment to the latter part of Clause 29(4) provides that the value of the reversion will not be increased by the notional rent, because there is no ground for increasing the liability of the dealer. He is of course required to bring the whole premium into account.

This is a matter of tax law. On reflection it has been thought better to stick to the old principle rather than continue with the amendment suggested which, on reflection, was found to be fallible.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 27, line 35, to leave out: so far as it relates to trading receipts". This again, follows on the lines of the last Amendment, in some ways. It deletes paragraph (c) of Clause 29(5). This is consequential on the previous Amendment.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 27, line 46, to leave out from "receipt" to the end of line 10 on page 28 and to insert: (6) In computing the profits or gains of a trade of dealing in land, any trading receipts falling within section 23 or 24 of this Act shall be treated as reduced by the amount on which tax is chargeable by virtue of that section, but where on a claim being made under subsection (2)(b) the said section 24 the amount on which tax was chargeable by virtue of that section is treated as reduced this subsection shall be deemed to have applied to the amount as reduced, and such adjustment of liability to tax shall be made (for all relevant years of assessment), whether by means of an additional assessment or otherwise, as may be necessary and may be so made at any time at which it could be made if it related only to tax for the year of assessment in which the said claim is made. The main effect of the Amendment is to add a new subsection to Clause 29, extending to payments chargeable under Clauses 23 and 24 the rule laid down in Clause 29(4) in relation (to premiums chargeable under Clause 22. The main object of subsection (4), as I have explained, is to allocate liability between Case I and Case VIII where the recipient is a dealer in land. Subsection (4) provides that if any part of the premium is chargeable under Case VIII by Clause 22 it is to be excluded from the Case I computation.

Amendment agreed to.