§ Sir J. Hobson
I beg to move, Clause 81, in page 165, line 10, at the end, to insert:Provided that a company qualifying for relief under this section shall be granted relief beyond the year 1970–71 if it ceases to possess that source within fifteen years of the source arising.This provision deals with transitional relief for existing companies when they cease to trade. It is no more than plain, fair and ordinary equity and justice, and indeed mere common sense, that on the introduction of a Corporation Tax the cessation relief should be granted when a company which had commenced trading before Corporation Tax ceased to trade after its introduction. The White Paper dealing with the accounting basis for company taxation provided for cessation relief whenever such a company ceased to trade, because otherwise such a company would have paid tax for more years than it had in fact been trading. The Bill concedes this principle because it provides that such relief should be given. The Bill could do no less than that, but what it goes on to do is to provide that the actual relief shall be very limited indeed. Indeed, the complaint is that it cuts down that relief to an absolutely minimal and very mean degree, because it provides that not only is the relief to stop at the year 1970–71 but that it is to taper off as from the year 1968–69. This is fundamentally unjust and amounts to a double charge to taxation on all companies which started before Corporation Tax and which ceased to trade after the year 1970–71.
It is particularly unfair to those companies which actually began their trading life and history in a period shortly before the present time, because they will have traded only for a short period, and yet the tapering relief and limitation provision will remove this transitional relief which they might otherwise have enjoyed if they ceased to trade before 1968–69. The Amendment proposes to remedy this injustice. I would have submitted that it was perfectly fair to allow a period of 15 years of trading after which the cessation relief would cease to apply because, of course, the cessation relief arises 197 from the fact that profits of the opening year have been brought into charge in two and sometimes in three years.
On the Committee stage we had a discussion about the way in which the date on which a company begins its financial year may make a substantial difference as between one company and another and the amount of the cessation relief which is liable to be given according to when the actual financial year of a trading company begins in relation to the fiscal year.
Many of us enjoy post-war credits. I waited 23 years for them. The Inland Revenue does not think it unfair to withhold from the taxpayer for a substantial number of years relief to which he is entitled at some future date. It makes provision that it shall be payable only on some future and remote date up to very substantial periods.
But this provision, which everyone admits to be fair and ought to be given, is to be made and to be available only in the event of a company ceasing to trade in the short period between 1968 and 1969 before it begins to taper off, and the company will not receive any relief at all if it ceases to trade in 1970–71. If it has begun to trade only recently it will have existed for only six years, yet the relief which it ought to have had will be removed from it and in the course of its very short history it will have paid taxation for periods of trading which are more than the actual period during which it has traded. One would have thought that it must be unfair to deprive a company of such relief. If there were 15 years before relief ceased to operate one would treat with some equity those companies which began to trade a long time ago and those which began only recently.
§ Mr. Diamond
The right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) recognises by putting the Amendment forward that one cannot put no limit whatsoever to the time when this matter has to be disposed of. The difference between us therefore is not on principle but on degree—as to whether the five years proposed in the Bill, that is two years at the full rate and three years tapering, is appropriate relief or whether 15 years is appropriate. I suggest that 15 years is far too long a 198 period when, as in this case, we are dealing with a major change in taxation.
It would be foolish to attempt to deny that as a result of the change from Income Tax to Corporation Tax there will be in many cases a situation, which the right hon. and learned Gentleman has described, of companies being called upon to pay tax in respect of a longer period than they have existed; but it is not quite as simple as that. In the majority of cases the opening years of the business are much less profitable than the later years and the system, as the right hon. and learned Gentleman knows, results in the earlier years—the first and second year most generally—being taken as the basis of more than the appropriate period of tax. Therefore, one may have the first or the second or a combination of those years being taxed twice over. But they are frequently very low profits as compared with the quite high profits in the later and ending years of a business. Frequently the business ends when it is taken over in some circumstances because it is at the height of its prosperity. Therefore, it is not simple justice to say that one pays twice in an opening year and therefore one should be free from tax in respect of the closing year.
As I said at an earlier stage, no one can say with certainty that a particular tapering period is the only one one could possibly consider. But I think that the Government have given reasonable recognition of the circumstances by providing two years at full relief and three years with tapering relief. I could not recommend the House to accept an Amendment the effect of which went on for as long as 15 years, leaving people in some measure of uncertainty for all that time, especially when we are considering a major change of taxation.
§ Sir J. Hobson
It is not that the cessation relief goes on for 15 years; it is only that the benefit may continue for 15 years from the time when a company started trading. The point of the Amendment, which I cannot have made clear, is that some companies which started trading 12 or 13 years ago will have no more than the right hon. Gentleman has provided for under the Bill whereas other companies which have been in existence for only four years will lose their cessation relief very 199 quickly indeed. This is inequitable, because one would be paying the extra year over a short period instead of paying it over a longer period. I quite see the other argument, but I put it to the Chief Secretary that our proposal is perfectly reasonable, and I urge him to consider it.
§ Mr. Diamond
I recognise that. I was dealing only with the more extreme case of a company which has fairly recently started; and one would, in that case, have to wait the whole period before one could say that the matter was at an end. It is true that the shorter the base of the fraction the higher is the resulting answer, and extra tax over a short period of years is more than the same amount divided by a longer period of years. Nevertheless, it will be agreed that, where a company has been trading for only a short time, it has recently had the benefit of two years' assessment on very small profits and without having lost a great deal by the change to Corporation Tax. I can only repeat what I have said before, that I regard the Opposition's proposed period as too long. I understand the point of the Amendment, and I am grateful to the right hon. and learned Gentleman for his further explanation of it, but I think that it is too long. It is not impossible that, in later years, one may look at it to see whether it is right to take the matter further. There are precedents in the Bill for tapering periods which go on for slightly longer.
I can only repeat that one is not married to any particular period, but the period suggested by the right hon. and learned Gentleman would delay the matter for too long and I could not recommend acceptance of it.
§ Amendment negatived.