§ Mr. William Clark
I beg to move Amendment No. 261, Schedule 14, in page 204, line 48, at end to insert:(2) Where in any previous chargeable accounting period a company has sustained a loss as computed for the purposes of the Profits Tax and this loss has not been allowed against subsequent profits as computed for the purposes of profits tax, an amount computed as below of such loss shall be deducted from or set off, against any profits arising in the year 1966–67 and up to the amount of the deduction or set off, those profits shall be excluded accordingly from any assessment to Corporation Tax (the relief in any year of assessment being given as far as may be against profits of an earlier rather than profits of a later accounting period). The amount to be deducted under the subsection will be arrived at by aggregating—I should have thought that the Amendment was self-explanatory, and I am sure that hon. Members on both sides understand it clearly. The matter was raised in Committee, but I do not think, with the greatest respect, that the point got home to the Treasury Bench.
- (i) 4125/5625 of the loss as computed for Income Tax purposes; and
- (ii) 1500/5625 of the loss as computed for Profits Tax purposes.
The object of the Amendment is to allow the carry-forward of Profits Tax losses against Corporation Tax. As the Bill stands, one can carry forward an Income Tax loss but not a Profits Tax loss, and, as the Financial Secretary will agree, it is quite possible to have an Income Tax loss and a Profits Tax loss which is higher than the Income Tax loss. It arises where one has investment income, and it arises if one get a Section 341 or a Section 342 claim under the 1952 Act.
I am sure that the Financial Secretary is seized of the point. In the year of assessment 1963–64, one might, get a profit of, shall we say, £100. That gives one the basis of assessment for 1964–65 on which one pays tax on £100. But, if in 1964–65, he company makes a loss, under Section 341 or Section 342 of the 1952 Act the loss can be set off against the assessment for 1964–65 and, consequently, 216 the position can arise where one has a Profits Tax loss, in the example I have given, of £100 not able to be utilised for future Profits Tax losses.
I am encouraged hat the hon. Gentleman the Member for Heywood and Royton (Mr. Barnett) at least has the point. Although I have only dealt in very small figures, I and many other hon. Gentlemen know of companies where there are huge Profits Tax losses which are carried forward.
Profits Tax was only at the rate of 15 per cent., and the reason for the simple calculation in the Amendment is so that the aggregation of the two, comparing the Income Tax loss with the Profits Tax loss, will allow a larger Income Tax loss to be carried forward if in fact the Profits Tax loss is in excess of the Income Tax loss.
I do not think it is necessary for me to say very much more, because I am certain that everyone in the House understands what I am talking about.
§ Mr. MacDermot
I take it that the speech of the hon. Member for Nottingham, South (Mr. William Clark) was intended to be what my right hon. Friend the Chief Secretary calls "clarificatory".
I confess that I found the hon. Gentleman's point difficult to follow when he raised it in Committee, but I have had a wet towel round my head since then and I have an answer for him. Whether it will give him satisfaction is another matter.
Cases can occur where the Profits Tax losses differ from the Income Tax losses. In particular, they arise because, for Profits Tax purposes, a trader can only set the loss against investment income, other than dividends from United Kingdom companies. The reason is that these dividends are not charged to Profits Tax at all, being franked investment income.
The proposal which is being made is that, in such cases, not only should the Income Tax loss be able to be carried forward and set against the liability to Corporation Tax, but also the additional Profits Tax loss, if loss there be.
We can see nothing to justify this proposal, because the most that a trading company in this position can say is that if it had continued to hear tax on its 217 income at a total of 56¼ per cent. it would expect to get relief for its losses at 56¼ per cent. It has, in fact, had relief at the Income Tax rate of 41¼ per cent. and would expect at some time to get relief at the 15 per cent. Profits Tax rate. The answer is that in future it will not bear the 15 per cent. Profits Tax, and the point, therefore, disappears. In other words, it loses the relief because it loses the liability to tax against which the relief is claimed.
In Committee the hon. Gentleman claimed that the formula which he propounded, and which is now contained in the Amendment, had the advantage that it produced an extra relief only where the Profits Tax loss exceeded the Income Tax loss. But even if that is accepted, it does not provide a case for the Amendment because it is still necessary to ask why the Profits Tax loss exceeds the Income Tax loss and, as I have stated, the answer is that the Profits Tax loss is outstanding only because there have not been any subsequent receipts within the scope of the tax. I must therefore advise the House that the Amendment in principle is wrong.
§ Amendment negatived.