HC Deb 22 June 1965 vol 714 cc1641-54
Mr. Diamond

I beg to move Amendment No. 502, in page 174, line 4, after "during", to insert or on the expiration of". This is a drafting Amendment which corrects an inexact use of language in Part One of the Schedule concerning the payment of Income Tax on payments received during the year. Paragraph 1(1) provides for tax to be accounted for and paid during the year, but accounting for tax on payments in March and up to 5th April will necessarily be done after 5th April. Hence this Amendment.

Amendment agreed to.

Mr. Diamond

I beg to move, Amendment No. 503, in page 174, line 8, to leave t sub-paragraph (2) and to insert— (2) If it appears after the end of any such year of assessment either—

  1. (a) that in respect of distributions made by the company in the year the company is liable to account for income tax to an 1642 amount greater than the income tax (if any) borne by it on franked investment income received in the year and on any surplus of franked investment income carried forward to the year; or
  2. ((b)) that in respect of payments made by the company in the year other than distributions the company is liable to account for income tax to an amount greater than the income tax (if any) borne by it by deduction on payments received in the year other than franked investment income;
and the amount paid by and not repaid to the company in respect of the year in accordance with sub-paragraph (1) above is less than the amount referred to in paragraph (a) or (b) of this sub-paragraph, the company shall be liable to pay the difference between the two last-mentioned amounts.

The Temporary Chairman (Mr. Steele)

It would be convenient to discuss at the same time Amendment No. 580 standing in the name of the hon. Member for Wokingham (Mr. van Straubenzee) and the names of other hon. Members, in page 174, line 15, after "distributions" insert less the income tax borne by it on income other than franked investment income".

Mr. Diamond

That would be convenient, Mr. Steele.

Amendment No. 503 provides a basis of settlement which seems more favourable to companies than the existing one in paragraph 1(ii) of the Schedule. The original scheme in the Bill was that the Revenue would itself demand a total of two things: first, tax on the excess of distribution over franked investment income and, secondly, tax on other payments.

The new proposal, designed to meet representations made on the subject since the Bill was published, is for an end-of-the-year adjustment such that, while the Revenue will demand tax on any excess of the distribution over franked investment income, it will limit the demand in respect of other payments to the excess of them over receipts other than franked investment income.

I could give a number of examples but I am bound to say, having listened to examples given in the Committee, that I do not think that they are the easiest things to digest at this hour. I repeat that this is a simple accounting procedure, the running account which is provided for in the Schedule. It is an improvement in the provisions of the Schedule in favour of a company and I hope that it will be acceptable to the Committee.

11.45 p.m.

Mr. Patrick Jenkin

This appears to be an improvement, but I would like to make an additional comment. On reflection, I agree that my Amendment to the Chancellor's Amendment, which has not been called, might not have specifically raised the point I had in mind and which I hope to put now. That Amendment to the Amendment was in line 11, leave out from "above" to end and insert: are less than the aggregate of the amounts referred to in paragraphs (a) and (b) of this sub-paragraph, the company shall be liable to pay the difference between such first-mentioned amounts and such aggregate". The Chief Secretary will remember that when we discussed possible grouping for interest payments before the Whitsun Recess, on 3rd June, HANSARD, cols. 2121–22, he was good enough to say that a valid case might have been made out and that, without promising, he would consider it with a view to bringing forward an Amendment on Report.

The point which I would like to make on this paragraph is that if it is to be possible between groups of companies to pay interest gross and for the receiving company to receive it gross, there would appear to be no obstacle to equating for all purposes distributions paid gross and interest paid gross, from both the point of view of the recipient and the point of view of that same recipient when he came to pay it out, so that in the end only one calculation would be necessary to account for the tax, and the tax would be accounted for only to the extent that payments out, whether on distributions or interest or other annual payments, exceeded distributions and annual payments received.

That is certainly the practice under the present system. As the Committee will remember, I said that the beauty of the existing system was "Once net, always net". For this purpose there is no difference at all between dividends and annual payments and it would seem to be a perfectly proper provision to extend to the new system of Corporation Tax provided—and I always concede this—that grouping is to be accepted for interest payments. I am not sure whether the Chief Secretary will have appreciated that this was the small point which it was intended to raise in the Amendment to the Amendment. I should be grateful if he could give some indication of the Government's views on this matter.

Mr. Diamond

I well remember the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) moving the Amendment to which he has referred. It was a complicated matter with which he dealt extremely well and he went on to apologise to the Committee lest hon. Members should not have fully understood what he had to say. That was quite unnecessary. I repeat that merely to show that I remember the occasion very well. There was a promise, or what HANSARD described as a willingness on my part—and I cannot alter that at this stage and, whatever HANSARD says, that is it—to look at the matter between then and Report. The hon. Gentleman is asking me to bear his comment in mind in doing so, and I will certainly do that.

Amendment agreed to.

Further Amendment made: In page 174, line 34, leave out "and (3)".

—[Mr. Diamond.]

Mr. van Straubenzee

I beg to move Amendment No. 581, in page 174, line 40, to leave out from "made" to "except" in line 41 and insert "quarterly".

The Committee will be glad to note this is a nice short and simple point, quite uncontroversial, and I am certain that in the general spirit of good will the Chief Secretary will accept it without any difficulty at all. The point is that subsection (2) requires tax on distributions to be paid monthly. Under the present law tax on such things as dividends, being on a preceding year basis, are part of a company's normal tax assessment. The effect of this in practice is that tax is paid in some cases some considerable time after the shareholder has received the dividend. Under the new provisions it has to be paid within 14 days.

I am not seeking to persuade the Committee we should return to the old system but it is fair to point out that this very drastic change means, whether it was intended or not, the withdrawal of substantial credit from the companies concerned. I do seek to put to the Chief Secretary and the First Secretary of State as well that it would be reasonable for the tax now to be paid quarterly.

I do not want to appear to be driving a wedge between the Minister without Portfolio and the Chief Secretary, but I have found additional reasons which I believe will appeal to the Minister without Portfolio. We all remember that yesterday he was saying something was undesirable because it was administratively difficult. I am assured on good authority that this is administratively most convenient. I seek therefore to go a long way to meet the Minister without Portfolio who will, I know, if necessary, support me in the Division Lobby.

Sir Eric Fletcher

I certainly agree with the hon. Gentleman the Member for Wokingham (Mr. van Straubenzee) that this is a short and simple Amendment, but I cannot agree with him that it is non-controversial. The simple issue is whether the Revenue should get its tax within one month or within three months. It does not need much argument to indicate that it is obviously much better, from the point of view of the Revenue, that it should get the tax to which it is entitled monthly rather than quarterly; and there is no reason why a company, in paying its dividend, should not at the same time, or soon afterwards, pay tax due to the Revenue. The system we are now introducing to require a company to account immediately for the tax deducted merely brings it into line with existing law with regard to P.A.Y.E. demands when demands are made for tax deducted from salaries and wages to employees. The liability of the employer, whether it is an individual or a company, is to account for that immediately.

With regard to what the hon. Member has said about administrative convenience it would obviously be administratively much more expensive to the Revenue if payments were received quarterly rather than monthly. From the point of view of the Revenue, it is much better that these amounts should be spread over a long period and should come in monthly rather than quarterly. Therefore, from every point of view, it must be better that the Bill should stand as drafted. I cannot accept the Amendment, and I must invite the Committee to reject it.

Mr. A. G. F. Hall-Davis (Morecambe and Lonsdale)

I had no intention of intervening in this debate, but I ask the Government to think again on this Amendment. This is one of those items which may appear comparatively minor, but I can assure the Minister without Portfolio from experience that it will be resented by many medium-sized companies if there is not an attempt to introduce either some transitional provision or, at any rate, not to take the full jump in this Bill.

There is nothing more aggravating in the conduct of a company than when legislation brings about some change in one's circumstances which is quite unforeseeable and which one can do nothing to offset. Although I agree that in terms of the cash flow of the average company this is not a very large item, it is something which will be felt as being an unnecessary intrusion as a result of the tax changes now being made. It destroys confidence on the part of business in the consideration and understanding of the Government for business and company problems. It is this type of action which suggests that administrative tidiness has preference over equity and, indeed, consideration of the problems which business is trying to overcome. Companies plan their cash flow very carefully, and they particularly have to do so in the type of conditions of credit stringency which apply at present. This is a particularly inopportune moment to make this change in such an extreme and drastic way.

This is an unprepared intervention, but I had hoped that the Minister would feel that this was a very reasonable point. I assure him that this will cause resentment perhaps quite out of scale with the figures involved. If he wishes, as I am sure he does and as the Chancellor of the Exchequer has repeatedly said, to show industry that the Government are trying to meet its problems, this is just the sort of point on which he should give way. They should show that they appreciate that these are major changes of time-scale and therefore that they should not be made in this way without warning and in a fashion which gives industry no opportunity to make forward provision for them.

Sir J. Hobson

Even if the Minister cannot give way now, I hope that he will reconsider the matter in view of the representations which have been made to him.

The Minister put forward one argument which seemed to be very one-sided. He said that it was for the convenience of the Revenue that the accounting should be done monthly. In all tax questions, one must consider the interests of the Revenue, but one should also consider the interests of companies and business men and try to hold a fair balance between the two. The hon. Gentleman never devoted his argument to the impact on companies. He said that the Government's proposal would assist the Revenue and therefore that it should be accepted. That is not the right approach.

The Minister's other argument was that this was done for P.A.Y.E. and there-for we might as well do it for distributions. But the two things are very different. They may be similar in some cases, but many payments of dividends will not be anything like the ordinary small payments made to the weekly wage earner who pays P.A.Y.E. I hope that the Minister will consider the representations which have been made before the Report stage.

Sir Eric Fletcher

I cannot add anything to what I have said, except this. It has been said that it is always difficult to move from one system to another. I would point out that there is a transitional provision in subsection 2(2) as a result of which the first payment will not become payable until September, 1966. Therefore, the argument that companies want a certain interval of time in which to make their adjustments is not valid because the transitional period is provided for.

Turning to the observations of the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), the position is precisely the same with regard to P.A.Y.E. Where a company makes a payment, whether by way of wages or salaries to an employee or by way of dividends to a shareholder, and deducts tax from the payment, there is no reason why it should not account to the Revenue as soon as possible. The only issue is whether the company should retain the tax which belongs to the Revenue for a period or pay it quickly. It is obviously to the advantage of the Exchequer that the payment should be made as soon as possible.

Amendment negatived.

12 m.

Sir Eric Fletcher

I beg to move Amendment No. 505, in page 174, line 41, to leave out from second "the" to "shall" in line 42, and to insert: first five months of the year 1966–67". These Amendments have the result that for the purpose of the monthly accounting between the company and the Revenue for the Income Tax deductible from dividends and other payments, a month will not be a calendar month but will be a month running from the 6th of a calendar month to the 5th of the next calendar month. As a result, the first accounting to the Revenue will be for payments made in the period from 6th April, 1966, to 5th September, 1966, and not to the end of August, 1966, as in the Bill.

This is a small but worth-while procedural change. It is designed to avoid special arrangements for accounting for payments that are to be made in the calendar month of April, which straddles two Income Tax years. But for the Amendment, we should have to have a special return for the payments in the first five days of April and, again, for the period from 1st March to 5th April or, alternatively, to provide for the return of payments in April to differentiate between payments in the first five days and the rest. The change has the advantage of bringing the monthly accounting into line with the P.A.Y.E. monthly accounting, with which both the companies and the Revenue alike are familiar.

The Temporary Chairman

Am I to understand that with Amendment 505 the hon. Gentleman was also dealing with Amendment No. 506, in line 43, and Amendment No. 507, in line 44?

Sir Eric Fletcher

That is so, Mr. Steele.

Amendment agreed to.

Further Amendments made: In page 174, line 43, leave out "that month" and insert "those five months".

In page 174, line 44, at end insert: In this sub-paragraph "month" means a month of a year of assessment, that is to say, a month beginning with the sixth day of a month of the calendar year.—[Sir Eric Fletcher.]

Mr. Diamond

I beg to move Amendment No. 508, in page 175, line 29, to leave out "in" and to insert "for".

This is a drafting Amendment correcting art inexact use of language exactly corresponding with Amendment No. 502, which we have already taken.

Amendment agreed to.

Mr. Diamond

I beg to move Amendment No. 509, in page 175, line 39, to leave out sub-paragraph (5).

I am privileged, because this is an Amendment in the names of my right hon. Friend the Chancellor of the Exchequer, the right hon. Member for Bexley (Mr. Heath), the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), the right hon. Member for Altrincham and Sale (Mr. Barber), the hon. Member for Nottingham, South (Mr. William Clark), the hon. Member for Wokingham (Mr. van Straubenzee) and, indeed, the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin). With such names, there is no need to say anything more.

Sir J. Hobson

When my right hon. and hon. Friends and I had put down the Amendment, we were indeed delighted and surprised to find the name of the Chancellor added to it. How frequently in the future we shall have that advantage of his joining our ranks we know not, but in view of the contents of the Bill we think that it is both unlikely and probably undesirable. We are, however, delighted at the way that the Chief Secretary has moved the Amendment, we are grateful to him for moving it and we need say no more.

Amendment agreed to.

Mr. Diamond

I beg to move, Amendment No. 510, in page 175, line 44, at the end to insert: 4. Income tax set against other tax under paragraph 3 above shall be treated as paid or repaid, as the case may be, and the same tax shall not be taken into account both under this Part of this Schedule and under section 44(6) of this Act; but for purposes of section 44(6) any amount paid by a company by virtue of paragraph 1(2)(a) above shall be treated as if it were income tax borne by deduction on a payment not being franked investment income, and as if that payment had been received at the end of the year of assessment for which the said amount is paid, and the said amount shall he set off against corporation tax or repayable accordingly. This new paragraph 4 is substituted for sub-paragraph 1(2). It does three things of importance. It provides that Income Tax set against other Income Tax shall be treated as paid to the revenue or repaid to the company as the case may be. Secondly, it provides that such Income Tax on an item of unfranked investment income cannot be taken into account both under this set-off arrangement and Corporation Tax liability under Clause 44. Thirdly, it provides for the treatment of any Income Tax paid over under the adjustment for any year where the facts show there was excessive distribution over franked investment income. I have examples with which I would not wish to bore the Committee. I hope that with that explanation the Committee may feel that this Amendment can be accepted.

Amendment agreed to.

The Temporary Chairman (Mr. Thomas Steele)

With the next Amendment, No. 539, we can also take Amendment No. 582, in page 175, line 46, leave out "on the day following" and insert "within thirty days of".

Mr. Diamond

I beg to move, Amendment No. 539, in page 175, line 46, to leave out "on the day following" and to insert "within fourteen days after".

This Amendment, and Amendment No. 511—the next Government Amendment—which, perhaps, we can discuss at the same time, with your indulgence, Mr. Steele, provides that Income Tax due under an assessment shall be due within 14 days after the issue of the notice of assessment. This is an improvement in the company's favour. The existing paragraph makes this tax due on the day after issue. We are proposing an interval of 14 days. Interest runs from the day when tax is due, and it is reasonable to allow a short period of grace, after the assessment is issued, to cover accidents and minor adjustment holding up payment. I do not think there are any other reasons for this. I have said that having regard to other views which may be held in other parts of the Committee.

Fourteen days should be ample for the purpose.

Amendment agreed to.

Further Amendment made: In page 175, line 47, at end insert: (unless due earlier under paragraph 2(3) above); and where the amount of any tax payable in accordance with paragraph 1(2) above is agreed between the company and the inspector, it shall be due within fourteen days after it is so agreed".—[Mr. Diamond.]

Sir J. Hobson

I beg to move, Amendment No. 515, in page 176, line 10, after "that" to insert "in".

I think it would be for your convenience, Mr. Steele, and that of the Committee, if we were to discuss the two following Amendments, No. 516 and No. 517, at the same time, in page 176, line 10, after "(2)", insert: for the words 'three months' there shall be substituted the words 'one month'". and in page 176, line 11, leave out from "tax" to and "in line 12.

The Temporary Chairman

If the Committee wishes.

Sir J. Hobson

The object of this Amendment is to deal with the payment of interest on Income Tax due after the assessment. Hitherto, interest on Income Tax due on an assessment, although calculated from the day following the date of the assessment, has not been charged if the tax has been paid within three months. Under paragraph 4(3) of this Schedule, as it stands, the remission of interest within the three months' grace in respect of an assessment under Schedule A is not to apply. Under paragraph 4(1), following the earlier Amendment, subject to any appeal tax shall be due within 14 days of the issue of the notice of assessment. Previously, in matters of Income Tax, sums under£1,000 did not bear interest and interest amounting to less than£1 was not collected. The Government are removing the limit of£1,000 and removing the provision in respect of three months.

We do not object to the removal of the£1,000 limit. We say, however, that to expect people to pay on the due date and not to have any credit from the Government is quite wrong. The Government ought to be able to give thirty days credit, as most commercial firms do; and if it is paid within thirty days, no interest should be due. This is normal commercial practice. It would save the Inland Revenue a great deal of additional work in collecting interest. Over short periods, although admittedly the interest on very large sums might be substantial, on the vast majority of sums it would be a matter of collecting tiny pieces of interest in respect of payment delayed beyond fourteen days. If the payment were not made within thirty day, the full amount of interest at 3 per cent. would be payable from the date on which the payment became due; one would have an assessment fourteen days before it became due when matters of appeal were considered, and beyond that date interest would run.

The proposal would save much administrative cost and on balance would be convenient and sensible from the point of view of both the Revenue and the taxpayer.

Sir John Foster (Northwich)

Is not the Amendment all the more necessary because under paragraph 2(3) the amount is due without assessment? It looks as if the interest could run from the date on which the assessment ought to have been made. Does not that make the Amendment all the more necessary? The fourteen days provision applies only where there is an assessment. If interest is applicable from the moment the payment is due, if a company should have made a return on 1st January, interest is due from then.

Sir Eric Fletcher

I am afraid that I cannot advise the Committee to accept the Amendment. Under my right hon. Friend's Amendment, which was accepted by the Committee, the Government have considerably alleviated the position with respect to payment due to the Revenue and we feel that the primary consideration should be to place on companies every inducement to pay over to the Revenue the tax due which they have, in fact, deducted from the dividends paid to shareholders. If the due date is postponed for a period of a month, as suggested by the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), there will be no inducement whatever on any company to pay before the end of the month.

We do not think it unreasonable that a company which pays dividends and deducts tax from them should be put under an obligation at the same time to pay the tax to the Revenue. The Amendment which has been accepted gives a period of fourteen days grace, which is not unreasonable. It is most desirable in the interests of the Exchequer that there should be a prompt and regular flow of the tax due to the Revenue into the Exchequer. For all those reasons, I am afraid that we cannot accept the Amendment.

Amendment negatived.

12.15 a.m.

Question proposed. That this Schedule, as amended, be the Eleventh Schedule to the Bill.

Mr. Patrick Jenkin

Paragraph 5(b) gives details of the provisions about election for groups of companies. It provides, rather strangely, that a notice of election shall take effect only from the beginning of the following year of the assessment. It has been recognised on both sides of the Committee that where there is a group of companies the notice of election is a reasonable provision which is of benefit to groups, and its absence would be an unfair disadvantage.

In those circumstances, it seems hard that the notice should not take effect from the date on which it is made. Provided the inspector is satisfied that the notice of election has been validly given, there seems no reason why it should not take effect straight away. There is no particular point about it taking effect in the middle of the year because until it has taken effect the income received after deductions of tax will be franked.; after it has taken effect there will be grouping. There seems no difficulty in a company's assessment that it should receive from the same source in the same year both franked and grouped income. Now that the Chief Secretary has had an opportunity to consider the point, perhaps he would be good enough to let me know the answer.

Mr. Diamond

The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has raised a point which calls for consideration. Indeed, it is under consideration at the present time, and I will therefore be in a position on Report either to explain why nothing further need be done, or to see that the Bill makes the appropriate adjustment.

Question put and agreed to.

Twelfth Schedule agreed to.

Back to