HC Deb 21 November 1967 vol 754 cc1127-9
34. Mr. Turton

asked the Chancellor of the Exchequer whether it is the intention of the Inland Revenue to enforce Section 77 of the Finance Act, 1965, in such a manner as to cause no tax to be paid by close companies in cases where money has not been distributed by them in order to plough it back into the business.

Mr. Diamond

As my hon. Friend the Financial Secretary pointed out on 24th October in reply to a Question by the right hon. Member for Thirsk and Mal-ton (Mr. Turton), Section 77 specifically provides for a company's development requirements to be taken into account in calculating shortfall. As hitherto, therefore, the Inland Revenue will make no shortfall assessment for any period where a trading company shows that those requirements would be prejudiced by an increase in its distributions.—[Vol. 751, c. 424–5.]

Mr. Turton

Is the right hon. Gentleman aware that that assurance is being interpreted differently by inspectors in different parts of the country? Will he send out an instruction to ensure that there is one interpretation? Is he willing to receive cases where there have been interpretations by inspectors that run counter to the definition he has given today?

Mr. Diamond

The answer to the last part of the right hon. Gentleman's supplementary questions is, "Certainly". The answer to the first two parts is that I am not aware of that, and that steps have been taken to make sure that there is a unanimity of view by inspectors of taxes throughout the country.

Mr. Patrick Jenkin

Is the right hon. Gentleman aware that among the group of firms particularly affected by the operation of the close company legislation are the British export houses, whose association has felt that they have been unfairly discriminated against? In view of both my right hon. Friend's Questions, No. 33 and No. 34, will the right hon. Gentleman undertake to look into this?

Mr. Diamond

I shall be glad to do more than to look into it; I shall be glad to receive a deputation. I am most anxious to remove any misapprehension on this score. As I have said in previous debates when the hon. Gentleman has been good enough to be present, if firms have a need to plough back the whole of their profits there is no reason why they should declare any dividend at all for these purposes.

Mr. W. Baxter

Will my right hon. Friend see that this is made abundantly clear to the inspectors of taxes? It is a very important matter, sometimes appertaining to reasonably small businesses. If they are compelled to disburse their profits without sufficient regard to the expansion necessary for the future, this could have a very detrimental effect on the country's future.

Mr. Diamond

I am grateful to my hon. Friend. Of course, I agree with him that this is essential for growth. That is why I have made the position clear on every occasion, and why the Inland Revenue authorities have taken steps to make absolutely sure that the previous practice has continued and has been advised to all inspectors of taxes.

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