§ 10. Sir G. Nabarro
asked the Chancellor of the Exchequer, whether, in regard to foot-and-mouth compensation of approximately £30 million, the £20 per head of cattle bounty, and the £10 per acre ploughing-up grant for foot-and-mouth victims, he will confirm that these 152 emoluments are completely free of assessment to Income Tax, Surtax, Corporation Tax, and capital gains duty.
§ 29. Mr. Grant-Ferris
asked the Chancellor of the Exchequer if he will now state the Government's policy on taxation and compensation to farmers relating to the recent foot-and-mouth disease outbreak.
§ Mr. Harold Lever
Government policy on this matter was the subject of a statement by me in rely to the Adjournment debate on 5th March.—[Vol. 760, c. 397–408.] That statement now requires to be amplified to cover further developments. I propose, therefore, to circulate a comprehensive statement in HANSARD.
§ Sir G. Nabarro
Will the Minister stop dodging? Is he not aware that this is the fourth time this question has been asked? What we want, and what I ask him to do, is to confirm that compensation for foot-and-mouth disease is not subject to Income Tax, to Surtax, to Corporation Tax or to Capital Gains Tax. Will he give us that assurance in unequivocal terms?
§ Mr. Iain Macleod
Does the Financial Secretary realise that his Answer is not good enough? He is circulating an Answer which we shall not be able to see and cannot question the Treasury about for many weeks. Will he specifically answer the point at the end of the Question by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro)? Are these emoluments to be free or not of Income Tax, Surtax, Corporation Tax or Capital Gains Tax.
§ Mr. Lever
I thought the Answer I gave was quite clear. [HON. MEMBERS: "No."] The Answer was in general terms that I could not accept the demand that has been made. The statement that I am circulating is a fairly lengthy one which deals with complex points of Income Tax, Capital Gains Tax and Corporation Tax. I urge that the House 153 would be wiser if it looks at this statement.
§ Mr. Lever
The answer is, "No, there is no exemption for Capital Gains Tax, Surtax and Income Tax." I thought I made that quite plain. I am sorry if I overestimated hon. Members' intelligence, but I thought I made it absolutely plain. I must apologise for an overestimate which I shall not readily make again. I suggest that hon. Members should read the statement which I propose to circulate. It deals fully and sympathetically with the request made.
§ Mr. Barnett
If the lasses are compensated for in such a way as to make the recipient liable to Surtax and Capital Gains Tax, is there any reason why they should be exempted?
§ Following is the statement:
§ The effect of taxation on compensation and special grants arising from foot and mouth disease
§ Compensation for slaughter
§ Income Tax, Surtax and Corporation Tax. The farmer may elect within two years, if he has not already done so, that all animals in a production herd (that is, mature animals kept for the production of milk, wool, etc., or for breeding) should be treated for taxation purposes on the "herd basis". In that event, compensation for a slaughtered animal in the herd is treated as a revenue receipt for taxation purposes only when the animal is replaced and if the replacement takes place within five years. If however the replacing animal is of inferior quality to the slaughtered animal the amount of compensation treated as a revenue receipt is limited to the cost of the replacing animal. None of the compensation is treated as a revenue receipt if the animal is not replaced within five years.
§ The broad effect of these provisions is that the profit of the year in which a replacement takes place is increased only to the extent, if any, to which the compensation exceeds the cost of replacement by an animal of at least equal quality.
§ Compensation for animals not eligible for the herd basis, such as followers, fatteners and flying flocks, is normally brought into the accounts as a trading receipt of the year in which it is paid, but under the arrangements recently agreed a farmer may now elect to treat as a receipt for that year an amount equal to the book-value of the slaughtered animals only and to bring one-third of the excess of compensation received over the book-value into the tax calculations for each of the following three years.154
§ Capital Gains Tax. Under the present law there will be no liability to capital gains tax unless all the following conditions are satisfied—
- (a) the compensation for an individual animal was over £1,000;
- (b) the animal formed part of a herd to which the herd basis applied;
- (c) it was not replaced within five years (or was replaced at a lower figure leaving more than £1,000 unexpended);
- (d) there is a gain, computed in accordance with the statutory provisions relating to wasting assets.
§ Additional compensation for animals slaughtered in the first four weeks of the disease. Prima facie, this will be treated for taxation purposes in the same way as the primary compensation. It has not yet been decided, however, how that part which is to be provided from within the farming industry will be raised. If it should all be found from sources which have already borne tax (e.g. if it should be paid by other farmers out of their net income) the appropriate part of the additional compensation will not be treated as taxable income of the recipients.
§ Special ploughing grant of £10 per acre. This is a contribution towards the revenue expenses incurred on ploughing and other operations on the land concerned and will therefore be treated as a trading receipt.
§ £20 bounty where certain slaughtered animals are replaced. This is intended, inter alia, to help the farmer to use his land for some alternative farming purpose. The expenditure he incurs thereon will generally be of a revenue nature and the contribution towards it will therefore be treated as a trading receipt.