|(1) A person chargeable to surtax for the year 1972–73 may claim to be allowed to defer payment of two-thirds of that surtax or, if his income includes income which has borne tax by deduction, two-thirds of so much of that surtax as is attributable to his other income.|
|5||(2) One half of any amount deferred under this section (that is to say one-third of the surtax) shall be payable on 1st January 1975 instead of on 1st January 1974 and the other half on 1st January 1976.|
|(3) For the purposes of this section—|
|10||(a) income which has borne tax by deduction is income from which tax at the standard rate has been deducted (otherwise than in pursuance of section 204 of the Taxes Act (pay as you earn)) or is treated as having been deducted; and|
|(b) the amount of surtax attributable to a person's other income is the surtax to which he would be chargeable if his other income, reduced by any deductions under section 28 of the Taxes Act, were his only income; and|
|15||(c) any reductions of his total income attributable to any provision other than section 28 of the Taxes Act shall be treated as first reducing income which has borne tax by deduction; and|
|20||(d) where, in the case of a husband and wife, an application under section 38(2) of the Taxes Act (separate assessment to surtax) or an election under section 20 of this Act has effect, the amounts that may be deferred by them respectively shall be ascertained, in accordance with the preceding provisions of this section, by reference to the surtax to which each of them is chargeable and to the income in respect of which that surtax is chargeable.|
|25||(4) A claim under this section shall be made to the Board but shall not be allowed by the Board unless it appears to them that the amount to be deferred is £100 or more and is not in dispute—[Mr. Barber.]|
§ Brought up, and read the First time
§ The Chancellor of the Exchequer (Mr. Anthony Barber)
I beg to move, that the Clause be read a Second time.
§ Mr. Speaker
I understand that it would be convenient to discuss at the same time sub-Amendment (a), in line 25, leave out 'and is not in dispute', standing in the name of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and Government Amendment No. 15.
§ Schedules be considered in the following order of Clauses and Schedules, namely, Clauses 1 to 8; Schedule 1; Clauses 9 to 17; Schedule 2; Clauses 18 and 19; Schedule 3; Clause 20; Schedule 4; Clauses 21 to 28; Schedule 5; Clauses 29 to 36; Schedules 6 and 7; Clauses 37 to 47; Schedule 8; Clauses 48 to 52; Schedule 9; Clause 53; Schedule 10; Clause 54; Schedule 11; Clauses 55 and 56; Schedule 12; Clauses 57 to 63; Schedule 13; Clauses 64 and 65; Schedule 14.
§ I hope that this proposed ordering of the new Clauses and Schedules, Mr. Speaker, is satisfactory to the House. It follows previous practice.
§ Question put and agreed to.
§ New Clause 35 seeks to replace Clause 21 and deals with the problem of overlapping tax, which is inherent in any proposal for unification of income tax and surtax. Clause 21 as it stands allows a surtax payer to defer for one year payment of half the 1972–73 surtax which is attributable to his earned income and interest is to be charged on any surtax so deferred from the normal due date, 1st January, 1974. I think it is recognised on both sides of the House that in many cases Clause 21 as it stands will provide no particular difficulty and 937 that in many cases also the taxpayer in any event would not wish to defer the payment of this surtax. [Laughter.] Well, he might wish it. We would all wish it. But I think that quite a number of taxpayers would, even under Clause 21 as it stands, find no particular difficulty. On the other hand, representations have been made to us which have convinced me that in some respects Clause 21 is too harsh. The result of these representations and of our considerations is new Clause 35.
§ The grounds of criticism which were put to me fell under three heads. First, there was the complaint about the repercussions of the deferment on earned income. I think that this is a justifiable complaint. Certain investment income from, broadly speaking, rent and interest—for example, bank deposit interest—will result in overlapping tax payments when received by the surtax payers. The assessment made for 1973–74 in respect of such income payable on 1st January, 1974, will extend to the full scale of the unified rate, but the 1972–73 surtax will also be due on 1st January, 1974, on such income.
§ The case for spreading the 1972–73 surtax attributable to Schedule A income has been particularly strongly pressed and the argument is that, for practical purposes, the recipients of rental income are as badly affected by overlapping tax problems as are income tax earners. The problem for the owners of agricultural estates, for example, is especially difficult, in that they are currently being urged to spend large sums on capital improvements, drainage works and so on, and these tax payments would denude them of capital. There is a great deal in that argument.
§ The second ground of criticism concerns the period of the spread as it is set out in Clause 21. It is said that the period of the spread in Clause 21 is inadequate. It has been maintained that the liquidity problems posed for surtax payers by overlapping tax liabilities have been under-estimated and that a deferment for one year only would not go far enough to meet the difficulties. As I have said, I do not doubt that in the case of many taxpayers there would be no particular difficulties. On the other hand, I have been convinced by particular examples brought to my attention that 938 there would be considerable difficulties for some.
§ The third ground of criticism concerns the charge to interest. The interest charged in the circumstances of these cases has been the subject of particular criticism. In the reply which my hon. Friend the Chief Secretary made when this matter was considered in Standing Committee, he gave a general undertaking to look again into these matters in the light of the arguments and to bring forward proposals on Report to meet any criticisms which, on further reflection, we considered justified. I therefore decided that, as there was considerable substance in these various criticisms, a new Clause should be put down to replace Clause 21, and this goes a considerable way to meet the criticisms.
§ Under new Clause 35, part of the 1972–73 surtax referable to the whole of the taxpayer's income other than income subject to deductions of standard rate tax at source may be deferred. So Schedule A, among other things, will, for example, qualify for spreading. This should go a long way to meet those critics who have argued that spreading should not be confined solely to surtax on earned income.
§ Secondly, surtax which qualifies for deferment will be payable in three equal instalments—on 1st January, 1974, 1st January, 1975, and 1st January, 1976–instead of in the two instalments proposed in Clause 21 as it stands.
§ Thirdly, the interest charged will be dropped. Of course, interest will be payable under the ordinary rules from the new deferred due dates if payment is not then made within the prescribed period.
It might be helpful if, at this point, I refer to sub-Amendment (a) because I think that there is some genuine misunderstanding about the meaning of the words
… and is not in dispute.
which my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) seeks to delete. Section 29(2)(b) of the Taxes Management Act, 1970, allows the Board to make a surtax assessment to the best of its judgment when a taxpayer has failed to make a return or when the Board is dissatisfied with the return. The purpose of the sub-Amendment is to deny the privilege of
spreading when an estimated assessment has been made in such circumstances.
§ The words which my right hon. Friend seeks to omit—and this is important—will not rule out deferment simply because a taxpayer has appealed against an assessment so that the tax is in dispute. The reason is that so long as the appeal is unsettled the tax charged under the assessment is not payable anyway. But once the appeal has been disposed of so that the tax is no longer in dispute, deferment can be claimed provided the other conditions of new Clause 35 are satisfied.
§ It could happen that there is an appeal relating to some part of income included in an assessment although there is no dispute over the remainder. In these circumstances, the Special Commissioners may order that the tax not in dispute should be paid notwithstanding that appeal on the other matters is outstanding, and if the conditions for deferment are met, the appropriate proportion of such tax may be deferred. It may well be that my right hon. Friend has not appreciated that tax under appeal is not payable anyway until the appeal is settled, and, once it is settled, deferment will be available if the other conditions are satisfied.
§ 4.0 p.m.
§ I add only one observation which seemed to me to be important when the full significance of these words was explained to me. When one talks in these terms of an assessment being under appeal, that means in many cases simply that a notice of appeal has been given. Those of my hon. Friends and hon. Members opposite who are concerned with these matters will know that in normal circumstances the Inland Revenue considers as a notice of appeal a letter from the taxpayer or his advisers challenging the assessment. In other words, that letter is taken as a notice of appeal, so that in those circumstances the assessment would be under appeal, and thus the words to which my right hon. Friend's Amendment refers would become operative in the way I have described.
§ For all those reasons, it seems reasonable that these words should be included. I hope that my right hon. Friend will be satisfied with that explanation and 940 will not seek to press his Amendment to a Division.
§ Mr. John Boyd-Carpenter (Kingston upon Thames)
Those of us who criticised Clause 21 were naturally very glad to see Amendment No. 15 to remove it. It would be ungrateful not to say that my right hon. Friend's new Clause is a considerable improvement, from the taxpayers' point ow view, and ordinary fairness, on Clause 21.
But I thought that my right hon. Friend was, for him, a little disingenuous when he said that some such Clause was inherent in any change to a single tax system. It is only inherent in the method which he himself has adopted for making that change. As I ventured to point out on Second Reading, it is my right hon. Friend's decision to retain a tax which, while assessed on the basis of 1972–73 income, is payable and collectable only in 1974, a year in which my right hon. Friend will also be collecting, through P.A.Y.E., the higher rate of income tax. It is his decision to make the transition in this way which has produced the difficulties which his own new Clause, as did Clause 21, seeks to mitigate.
In thanking my right hon. Friend for mitigating some of the punishing effects on the taxpayer which he himself decided to inflict, I hope that I shall not be thought to believe that my right hon. Friend is going the right way about making the transition. The very fact that he has, first, put Clause 21 into the Bill and, secondly, in the light of criticisms, mitigated it, is surely an acceptance on his part that his method of making the transition is unfair and oppressive.
It springs simply from what, with all respect to the Inland Revenue, is its professional delusion that surtax for 1972–73 is, from the point of view of the taxpayer, tax payable in that year, whereas, from the point of view of the taxpayer, surtax in respect of 1972–73 is 1974 tax, which is when the impact falls and the taxpayer has to pay it.
I am sorry that my right hon. Friend has not so far gone the whole hog and taken the line that as he is collecting whatever higher rate of income tax he decides in 1974, the right thing would be to cancel out surtax for 1972–73, which would have the incidental advantage of 941 enabling him to get rid of the Surtax Office a year earlier, with the consequent administrative saving. My gratitude to my right hon. Friend for doing away with the oppressive interest provision of Clause 21 and the insertion of the three-year deferment provision is tempered by the fact that even the new Clause is only an attempt to make the best of what sems to be a fairly bad job.
I come now to my Amendment. I was naturally interested in my right hon. Friend's explanation. I will admit that I had not appreciated that the words "and is not in dispute" meant that no problem could arise when an appeal had been entered. But I am less clear from my right hon. Friend's explanation about the position if an argument, which could not yet be construed as a formal appeal, or even the letter which he mentioned, were taking place between the taxpayer and the Inland Revenue.
For example, if there is a genuine difference of view, which accountants ate trying to sort out, between the taxpayer and the Revenue, if these words stay in the Bill, will it be impossible for an application to spread—whatever the final sum may be—to be put in by the taxpayer? My right hon. Friend's assurance was perfectly clear when an appeal or anything that could be construed as an appeal had been entered no problem could arise, because until that appeal was disposed of, no tax was payable. But if there is simply a discussion or informal argument as to the precise quantum of surtax due, and, as my right hon. Friend knows, that is apt to happen with complicated estates, with these words in the Clause, is an application to spread prevented?
Equally, what is the position when an appeal has been put in and, within the three-year spread period, it has been decided one way or the other, possibly after one and a half years? I take it that an application to spread could then be put in, but I should welcome such an assurance.
Finally, I was very interested in my right hon. Friend's reason for this. He told us that it was his purpose to prevent an application to spread when the Revenue had imposed an estimated assessment because of its difficulties in getting a return. It therefore seems that the purpose of these words is to add to the 942 pressure on the taxpayer in such a case. The taxpayer is not only to be exposed to the risks of an estimated assessment, with all the inconvenience that that may cause, but to be denied a spread at any time in the course of his discussions with the Revenue.
I wonder whether that is fair or necessary. I know that my right hon. Friend will say that an estimated assessment is imposed only when, from the Revenue's point of view, the taxpayer is at fault, but there may be occasions, for example, when an estate or trust is being valued slowly and with difficulty and when great confusion exists, when, with the best will in the world, it will not have been possible for those responsible to put in the proper tax returns. There are cases when estimated assessments may be imposed quite lawfully without there being at any rate any serious fault on the part of the taxpayer.
I do not see why in such a case taxpayers should be denied any opportunity whatever of applying for the spread which my right hon. Friend has accepted as necessary to be open to other surtax payers in this situation in connection with a tax transition for which he is responsible. Therefore, while I was glad to have my right hon. Friend's assurance about cases in which an appeal was entered, I am still unhappy about why there should be an automatic denial of spread in all estimated assessment cases, meritorious or unmeritorious. I am a little uncertain about what happens when there is argument and discussion as to the amount of surtax due both in the period before a formal appeal is entered, or is deemed to be entered, and after such an appeal has been disposed of. I confess that at the moment I should be much happier if the words were not in the Bill, but I should like to hear a further explanation.
§ Sir John Foster (Northwich)
I ask my right hon. Friend the Chancellor of the Exchequer to take out some of the negatives and to deal with the new Clause in a positive way.
Subsection (4) provides that the Board shall not allow a claim to spread if the amount is in dispute. That sounds very odd. Is it possible to distinguish between a dispute which is an appeal and a dispute which is not? Can my right hon. Friend give an instance in which it is 943 fair that a claim to spread should not be allowed because the taxpayer is disputing in some way which is not an appeal? Looked at in a positive way, it is not justifiable, and certainly does not seem justifiable to a non-lawyer and a person of common sense, to say that a claim will not be allowed if it is in dispute but it will be allowed if it is not in dispute.
§ Mr. Joel Barnett (Heywood and Royton)
I cannot help feeling that the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) is making rather heavy weather of the new Clause. It is reasonably clear that if a matter is under appeal the taxpayer is not suffering any more than he is if it is not under appeal. Admittedly he cannot spread, but he is in a better position: he does not pay at all. I should be prepared to accept the explanation of the Chancellor of the Exchequer.
§ Mr. Boyd-Carpenter
The words used are, not "subject to appeal", but "in dispute". As my hon. and learned Friend the Member for Northwich (Sir J. Foster) said, this must mean that there can be cases in which there is no appeal but there is dispute.
§ Mr. Barnett
When it comes to the legal interpretation of words, I defer to the right hon. Gentleman and to the hon. and learned Member for Northwich. (Sir J. Foster). But, from a purely tax point of view, I have had no difficulty about deciding with the Revenue when a matter is under appeal. A letter to the Revenue saying that one does not accept a particular part of a surtax assessment is good enough. But if the right hon. Gentleman is right in his legal interpretation and that the new Clause may not be interpreted in the way indicated by the Chancellor of the Exchequer, I agree that it will be necessary to amend the Clause. But if the Chancellor's interpretation is correct, the taxpayer will be at least as well off because he is not obliged to pay the surtax.
Despite what the Chancellor of the Exchequer said, the general Revenue interpretation is that when an assessment, whether for income tax or surtax, is under appeal, the collectors of taxes do not say, "We will wait until it is all 944 settled." They are generally instructed, in no uncertain terms, to apply for a substantial amount on account. But most taxpayers do not appreciate that they are not obliged to pay, although the collector of taxes tends to be rather pressing, even when a case is under appeal.
I refer to the main point made today by the right hon. Member for Kingston-upon-Thames which he made when the matter was last debated on the Floor of the House. He indicated that the method proposed by the Chancellor of the Exchequer was unfair. He said that it was a "professional delusion" because the tax arose in 1972–73 and did not become payable until 1974. He said that in those circumstances the whole of it should be relieved because in that year the unified tax would be paid. The implication behind his words was that it was unfair because the taxpayer paid the tax twice. That strictly is not true. The taxpayer pays twice in one year, which is very different. If the taxpayer were relieved of the tax, it would be a very substantial concession; it would not be a minor concession. It would be a relief of £300 million of surtax. The Bill, as I am sure my hon. Friends will agree, has been more than kind to people at that end of the tax paying scale. Therefore, it is not unfair in any sense of the word to insist that that tax shall not be totally relieved.
In practice, with surtax being paid in arrears, there is at least one year's surtax owing at death. If the whole of that one year's surtax were relieved, not only would it be a major concession, but I suppose that one could argue that it would be a concession to beneficiaries of estates. Surtax which became payable at death would, in most cases, no longer be payable under the unified tax system. The implication behind the words of the right hon. Member for Kingston-upon-Thames was that it was unfair to relieve these people of the surtax. In my view, it is not unfair. On the contrary, it would be grossly unfair to other taxpayers if surtax payers were relieved of this amount of surtax—£300 million.
I agree that my first impression of Clause 21 might have stemmed from the fact that I was personally involved in having to pay the tax and that it seemed very hard to have to pay two lots in 945 one year—and, incidentally, in a very interesting year, 1974. Surtax payers might feel that paying that extra amount in surtax would be a good reason for putting crosses in places other than on income tax forms. If the payment of the tax were cancelled altogether, while it might be very nice for me personally, it would be grossly unfair generally. I accept the new Clause, with its not unreasonable further concession to surtax payers.
§ Mr. Barber
I am grateful to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) for his kind words and for recognising that I have gone some way towards meeting those who believed that the provisions of Clause 21 were too stringent. I know full well the arguments which my right hon. Friend has adduced previously about the way in which one might deal with the problem of the overlapping of surtax which is inherent in any proposal for unification. My right hon. Friend is right if one takes the view that it would be reasonable to cancel altogether one year's payment of surtax.
I have heard these arguments deployed before and, naturally, I have considered them, but I do not believe that I should be justified in adopting that remedy, which would certainly avoid the sort of problems which my right hon. Friend and others have had in mind. I therefore came to the conclusion that the best thing I could do was to put forward provisions which would alleviate the situation in a reasonable way. Although I may not have gone as far as some of my right hon. and hon. Friends would have wished me to go, I hope that they will agree that, in conjunction with my hon. Friends who served on the Committee upstairs, I have gone quite a long way to meet the objections raised under the three heads which I mentioned. I take the point which my hon. and learned Friend the Member for Northwich (Sir J. Foster) made about the wording. It is always difficult on Report to consider looking again at the wording. I shall, therefore, deal with the substance of what he and my right hon. Friend said about the words in the Amendment.
The way in which deferment is operated is not dependent on there being a 946 formal appeal. If a taxpayer says to the inspector that he does not agree with the assessment, the matter is then treated by the Inland Revenue as an appeal. Once an assessment is under appeal the tax is not payable in any event. When an appeal has been decided, where a dispute has been resolved, then the spreading provisions apply. My right hon. Friend asked for an assurance on that particular point.
I referred in my opening remarks to certain circumstances in which the Inland Revenue would consider it right to make an estimated assessment. Suppose a taxpayer has made no return of income, done absolutely nothing to co-operate with the Revenue, the Revenue has only one course open to it, and that is to make an estimated assessment.
Even in these circumstances, on receipt of the estimated assessment, if the taxpayer then says, "I do not believe that this assessment is justified", that would be treated as an appeal, and because it is treated as an appeal the tax which might otherwise be payable would not be payable until the dispute had been settled.
I looked at my right hon. Friend's Amendment with great care, because I wanted to make sure that it would not operate unfairly in any of the sorts of cases mentioned. I am satisfied that it will operate in a fair way, and I hope that he will accept what I have said and the assurances I have given.
§ Sir J. Foster
Can the Chancellor give an instance of a dispute where no spreading is allowed other than on appeal where no spreading is required as no tax is payable?
§ Mr. Barber
I regret that I cannot offhand give such an instance. But in those cases where there is a dispute between the Revenue and the taxpayer, that dispute will, in normal circumstances, be treated as an appeal and, therefore, once the dispute is resolved the spreading provision will apply. Whatever the answer is to that point, there are no circumstances in which this could operate to the taxpayer's disadvantage.
§ Question put and agreed to.
§ Question read a Second time, and added to the Bill.