ACCOUNTING RECORDS (Hansard, 19 October 1976)

§ Mr. David Mitchell
I beg to move, Amendment No. 25, in page 15, line 31, leave out paragraph (a).

Mr. Deputy Speaker
With this we are to take Government Amendment No. 26, in page 15, line 31, leave out from first 'of' to second 'of' in line 32 and insert 'stock held by the comapny at the end of each financial year of the company; 1355

(b) all statements of stocktakings from which any such statement as is mentioned in paragraph (a) has been or is to be prepared; and

(c) except in the case of goods sold by way of ordinary retail trade, statements'.

We are also to take the following amendments to Government Amendment No. 26:

§ Mr. Mitchell
This is the most extraordinary paragraph. I cannot imagine what got into the heads of the parliamentary draftsmen or the Ministers when the Bill was being drafted. As it stands, the clause says that the statements referred to, that is, the accounting records that have to be kept—and, be it noted, for six years—should be statements of all stocktakings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased showing the goods and the buyers and sellers in sufficient detail to enable the goods and the buyers and sellers to be identified. I take issue with the Minister on two counts in respect of this matter. First, while one understands that paragraph (b), relating to stocktaking at the end of the financial year, is an essential part of the accounting and that, therefore, that must be in the Bill, quite clearly the suggestion that statements of all stocktakings should be kept for six years is a nonsense.
Perhaps I may illustrate that point. There are countless businesses which for various reasons take stock at intermittent or irregular intervals. Many retail businesses, for example, take stock every month in order to keep an eye on the level of pilferage. When public house managers go on holiday and relief managers come in, every pub involved has a stocktaking. Is it seriously suggested that every pub stocktaking when 1356 a relief manager comes in should be kept as part of the accounting records for six years? That is ludicrous. It should never have been in the Bill. I hope that the Minister will agree, therefore, that it should not be there.
The second part of the paragraph requires that a record be kept of all goods sold and purchased showing the goods and the buyers and sellers in sufficient detail to enable the goods and the buyers and sellers to be identified except in the case of retail trade.
What benefit can there be in that? What has it to do with the annual accounts of a company that that degree of detail should be recorded? Moreover, why should a wholesaler be treated in this respect differently from a retailer? The present VAT regulations, I understand—perhaps the Minister can guide the House—already cover all that is here required, and it is therefore superfluous to add it in the present Bill. One can only assume that the purpose of adding it is to add an additional scourge held over the small business man who fails to understand or fails to comply, providing for more serious penalties than under other legislation. Perhaps the Minister will accept, therefore, that the subsection ought not to be there at all.
What is more, there is a certain right of privacy in this country, and to call for the revealing of the names of the purchasers is an invasion of the privacy of the individual which the House ought not to condone.

§ Mr. Higgins
Having been concerned with these matters for some years now, I must say that I regard Government Amendment No. 26 as one of the worst pieces of Government drafting that it has ever been my misfortune to encounter. Government draftsmen are paid large sums, and frequently—indeed, almost invariably—that may well be justified by the complex and hard work which they have to do. But Amendment No. 26 is a disgrace. If one wishes to amend it in any way, because it deals with particular items one has to go about it in an extraordinarily convoluted way. Instead of the entire passage being knocked out and a self-contained amendment substituted, all sorts of loose ends have been left hanging around. The Under-Secretary should pursue this matter with the official concerned.
1357 That being said, I do not think that it would be appropriate at this hour of the night to pursue our Amendments (a) and (d). My hon. friend the Member for Basingstoke (Mr. Mitchell) has made the main points of substance which ought to be made. We still have grave doubt about whether the requirement for information which the Government say is necessary can be justified, and about whether the burden which it will impose, especially on small businesses, can be justified.
I hope, therefore, that the Minister will at least give a moderately encouraging reply to the effect that he will look at this matter between now and the debate in the other place. I think that I am right in saying that they will be able to consider it if the Bill is amended, and this is a matter which should be looked into, not only in the drafting but also on the substance, between now and the next stage.

§ Mr. Loveridge
The Government have shown sense in now exempting certain stock provisions from the need for detailed record where goods are sold by way of ordinary retail trade, but one cannot help thinking that, instead of sold by way of ordinary retail trade they may have meant goods bought or sold by way of ordinary retail trade". Our Amendment (b) would bring common sense into that sentence. Even large businesses purchase some goods retail, through the petty cash, for example, or on the petrol expenses account. It is not reasonable to expect people always to be able to trace such a seller six years later, especially in the case of minor items bought by a large company. As the Government amendment reads, that expectation appears to be involved. I hope that the Government will agree that it should read "goods bought or sold" and thereby exercise common sense.

§ Mr. Arthur Davidson
I have listened with interest to the arguments of hon. Members and they will be the first to admit that with the exception of the hon. Member for Basingstoke (Mr. Mitchell), they covered the same ground.
Government amendments Nos. 26 and 28 are closely linked to the amendment moved by the hon. Member. The requirement to keep records of stocktaking is narrowed and will be welcomed by hon. 1358 Members. In the past most companies carried out stocktaking once a year but now many companies stocktake on a continuous basis. For them the term "the annual stocktaking" which was used in the 1948 Act is meaningless.
In bringing the requirements as to accounting records up to date, therefore the Bill substituted a requirement to keep records of all stocktakings. In Committee, it was pointed out that some companies undertake frequent stocktakings for their own purposes. For example, an off-licence will check its stock whenever there is a change of licences. As drafted, the Bill would require records of all such stock-takings to be kept.
On reflection, the Government agree that it is unnecessary for company law purposes for records of these additional stocktakings to be kept. What is essential is that records should be available of the physical check of stocks on which the valuation of stock at the end of the financial year is based. Amendment No. 26 therefore makes it clear that these records must be kept but leaves it open to companies to decide for themselves whether to preserve their records of any other stocktakings. The Government have therefore gone some way, if not the whole way, to meet the objective of hon. Members. The clause will not require an off-licence stocktaking to be recorded.
The Opposition amendments in different ways omit parts of subsection (5) which requires that the accounting records of companies dealing in goods shall contain statements of stocktakings and of goods sold and purchased. This question was discussed at length in Committee and the Government stand by their original view.
If the proposal were accepted, companies would not be subject to several very important requirements relating to accounting records, most of which are already requirements under the 1948 Act. Statements of goods sold and purchased are the most fundamental aspect of any company's accounting records and failure to record these matters is at present an offence punishable by imprisonment under Section 331 of the 1948 Act, which this clause supersedes. To delete this requirement would be highly retrograde. None of the professional bodies which have commented on the Bill has recommended doing so.

§ Mr. David Mitchell
I seek clarification on existing legislation. The Minister says that it is superseded. Does he mean that earlier legislation is repealed or is new legislation to be superimposed on it?

§ Mr. Davidson
The previous legislation is superseded by this legislation.

§ Mr. David Mitchell
I am asking the hon. Gentleman to explain what he means.

§ Mr. Davidson
I am sorry if it is ambiguous. The previous legislation is repealed and this supersedes it.

§ Mr. Arthur Davidson
I beg to move Amendment No. 31, in page 16, line 19, after "it", insert—

"(a) in the case of a private company, for three years from the date on which they are made; and

(b) in any other case".

The amendment reduces from six to three years the period for which private companies must preserve accounting records. The six-year requirement will apply to public companies only.

§ Mr. Higgins
We are grateful for this Government concession, and I am sure that we shall make more rapid progress as a result of it.