'The proceeds of a lottery to be applied to purposes of a society in accordance with section 5(4) of the Lotteries and Amusements Act 1976 shall not be brought into account as a receipt of trade and shall not constitute profits of trade for purposes of taxation.'.—[Mr. Newton.]
§ Brought up, and read the First time.
§ Mr. Newton
I beg to move, That the clause be read a Second time.
This new clause, as will be evident from its title, concerns the tax treatment of the proceeds of lotteries. It is the second new clause today which has arisen in some measure from the interests and activities of Motability, in connection with the disabled. Motability is not merely a car-leasing scheme to turn the mobility allowance into cars on the road. It is also an organisation that is seeking and hoping to raise charitable funds to assist disabled people who would not otherwise be able to run and maintain a car.
One of the things Motability has turned its mind to, in conjunction with professional advisers—in this case Little-woods Pools—is the possible running of a lottery within the terms of the 1976 Lotteries and Amusements Act.
Although this point has come to my attention as a result of the concern of 1439 Motability, it does have much wider effects and implications. I used that illustration only as an example of the kind of organisations that could be worried about the present situation.
The problem is that the net proceeds of a lottery are, or in many cases will be, taxable as trading profits. Motability has been advised that a lottery of the kind it is contemplating having run for is by a branch of the Littlewoods Pools firm would give rise to a tax liability—corporation tax at 52 per cent. Since there is a little uncertainty about the tax position, I see this clause as a probing one. I wait with interest to hear what the Minister has to say. Valuable and worthwhile organisations are worried about their tax position and are considering whether it will be worth while their running lotteries at all.
Let me make clear what kind of societies we have in mind. I refer to the definition of "society's lottery" contained in the Lotteries and Amusements Act 1976. They are defined in the following terms. First, a society establishedwholly or mainly for … charitable purposes";secondly, forparticipation in or support of athletic sports or games or cultural activities";and, thirdly, for neither of those purposes but purposes which are not forprivate gain nor purposes of any commercial undertaking".Although the word "charitable"—in the sense that one does not normally think of sporting clubs as charitable—might be taken as a little wide in this context, we are very much talking about societies and lotteries run for the purpose of societies which are in no sense conducted for private or personal gain and are for fairly broadly public purposes and for the good of a number of citizens. Therefore, we are in no way talking of commercial activities, and it is a legitimate worry if there is a possibilty of their losing a large part of the money intended for the benefit of those activities through a large corporation tax charge.
Various schemes have been suggested to avoid this problem, including specifying a part of the ticket which is to be specifically set aside as a donation. But it has been pointed out that one conse 1440 quence of the earmarking of part of the ticket—even if it were accepted by the Inland Revenue as avoiding a liability to corporation tax—would be that at the same time it would create the risk, if all the tickets were not sold, that there might not be enough money to pay the prizes and to meet the expenses. Therefore, the whole operation could become impossible because clearly no promoter will want to run a lottery at a loss, having given a specific undertaking about how much will go to the charity.
That does not seem to be a solution. Therefore, it has been represented to us that the point should be tackled by Parliament to make it quite clear and sure that there will be no substantial impost of corporation tax on the proceeds of lotteries intended for such purposes so that the charities or other bodies of a charitable kind shall enjoy the full benefits of their promotion and their work.
Underlying this is the general agreement on both sides of the House that in the current and future context of our ability to finance out of public expenditure, we have a common interest in promoting to the maximum extent the flow of voluntary funds into activities of this kind. I hope that Ministers will share that view and will consider this point sympathetically with a view to seeing how it can most suitably be met.
§ Mr. Robert Sheldon
The hon. Member for Braintree (Mr. Newton) moved the clause in a probing manner because he thought that there was some uncertainty about the position. He went into some detail about worthwhile organisations—and obviously charities are all in that category—and explained some of the anxieties which they have expressed to him about their futures. The hon. Gentleman dealt with the three categories of lottery and what he said was correct.
Within the tax system, these categories have tax exemption under the small lotteries provisions. The profits of lotteries are normally subject to tax, but if tickets include a statement that part of the price is a donation, that element is not considered as part of the profits. The hon. Gentleman drew attention to the risk that if insufficient tickets are sold, the sponsor society will have to separate the donation element from the prizes which will have to he paid and which may amount to more than the receipts. But the hon. 1441 Gentleman will be aware that societies have always faced the risk that they may end up out of pocket. Nothing has been changed.
What has altered is that some lottery organisers feel that they need to operate on a larger scale because the trend is towards higher lottery prizes and organisers feel that they must offer more attractive prizes. Once they move into that area, there are dangers for them.
No tax has so far been imposed on the lotteries to which I have referred. It may be a problem for the future as the lotteries try to become larger and to provide bigger prizes. We shall watch that with care and with the same sort of concern as the hon. Member for Braintree has shown in tabling the new clause.
The debate is most peculiarly timed because it comes on the eve of the publication of the Royal Commission report on gambling. We know that the report includes a detailed examination of the law relating to lotteries. We look forward to seeing what it has to say—probably on precisely the point covered by the new clause.
Changes are obviously taking place, and because we have at heart the wellbeing of the charities that benefit from such lotteries, we shall watch the position. As I mentioned earlier, no tax has so far been imposed on the income from these lotteries. We shall see what the Royal Commission has to say and if there is a need to change the provisions in existing legislation, we shall have time to come back to it in the next Finance Bill.
§ Mr. Graham Page
With respect to the Financial Secretary, he has only confused the issue. I had understood that these lotteries were free from taxation. That was the sort of statement made during the course of the legislation. The whole point of extending the freedom to undertake the larger of the small lotteries was to provide money for the sort of activity that might otherwise have to be supported by taxation. Charitable objects, cultural objects, amenities, and so on, are items which would otherwise have to be financed out of taxation in one form or another, local or central. Therefore, it seems rather foolish to tax that money and then divert what is taken in taxation 1442 back into exactly the same cause. Far better to leave the income from lotteries free of tax.
The right hon. Gentleman said that so far the income has not been taxed. But he is now holding a sword of Damocles over the heads of those who have raised money in this way in that they may be liable for taxation. I do not know from his speech whether they are liable in law, or whether the law would have to be changed to make them liable.
We know that the report of the Royal Commission is expected shortly, and it is perhaps wise to wait and see what it says and to frame legislation on it. But I hope that the Government will not be looking for revenue out of the proceeds of these lotteries. At the moment the lotteries are successfully providing amenities, cultural facilities, sports facilities, and so on, and anything which will deter those who are raising the money for such purposes would only do harm to the country and not good. I hope for some assurance that the Government will look at this very sympathetically and not seek to recover a lot of revenue out of the proceeds of lotteries.
§ Mr. Nelson
I support my right hon. Friend the Member for Crosby (Mr. Page). He has been somewhat stonewalled by the Financial Secretary. As I understand it, money raised by lottery is of itself taxable in the same way as any other trading income, but if the recipient is a registered charity, or does not pay tax, it does not incur such a liability, and the provisions for apportioning an element of donation may circumvent that liability in certain cases.
But an important point to make is that, as I understand it, the Lotteries Act enabled for the first time many local authorities to offer such lotteries—my own authority, the Chichester district council, has one every weekend to raise money. They are major recipients of income from such lotteries and pay no taxation. Other registered charities which are now enabled by legislation to use lotteries as a means of raising revenue do not have to pay tax. Yet those associations and societies with quasi-charitable or social aims, such as athletics and those described in the Act, may fall within the taxable remit. This seems to me to be unfair in that the 1443 Act itself set out and limited the authorisation on lotteries to those specific categories. It would seem to me to be a fairly modest but desirable confirmation of that benefit to ensure that such income was not taxable.
It is perhaps arguing against what I have said so far to some extent, but if one is to provide tax relief for the trading income from lottery revenue for societies which are not registered charities but may have semi-charitable purpose, one is making a qualitative judgment as between different forms of trading revenue from those societies. Some society may operate certain other trading activities to raise income for its purposes—for example, for establishing a local community sports ground. In the normal course of events the trading income, if the charity is not registered, is taxable.
However, if the new clause is accepted, any income that is gained by way of a lottery would not be taxable. Therefore, there is a qualitative judgment being made between different forms of revenue raising schemes for non-registered charities in respect of societies as are defined under the Lotteries Act. That distinction needs to be supported if we are to give full support to the new clause.
With that reservation, my general support is for the new clause. It seems that it is the underlying intention of the Lotteries Act that a new form of revenue raising should be open for such societies. As they now have to go to the cost and complication of apportioning a donation element within their lottery ticket to circumvent tax liability, it seems easier and more equitable if we eradicate the need for that by ensuring that the revenue from lotteries is relieved of tax liability.
§ 12.15 a.m.
§ Mr. Peter Rees
As always, my hon. Friend the Member for Braintree (Mr. Newton) must be congratulated on having forced out into the open a point of some difficulty. However, I cannot say the same about the Financial Secretary's intervention. If anything, he left the position rather more obscure than before.
As I understand the right hon. Gentleman's reply, he said that the proceeds of lotteries have not so far been taxed as the fruits of a venture in the nature of trade but that there is a basis for so 1444 doing and that they might be in future. That must be cold comfort to those who may embark on such activities in future. The right hon. Gentleman mutters. It may be that he wishes to intervene to make matters plain. No, it seems that he does not wish to do so. He is a little over-confident about the clarity of his own words. We shall be studying in Hansard tomorrow exactly what he said. However, as he spoke from the Dispatch Box I was left in some doubt. I suspect that my hon. Friends were left in doubt.
§ Mr. Robert Sheldon
I thought that I had made it plain. I was replying to the remarks of the hon. Member for Braintree (Mr. Newton), who accepted that the present position is that charities will not be paying tax on the lotteries because of the explicit donation element in the ticket prices.
There are two elements in the price of a lottery ticket. One element is the donation and the other consists of the prizes and administrative costs. It is usually sensibly arranged that the donation is a considerable part while the prizes and administrative costs make up the lesser part. On that basis the charities pay no tax. As the hon. Member for Braintree observed, to meet growing competition charities could reduce the donation element. If they do that and do not sell enough tickets, they may find that they have to reduce the donation element considerably. In that way they could find themselves liable for tax in future.
As I said, that is a problem for the future. I thought that the hon. and learned Gentleman understood that simple point.
§ Mr. Rees
The Financial Secretary underestimates the problems that are faced by those who organise lotteries. I am not persuaded that there are all that number of instances where there is an explicit statement about the amount to be regarded as a donation. There may be a distinction between those who organise lotteries repetitively for their own purposes and those who do it to create funds that may be passed on to quasicharitable or public enterprises, and even for party purposes. There are many fine lines and distinctions to be drawn. The matter is nothing like as clear as the right hon. Gentleman would have us believe.
It is not the occasion on which to press the matter to a Division. The right hon. 1445 Gentleman has candidly said that there may be clarification by the report of the Rothschild Commission. I know not whether he has any preview. I imagine that time will be found—I hope that it will be Government time—to debate the conclusions of the Commission so that we may be able to revert to the issue on another occasion.
The right hon. Gentleman was rather unfair to my hon. Friend the Member for Braintree when he said that it is rather a curious moment to debate the matter. We have to take our opportunities as and when they arise in the House. We are not masters of Government time. This was a proper opportunity. I am not satisfied with or, indeed, very much enlightened by the Financial Secretary's reply.
This should be regarded as a first instalment. We put the right hon. Gentleman on notice that we may have to return to this point either on the next Finance Bill, which we are constantly assured will be introduced by the present Government team, or when we have occasion to debate the Rothschild Report.
§ Question put and negatived.