Finance Bill (Hansard, 17 July 1986)

§ Mr. Ian Stewart
I was dealing with the difficult technical question of the composite rate tax payments during the fiscal year 1986–87 in relation to the building societies, whose affairs we have been discussing. I do not 1291 deny that during the fiscal year 1986–87 they would need to account for the tax on interest and dividends of more than 12 months. Twelve of those months would have come into account in the ordinary way because that is how the old scheme operated. In addition, to catch up, tax must be paid for the subsequent months at the end of the fiscal year 1986–87. The problem with the Woolwich and other 30 September societies is that they have enjoyed a considerable advantage over other societies because of the difference between their year end and the end of the fiscal year. On average, they have had a delay of between 10 and 11 months in handing over the composite rate tax. To catch up with the others and to bring those societies into line with banks the delay has been reduced to between three and four months. Obviously, the societies are therefore required to pay a greater amount of composite rate tax to catch up time during the transition period. We have introduced transitional arrangements so that this is spread over a period. The transitional relief is more generous the longer the time before the end of the fiscal year that the society's financial year ends.
This does not affect the amount of tax collected. It merely affects the timing. In 1986–87 the later months of that fiscal year are added to the normal period when composite rate tax would have been collected under the old system.

§ Mr. Patrick Jenkin
My hon. Friend appears to have conceded two points. The first is that undoubtedly extra taxation will be paid in the years 1986–87, and also in 1987–88 under the spreading arrangements. This will bring in revenue to the Treasury greater than that which would have been received from the societies had there been no change in the system. Therefore, in respect of those two years, this is clearly contrary to the intentions which my right hon. Friend the Chancellor expressed to the House last year in his Budget statement.
Secondly, my hon. Friend seems to have conceded firmly that, although payments made in January by the societies discharged their liability in full for the fiscal year 1985–86, they will have to pay more tax on interest which they have paid in the last five months of that year. Why is that not double taxation?

§ Mr. Stewart
The answer is, very simply, because it is a catching-up process. They have had a longer lag in passing over composite rate tax to the Revenue than most of their competitors, and when they have to catch up they have further to go. That is why they have to pay over more during 1986–87. It is not double taxation, it is merely that they have had to pay tax in respect of a longer period for the fiscal year 1986–87 than they would if the old system had continued. Of course it is uncomfortable for them, but I repeat what I said earlier, that there is no increase in the estimated yield from composite rate tax during this current fiscal year over the previous year. The whole of the transitional arrangement and the move to the new quarterly payments is based on the undertaking that my right hon. Friend the Chancellor gave.
It does not bring extra tax to the Revenue. Because of the timing of the quarterly payments, the amount of flow into the Revenue during the fiscal year 1986–87 will, we calculate, be, as near as possible, equivalent to what it would have been if the old system had continued. All that happens is that some of those payments are made earlier than they otherwise would have been. In the case of 1292 societies such as the Woolwich, it is earlier by a greater amount because its financial year ended substantially earlier than that of its competitors. Therefore, there is no double taxation, and I hope that my right hon. Friend will accept that.

§ Mr. Jenkin
It would greatly help me if my hon. Friend could reassure the House on the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith) and the hon. Member for Thurrock (Dr. McDonald), that there is nothing in the Government's amendment that will preclude the societies, if they so wish, from pursuing their case in the courts on the ground that it is double taxation. My hon. Friend may say that they are wrong and that they will lose. However, if he could reassure me that that opportunity will remain open and that it is not his intention to close it off, I would feel a little happier.

§ Mr. Stewart
I can only give my right hon. Friend the same assurance as I gave to my hon. Friend the Member for Beaconsfield. The amendment addresses itself purely to the connection between the clause in the Finance Act 1985 and the regulations. It does not address itself to the substance of the regulations, and I am advised by one of the societies that it is contemplating further action in relation to the substance.
Clearly I could not advise any taxpayers that they could or should challenge the law or the regulations on any particular points. However, I can say that I do not believe that it amounts to double taxation, and I am advised that one of the parties which considers itself to be aggrieved by it is contemplating a different kind of action, which may or may not follow.

§ Mr. Jenkin
My hon. Friend is clearly not going to accept my amendment but, I think, is leaving it open to the societies to pursue this in the courts. It would be wrong of me to try to press this to a Division, although I am tempted to do so. I beg to ask leave to withdraw the amendment.