INTEREST ON TAX OVERPAID (Hansard, 16 July 1987)

§ Sir William Clark
I beg to move amendment No. 25, in page 56, line 1, leave out subsection (3) and insert— 'In relation to a repayment of income tax falling within subsection (1)(b) above the material date is the 15th day following the end of the period specified in paragraph 2(2) of Schedule 20 Finance Act 1972 in which the corresponding payments referred to in subsection (1)(b) above fell to be received.'.

§ The Temporary Chairman
With this it will be convenient to take the following amendments: No. 26, in page 56, line 49, at end add— '(9) For the purposes of subsection (1) above, where income tax is set-off against corporation tax under section 240(5) Taxes Act 1970, it shall be treated as a repayment of income tax made on the material date for payment of that corporation tax'. No. 27, in clause 90, page 60, line 6, after 'assessment' insert 'For the purpose of this subsection, income tax deducted at source from income received shall be deemed to be corporation tax paid on the material date in section 87(3)'. No. 28, in clause 90, page 60, line 17, at end insert 'this subsection shall take precedence over section 240(5) Taxes Act 1970'. No. 29, in clause 95, page 62, line 25, leave out subsection 3 and insert— '(3) Except in relation to sections 87 and 90(5) for which the appointed day shall be 6th April 1988, no day may be appointed by virtue of subsection (2) above which falls earlier than 31st March 1992'.

§ Sir William Clark
These are probing amendments. The effect of amendment No. 25 is to ensure that the early payment of tax by companies through the deduction of income tax at source from the receipts of interest is fully recognised by the new interest on tax overpaid regime. Amendment No. 26 is necessary to give effect to that.
Amendment No. 27 is to give corporate taxpayers the same right to recover an excess of tax paid by deducation of tax at source as they would enjoy if that pre-payment had arisen through an excess of corporation tax paid.
Amendment No. 29 accelerates the date to after 1 April 1987 instead of the existing words.
If my hon. Friend the Economic Secretary can answer those points, I am sure that we can proceed with the rest of the Bill without further delay.

§ Mr. Lilley
These amendments would fundamentally alter the structure of the existing tax system, virtually abolishing the system of deducation of tax at source for companies. This would have serious effects. In the first year it would cost the Exchequer more than £1,500 million, more than £1,000 million of which would go to the chief beneficiary—the insurance industry. Naturally, this is a cash flow effect and I am not suggesting that it would permanently increase the cost to the Revenue by that amount.
I can see the analogy that my hon. Friend the Member for Croydon, South (Sir W. Clark) draws between the interest charges on pay and file and the delays in payment inherent in the position particularly of the life insurance industry which can claim back tax paid at source on income that it has received. However, I do not think that the analogy is sufficiently close. Certainly it would not be appropriate to pursue the change in this Bill.
1333 Our proposed interest charge under pay and file is viewed as a commercial restitution in the circumstances where a company accidentally overpays tax against what is eventually assessed. Likewise, if it underpays tax, it will have to pay a measure of restitution for underpayment. That is different from the sort of timing difference which is inherent in taxation at source, which my hon. Friend wants to seek compensation for or alter altogether. I understand his point, but I do not think that it would be appropriate in this Bill to consider changes that would affect the Revenue so substantially.

§ Sir William Clark
I beg to ask leave to withdraw the amendment.