INCOME TAX (OFFICES AND EMPLOYMENTS) BILL. (Hansard, 29 February 1944)

§ THE LORD CHANCELLOR

My Lords, I have again to ask your Lordships' attention to a Bill, the Second Reading of which I am now moving, but I hope here to be quite brief, for in November last I had the duty of explaining to your Lordships' House, as clearly as I could, the very complicated and very interesting provisions amounting to a most important change in our Income Tax procedure 1010 which popularly has come to be known by the name of "Pay as you earn." It is a provision by which those who are taxed to Income Tax under Schedule E—that is to say, broadly speaking, those who receive salaries and wages—are taxed not in reference to the figures of a previous year but arc taxed as they go, week by week, or fortnight by fortnight, or whatever it may be, so that they are never either behindhand nor indeed (to take a still less probable case) beforehand in paying their taxes.

When I explained this Bill to the House last year I stated, as was said in another place, that there was a limitation in the scheme which it was hoped to remove. The limitation was that according to the previous Bill, which is the present law, this scheme of paying as you earn as applied to salaries either monthly or for a longer period would only apply if the salary was not more than £600 a year. There is no logic or scientific reason for that figure. The principle of the scheme can be applied just as well if you take larger salaries. For the time being the limit in the case of salaries was £600 a year. That was mentioned, as I have said, when the previous Bill was before Parliament. I venture to quote one sentence from what I said on November 4 last year, when I explained the Bill to your Lordships. I said: The Bill applies also to those receiving salaries not greater than £600. They also will find that they will pay as they earn. Beyond that, the Chancellor of the Exchequer has promised, as your Lordships will no doubt have noticed, that since there is no scientific merit in stopping at £600 a year, he will, in a future Finance Bill, extend this arrangement to all salaries, however large, with some very necessary safeguards. As a result, it is the principal object of the present Bill to remove that limit. As a result of it, without regard to the size of the salary if it is a salary which comes for assessment under Schedule E, this system of pay as you earn will apply to this salary as well as to smaller salaries or to wages.

To take a concrete example, a man who was earning £800 a year as a salary last year and £900 as a salary this year, will find that the principle of pay as you earn will apply to the £900 and he will pay according to the present rate of salary. There is an exception which perhaps I might mention—it was also in the original Bill, if I am not mistaken—relating to 1011 pay, pension or other emoluments payable in respect of service in or with the Armed Forces of the Crown. That exception is made for purely practical reasons. If you take members of the Forces who are now serving in so many parts of the world it really would not be practicable to apply week by week the rather elaborate calculations which can be made with the help of the Inland Revenue here at home. Therefore it is not possible to apply this system. It is provided that in the case of members of the Armed Forces there shall be a deduction of tax from pay, tout it is a deduction in respect of last year's income. The cases are not common, but there arc cases, I suppose, where a soldier or an officer in the Forces may be earning this year a smaller income than last year—cases, for example, where a man goes back to substantive rank and loses the pay of the rank he was holding. It would be hard to make such a man suffer a larger deduction in respect of a rate of pay which he is no longer receiving.

In Clause 5 there is provision that: If, in the case of the year 1944–45 or any subsequent year of assessment, it appears that the Income Tax payable by a person in respect of any pay, pension or other emoluments payable in respect of service in or with the Armed Forces of the Crown has been computed by reference to the amount thereof for the previous year of assessment— that is the contrast between acting pay and substantive rank— and that the actual amount thereof for the year is less than the amount thereof for the previous year, that person shall be entitled to such relief from Income Tax (including Surtax) as will reduce the amount payable by him to the amount which would have been payable if the tax had been computed by reference to the actual amount of the pay… I think that is a very useful provision, which will be greatly appreciated among many who are wearing the uniforms of the Crown.

There are several other small provisions in the Bill. I have done my best to prepare myself to answer any questions about them—I will not promise to do so, but I think I can—but I will not occupy your Lordships' time by offering these explanations in advance. I have told your Lordships the substance of the Bill. It passed through the House of Commons with general consent and I ask your Lordships now to give it a Second Reading.