HL Deb 16 May 1957 vol 203 cc853-5

3.5 p.m.


My Lords, I beg to ask the Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government, how many directions of availability of profits for distribution against the advice and wishes of the directors of the companies concerned have been given or threatened by the Special Commissioners of Inland Revenue during the past two years, and how such action is reconcilable with repeated requests from Chancellors of the Exchequer for restraint in dividend distribution and for saving for expansion.]


My Lords, I assume that the noble Lord's Question relates to directions in respect of the income of trading companies under Section 245 of the Income Tax Act, 1952. During the two years 1955–56 and 1956–57 the number of preliminary notices requiring such companies to supply information for consideration under that section were respectively 251 and 338, and the numbers of directions actually given were 132 and 137.

I would remind the noble Lord that by the terms of the legislation the Special Commissioners have to have regard to the company's requirements for the future maintenance and development of its business; reasonable saving for expansion need not, therefore, be hampered. So far as dividend restraint is concerned, it is the Special Commissioners' established practice, confirmed by successive Chancellors of the Exchequer, to make no direction in a bona fide case where the level of distribution is the same as that which they have accepted as reasonable in previous periods, even though the company's profits have increased. This, of course, applies only so long as there are no avoidance devices, such as the withdrawal of money from the company in the guise of capital. I am sending the noble Lord a copy of a Question and Answer of July 22, 1948, in which the then Chancellor of the Exchequer described this practice.


My Lords, I should like to thank the noble Viscount for his comprehensive Answer. But apart from the inconsistency to which the Question draws attention, does not the noble Viscount think it a bad principle for the tax authorities to intervene and eliminate, for instance, provision against depreciation of assets which in these days become rapidly out of date? That point is not covered, I think, by the Answer the noble Viscount gave.


My Lords, I think the noble Lord has, in a sense, "the wrong end of the stick" here. This is a section with an ancient history. In fact, I think it was invented by my father in 1922, when he was Attorney-General; or it may have been by his predecessor. It was designed to prevent people from avoiding sur-tax to which they would otherwise be liable by the manipulation of one-man companies. That is how it is used to this day, and I do not think these wider issues necessarily arise.


My Lords, I would add my thanks to the noble Viscount for the fullness of his reply, but he will admit, I think—if I have properly understood his rather lengthy explanation, which I shall read with great interest—that even now the Inland Revenue are the judges of what a company, up to a five-man company, require for their capital development.


My Lords, I rather think the noble Lord is right, but before committing myself I should like a little notice of that question.


And also the amount that is put to depreciation.


My Lords, I thought depreciation had long since been settled in law, subject to any announcements of special items from year to year. I hope that that will not be interfered with. I was glad to hear the reply of the noble and learned Viscount. I feel strongly that as all amounts that now go to reserve pay the ordinary rate of tax—that is settled—if there is any further attempt to avoid taxation, any Government must, in protecting the Revenue, take the necessary precautions.


My Lords, I do not wish to be drawn into a general discussion on taxation. I think it was clear from my Answer that the Treasury are continuing a practice which has been followed for quite a number of years under Governments of different complexions.