HC Deb 12 March 1998 vol 308 cc311-2W
Sir Nicholas Lyell

To ask the Chancellor of the Exchequer what representations he has received as to the legality of the Government's proposals to withdraw the cash basis practice for the taxation of professional businesses, with particular reference to the provisions of the Equal Treatment Directive (76/207). [33030]

Dawn Primarolo

A large number of representations and comments were received, including some referring to the provisions of the Equal Treatment Directive. We are now in the process of reviewing the comments received. The outcome of that review will not be announced before my right hon. Friend's Budget.

Sir Nicholas Lyell

To ask the Chancellor of the Exchequer what representations he has received on the double taxation effect of the proposed catch up charge contained in the proposals to withdraw the cash basis of taxation for professional businesses. [33032]

Dawn Primarolo

We have received a large number of comments and representations on the proposal to withdraw the cash basis practices. A few of these suggested that there was a double taxation effect of the proposed catch up charge, but we do not accept that there is. The catch up charge brings into account, only once, the receipts which would have been included had the business always been taxed on the accruals basis, and which would otherwise escape tax altogether on moving to that basis, because they were earned in an earlier period.

Sir Nicholas Lyell

To ask the Chancellor of the Exchequer, pursuant to his answer to the hon. Member for Preseli Pembrokeshire (Ms Lawrence) of 22 December 1997,Official Report, column 471, on business profits, in what way the imposition of the catch up charge proposed in the Government's proposals to withdraw the cash basis of taxation for professional businesses (a) corrects an anomaly and (b) creates a level playing field for all businesses. [33200]

Dawn Primarolo

The normal way in which those carrying on a business compute profits for tax is on the `earnings' or 'accruals' concept under which items are brought into account not as money is received or paid, but as receipts are 'earned' or expenses 'incurred'. However, the Inland Revenue had long-standing published practices under which self-employed people carrying on a business which counts as a 'profession or vocation' may choose a special basis for computing their tax profits, often called a 'cash' basis. Professionals on a cash basis can, subject to certain conditions, compute their tax profits by bringing into account money only as it is received or paid out. Many professional businesses do not adopt a cash basis, but the tax profits of those that do are generally lower than they would be if they were computed on an earnings or accruals basis.

The idea of withdrawal of the cash basis was to level the playing field for all businesses. The catching up charge is necessary to ensure that the transition from cash to accruals basis does not leave out tax receipts, less any expenses, which have not yet been included in their tax returns, but which would have been included if the accruals basis had always applied.

Sir Nicholas Lyell

To ask the Chancellor of the Exchequer if he will list the tax liability of a barrister(a) under the current practice and (b) under the potential future practice under the Government's proposals to withdraw the cash basis of taxation from professional businesses whose earnings correspond with each of the two examples given at Appendix B of the Bar Council's response dated 12 February. [33029]

Dawn Primarolo

The proposal to withdraw the cash basis practices available to professionals was the subject of a consultation process which was started by the issue of an Inland Revenue Press Release on 22 December 1997. Comments were invited by 14 February 1998. Now we are in the process of reviewing the many comments received. The outcome of that review will not be announced before my right hon. Friend's Budget. A barrister's liability under the potential future practice will of course depend on the final shape of the proposal yet to be announced. A comparison at this stage is not therefore possible.

Sir Nicholas Lyell

To ask the Chancellor of the Exchequer what representations he has received as to the effect on the taxation of partnerships of the Government's proposals to withdraw the cash basis practice for the taxation of professional businesses. [33031]

Dawn Primarolo

We have received a large number of comments and representations on the proposal to withdraw the cash basis practices. Many of these raised issues about the effect of the proposal on partnerships. Now we are in the process of reviewing the comments received. The outcome of that review will not be announced before my hon. Friend's Budget.