HC Deb 25 January 1949 vol 460 cc95-6W
Mr. Haire

asked the Chancellor of the Exchequer whether he will make a statement as to the treatment of initial and annual allowances for plant and machinery in cases where the reducing-balance method of computation is adopted

Sir S. Cripps

Under the simple "reducing balance" method, the annual wear and tear allowance is computed by applying the appropriate percentage rate to the "written down value," which is the original cost less the allowances given in the past. For some years before the Income Tax Act, 1945, became effective, however, the position was that ordinary annual wear and tear allowances were deducted in arriving at written down value but the "additional allowances" equal to one-fifth of the wear and tear allowances were not deducted. This differential treatment of ordinary and additional allowances led to complications in record-keeping that were a nuisance to officials, taxpayers and their advisers. Following consultation with representatives of Industry, Commerce and the Accountancy profession, the 1945 Act abolished the "additional allowances" of one-fifth and increased the annual wear and tear allowances by a quarter with the intention that both the increased annual allowance and the new initial allowance should be deducted in computing written down value. The practice has since conformed to that intention but it has now been challenged on the argument that in law only the basic wear and tear allowance should be deducted in arriving at written down value, and that the initial allowance and the increase of one-quarter in the annual allowance should not be deducted. This contention does not accord with the intention of the 1945 Act, and if successful would give rise to considerable practical difficulties both for officials and accountants. I do not therefore think the matter should be left to be decided by litigation. Consequently I propose to bring forward in the 1949 Finance Bill legislation to make it clear that where the "reducing balance" method is adopted, computations for all the years governed by the Income Tax Act, 1945, are to be made on the basis that both the initial allowance and the full annual allowance shall be deducted in computing written down value.