Schedule 24 - Creative artists: relief for fluctuating profits
Finance Bill
9:30 am
Mr Oliver Letwin (West Dorset, Conservative)
I welcome schedule 24 as it offers the clearest possible exposition of averaging. It is a great improvement on the previous incomprehensible palimpsest, and I congratulate the people who drafted it.
I wish to raise three brief points with the Paymaster General. The first of them is a minor point. Paragraph 6(3) retains the taper for variations in annual profits of between 70 and 75 per cent. In the context of what is now a rational exposition of averaging, why is it necessary to distinguish that particular case? I have no preference between the two cut off levels: either 70 per cent. or 75 per cent. would satisfy me, if simple averaging were applied. The Chartered Institute of Taxation has made a similar point, and I can see no abiding reason for that sole remaining complexity. I do not intend to go to the stake about the matter, but I hope that the Paymaster General will consider dispensing with paragraph 6(3).
I hope that my second point is in order, Dr. Clark. Although the schedule is admirable, it relates exclusively to artists. Some of my constituents are artists but, as the Paymaster General will be aware, many more of them are farmers, who are also subject to averaging. That is a good thing—and, this year, averaging is, of course, especially important to them. However, averaging is not applied to their income in a way that an ordinary human being can understand, as their affairs are still mired in the old text. I do not claim that, if the new text were to apply to them, all my farmers would immediately sit down and read schedule 24, but at least their accountants would understand what was going on, which would be a major advance. It would be nice to have an assurance that in due course, they will be included.
Prospective averaging applies to the professions covered by the provision. I draw the Paymaster General's attention to paragraph 4(3), in lines 1 and 2 of page 213, which contains a provision for averaging years 1 and 2, and years 2 and 3. With a simple arithmetic example, I can determine that it is perfectly drafted, as it achieves exactly the right effect. However, some people—in this case, artists working on a commission that they know will be complete not next year but the year after, or farmers who know that there is nothing that they can sell in the coming year—have reason to know that their profits will be much affected in a coming year. Such people could fairly easily establish that with the Inland Revenue, and subsequent averaging would catch up with the fact in any event. In such circumstances, it would make sense to provide for prospective averaging.
I have previously asked the Paymaster General whether, specifically in relation to farmers, the Inland Revenue will now take a relaxed and generous attitude to provisional, or prospective, averaging. No provision is made for that. Have inspectors been given by the policy divisions of the Inland Revenue any guidance that would lead them to be generous in allowing provisional averaging? I cannot envisage how, in the case of artists, to which the schedule specifically relates, someone could go to the stake on the issue, but for farmers, as the Paymaster General knows, it is a live issue; indeed, for some of them it is, economically, a matter of life or death.
I hope that the Paymaster General will reassure us on the questions of the application of the much clearer format to farming in due course and of provisional and prospective claims for averaging. Having said that, if all our tax legislation were as beautifully clear as the schedule, we would be in a much better position.