New Clause. — (Explanation of Income Tax deductions.)

Orders of the Day — Finance Bill. – in the House of Commons on 8th July 1924.

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All persons, firms, or companies making payments by warrant or cheque of interest or dividends from which Income Tax is deducted shall, on making such payments, state as a separate calculation applicable to each payment the gross amount of interest or dividend due, the amount and rate of Income Tax deducted, and the net amount payable.—[Mr. A. M. Samuel.]

Brought up, and read the First time.


I beg to move, "That the Clause be read a Second time."

For some few years the secretaries of various companies have—I do not know why; it may be laziness—have omitted to give the same details of tax deduction on their dividend warrants as they gave in the past.. All that we ask that they should do is to adopt the same practice as that followed by the Bank of England. You cannot have a better model than that. When the Bank of England pays a dividend it shows on the dividend statement what the capital is, the rate and amount of Income Tax taken off, what the gross amount of interest or dividend is, and the net amount payable after the Income Tax is deducted. That is all we ask. I have here the top of a dividend warrant issued by one of the great railway companies. It was sent to me by a constituent. I am accustomed to these things, but I have had to take some time to unravel it. Apparently the person concerned had £499 in deferred stock. The dividend statement on the warrant shows that on each £100 of stock the gross dividend payable is £3 10s. less Income Tax at 4s. 7 ½d., 16s. 2¼d., net dividend£2 13s. 9 ¾d. Then the net amount is given as£13 8s. 6d. That is not the way to draw out a dividend warrant statement. The proper way is this. It should state: The capital is£499, the gross annual rate of dividend is£3 10s. per cent. Then it should show the gross dividend will amount to£17 9s. 3d. Then it should take off the Income Tax, stating what the rate is, 4s. 7 ½d. in the£, and that the total tax is £4 0s. 9d., and then it should show a net dividend payable of£13 8s. 6d.

I do not like to say anything unkind of anyone, but it is gross impudence for the secretary of a great company to send out a warrant in the way complained of. This is a company with perhaps£300,000,000 of capital. The warrant is sent out in a lazy manner and the recipient will have trouble to unravel it. If my words can go further than this Chamber to-day I would say that if the proprietor of an investment in any company or concern receives a dividend warrant made out in a befogging way, or so that he cannot understand it, he should at once write and make himself very unpleasant to the secretary of the company. Proprietors should make the secretaries of companies realise that they are the servants of the proprietors, and not the proprietors the servants of the secretaries. Perhaps the Financial Secretary to the Treasury will, accepting the clause further my intention. Large numbers of people throughout the country have to make claims for repayments, and an immense amount of work trouble it gives inspectors and surveyors of taxes to unravel these things for taxpayers. That must be putting the revenue to a considerable expense. If the calculation were drawn out in a more lucid manner it would be much easier for the special commissioners, also, to understand what are the amounts at which Super-tax assessments are to be made. I will read a letter which I have received from a man totally unknown to me. He is not even in my own constituency, but he saw that I had put this Amendment on the Paper and this is what he wrote: I am delighted to see that you are bringing forward a Motion with regard to the above (deduction of Income Tax from dividend). You will earn the hearty thanks of hundreds of people with small incomes who year after year have to make a claim for the recovery of Income Tax overcharge. I think companies evade their duty. They are bound to deduct the tax but they give you neither the amount of your dividend nor the amount of tax to be deducted, only a statement, worked out perhaps to three placer of decimals for a guide. I do not believe Parliament ever intended that slipshod method to be adopted. In my opinion it is a piece of impertinence on the part of directors to treat their shareholders in such a manner—the men who actually pay for offices and in many cases a costly staff. Whether it is in the power of the Secretary to the Treasury to put my Clause into operation or not I do not know, but I think that the ventilation here of this grievance ought to do some good, and may relieve many of the people of smaller incomes of a grievance of which they have every right to complain.

Sir B. REES:

I would like to add a few words to what the last speaker has said. In all these matters the Government should show a very good example themselves. In the Debate last week one hon. Gentleman pointed out that the Government in making their deduction from salaries paid to civil servants omitted to tell the civil servants on what rate the tax was based and how it was made up. If the Amendment were altered to include Government Departments as well, it would be a very good thing. As far as the Amendment is concerned, I hope that the Government will accept it for this special reason: A large number of poor people are paid very small dividends. They are not subject to Income Tax at all. They have great difficulty in reclaiming the amount so deducted by the Income Tax authorities. If there were stated on the Warrants not only the total amount, but the rate as well, it would be of great service when recipients came to reclaim the money from the Income Tax authorities.

Photo of Mrs Mabel Philipson Mrs Mabel Philipson , Berwick-upon-Tweed

I also wish to support this Amendment, which has been so ably brought forward by the hon. Member for Farnham (Mr. A. M. Samuel). I have no words to add to his plea to the Financial Secretary to the Treasury, except to ask the Financial Secretary to do his best in the matter, because I also have had complaints from many hundreds of women and men, who are absolutely at a loss to understand these warrants.

Photo of Mr William Graham Mr William Graham , Edinburgh Central

It is very difficult for some of us, who have advocated for years the fullest publicity in all industrial and financial transactions, to resist an Amendment of this kind. A word of explanation is necessary. A very large number of companies do show the full amount of the dividend which is due, and side by side with that the deduction of Income Tax at 4s. 6d. in the£, and then the net amount of dividend payable to the recipient. I should imagine that in such a case there should be no complaint of any kind. The Committee will observe, however, that this Amendment is directed only to the cases where dividend is paid subject to deduction of Income Tax, and as the Amendment is drawn, it is quite clear that it would not cover the very large number of cases where the dividend is paid free of tax, and, strictly speaking, it is in this category that the main difficulty arises. It demands of the recipient a calculation which he or she cannot make, or it compels the recipient to adjust the matter afterwards through a kindly tax officer, who will undertake the task. As drawn, the Amendment would not fully meet the situation.

There are very large industrial concerns which have used the argument that, if a Clause of this kind were inserted in the Bill, it would involve a very large addition to their clerical staff. They have also suggested that it might add to the delay in the payment of dividend. These two arguments do not make a very strong appeal to me, because in the interests of publicity they must take proper steps to overcome a difficulty of the kind. After that explanation, perhaps the Clause can be withdrawn, and I will undertake to consult with the hon. Member for Farnham (Mr. A. M. Samuel) and others who are interested, before the Report stage of the Bill, with a view of framing a Clause which either the hon. Member for Farnham or the Government can put on the Paper in order to achieve the end which he has in view. I am advised that there would be no difficulty in adjusting a Clause of that kind, subject to the consideration that there must be some kind of penalty if firms do not comply with the Clause. It will not be sufficient to insert in an Act of Parliament a Clause merely requiring a firm or company to make a statement in this form unless by some device we are able to take appropriate steps in the event of the firm or company failing to carry out the directions.

Photo of Mr Samuel Samuel Mr Samuel Samuel , Wandsworth Putney

Where dividends are paid free of Income Tax there is always inserted at the foot of the warrant the amount of Income Tax which is recoverable by people who are not liable to pay the tax.

8.0 P.M.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I would like to thank the Financial Secretary for his statement. Perhaps he goes farther than some of us intended. I have heard of certain objections not put forward to-day to this proposal because it is said this kind of thing should be forced on companies by their shareholders. In this case the company sending out the dividend warrants is, by virtue of legislation already in existence, in the position of a Government tax collector and the document which it sends out is a voucher for tax paid to the Government on behalf of the person to whom the dividend is payable. Therefore the same Government which makes the company a tax collector should, by the same law, make that tax collector give a proper voucher which can be "understanded of the people." I would suggest that a simple method of enforcing such a law would be to make the company liable to do so, and if they fail to do so then make them liable upon demand to supply such certificate. If you do so, you will find there are very few companies which will not do it in the first instance in order to save themselves trouble and to save themselves from being bombarded with letters which they could be compelled to answer, subject to a 40s. penalty or something of that kind.

Photo of Mr Arthur Samuel Mr Arthur Samuel , Farnham

Before we conclude the discussion of this Clause there is one small point which has to be taken into consideration. In these days when we have Income Tax rate in one year at so much, and the next year at so much, what is the Financial Secretary going to do about those people who pay mortgage interest subject to the deduction of tax or rent subject to the deduction of tax, often at varying rates? Accountants, lawyers and private people are very often responsible for such payments, and the recipients have to make certain adjust meats for claims with their own tax collectors. They will want to know exactly what has been taken off and at what rates it has been taken off. Therefore the Financial Secretary will have to make sure that these small people are included because of their difficulties when getting their tax claims adjusted. That is a matter which must be taken into consideration in order to relieve of a difficulty small people who do not understand how to reckon out the deductions. If the Financial Secretary proceeds on the lines he has indicated to carry out the assurance which he has given and puts a new Clause in during the Report stage to meet this grievance I shall have great pleasure with the leave of the Committee in with drawing the Motion for the Second Reading of this Clause.

Motion and Clause, by leave, withdrawn.