I beg to move, in page 25, line 18, at the end to insert:
Provided that the deductions which apart from the provisions of this subsection would have been made in respect of the annual value of the said land in computing profits or gains under Case I or Case II for the years 1963–64 and 1964–65 shall be aggregated and deducted as if the aggregate sum were an expense of the trade, profession or vocation for a period commencing on the date on which the said land ceased to be used for the purposes of the trade, profession or vocation and equal in length to the period to which the annual value so aggregated related.
This is another and very important point which arises only, I hope, because the Government have overlooked it. Because of the abolition of the old Schedule A, some business men will be penalised. Put briefly, as the Clause is drafted, it is clear that no deduction for net annual value of owner-occupied business premises may be made for 1963-64 onwards. Hon. Members will know that, when business profits are computed, the net annual value of any premises that have been occupied and on which Schedule A has been paid can be deducted from the profits.
There is an inequity here. Where net annual values have been increasing, or where the property has been purchased during the basis year of the accounts which have determined the year of assessment, the inequity is that the owner of the business will not get the full amount of relief against his Schedule D, Case I, profits, in connection with the net annual value.
At this hour of the evening, after such a lengthy debate on Schedule A, with all its ramifications, I should not like to take up the time of the Committee in giving examples. It is regrettable that back benchers are not able to have their examples circulated in the OFFICIAL REPORT. If my hon, and learned Friend the Solicitor-General is to reply, I can prove to him arithmetically that there is an inequity here. I hope that the Government will look at it, because I am certain in my own mind, and I hope I am right, that in abolishing Schedule A the Government did not intend to create this anomaly by which business men will suffer.
I rise only to ask the hon. Member for Nottingham, South (Mr. W. Clark) to be good enough to explain what his Amendment is intended to mean. Some of us have difficulty in understanding the Bill, let alone the Amendment. In any case, I do not think that the hon. Member formally moved it.
I am sure that when the hon. Member for Gloucester (Mr. Diamond) reads the OFFICIAL REPORT tomorrow he will note that I said at the beginning of my remarks "I beg to move" and then used the phrase "the words on the Order Paper." I could have read the words out to the Committee, but I thought that it would save time if I moved the Amendment in that way. I am delighted to hear that the hon. Member for Gloucester is confused by a Bill. To be frank, I am confused not only by the Bill but by some of the Amendments I am trying to move.
I thought that I had explained that my Amendment is merely designed—and I do not claim any special responsibility for its looseness or bad drafting—to clear up one matter. Since the Government have given sympathetic consideration to a number of Amendments during the Committee stage I hope that that is indicative of the fact that they are not too worried about draftsmanship but are more concerned with the spirit and principle of Amendments. Naturally, if the Government Front Bench accept the spirit of an Amendment they can get the Parliamentary draftsmen to further complicate the matter at a later stage.
In the Amendment I am trying to prevent an anomaly. Where one gets an increasing net annual value for business premises or where business premises have been acquired in the last two years, the business man will not be able to take into full account from his Schedule D profits the total net annual value that he has paid. I hope that my remarks have not confused the hon. Member for Gloucester. I see him listening to me with even greater interest than before and that is some encouragement. I hope that the Government have taken the point of the Amendment and will accept the spirit of it.
There is an injustice here and I was surprised to hear about it. It seems that now that Schedule A is being abolished the annual value accrued last year and which one would have got deducted against one's Schedule D this year, will not now be deductable. I understand that to be the case and I have great pleasure in supporting the Amendment.
Like other hon. Members, I could not quite understand the remarks of the hon. Member for Nottingham, South (Mr. W. Clark) when he first moved his Amendment. Is this not a case where the owner-occupier of business premises was allowed to deduct the net annual value from his Schedule D profits, but he had already paid Schedule A tax? Was it not rather like taking money out of one pocket and putting it into another? I may be wrong, but I do not think that the owner-occupier was exonerated from paying Schedule A tax and, for that reason, I suppose that he was allowed to deduct it from his Schedule D profits.
There would appear to be a substantial cause for grievance. I do not pretend to understand this matter as fully as some of my accountant friends, but many representations have been made to me by business friends and accountants in my constituency who say that they have cause to worry about the provision. Since my own understanding of the matter is limited, it may assist the Committee if I read a passage from one of the letters I have received rather than try to interpret the correspondence in my own words. It states:
Previously Schedule A tax paid on premises owned and occupied for the purposes of a trade has been regarded as a payment on account of the trader's liability, because the Schedule A assessment has been a deduction in computing the liability of his profits under Case I and Schedule D.
The following passage may be of assistance to hon. Members:
The effect of Clause 29(1) is to deprive traders of the right to deduct their Schedule A assessments for the year 1962(63 and in most cases, depending on the accounting date, for a proportion of 1961/62.
It is on the following part of the letter that I should like an answer from the Treasury:
The hardship does not arise until the premises cease to be used for the purpose of the trade and the Amendment is designed to put the trader in the same position as he would have been if Schedule A had not been abolished for owner-occupied business premises.
Clause 29, to which this is an Amendment, deals with amendments to the computation of business profits under Cases I and II of Schedule D which are required in consequence of the new system of taxation on real property. This is consequential to that extent.
I agree with my hon. Friends, who have raised this matter in this Amendment, that there appears to be a problem here as the Clause is at present drafted, and an inequity could arise. The Amendment deals with the question of the deduction to be given in computing the trade profits for the Schedule A assessment on the trade premises. Hitherto, the trader, who is also the owner, has paid tax on the annual value under Schedule A and has been entitled to deduct the annual value in computing the profits for assessment under Schedule D.
Now that Schedule A is abolished Clause 29 provides—and this is one of the consequential provisions—that there shall be no deduction for annual value in computing trade profits. That applies in 1963–64, and therefore he cannot deduct the Schedule A tax for 1962–63 in computing the profits assessed for 1963–64; although in most cases the Schedule D assessment on profits is in fact based on 1962–63. I accept that there is a problem here. Whereas in most cases this may produce a proper result, nevertheless, I think that this is a matter that needs considerably more study.
My hon. Friend, who spoke with the voice of Esau, accepted, I think, that here was a problem for the business community, but that the Amendment itself is not satisfactory for reasons which I think are certainly apparent. It would be too wide. It would give relief irrespective of the circumstances which existed when the property was acquired. There would be no inequity in certain cases which would fall within the provisions of the Amendment, but it would not deal with the inequity which it appears could arise when a trader acquires property on a preceding year basis and disposes of it on the same basis. This has the result of his paying Schedule A tax for so many years and receiving a Schedule D deduction for so many years, less one. He would be the sort of person who, because of the abolition of Schedule A, would not be in a fair position having regard to what we are attempting to provide in the Bill.
Therefore, I would say that this is an Amendment which I am glad has been moved. This is a matter which had been exercising our attention before my hon. Friend raised it. It is a point which we are grateful to the Committee for bringing to our attention, because in a major change there are so many of these points and it is important that they should be seen and studied in Committee. I therefore give the assurance that the purpose of the Amendment will be carefully considered before the next stage of the Bill.
I do not think that we can leave matters as easily as all that, because more than one strand of thought has emerged in this short debate. The Amendment which the hon. Member for Nottingham, South (Mr. W. Clark) was so coy about explaining when he introduced it seeks to deal, judging from his speech, with two sets of circumstances only which, on a certain point of view and a certain approach might conceivably be held to be somewhat inequitable. The two circumstances are the curious circumstance of the increasing net annual value of Schedule A, so that one will have paid on a high figure and have a deduction on a low figure, and, secondly, the unusual circumstances of having acquired the property immediately before the assessment of Schedule A, and the property being acquired in a basis year and not in the year of assessment.
But these were two special cases, whereas there is a general misunderstanding about an alleged inequity under the Clause, to which misunderstanding the hon. Member for Twickenham (Mr. Gresham Cooke) gave voice. He is right in saying that he has had representations. Many of us have had representations, and they have been based on the simple fallacy that because Schedule D assessments are based on the preceding year concept, and the basis of assessment is not the actual product but nevertheless the figure which the profits are deemed to be for the purpose of assessment, people confuse what a person has actually made in a previous year with the basis of assessment. Accountants will understand that the basis of assessment is something quite different from the actual profits of the year.
The Government have themselves, and themselves only, to blame for the general misunderstanding that has been caused in the business community by this Clause and a number of other Clauses, all of which misunderstandings they could have avoided if they had not been so obstinate and, if I may say with deference, pigheaded in their continual refusal to do something which would help everybody and cause themselves not one iota additional work.
I refer to the simple request made time and time again by my hon. Friend the Member for Sowerby (Mr. Houghton) and others of my hon. Friends that there should be some explanatory memorandum when we are doing something as complicated as this. I repeat "no iota of additional work" because we have been told with authority by a Government spokesman that such an explanatory memorandum exists, or is being prepared and will be circulated to everybody concerned to make clear what the provisions of the Schedule are. The whole machinery will stop unless this is done. Nobody outside the House of Commons, and precious few inside, know and understand the totality of these provisions with regard to Schedule A.
Why on earth, therefore, do the Government, when they go to the trouble of preparing an explanatory memorandum not let hon. Members have it? The Finance Bill is virtually the only Bill which is not prefaced by an Explanatory Memorandum. Any other Bill, and most are infinitely simplier than the Finance Bill, has an Explanatory Memorandum. The Memorandum is not the law but it is an indication of what is intended. Here, where we have these complicated provisions, the Government dig their own grave as hard as they can. I should be the last person to object to their doing so, were it not for my concern that there should be the best possible relationship between the tax gatherer and the taxpayer, which is not established by refusing to let us have an explanatory memorandum. I have made my point, and do not wish to underline it further. It has its effect with regard to the misunderstanding on this Clause, and many of us have had the same kind of complaint as that voiced by the hon. Member for Twickenham.
I was not absolutely clear from the Solicitor-General's comments what was in the Government's mind. What I am absolutely clear about is, if I may say so with deference to the Financial Secretary that what he said during the Second Reading debate was, curiously enough, utterly and precisely correct. He said of Clause 24:
Subsection (1) provides that from 1963-64 onwards the annual value of owner-occupied business property shall not be allowed as a deduction in computing profits. The reason is that there will be no actual outgoing and that deduction will no longer be balanced by a Schedule A assessment." — [OFFICIAL REPORT, 6th May, 1963; Vol. 677, c. 46]
That is absolutely right. Just because we are to pay for a number of years Schedule A tax as compared with Schedule D, it does not at all affect the situation.
What has happened up to now is that one calculates one's Schedule D profits and, because one will pay part under Schedule A, it is right that that part should be deducted from the part under Schedule D. One pays one's total amount of tax on total profits—partly under one Schedule and partly under the other—the totality being the tax on the total profits one has made. Nothing could be fairer or more just than that, or more simple, but because we stop one of these we have to stop deducting that one from the total. If we are no longer taxed under Schedule A, we can no longer deduct tax under Schedule A from Schedule D, because one has not paid any under Schedule A. We must make that clearly understood.
What has happened is that because Schedule D is based on a year previous to a year of assessment, and because, therefore, Schedule D tax in a year after Schedule A has ceased may be based on the profits of a year during which Schedule A was paid, a very natural confusion arises. Unless the Government explains this in an Explanatory Memorandum, it creates a lot of misunderstanding, a lot of friction, a lot of difficulty for inspectors of taxes—whom I should have thought the Government would wish to help, and not to hinder—and a lot of difficulty for accountants, who try to help in the collection of tax —reasonably; not too much, but a proper amount. I am sorry to underline this so much at this stage, but neglect of this sort is something against the interests of the Revenue and against the interests of the Government, and it causes quite unnecessary trouble for all of us. It would not have arisen now had not the Government been as obstinate as they have been in refusing to get us an Explanatory Memorandum.
I recognise that in the curiously limited cases where we have Schedule A with the net annual value rising considerably between the basis of assessment and an actual year there seems to be the possibility of an inequity—and in the other very limited case—but they are two very limited cases, indeed, and we should want to look very carefully at the Amendments the Government say they may wish to introduce in order to see that there is complete equity that is to say, that a business taking account of the total tax paid under Schedule A and Schedule D over the whole of the life of the business—the whole of it, not only the last two years but over the whole of the life of the business—was paying neither more nor less than it would have paid but for this particular change. It is often the practice to make the case by looking purely at the current year when one is switching from one basis to another. In order to see whether there has been complete equity, one has to go back to the start.
I know what the Amendment seeks to do. I am unable to say whether it will achieve its object. The Solicitor-General thinks that it will not. He is not sure whether the Government know what they want to achieve. We shall look very carefully at what the Government produce when it is produced.
The Government know what they want to achieve: they want to achieve equity. I think that the points raised by my hon. Friend the Member for Nottingham, South indicate that there is a problem. and therefore I have given the undertaking that we will examine it.
I should like to follow up the last remark of my hon. and learned Friend the Solicitor-General that the Government's aim is to achieve equity. I should like to raise a small point which arises from the Amendment which some of us tabled but which has not been selected relating to the word "occupied" in line 33 of subsection (3). I should like the Government to consider before Report whether "occupied" equitably achieves the purpose of the Clause and whether it would be better to substitute the words "in use"
There are many premises which are owned, for instance, by breweries or petrol companies on which a premium has been paid but which are not occupied by the person who paid the premium. Therefore, in such cases, the person who occupies the premises and uses them for the purposes of trade will not qualify for the benefit which is restricted by the use of the word "occupied" in subsection (3). Therefore, on the ground of equity, I should like my hon. and learned Friend the Solicitor-General to consider whether this word is reasonable.
I will certainly look at the point which my hon. Friend has made. There certainly seems to be a case, in a limited sense and in a limited field for closer examination. I will examine this point when I examine the other points on the Clause which I have undertaken to examine.