Clause 25. — (Amendments of Corporation Tax Acts.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 21 June 1966.

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Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester 12:00, 21 June 1966

Perhaps I may first deal with the question just put to me by the hon. and learned Member for Darwen (Mr. Fletcher-Cooke). No new figures are available. The figures are published by the Board of Trade every three months and there is no indication in those published so far of any trend of the kind that he and hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) have suggested. Of course, it may be that such a trend would be too recent for those figures in my possession to reflect.

I was asked about the treatment of limited partnerships. I reply shortly that a limited partnership does not get earned income relief and is not treated as a partnership in the ordinary sense. As my hon. Friend the Member for Manchester, (Mr. Harold Lever) pointed out, limited partnerships have traded for a long time and continue to trade by giving notice of the limited extent of the liabilities of certain of their members. If the hon. Member for Wanstead and Woodford says that this is not a proper method, that has nothing to do with Income Tax. He must refer the matter to my right hon. Friend the President of the Board of Trade and make such representations to him as he thinks necessary about strengthening the law. It has nothing to do with what we are discussing, which is whether one can give an option to a company in certain circumstances to have its tax treated in a way appropriate for a partnership but not for a limited company.

I would say to the hon. Member for Shipley (Mr. Hirst) that I can hold out no encouragement of this Amendment. But if we were to advance quickly—to rush—through the Order Paper, it is not inconceivable that I might cheer him up during the course even of today. I hope that I can do so. But I cannot hold out, on this Amendment, any hope of the Government changing their mind.

As the hon. Member of Wanstead and Woodford said, the matter was fully discussed last year. The arguments were given then and it is unnecessary for me to repeat them. The main point is that the hon. Member proposes that certain companies should have the right to have their tax assessed either as companies or as partnerships and so choose obviously, which suits them the better. This has never been part of our philosophy before. It has never been claimed before that, where a company has to pay more tax than a partnership—a partnership which wanted to carry on as a partnership and did not want to become an incorporated body—it should, by some philosophy of comparing two different organisations, seek to have itself assessed at the more beneficial liability which, in these circumstances, might well attach to a partnership.

No one has ever claimed that before, but now it is being claimed that, if a company finds itself having to pay more tax than a partnership, it should have the right to reduce its tax liability and pay as a partnership. That is something one cannot accept. A number of persons have the right to carry on business either in partnership or incorporated as a limited company. It is up to them to choose which they want. If, finding that they are a company and that it does not suit them for tax purposes, they prefer to be a partnership, the Inland Revenue has no objection. Indeed, it has no right to object. It is a matter for individuals to decide for themselves how they want to carry on the trade.

They have to take a number of points into account, such as the advantages of incorporation or of unlimited partnerships. The professional man does not carry on as a company. The Lloyds underwriter does not. The whole foundation is that there is no basis of limited liability. There are advantages in having no limited liability and various advantages in not being limited. It is for the individual to choose, in the knowledge that, in certain circumstances, the tax bill may be higher where it would otherwise have been lower.

All sorts of things come into the calculations—for example, Surtax, the earned income relief on the managing director's reasonable remuneration in relation to the managing of his property and so on. All these things have to be taken into account and the taxpayer makes his own choice. One could not recommend a system under which, albeit allegedly for a period of years, election is made by the taxpayer on the basis, "heads I win, tails you lose", changing as soon as it is advantageous for him to do so. He could change into at least six methods open to him and under which he could have his tax treated in the way he wanted. We do not believe there is any basis for this now any more than in the past. We cannot recommend a method under which a particular taxpayer would be allowed to say, "heads I win, tails you lose" in dealing with his assessment.