Schedule 11. — (Amendments of Corporation Tax Acts.)

Part of Orders of the Day — FINANCE (No. 2) BILL – in the House of Commons at 12:00 am on 7 June 1967.

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Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North 12:00, 7 June 1967

One can judge the merits of the Amendment only against the background of the principle underlying the present rule governing the allowances. Obviously, it would be absurd to give the full allowance, for example, where a director worked full time only for one week or one month in an accounting period. Equally, at the other extreme, it would be unfair to deny the allowance if he worked for nine or ten months in the year.

Two alternative approaches are possible. One would be to try to apportion the allowance for the whole year according to the amount worked, in twelfths, allowing one-twelfth for each month, and the other would be that which was done under the legislation which we introduced to follow the precedent of the Profits Tax rule, giving the full allowance wherever the relevant director worked full time for more than half the accounting period. The effect is that if he dies or retires, say, after five months' full-time work in the year, no allowance is earned. Equally, if he dies or retires after seven months, a full year's allowance is given. This works on the swings and roundabouts basis, sometimes to the advantage of the Revenue and sometimes to its disadvantage, and it is simpler than having an application of a provision based on twelfths.

So much for the general rule. The Amendment suggests departing from that swings and roundabouts approach where a director does not retire voluntarily or due to illness but dies in harness after working for less than half the accounting period. By the way in which the rule operates and is phrased, there still can be a full year's allowance in those circumstances, provided that a successor is appointed within six months of the death. One is then allowed to aggregate the time of his service with the time of his successor, and provided that a total of six months' service is done by him and his successor, the full year's allowance is earned. We are considering the case where a director dies in harness and the company does not appoint a successor after a period of six months, which would surely be adequate for the company to find a successor. It is surely a case in which it is fair to say that the company deliberately decides not to appoint a successor.

Reverting to the swings and roundabouts approach as a general rule, I do not see why the position should be any different in that case from the position where a director retires, perhaps similarly after five months' service, and again the company decides not to appoint the successor. It seems to me that the merits of the case put forward in the Amendment are not sufficient to justify a change in the law which would be a definite departure from the general rule which applies.