(1) In the proviso to Sub-section (2) of Section thirteen of the Finance (No. 2) Act, 1939 (which deals with the computation of standard profits), insert at the end,—
"and in the case of any other trade or business the Commissioners may, if they are so satisfied and think fit, direct that there shall be allowed, in addition to the minimum amount, such further sum not exceeding one thousand pounds as may be specified in the direction."
(2) The amendment effected by this Section shall have effect with respect to tax for all chargeable accounting periods, whether before or after the passing of this Act.—[Mr. Craven-Ellis.]
Brought up, and read the First time.
I beg to move, "That the Clause be read a Second time."This new Clause relates to what is known as the minimum standard. If you are in business or trade as an individual, your minimum standard will be £1,000, but if you are in a partnership or are one of three working partners, your minimum standard will be £4,500. The object of this new Clause is to put the person who is the head of a trade or business into the more favourable position of those in a partnership or company. I will quote an example which I hope will convince the Committee that there is some justification for this Clause. Let us look into the case where the minimum standard for the individual who is in trade or business is £1,000 and the minimum standard for the partnership or for a company with three working partners is £4,500. Contrasting those cases we see the varying effects of the minimum standard. Let us assume that the current year's profits were £5,000. The individual who is running the trade or business would have to pay E.P.T. on the differences of the £1,000 minimum standard and £5,000 current profits, and therefore he is burdened with a tax of £4,000. In the case of the partnership with three working partners or the company with three working partners, the difference between their minimum standard of £4,500 and the current years profit of £5,000 means that E.P.T. is payable only upon £500. That difference does deserve some consideration in order that the individual can be put on a par with a partnership or a company.
My hon. Friend has put forward a case for my consideration and I would offer just one or two observations concerning it. I think he has omitted a matter which has a very material bearing on the question, namely, why Parliament came to the decision it did on this question. Generally speaking, apart from the merits of the Clause, I feel that unless a very strong case is made out, it would be wrong for me, at this stage, in the life of the Excess Profits Tax to begin to make considerable variations in its general provision, which were decided by Parliament after considerable Debate. It must not be said that I would not endeavour to deal with any difficulties which may arise, but the tax has been in operation for some time, and we may now look forward not so much to its continuation as, perhaps, to the day when it will disappear altogether. I think the Committee will appreciate the view I must take of proposals for substantial alteration at the present time.But let me point out that there is, of course, a material reason for the variation between the two, classes of cases. The Section of the Finance Act to which the hon. Member referred me is Section 13 of the Finance (No. 2) Act, 1939, as amended by a section of the Finance Act, 1940. It provides for a general minimum standard of £1,000, but enacts that in the case of the trade or business carried on by a single individual, a partnership or a director-controlled company, the normal minimum standard shall be £1,500 for each working proprietor in the business, subject to a maximum of £6,000. It is true that there is a provision which gives the Commissioners of Inland Revenue a discretion in respect of not more than £1,000 for each working proprietor, or £4,000 in all, where they are satisfied, having regard to the nature and size of the business, that the normal standard is inadequate. My hon. Friend is now suggesting that because a discretion is given in that class of case there ought to be a similar discretion in the case of other businesses with which this Clause is concerned, namely, those companies which are not director-controlled. There is, however, a very clear distinction between the two types of case. In computing for Excess Profits Tax purposes, the profits of a business carried on by a single individual, a partnership or a director-controlled company, no deduction is allowed in respect of the remuneration or drawings of the individual proprietors, partners or proprietor-directors, but when you come to the question of trades or businesses in which all remuneration paid even to the directors and proprietors is allowed as a deduction when computing profits, so long as they are not unreasonable, there you have a very clear indication of why Parliament made the distinction and gave the discretion to the Commissioners in one case but not in the other. Whilst I will examine the case further in the light of what my hon. Friend has said, to see whether, on reflection, further consideration ought to be given to this matter, in view of the very clear distinction between the one case and the other I doubt very much if I shall feel able to go further.
There was part of the Chancellor's remarks which rather disturbed me. He said: "We have gone so far," the implication being "Why bother? We have gone so far and let us do the rest of the journey in the same saddle." That may be all right, and one would not complain if the case which I put forward did not expose the vast dis- tinction there is between one class of profit and another. However, I am pleased to have had the Chancellor's statement, and I think it was useful, and I beg to ask leave to withdraw the Clause.
Motion and Clause, by leave, withdrawn.