I beg to move Amendment No. 311, in page 89, line 15, to leave out “from” and to insert “through” .
This is a probing Amendment. Looking through Schedule 5, one discovers that certain company secretaries might come under rather heavy liabilities. Paragraph 24 contains a devastating subparagraph (2) under which secretaries or treasurers of companies which are not bodies corporate may find themselves liable for the whole of the Corporation Tax of their companies. The closing words of the sub-paragraph provide that the secretary
“may retain out of any money coming into his hands on behalf of the company sufficient sums to pay that tax, and, so far as he is not reimbursed, shall be entitled to be indemnified by the company in respect of the liability so imposed on him” .
But that would not be much consolation if the funds were not there out of which he could be indemnified. [column 436]
I have no doubt that secretaries of companies limited by guarantee and the like might be rather worried, if they had read the Bill or knew about this provision, to know that their houses, their insurance policies and everything might be sequestered to pay the Corporation Tax due from their companies.
Obviously, one did a little research to see whether anything similar appeared in the Income Tax Acts. There is a similar but not identical provision to the one we are seeking to amend now. This imposes upon a company secretary, or other officer of the company, a liability in terms for the tax. The previous provision with regard to Income Tax was rather more ambiguous and one did not necessarily read it as if there were a liability imposed on the company secretary. The previous provision is contained in Section 362 of the Income Tax Act and it did make the secretary or treasurer answerable for payment of the tax but did not impose a specific liability upon him.
It seems that this particular paragraph has gone a great deal further than the former provision and it also seems rather hard on a company secretary or his family who might find himself in this position. I would be most grateful if Niall MacDermotthe Financial Secretary could give the Committee his views and consider the point with a view to bringing something forward on Report.
The Amendment which the hon. Lady has moved raises the question of the power which it is proposed to take in this paragraph of the Schedule. If I may say so, without appearing to be patronising, it seems to be a proper probing Amendment to move because, on the face of it, this looks to be a somewhat fierce power.
Like the hon. Lady, I have also looked at the precedents. I think that I can say that the difference in wording to which she has drawn attention between this paragraph and Section 362 of the Income Tax Act is, in effect, a distinction without a difference. The chamberlain or other officer acting as treasurer under Section 362 has full personal liability. That is how I am advised. He has a personal liability and his asests are liable for the payment of the tax in default of payment by the unincorporated company. [column 437]
This is a protection for the Revenue which has a long history. The 1952 Act was a consolidating Act and was merely reproducing provisions which had stood since 1842. I am not sure how that date relates to the earlier companies Acts, but it obviously goes back a long time. The practical point is that without a power of this kind the Revenue would be at the mercy of the man of straw being put into the position of being the proper officer—treasurer or whatever it may be—of an unincorporated body.
The only way, therefore, to give the Revenue protection is to say that the person in the unincorporated body who is responsible for the handling of the company's income shall see that sufficient funds are retained for meeting the tax liability. One starts off, if one is dealing with a tax liability, with a body that has got an income which is liable to tax.
The hon. Lady will know, as will other lawyers in the Committee, how difficult it sometimes is to effectively get at anyone in an unincorporated body. The problem of who to sue is a familiar one for lawyers trying to draft pleadings in cases of this kind. The same sort of problem can arise for the Revenue.
I am advised that cases involving the application of these provisions are very rare, and no trouble seems to have arisen from applying them. By “trouble” I mean nothing that the Committee would regard as oppressive or anything smacking in any way of persecution or hardship falling upon an individual in one of these offices. If such a situation were to arise, there might be good reason for us to reconsider the matter.
In view of the long history of this provision, the fact that it affords a real protection for the Revenue and that, in practice, it does not appear to be giving rise to hardship of the kind which the hon. Lady feared might underlie these provisions, I urge the Committee that we should re-enact these provisions in the form in which they are contained in the Bill.
My first point in reply to what the hon. and learned Gentleman has said is that the provision was obviously nothing like so devastating in [column 438]1842, when the rate of Income Tax must have been fairly low at 3d., 6d., or something like that in the pound. Therefore, the situation is rather different now and it may be right that we should look once again at this provision.
Secondly, Niall MacDermotthe Financial Secretary said that the Revenue might be at the mercy of a man of straw. It seems to me that with a provision like this, when the personal assets of the company secretary are likely to be taken, the obvious thing to do would be to put a man of straw in that position so that there was not very much to be taken. This would be the greatest possible protection.
Thirdly, the Financial Secretary said that if there has been no hardship, it does not much matter if we re-enact the provision. My view is that if there had been no hardship, it would not much matter if we took the provision out, because there may come an occasion when, if we leave it in, there would be hardship. If there has not been a great deal of difficulty of the kind which I envisaged and the Revenue has not needed to invoke this paragraph very often, would it not be advisable to remove it?
Fourthly, it is probably rather more important that the wife and children of the company secretary should be protected from the Revenue rather than that the Revenue should be protected at their expense.
Having made these few comments, I hope that the Financial Secretary will think about them again. Perhaps we can have a talk about them later. Obviously, I do not want to divide on them tonight, as this was a probing Amendment. Although there might be a long history to the matter, time does not always sanctify things like this. I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Question proposed, That this Schedule, as amended, be the Fifth Schedule to the Bill.
I wish to speak about another provision which might also have been sanctified by time, but which we might look at again. I refer to paragraph 7(2) of the Schedule, concerning time [column 439]limits for making assessments, which states:
“An objection to the making of any assessment to corporation tax on the grounds that the time limit for making it has expired shall only be made on an appeal against the assessment.”
I understand that the rule is, and has been for many years, that the Revenue cannot make an assessment either to Income Tax or to Corporation Tax later than six years after the end of the year to which the assessment relates. There has always been this six-year time limit. The only exception to that is if there is a case of fraud or wilful default, when an assessment can be made out of time. In practice, it can be made up to some 20 years back.
Since the Income Tax Management Act, 1964, the inspector cannot, off his own bat, make an assessment out of time on the grounds of fraud or wilful default. Under Section 6 of the Act, for the Income Tax provision, he has to go to the General Commissioners to get permission to make an assessment out of time for fraud or wilful default. That is obvious protection. It would be wrong if the inspector could make an assessment out of time just on a hunch that something was wrong. He must have good grounds for believing that there has been fraud or wilful default. Then he can make an assessment out of time.
Between those two things, the strict six-year time limit and the absence of any time limit in the case of fraud or wilful default, there seems to be a kind of no man's land whereby an assessment can be made out of time although there is no fraud or wilful default. That will arise, as one can see from the sub-paragraph, when, although the assessment is made out of time, the taxpayer has to go to appeal and establish that the assessment has been made out of time. It would seem that the law ought to be that, if the assessment is out of time, it is null and void from the outset, and the taxpayer ought not to have to go to appeal to say that it is out of time.
If we keep the provision, it would seem that certain possibilities arise. The taxpayer might get to appeal, and the inspector might hope that at the appeal he will get something out of the taxpayer by probing, or that the taxpayer [column 440]will not spot that the assessment is out of time. It would have been a good deal better had we provided that, if an assessment is out of time, it shall be null and void. There would be adequate protection in the Income Tax Management Act for any case of fraud or wilful default, and that assessment could still be made.
Obviously, I did a little research on the point too. I know that Niall MacDermotthe Financial Secretary will tell me that this has been hallowed by time, but I am sure that he will agree that there are all sorts of things in Revenue and other law which, although a number of us have had to consider it professionally in years past, we have never come across before, and, when we come across them for the first time, they are rather surprising. That is the time to consider them once again and see whether they are justified.
The history of the sub-paragraph is to be found in Section 47(3) of the Income Tax Act, 1952, which provided an identical procedure in Income Tax to the one that the hon. and learned Gentleman is now proposing in Corporation Tax. I would ask the hon. and learned Gentleman to consider the matter again. Should the taxpayer have to make his objection to an out of time assessment on appeal? Should he not be able to write back to the inspector and say, “You are out of time. That is the end of the matter” ?
Perhaps he will consider the point and, either now or later, let me have his reply. However, I should be interested to hear his initial reactions.
I can only give an initial reaction. Although the hon. Lady had her name to an Amendment raising the point it was not selected. Having much else to do, I have not gone into it with great care.
I would not say that it has been hallowed by time. Although it has some history behind it, it goes back to 1952, rather than to 1842. The purpose of the provision in the 1952 Act was to ensure than an objection to an assessment on grounds that it was out of time should be raised by way of appeal rather than by some other form of legal proceedings, such as a writ of prohibition.
My initial reaction is to say to the hon. Lady that what one has to settle is the convenient way of determining a dispute, [column 441]if there is a dispute. Sometimes, if a well-founded objection is taken, it will be seen to be well-founded. But there may be a disagreement about what is the accounting period and from what date the six-year period began to run. If there is an issue about that, it is one which has to be settled. The question is whether it is better for the taxpayer to dig in his toes and say, “I think that you are out of time” , and then leave it to the Revenue to have to start proceedings against him to recover the tax, or make an assessment and then start proceedings to recover the tax; or whether it is more convenient for the taxpayer to be required to lodge an appeal.
I imagine that it must be one of those two. We do not want to encourage them to go off to the divisional court on a writ of prohibition. But I will gladly accept the hon. Lady's invitation to look further at the point, although I do not know what conclusion I shall reach.
Question put and agreed to.
Schedule, as amended, agreed to.