§ (1) Where, after the passing of this Act, incorrect accounts are submitted to the surveyor or any Commissioners in connection with the ascertainment of a person's liability to income tax for any year of assessment, that person shall be liable, subject to the following provisions of this section, to be proceeded against as mentioned in paragraph (a) or (b) of subsection (3) of section twenty-five of the Income Tax Act, 1952 (which imposes penalties on persons failing to make certain statements), and the amounts mentioned therein shall be forfeited and recovered accordingly.
§ (2) Proceedings under the said subsection (3) shall not be taken against the same person both by virtue of this section and apart from this section in respect of the same year of assessment.
§ (3) Where a person discovers that accounts submitted in connection with the ascertainment of his liability to income tax are incorrect and he submits a statement rectifying the accounts, no proceedings shall thereafter be taken against him by virtue of this section in respect of the accounts.
§ (4) In proceedings taken against any person by virtue of this section it shall be a defence to prove that the accounts were submitted without his consent or connivance.
§ (5) Where accounts for a period not exceeding a year are submitted in connection with the ascertainment of a person's liability to tax for more than one year the penalty recoverable by virtue of this section shall be recoverable in respect of such one only of those years as the Commissioners of Inland Revenue may elect.—[Mr. Simon.]
§ Brought up, and read the First time.
§ Mr. Simon
I beg to move, That the Clause be read a Second time.
1062 This new Clause gives effect to a recommendation of the Royal Commission to the effect that a taxpayer who puts in an incorrect account for Income Tax purposes should be liable to a penalty in the same way as if he had submitted an incorrect return, and also gives effect to an undertaking which I gave in response to the hon. Member for Sowerby (Mr. Houghton) during the Committee stage.
Sometimes, as the House knows, when accounts have been put in, a formal return is dispensed with. More frequently, a taxpayer fills in his return form before the relevant accounts are available, and the amount of the adjusted profits is subsequently agreed with the Inspector of Taxes. In certain of these cases the form of the return has the effect of incorporating the accounts in the return, so that they become liable to attract the penalty provisions which attach to returns. In other cases no such words are used, and no penalty for making an incorrect return is recoverable in the case of accounts, except, probably, where the accounts are fraudulent. It is therefore reasonable, as the Royal Commission pointed out, that a taxpayer who puts in incorrect accounts should be liable to the same penalty as if he had entered an incorrect figure of profits in a formal return.
So far as the details of the Clause are concerned, subsection (1) applies the provisions of Section 25 (3) of the 1952 Act, which prescribes the penalties for making incorrect Income Tax returns, or, actually, I should say, failing to make true and correct returns, and it applies these provisions to incorrect accounts.
Subsection (2) prevents a person from becoming liable to two penalties, under the Section of the 1952 Act to which I have referred for the same year, if he has put in incorrect accounts and also a return which is incorrect by reason of his entering in his return the final figure of the accounts. Subsection (3) is modelled on Section 55 (1) of the Income Tax Act, 1952, and it enables a taxpayer who has made an innocent error in a return to correct it.
§ Mr. Donald Chapman (Birmingham, Northfield)
Could the Financial Secretary go a little further in dealing with that subsection and tell us whether, in fact, it covers the case where the Inland Revenue draws the attention of someone to the 1063 fact that he has made an incorrect statement of account? If the word "discovered" covers the case in which attention has been drawn to the fact by the Inland Revenue, surely no one in the end will be proceeded against if he agrees to put in a correct statement.
§ Mr. Simon
I think the Section of the 1952 Act on which this is modelled is not very easy to interpret, and it is not for me to advise the House as to the law; but, speaking for myself, I should have said that the word "discovers" covers the case in which the Inland Revenue draws the attention of the taxpayer to the incorrectness of his accounts so as to give him the opportunity of correcting them. As I pointed out, if there is fraud the Inland Revenue can proceed under a different provision. I hope that that answers the hon. Member's question.
§ Mr. Simon
Subsection (4) enables the taxpayer who had no hand in the return of the false accounts to escape from the provisions of the Section. In the bulk of cases either the taxpayer himself makes the return or the return is made with his knowledge; but there may be the odd case where the accounts are submitted without any knowledge on the part of the taxpayer, and subsection (4) allows him to escape any penalty. In that respect it goes beyond the provisions of the existing law relating to returns, because at present it is no answer to say, "It was not made with my consent or connivance." This is more favourable to the taxpayer.
Finally, subsection (5) provides that a person shall not be liable to more than one penalty in respect of any one set of accounts in relation to any one year.
§ Mr. Houghton
We welcome the new Clause. I am obliged to the hon. and learned Gentleman for fulfilling a half-promise, which he made in a debate at an earlier stage, to consider at any rate one part of the new Clause that we then proposed to cover two recommendations of the Royal Commission in the one change. The Clause satisfies the recommendation of the Royal Commission in paragraph 1057. which said:accounts submitted in support"—1064 of a return—are not in law themselves a return, although in many cases the words that the taxpayer uses in referring to them have the effect of incorporating them in and so making them part of a return.The Royal Commission said:We think there is no place for fine distinctions on this point and we recommend that the law should be amended so as to provide that whenever a taxpayer submits accounts to an assessing authority, either in support of a figure that he has returned or in lieu of a formal return, the accounts should rank as a return for the purposes of assessment and penalty provisions of the Acts.When we brought our new Clause before the Committee at an earlier stage we linked with this proposal to bring incorrect accounts within the penalty Sections of the Income Tax Act an obligation to sign the accounts. The hon. and learned Member has not brought forward any proposal to that effect, for the reasons which he gave when we were discussing the combined proposal earlier on. He then expressed doubt whether a signature on the accounts would achieve our purpose in all cases. Yet in subsection (4) of the Clause provision has to be made for a taxpayer submitting accounts which he has not signed and which he could plead in defence had been submitted on his behalf without his consent or connivance. Had the Chancellor accepted the Royal Commission recommendation which we put forward, that taxpayers should be required to sign their accounts, no such defence as that provided for in subsection (4) could ever arise.
The hon. and learned Member has just pointed out that no such defence could be put forward in the case of an Income Tax return. There a statutory declaration is required on the return form, and once having made that declaration a taxpayer could never plead that the contents of the return were put in without his consent or connivance. Obviously he must take full responsibility for what is contained in a tax return which he signs.
The Clause does not propose to make the position as watertight as that in regard to the submission of accounts, and that is to be regretted. I presume that if a taxpayer making his tax return in the normal way were to include in the return a statement of his profits, saying, "As per accounts, £2,050", his declaration would cover that statement of his profits, and to that extent would make him responsible 1065 if not for the contents of the accounts at any rate for the amount of taxable profits shown in them and transferred to his return form.
If, on the other hand, the taxpayer were to write, in the space provided on the return form, "As per accounts submitted", and include no figure for his taxable profits, he could plead, if the accounts were submitted without his knowledge or consent, that they had nothing to do with him. By putting in the words "As per accounts" with no figure he would not be committing himself to a declared return of income, which would have been the case if he had included a figure in the return form.
That rather suggests that these two matters should be tied up more completely than is proposed in the Clause. Clearly, we shall not oppose the Clause, because it does something which the Royal Commission thought should be done and which we regard as desirable from the point of view not only of the Inland Revenue but of the taxpayer. It enables him to know more clearly where he stands when he submits accounts for tax purposes. But it is a flaw that the hon. and learned Member is not proposing to bring the signature on the accounts—which was the subject of a further recommendation by the Royal Commission, in paragraph 1058—within the scope of the new proposals. Our view is that it would have been better to combine the two, as the Royal Commission recommended.
For reasons which the hon. and learned Member has given, and which were quite unconvincing to hon. Members on this side of the House, he has left out the provision in regard to the signature on the accounts and has exposed the Inland Revenue to a defence by a taxpayer which, really and truly, he should never be in a position to put forward, namely, that he knew nothing about the accounts; that he did not consent to them; that he did not connive in their submission; that he did not sign them; that they were put in on his behalf, and that he can take no responsibility for them. If he is wise enough not to put the amount of his profits on the return form he makes a clean get away. I think that that is unfortunate.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.1066
§ Mr. Deputy-Speaker (Sir Gordon Touche)
New Clause—"Relief from Schedule A of certain owner-occupiers."
Mr. H. Wilson
On a point of order. This is a new Clause which we hoped would not be moved in order to facilitate the passage of the Bill. We hope to see some reciprocation from the other side of the House.