A Reply to Various Criticisms of an Article Dealing With
Page 48
If you've noticed an error in this article please click here to report it so we can fix it.
Some of the Provisions of the Income Tax Act, P45, as They Affect Commercial Vehicle Operators
Those Wear and Tear Allowances Y.
S.BT.R.
AN article of mine entitled "Are You Paying Too Much Income Tax? " which appeared in " The Commercial Motor " dated June 27, evoked considerable criticism. Asthe subject is obviously of wide interest, the Editor decided that the best plan -would be to reply by means of another article, dealing with the points raised.
1 should, for the benefit of those who missed the article, state that it dealt with the provisions of the Income Tax Act, 1945 According to that Act, purchasers of new vehicles who have acquired them after April 6,'1946, may claim, as an allowable expense, one-fifth of the purchase price, as well as wear-and-tear or depreciation allowances. The Act also revised the method of calculating those wear-and-tear allowances. There are other matters of importance in the Act, but, for reasons which will be disclosed later, I did not deal with them in that particular article.
Three Criticisms
The criticisms were that: (1) In stating that many auditors were unacquainted witn the Act, I was casting a slur upon the profession; (2) I deal with only one aspect of the Act, ignoring others; (3) My assessment of 31i per cent. as the depreciation allowance on vehicles operated under A licences was incorrect.
No slur upon the accountancy profession was intended. On the -contrary, I regard it highly and number many members among my personal friends. My statement that " I have, in the course of the past 12 months, come across many instances relating to auditors having connections With big concerns—buyers and users of machinery and plant of all kinds—who were not acquainted with the Act," was simply a fact.
Additional instances of the same kind have occurred since the article was written. Surely the profession, and those who speak and write on its behalf, must admit that amongst their number are some—I am sure it is a small minority— who do not keep themselves as up to date as they should on matters affecting their work.
Effectively to deal with criticism 2, I must first explain the purpose of the article, prefacing that explanation by stating that it was most certainly not intended, as one critic suggested, "to give a complete picture of the procedure with regard to wear and tear, initial and balancing allowances and balancing charges. '
All articles which appear under the generic title of Solving the Problems of-the Carrier" deal with questions which are put to me from time to time by operators of goods. and passenger vehicles. More specifically, perhaps, they are designed to meet the needs of those who employ those vehicles to carry for hire and reward, but the interests of the C-licensee are not by any means ignored.
Hauliers Confused So the article under consideration was written to cover two such matters which had arisen in course of conversation with hauliers. First, there was some confusion in the minds kf many operators as to the precise interpretation of the initial allowance (in respect of new vehicles) and the wearand-tear allowance. Many operators seemed to think that they could not claim for both, or that if the initial allowance were claimed, the amount of the wear-and-tear credit was reduced accordingly. I hope I made it quite clear, in the article, that that was not so—that the two allowances are separate and distinct. They are, as it were, cumulative, and not concurrent. .
My other objective was to disabuse those simple-minded men who imagined that these concessions were the equivalent of a gift from His Majesty's Government. Actually, as I showed, the operator is net, in the long run, quite so well treated under the new terms as he was under the old.
That was all I.set out -to do in the 'earlier article.
There are several other matters dealt with in the Act, One A34 of my critics, an accountant who has obviously made a close study of it, enumerates them as follow:— (1) Provision is made for initial allowances on assets purchased after April 5, 1944, but before April 6, 1946. (2) There is an obsolescence allowance where vehicles were bought before April 5, 1946, but replaced after that date.
(3) The-taxpayer may claim to have any balancing charge deducted from the cost of the new asset, which replaces the old one.
(4) Wear and tear can be claimed only for the year of assessment in respect of a vehicle which was in use for the purposes of the business at the end of the tax period for the year in question. This critic further complained that I had not considered the position which arose when the vehicles are sold on the transfer of a business, as regards claims which a purchaser may make. All these points admittedly are covered by the Act, but for reasons which I have already given, .1 was not concerned with them.
Initial Allowances
The opportunity now arises to deal with the most important point, which is that initial allowances were granted also in respect of vehicles purchased after April 5, 1944. In such cases, however, the amount of the allowance is calculated not on the first cost, but on that amount less the wear-and-tear allowance due for 1945-46. The initial allowance for this case is given for the income-tax year 1947-48.
The same critic and others point out that the special concession to A-licensees was discontinued on April 5 of this year. Now that was news to me. Readers will no doubt remember that, comparatively early in the war years, a special concession was made to A-licensees, raising the basic rate of wear and tear, for A-licence vehicles only, from 20 per cent. to 25 per cent. The full wear-and-tear allowance for A-licence vehicles before the 1945 Act was implemented was thus 25 per cent. plus one-fifth. On a £1,000 vehicle, for example, the wear-and-tear allowance for the first year was 25 per cent. of £1,000 (£250), plus one-fifth of £250 (£50), the total allowance being £300. Now, according to this new Act, for 1946-47 and subsequent years of assessment, the amount of the allowance is five-fourths of the amount considered by the commissioners for income tax to be just and reasonable as representing the wear and tear for the year.
In practice, percentage rates of wear and tear have been agreed between the Inland Revenue and representatives of industry for most classes of machinery and plant, and the .rate which the Inland Revenue will allow for any particular class may be ascertained from the inspector of taxes.
That seemed to me to indicate that the 25 per cent. above described as applying to A-licence vehicles would, from the time when this Act came into force, be increased by onefourth, that is, to 31i per cent. I consulted an inspector of taxes, who confirmed that view. It would appear, therefore, that for 1946-47, 31f per cent, would apply.
A Confession I confess that I did not know that this particular concession of 25 per cent. basic wear and tear was discontinued at April 5, 1947. My attention was drawn to the matter by several correspondents and the information was confirmed by the Inland Revenue authorities. I think I can reasonably plead justification for the oversight, because there appears to be no public relations officer to the Inland Revenue, and that department does not broadcast information such' as this.
The effect of this change in reference to the earlier article is that the part which specifically relates to ".Hauliers—A licence " should be ignored, and the figures given as relating
B and C licensees and passenger-vehicle. operators" should be taken to apply to A-licensed vehicles too.