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29th March 1932, Page 53
29th March 1932
Page 53
Page 53, 29th March 1932 — RECLAIMING TAXES
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Which of the following most accurately describes the problem?

on compulsorily suspended vehicles

DURING the past few months many coach and bus proprietors have had their services withdrawn by the Traffic Commissioners. We are not in this article concerned with the question of hardship, or with the rights and wrongs of individual cases, although everyone must have sympathy for the enterprising small owner, who, two or three years ago, inaugurated services in districts not previously covered.

Attempts are, however, being-made to alleviate hardship, to a certain extent, but, before any individual can benefit, it would appear to be necessary for several aggrieved parties to make application.

An accountant acting for a coach company has raised the point that it is quite unfair and wrong for income tax to be demanded on profits that have been earned, without full allowance being made for the large losses sustained through the forced sale of the coaches compulsorily taken off the roads. The accountant fully appreciates that the loss is of the nature of loss of capital and, as such, is not an admissible deduction from assessable profits, but he thought that some .,special concession should be made and took the case to the District Commissioners

concerned. .

In the case under review it appears that large profits were earned during the 18 months that the services were in existence. The Income Tax Acts forbid the deduction from profits of any sum to represent depreciation arising through the usage of these vehicles. Every commercial concern would make a charge for this in preparing accounts for their shareholders, and we may take it that the rate of depreciation would be fairly high. But for purposes of income tax no such charge can be made.

A claim for wear and tear is, however, allowed. Theoretically, this is made by the Commissioners, but, in practice, the Inspector of Taxes and the accountant concerned usually agree the sum to be allowed. To avoid long disputes and to put all similar concerns on the same -bases, rates have been laid down by the Board of Inland Revenue, with the approval of trade associations.

Claiming for Vehicle Replacement.

This is a reasonable position and the ease for the Crown becomes stronger when it is remembered that, in the case of continuing businesses, there is open a further claim to the taxpayer when he replaces his vehicles, namely, a replacement or obsolescence claim. This would allow as a diminution of taxable assessment, such further loss as is represented by the difference between his cost and the total of the allowances made for wear and tear, plus the price obtained for the discarded vehicle. But it is an essential factor to the claim that the vehicles are replaced.

Now, in the case of a proprietor whose services have been compulsorily discontinued, it is certain that he will never replace his vehicles. Therefore, he is deprived of the means for saving tax on the loss. It will be noted that, although loss of capital is not allowed in the strict sense, such losses can be taken into account, at any rate to a large extent, in cases of continuing business, where the plant or vehicles are replaced.

In the first place the accountant represented these facts to the Inspector and then to the Commissioners, and asked the Commissioners to exercise their powers and to increase the allowance for wear and tear, so that the whole of the loss sustained would be allowed from the taxable profits.

The Commissioners appear to have been sympathetic and might have acceded to the request had not the Inspector pointed out that the rate of 20 per cent. had been agreed with the Board of Inland Revenue by the Commercial Motor Users Association, and that the Commissioners were bound by the agreement and could not depart from that rate. The Commissioners and the Inspector agreed that there could still be an alteration in the rate if application were made under another subsection of the Act. The Commissioners adjourned the case sine die.

This sub-section provides that if an application for alteration in a rate for wear and tear be made to the Commissioners of Inland Revenue by a considerable number of taxpayers, and if the Commissioners do not think the application frivolous they shall investigate the application and order an alteration to be made in the rate.

In many cases the coaches used on discontinued services were being acquired on hire-purchase terms and the hirers have had to return their vehicles, • thus sacrificing an they had paid on account. The market for secondhand vehicles is flooded and consequently huge losses must be faced when the machines are sold. Such losses must far exceed the allowances given in respect of wear and tear for vehicles actually in service.

Hope for Taxation Relief.

If application be made by a sufficient number of persons, there appears to be room for hope for a large increase in the rate, and all who are suffering from the incidence of taxation, in these circumstances, can hope for at least a little relief.

Thefollowing figures are given to illustrate the point :— Profits earned prior to any charge for depreciation Wear and tear allowance on basis of 20 per cent. ... 650 Income tax charged on ... £950 Owing to the date of the commencement of the particular business, these figures govern the tax for two years, excepting for a slight decrease in the allowance for wear and tear in the second year's assessment. The man is, therefore, called upon to pay tax on the assumption that he has earned £1,900 profit. The actual position is that all his capital has gone and he is practically bankrupt.

Further, be-has lost not only all his assets, but also his livelihood, and yet he has to pay approximately £300 in income tax. Had he continued in business and replaced his vehicles in time, he would have been allowed the relief now claimed for him. There would not appear to be anything of a frivolous nature in an application to the Board, as evidenced by the facts disclosed in the foregoing.

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