[NOTE: until October 1922, the Bank's General Manager held the title of "Manager"]
The position of the Bank in relation to Income
Tax is not entirely clear in the first years of the Bank's existence. No Income Tax was paid in respect of the first three trading
periods, one of which incurred a loss anyway. The first reference to tax in the published accounts was in the year ended March 31st
1922 when "Tax on Interest Charged on House Purchase Advances, etc" was shown as a debit in the Income and Expenditure Account - the
amount being £2,856. 10s. 10d. The entry description suggests that the Bank was charged tax solely on the income that it had derived
from the loans made to house purchasers.
In the ten financial years ending March 31st 1923 to 1932 a charge was shown in each
annual Income and Expenditure Account as "Income Tax - Estimated Charge". (https://www.bmbregs.org.uk/bmb-regulations_063.htm). The
amounts varied from £3,500 to £30,800, totalling £91,300 for the period. The charge as a proportion of Profit Before Tax varied from
19.5% (1926) to 46.6% (1932).
In this period, however, the Bank's main concern in relation to Income Tax was an annual task required
of the Bank's branch staff for the completion of forms notifying the Inland Revenue Authorities of amounts of interest credited to
individual depositor's accounts. An instruction was issued to Branch Managers by Head Office, as in the following example that was
issued June 9th 1956. The instructional letter was accompanied by a certificate to be signed by the Branch Manager on completion of
the exercise, plus a supply of the relevant Inland Revenue form - referenced as 8(S).
Income Tax Return of Depositors to whom
interest exceeding £15 has been paid or
credited. Income Tax Year 1955/56.
I enclose a
supply of forms 8(S) for completion as required under Clause 29 of the Income Tax Act, 1952.
Where an account (either joint or
single) is already stamped "I.R.", forms 8(S) should not be completed.
Where a depositor has newly received or had credited during
the year 1955/56 an amount of interest exceeding £15, form 8(S) must be completed in respect thereof, and the records stamped "I.R"
If
a depositor has more than one account, the interest paid or credited on such accounts must be aggregated, and if the total exceeds
£15, form 8(S) must be completed. Title of each account and amount of interest to be shown separately and marked (1), (2), (3), etc
- Account numbers to be shown separately on reverse side. Records to be stamped "I.R."
Where the interest paid or credited on
an account (not marked "I.R.") in the sole name of a person (or the aggregate of accounts in that person's sole name) exceeds £15,
then the interest on any Joint Account in which that person is a party must also be shown on form 8(S) even if the interest on such
Joint Account is less than £15. Records to be stamped "I.R."
On the other hand, interest paid or credited on Joint Accounts cannot
be divided between the parties for purposes of aggregation. Joint Account interest, paid or credited, where it exceeds £15, must be
shown on form 8(S), but interest on any account in the sole name of any one of the parties is not shown on form 8(S) unless it itself
exceeds £15 and is due for return irrespective of the Joint Account.
The following examples will illustrate these points:
|
(1) |
Sole
Accounts |
Interest paid or credited |
Joint Accounts |
Interest paid or credited |
|
|
W. Smith (1) |
£7 |
W. Smith |
} } £2. 10.
-d. |
|
|
W. Smith (2) |
£9 |
W. Smith | |
|
|
M. Smith |
£3 |
|
|
The two sole accounts of W. Smith and the Joint Account will be
shown on form 8(S) but not the sole account of M. Smith.
|
(2) |
F. Jones |
£8 |
F. Jones |
} } £12. - -d } |
|
|
L.
Jones |
£9 |
L. Jones |
Neither of the three accounts will be shown on form 8(S).
|
(3) |
J. Davenport |
£2 |
J. Davenport |
} } £17. - -d } |
|
|
C. Davenport |
£4 |
C. Davenport |
The Joint Account will be shown on form 8(S) but neither of the sole accounts.
|
(4) |
H.
Wright |
£2 |
H. Wright |
} } £17. - -d } |
|
|
S. Wright |
£4 |
S. Wright |
The sole account of H. Wright and the
Joint Account will be shown on form 8(S), but not the sole account of S. Wright.
Any case of doubt or difficulty should be referred
to Head Office.
The completed forms 8(S), stamped with the Branch Stamp, should be forwarded to Head Office as soon as possible,
together with the attached Declaration signed by you.
At the current date (2022) the legal requirement of all banks etc to inform HM Revenue and Customs is contained in Section 23 of the
Finance Act, 2011. The relevant legislation when the BMB commenced in 1919 was Section 21 of the Finance Act, 1915 - this legislation
exempted interest earned on a Savings Bank account from Income Tax where it did not exceed £5 per year, but required banks to provide
details of accounts where the amount of interest exceeded £5.
The City Treasurer brought this requirement to the notice of the
Bank in March 1920, when the first capitalisation of interest took place. He informed the Bank's Chairman and [General] Manager that
a return to the Surveyor of Taxes must be made before the 1st May, giving the names and addresses of all depositors who had been paid
or credited with £5 interest or more during the year, failing which the tax would become a charge upon the income of the Bank.
It
was felt that this requirement was a serious matter for the Bank; not only was it seen as a major imposition in terms of workload,
but the taxation of interest was seen as a discouragement to thrift. The [General] Manager gave evidence before a Royal Commission
on Income Tax upon these points, but the Commission did not see fit in their recommendations to exempt Savings Banks from furnishing
the return.
Wishing to pursue the matter, discussions were held with the City Treasurer and the Town Clerk regarding the possibility
of obtaining a clause in forthcoming Government legislation which would (a) avoid the furnishing of this return; or (b) if made, the
qualifying figure of £5 should be increased. It was decided that representations should be made to the Chancellor of the Exchequer
that if he was unable to cancel the requirement of the return, he should at least be prepared to increase the figure from £5 to £25
in the cause of thrift; and it was determined that the Chairman, the Treasurer and the [General] Manager should seek an interview
with the Chancellor upon the subject, in order to explain the Bank's position.
In the meantime, a Savings Banks Bill was due
to be presented to Parliament and it was felt that this would be an excellent opportunity to include a clause embodying the required
amendments in the Bill. Accordingly, the Town Clerk was requested to prepare a short Memorandum setting out the present requirements
as to Income Tax, the amendments that the Bank Committee desired and the reasons why; also a suggested clause for insertion in the
Savings Banks Bill.
In June 1920, the Town Clerk presented the following report to the Bank Committee:
I beg to submit this
Memorandum and draft Clause with this report. I have conferred with your Chairman upon this matter, and the City Treasurer has I understand
handed the first draft of the Memorandum and draft Clause to the Secretary of the Chancellor of the Exchequer. The limit of £25 has
been suggested, although I understand it is not probable that so high a limit as this will be accepted. Moreover, the draft Clause,
in order that it may appropriately apply throughout the country, confers powers upon the Treasury to decrease the limit within a certain
margin by Order, in order to meet the cases contemplated by Clause 1 of the Savings Banks Act of the similar limitations of deposits
in a savings bank which may also be reimposed by order of the Treasury.
MEMORANDUM in support of suggested amendment to
SAVINGS
BANK BILL or FINANCE BILL.
Section 21 of the Finance Act, 1915, is intended to extend the relief afforded by Section 36 of the
Finance Act, 1894, from income tax in favour of savings banks. This section gives relief from the payment of income tax upon interest
on deposits in savings banks where such interest in any one year does not exceed £5 but where such interest does exceed that amount,
a return is required to be made by a bank to the Local Surveyor of Taxes in respect of each depositor in receipt of such interest.
This sum of £5 appears clearly to have been calculated upon the limit of deposit ordinarily prevailing in savings banks in former
years, namely, £200, the interest being reckoned at the ordinary pre-war rate of 2½%. As during the war, the limitations upon the
amount of deposit has been removed, and as this removal of limitation is now to be made permanent by virtue of Clause1 of the Savings
Bank Bill at present in Parliament, it is strongly submitted that this figure of £5 has become entirely artificial and inappropriate.
As it stands, it constitutes a serious and inequitable hardship upon members of the working classes who are provident enough to put
their savings into banks. The proposed amendment would remove this anomaly while reserving to the Treasury all the necessary power
to safeguard the interests of the Exchequer in appropriate cases as, for example, where some limit upon the amount of deposit is reimposed
by them under the provisions of Clause 1 of the Savings Bank Bill.
SAVINGS BANK BILL or
FINANCE BILL
SUGGESTED ADDITIONAL CLAUSE.
Amendment
of S.21 of
The Finance
Act, 1915, 5 &
6 Geo.v.c.62
(i) Section twenty-one of the Finance Act 1915 (which makes provision for the extension of relief from income tax in favour
of savings banks) shall have effect as though the words "twenty-five pounds in the case of a bank unlimited as to the amount which
may be received from a depositor or such sum not being less than five pounds and not exceeding twenty-five pounds in the case of a
bank limited in that respect as the Treasury may by order fix" shall be substituted for the words "five pounds."
(ii) Any order
made by the Treasury under this Section may be varied from time to time as the Treasury think proper and any sum which may be fixed
in respect of any bank under this Section shall be deemed to have been in operation as from the 5th day of April 1919.
Subsequently, the Bank Committee was informed that the Savings Bank Bill promoted by the Government had become law, and that there
was no provision in the Bill to meet the wishes of the Committee in respect of the declaration to be made of interest allowed to depositors,
or of the amount of interest which governs the making of the return.
It was felt that an interview with the Chancellor of the
Exchequer upon the matter, especially having regard to the progress of a Finance Bill, was essential; and it was decided that the
Chairman of the Bank Committee, the Chairman of the Finance & General Purposes Sub-Committee, and the Chairman of the Publicity
Sub-Committee, together with the City Treasurer and [General] Manager, should form a deputation to wait upon the Chancellor as soon
as an appointment could be made.
Accordingly, the Town Clerk was instructed to prepare a letter for Eldred Hallas (an MP who
was a Bank Committee member) to forward to the Chancellor. On July 5th 1920, the [General] Manager reported that Mr Hallas had been
informed that the Chancellor of the Exchequer was of opinion that a modification of the existing requirements as to Income Tax returns
would not be justifiable at the present time and that no useful purpose would be served by receiving a Deputation on the subject.
The
Bank Committee decided that the [General] Manager should approach the Trustee Savings Banks Association on the matter at a favourable
opportunity. However, the [General] Manager reported in August 1920 that the Trustee Savings Banks Association was "unable to take
any action on the question of Income Tax". At the same Committee meeting the following report was presented regarding the position
of Income Tax in relation to both deposits and to the Bank's advances on mortgage:
Income Tax - Arrangement with Board of Inland
Revenue.
Since your Committee's last Meeting, a representative of the Board of Inland Revenue has visited Birmingham and had
an interview with the Chairman (Mr Councillor Appleby) and the Assistant Manager (in the absence of the Manager). As a result of such
interview, a scheme has now been put forward by the Board of Inland Revenue set out in a letter dated 19th August 1920, dealing with
the liability to Income Tax, particulars of which are as follows:
(a) The Bank to furnish a list giving the names and addresses
of borrowers, the properties on which the mortgages are secured, and amounts of interest payable during the current financial year.
(b) (1) Where the purchaser is exempt no charge is to be raised on the property in respect of the interest payable.
(2) Where the purchaser is not exempt, tax on the amount of interest certified under (a) to be allowed by schedule of discharge
from the Schedule A Assessment.
(c) The statutory list also to be rendered annually on or before the 1st May by the Bank
of names and addresses of depositors who receive interest exceeding £5 and amounts of interest received by them.
(d) If the untaxed interest received by the Bank exceeds the interest paid to depositors, the excess of the untaxed interest received over the interest paid to be directly assessed upon the Bank, under Schedule 'B' subject, however, to any claim which they may be entitled to prefer in respect of Management Expenses under Section 33 of the Income Tax Act of 1918.
(e)
If the untaxed interest received is less than the interest paid to depositors the Bank to reclaim both on the excess of such interest
paid over the untaxed interest received, provided the Bank has sufficient taxed income under Schedules C and D to cover, and in respect
of any claim for Management Expenses to which it may be entitled as in (d).
It was agreed that the Scheme be agreed to, as it
was felt that no better position could be secured for the Bank as the law stood.
On November 22nd 1920, the [General] Manager
reported that a return, as required by the Finance Act, showing all persons who had received interest during the year amounting to
£5 or over had been furnished to the Income Tax Authorities. The return listed 281 accounts and the total amount of interest was £1,867
- the average, therefore, was £6/12/-d. At March 31st 1920, the Bank's total interest charge was £9,378, and the average deposit balance
was £19, on just over 40,000 accounts.
Wishing to pursue their discontent with the existing system, the Chairman and the [General] Manager communicated (early in 1921) with the Inland Revenue Authorities with a view to a more satisfactory arrangement being arrived at, based on a change of law to make interest on savings accounts free of income tax. It was proposed that the Bank should pay a compounded tax in respect of depositors who were credited with £5 interest or over during the year; and that endeavours to be made to have such tax fixed at ¼ rate, which at that time would have been 1/6d in the £. If this course were to be adopted the estimated cost to the Bank on the basis of the interest payable for the current year would have been about £600 per annum.
On December 19th 1921, the Finance and General Purposes Sub-Committee presented the following report to the Bank Committee:
Income Tax.
The Chairman
of your Committee (Mr Councillor Appleby) and the Manager have had a further interview with the Principal Inspector of Taxes regarding
the proposals as to income tax chargeable to depositors receiving over £5 in interest in the year. These proposals, it will be remembered,
provided for the Bank paying such tax on the basis of one quarter of the standard rate.
The Principal Inspector stated that as
a result of information collected by the Inland Revenue Authorities the proposed basis was one he could not recommend the Board to
agree to, as it appeared the Authorities were able to get, under the existing practice tax equal to one half the standard rate. After
discussing the matter fully the Chairman and Manager suggested as an alternative that the tax should be 3/8th the standard rate and
that all cases over £15 should be declared in the usual way. The Inspector asked that this proposal should be put to him in writing
and he would give same his careful consideration before sending in his report to the Board. The Manager has heard from the Inspector
that the new Clause forwarded to him agrees with his understanding of the interview and that he has sent in his Report to the Board
of Inland Revenue with whom the decision now stands.
The Bank continued to pursue the matter throughout 1922 after the Board of Inland Revenue stated that they were unable to sanction the proposals put forward by the Bank Committee in the previous year. Consequently, an interview with a representative of the Inland Revenue Authorities in London was held but the Chairman and [General] Manager were informed that the authorities could not see their way to modify their present requirements in the matter. This refusal was countered by sending a deputation (consisting of the Chairman, the Town Clerk, and the [General] Manager) to an interview with Sir Richard Hopkins and a Mr Bryant of the Board of Inland Revenue. In view of certain suggestions which were made at this conference, the [General] Manager was subsequently in communication with the local Surveyor of taxes with a view to securing some modification of the existing requirements of the Board. However, on April 24th 1922 the Committee were informed that no further progress could be reported in the negotiations with the Inland Revenue authorities, and that Parliamentary action may be required to secure the end the Committee had in view.