By J. Brock (FINN)
A public meeting was held in the court and Assembly Chamber of the town hall at 1700hrs on Monday, 18 august 2014. Present were The Hon Mr roger Edwards, MLA, the Hon Mr Mike Summers, MLA, the Hon Mrs Jan Cheek, MLA, the Hon Mrs Phyl Rendell, MLA, the Hon Mr Michael Poole, MLA, and the Hon Gavin Short, MLA. Dr the Hon Barry Elsby and the Hon Mr Ian Hansen did not attend.
The first question came from the Chamber of Commerce.
Question No. 1: Sole traders and partnerships are not allowed to claim any capital items from their profits and therefore are taxed on an arbitrary figure, given that neither depreciation nor capital allowances can be claimed, but in most businesses it is necessary to have some form of capital expenditure in order to make the same taxable profit.
Answer to Question No 1: It is assumed that this question is intended to purely relate to MST and to ask why depreciation allowances are not an allowable expense in calculating MST for the self-employed within current legislation. This matter was reviewed in 2010 and a policy decision was made at that time to not allow depreciation as a deductible allowance when calculating relevant profits for the self-employed.
Depreciation allowances are not a deductible expense for the purposes of calculating MST under current legislation, to clarify:-
1. Under section 16 of the MST Ordinance, the provisions of the Taxes Ordinance to apply for the purpose of calculating relevant profits, chapter 2 Depreciation Allowances of the Taxes Ordinance is not one of the provisions included in section 16 of the MST Ordinance
2. ln particular section 116 of the Taxes Ordinance refers to capital expenditure and section 97 (3Xc) of the Taxes Ordinance does not allow expenses of a ‘capital nature' which would include capital expenditure.
3. For income and corporation tax: - Whilst the full cost of capital items cannot be 100% deducted from profits in the year the expense is incurred, businesses can claim depreciations allowances over a number of years on most types of capital expenditure under Section 105 - 124 of the Taxes Ordinance.
RE: We will be putting these into Penguin News and the other media for you to read in full.
JC: I will give Stacy my copy so he doesn’t have to write it all down.
MS: Roger, can I just say, I am not sure that is a full answer. I think the question they were asking was whether it is reasonable for there to be capital allowances in calculating the profit for self-employed business. I am not convinced that it is reasonable. I don’t know what the discussion was but I think it is an issue that we might have another discussion about. If you are in a business and if you are self-employed then you do have capital expenses you are not allowed to put that against your profit and yet MST and corporation tax is assessed against the whole of your profit so I think the issue out to be reviewed.
RE: I might point out that the whole subject of MST during the Budget Select Committee was one that was very hotly debated. And it came down to a split decision between Members. Because it was a split decision it carried through but it was 4 and 4. So it really was a split decision and I think the whole question of MST will be going back again and will be discussed indeed up to the next budget round.