Oxford University Press's failed 1944 application for exemption from wartime E.P.T. (Excess Profits Tax)

The claim to a substituted standard under Section 27(3), Finance Act, 1940, has now been examined by reference to the detailed computations submitted.

On the specific points referred to in your report of 6th December, 1944 the following observations are thought appropriate: -

(1) Further comprehensive checking need not be applied to the analyses of capital expenditure restored to capital to arrive at the strict Part II, Seventh Schedule, the value of the assets. The sample check already made demonstrates the accuracy of the figures so far as Departmental records are available, and it is thought unlikely that a further check of the earlier years' expenditure included would result in the discovery of any material discrepancies.

(2) Going Concern Valur

It is agreed that the request for a going concern valuation need not be pressed in this case, and that such a going concern value may be regarded as not less than the amount of the over-riding limitation under Section 27(5).

(3) Bible and Common Prayer

The right to print and publish the Bible and Common Prayer Book is considered to be an asset acquired otherwise than by purchase, and is, therefore, to be valued for the purpose of E.P.T. capital in accordance with Rule 1(1)(c), Part II, Seventh Schedule, Finance (No. 2) Act, 1939, at the value of the asset when it became an asset of the trade or business, i.e. in 1632. It is thought that this value would at that date be a nominal one, and no doubt the accountants and Press will on re-consideration of all the circumstances agree with this opinion. Capitalisation at 1934 on the basis suggested by reference to sales and profits from 1929 to 1939 would represent in effect a writing-up of the asset to a value created by many years of trading, a position closely analogous to the creation of goodwill, and such a basis could not be regarded as a measurement of the value in accordance with the provisions of the Act. The accountants should, therefore, be informed that the information sought will not be required, as it is not considered material to the evaluation of the asset under Rule 1(1)(c).

In general, it is thought that the proposed substituted standard and £87,571 should largely resolve the difficulties of the Press in regard to E.P.T. This standard is the maximum standard available by reference to the over-riding limitation of Section 27(5), without restriction, and recognises that the profits now being earned are mainly attributable to trading on a commercial basis. The main hardship complained of by the Press was that, had their normal operations been possible, the loss incurred on educational books would have reduced such commercial profits. By granting a standard to the Press of the full statutory percentage on average capital employed as if it were an ordinary commercial concern it is thought this hardship is mitigated. It would appear that, in fact, with the standard proposed plus the adjustment for increased capital under Section 13(3), Finance (No. 2) Act, 1939, there will be no E.P.T. liability up to 31st March 1943, whilst a balance of deficiencies will remain to carry forward to subsequent c.a.ps.

An endeavour should, therefore, be made to agree a substituted standard under Section 27(3), equal to the over-riding limitation of Section 27(5), in the amount of £87,571, having regard to the above observations.