Standing Committee H
Thursday 29 June 2000
[Mr. Frank Cook in the Chair]
(Except clauses 1, 12, 30, 31, 59, 102 and 113)
New clause 4
Further provisions about share options
`.—(1) In Chapter IV of Part V of the Taxes Act 1988 (provisions relating to the Schedule E charge: other exemptions and reliefs), after section 187 insert—
``Contributions in respect of share option gains
in respect of
187A.—(1) Where a person (``the earner'') is chargeable to tax under section 135 on a gain, relief is available under this section if—
(a) an agreement has been entered into allowing the secondary contributor to recover from the earner the whole or part of any secondary Class 1 contributions in respect of the gain, or
(b) an election is in force which has the effect of transferring to the earner the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain.
(2) The amount of the relief is the total of—
(a) any amount that, in pursuance of any such agreement as is mentioned in subsection (1)(a), is recovered in respect of the gain by the secondary contributor not later than 60 days after the end of the year of assessment in which occurred the event giving rise to the charge to tax under section 135; and
(b) the amount of any liability in respect of that gain that, by virtue of any such election as is mentioned in subsection (1)(b), has become the earner's liability.
(3) Where notice of withdrawal of approval of any such election is given, relief under subsection (2)(b) is limited to so much of the earner's liability in respect of the gain as is met before the end of the 60th day after the end of the year of assessment in which occurred the event giving rise to the charge under section 135.
(4) Relief under this section shall be given by way of deduction from the amount of the gain on which the earner is chargeable to tax under section 135.
(5) Any such deduction does not affect the amount of the gain for the purposes of—
(a) section 120(4) of the Taxation of Chargeable Gains Act 1992 (amount treated as consideration for acquisition of shares), or
(b) section 4(4)(a) of the Contributions and Benefits Act (amount treated as remuneration for contributions purposes).
(6) The agreements and elections referred to in this section are those having effect under paragraph 3A or 3B of Schedule 1 to the Contributions and Benefits Act.
References to approval in relation to an election are to approval by the Inland Revenue under paragraph 3B of that Schedule.
(7) In this section—
`the Contributions and Benefits Act' means the Social Security Contributions and Benefits Act 1992 or the Social Security Contributions and Benefits (Northern Ireland) Act 1992; and
`secondary Class 1 contributions' and `secondary contributor' have the same meaning as in that Act.''.
Section 187A inserted by this subsection applies to any agreement or election having effect as mentioned in subsection (6) of that section, whether made before or after the passing of this Act.
(2) Section 203FB of the Taxes Act 1988 (PAYE: gains from share options) is amended as follows—
(a) in subsections (2) and (3), for ``subsection (7)'' substitute ``subsection (6A)'';
(b) after subsection (6) insert—
``(6A) Where section 203F has effect in accordance with subsection (2) or (3) above, subsection (3) of section 203F shall apply as if the reference in that subsection to the amount of income likely to be chargeable to tax under Schedule E in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable by virtue of section 135 in respect of the event in question, reduced by the amount of any relief likely to be available under section 187A.'';
(c) in subsection (7) for ``any of the preceding provisions of this section'' substitute ``subsection (4) or (5) above'' and for ``section 135, 140A or 140D'' substitute ``section 140A or 140D''.
These amendments apply where the event giving rise to the charge to tax occurs after the passing of this Act.
(3) In section 136(6) of the Taxes Act 1988 and section 85(1) of the Finance Act 1988 (duty to deliver particulars relating to share options, etc. within 30 days after end of year of assessment), for ``30 days'' substitute ``92 days''.
These amendments apply where the event giving rise to the duty to deliver particulars occurs on or after 6th April 2000.
(4) After section 136(6) of the Taxes Act 1988 add—
``(7) A body corporate is not obliged to deliver particulars under subsection (6) above which it has already given in a notice under paragraph 2 of Schedule 14 to the Finance Act 2000 (enterprise management incentives: notice required for option to be qualifying option).
In other respects the obligations imposed by that subsection and that paragraph are independent of each other.
(8) The duty of a body corporate under subsection (6) above to deliver particulars of any matter includes a duty to deliver particulars of any secondary Class 1 contributions payable in connection with that matter that—
(a) are recovered as mentioned in section 187A(2)(a), or
(b) are met as mentioned in section 187A(3).
In this subsection `secondary Class 1 contributions' has the same meaning as in section 187A.''.
Section 136(8) inserted by this subsection applies to any amounts recovered or met as mentioned in section 187A(2)(a) or (3) of the Taxes Act 1988, whether before or after the passing of this Act.'.
Brought up, and read the First time.
Question proposed [this day], That the clause be read a Second time.
Question again proposed.
The Financial Secretary to the Treasury (Mr. Stephen Timms): I welcome you back as the Chairman of our proceedings, Mr. Cook. I am also pleased that Dr. Clark is present. I am sure that the whole Committee will be delighted with the multiplicity of chairing talent looking after us for what could well be our final sitting.
Before the break, I was concluding my remarks about the comparison between the tax arrangements for unapproved share options, with which the new clause deals, in the United States and the United Kingdom. I was saying that the comparison is favourable to the UK. It depends on the state where the business is located, but by and large one would expect to pay a lower overall rate of tax on unapproved share options in the UK. There is an alternative regime for approved options in the US, as there is in the UK, and—this is probably what the hon. Member for Kingston and Surbiton (Mr. Davey) was saying—the terms of the approved scheme are more generous in the US than in the UK, although the enterprise management incentive introduced by the Bill is more generous.
Finally, I took the opportunity of the break to inquire about the trip to Brussels that was featured in a newspaper report and referred to by the hon. Member for Kingston and Surbiton. I am pleased to confirm that no such trip took place.
Mr. Oliver Letwin (West Dorset): I would not dream of speculating about where anyone may have gone. I thank the Financial Secretary for having enabled the Committee to have a much more interesting debate about the new clause than I would have imagined possible. I was wrong, not only technically but in substance, in what I said on the subject in my introductory remarks, As the debate has brought out, the new clause is much worse than I had imagined. The essence of the matter is, it transpires, that the new clause is based on the quaint but wholly fallacious assumption that employer national insurance contributions are somehow part of the contributory principle connected with labour and that such contributions should therefore be made under all circumstances—whereas, as we all know, employer national insurance contributions, especially in relation to the huge prospective sums that we are talking about, are simply a form of corporation tax. They are constructively transformed by the new clause—for which we are grateful—into a form of income tax. As the Financial Secretary said, as a form of contingent corporation tax they would have devastated British industry and the British economy; they now merely have the somewhat deleterious effect of creating a 47.3 per cent. tax rate on risk labour, compared with, depending on the character of the asset and the length of time it has been held, a tax on risk capital that can be as low as 20 per cent. That is completely irrational—I use the word advisedly. It has been some weeks since I used the word and I could not close my remarks without using it again. The new clause is a sterling example of irrationality and I very much hope that my hon. Friends will join me in voting against it. I hope that we can return to the subject on Report.
Mr. Timms: I have enjoyed the hon. Gentleman's latest elaboration on the theme of irrationality. I am grateful for his acknowledgment that he was mistaken this morning—but he is also mistaken this afternoon. Many firms want the new clause to be included in the Bill and want to take advantage of the change that it will make. The Opposition would be seriously mistaken to resist the offered tax relief.
Mr. Letwin: Let me make it abundantly clear that we shall vote against the new clause, but not because we think that the status quo is tolerable. The status quo is catastrophic. The new clause is merely very bad. It is not the purpose of Her Majesty's Opposition to enact very bad legislation on the grounds that, otherwise, Her Majesty's Government will keep catastrophic legislation. We shall return on Report with a proper amendment to the catastrophic arrangements, possibly in agreement with the Liberal Democrats.
Mr. Howard Flight (Arundel and South Downs): To echo that point, I shall say that it is clearly better to have 47.32 per cent. than 52.5 per cent. However, I assure the Financial Secretary that SISCO and the venture capital industry regard it as extremely unjust to levy an income tax of 7.32 per cent. higher than the standard top rate of income tax on individuals working in the sort of businesses that we all want to encourage. The new clause is an unsatisfactory solution to a problem that the Government have made for themselves.
Question put, That the clause be read a Second time:—
The Committee divided: Ayes 19, Noes 8,
Division No. 40]
Allen, Mr. Graham
Best, Mr. Harold
Casale, Mr. Roger
Cawsey, Mr. Ian
Clapham, Mr. Michael
Coaker, Mr. Vernon
Gardiner, Mr. Barry
Healey, Mr. John
Johnson, Miss Melanie
Kemp, Mr. Fraser
Lawrence, Mrs. Jackie
Palmer, Dr. Nick
Pond, Mr. Chris
Rammell, Mr. Bill
Timms, Mr. Stephen
Tynan, Mr. Bill
Winterton, Ms Rosie
Burnett, Mr. John
Davey, Mr. Edward
Flight, Mr. Howard
Heathcoat-Amory, Mr. David
Letwin, Mr. Oliver
Ottaway, Mr. Richard
St. Aubyn, Mr. Nick
Simpson, Mr. Keith
Question accordingly agreed to.
Clause read a Second time, and added to the Bill.
New clause 1
`(1) After section 83B of the Taxes Act 1988 there shall be inserted—
83C (1) Subsection (2) below applies to where an individual volunteers to assist in the work of a charity and in the course of providing such assistance incurs expenses attributable to the work for which the individual volunteered.
(2) On a claim made in that behalf to an officer of the Board the relevant amount shall be allowed as a deduction in calculating the individual's income for the purposes of income tax for the year of assessment in which the expenses are incurred.
(3) The relevant amount is the amount of the expenses incurred, after deducting any reimbursement for those expenses received by the individual from the charity for whose benefit the expenses were incurred.
(4) In this section a `charity' has the same meaning as in section 506 and includes each of the bodies mentioned in section 507(1).
(2) This section has effect in relation to expenses incurred by an individual on or after 6th April 2000.''.'.—[Mr. Flight.]
Brought up, and read the First time.