Employee Share Schemes Bill

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Mr. Lazarowicz: As the hon. Gentleman will appreciate, we need to strike a balance between the wish to see an eventual distribution of shares and the wish to encourage the development of employee share schemes in the way proposed in the Bill. It is fair to say that the interests lead in different directions. For distributions, a short time limit would be appropriate. For the ease of the business involved, a longer time limit would be appropriate. The issue is where to place the cut-off point. The specific provision in sub-paragraph (3) of the amendment makes it clear that a fairer deduction is allowed after the end of the period, if the shares are later distributed. That takes account of the example of the company that might have understandable technical or business difficulties of the type that the hon. Gentleman suggests. That provision is probably the best compromise that can be achieved between the different objectives that are being pursued.

The Paymaster General (Dawn Primarolo): I wish to inform the Committee of some further consideration that the Government have given to these provisions and to indicate some further beneficial changes—normally we would call them concessions, but that sounds more combative and the Government support the Bill and the amendments. The hon. Gentleman asked about the 10 and five-year periods. As my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) explained, setting up a SIP can take some time. Discussions about share ownership centre on what is an appropriate vehicle, which is why we said that 30 per cent. had to be distributed within five years. The Government are trying to recognise, as companies have asked us to do so, how long it takes to set up a SIP and make it work sensibly. Other vehicles give a much shorter period.

Two more changes to the rules exempting SIP trustees from a special tax charge trusts pay on dividend income would also help. The present rules exempt the trustees from the charge, provided that they distribute the shares that they hold within two years of acquisition—I may be edging towards the point made by the hon. Gentleman—if the shares can be readily converted into cash, or five years if that is not the case. I propose to extend that period to 10 years for shares acquired with the new corporation tax relief contained in the Bill.

The second change is to the rules that exempt the trustees from capital gains tax on any gain on plan shares. At present, the rules allow the exemption only if the trustees distribute shares that are readily convertible into cash within two years of acquisition and shares that are not readily convertible, within five. I propose to bring that completely different set of rules in line with the proposals for up-front payment of corporation tax in the Bill, so that there is no contradiction as regards the different elements of the tax system and supporting my hon. Friend's objectives.

We could not produce an amendment to the Bill in time for this Committee. My hon. Friend and his advisers will want to consider my proposal, although I

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should not imagine that he will want to look a gift horse in the mouth. I hope that suitable amendments can be agreed when the Bill returns to the House on Report. However, it is correct to inform the Committee today that the Government, in the spirit of the commitments made on Second Reading, are seeking to progress that matter.

Mr. Lazarowicz: I welcome the further changes that my hon. Friend has outlined. They may deal with the concerns of the hon. Member for Cities of London and Westminster more directly than measures to extend the 10-year period, which I think was what he was getting at.

Amendment agreed to.

Amendment made: No. 8, in page 3, line 9, leave out subsection (7).—[Mr. Lazarowicz.]

Clause 1, as amended, ordered to stand part of the Bill.

New clause 1

Deductions: supplementary

    '(1) Schedule 8 to the Finance Act 2000 is also amended as specified in this section.

    (2) In paragraph 108 (cases in which no deduction allowed), at the end there is inserted—

    ''(6) No deduction is allowed in respect of the award of shares acquired by the trustees by virtue of a payment in respect of which a deduction has been made under paragraph 112A or 112B(3).''

    (3) In paragraph 113 (withdrawal of deductions on withdrawal of approval), for the words from ''any'' to ''partnership shares)'' there is substituted—

    ''(a) any deductions under paragraph 106,

    (b) any deductions under paragraph 107,

    (c) any deductions under paragraph 112A (in so far as not already withdrawn under paragraph 112B), or

    (d) any deductions under paragraph 112B(3),''.

    (4) In paragraph 121 (termination of plan), at the end there is inserted—

    ''(10) In a case where—

    (a) by virtue of a payment made to the trustees by the company, the trustees acquire shares in the company, or a company which controls it,

    (b) a deduction has been made in respect of that payment under paragraph 112A (and has not been withdrawn under paragraph 112B), and

    (c) not all the shares acquired by virtue of the payment have been awarded under the plan before issue of the plan termination notice,

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    an amount equal to the appropriate proportion of the deduction is treated as a trading receipt of the company for the period of account in which the plan termination notice is given.

    (11) For the purposes of sub-paragraph (10), the appropriate proportion of the deduction is the proportion which the number of shares acquired by virtue of the payment and not awarded as specified in sub-paragraph (10)(c) bears to the total number of shares so acquired.''.'.—Mr. Lazarowicz.]

Brought up, and read the First time.

Mr. Lazarowicz: I beg to move, That the clause be read a Second time.

This new clause proposes changes to the underlying legislation, the Finance Act 2000, which are consequential on the other changes that will result from the Bill, as amended. The changes are not substantive, but would ensure that corporation tax relief would be given only once in respect of the payment to trustees and would not, for example, be granted again when shares were distributed to employees under the share incentive plan.

In addition, the new clause would allow for up-front corporation tax relief to be withdrawn in the event that Inland Revenue approval of a company's SIP were withdrawn. Also, if the SIP were terminated, it would allow a part of the relief to be withdrawn, proportionate to the as yet undistributed number of the shares acquired by the trustees under the provisions of this clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 2


    'This Act shall come into force on 6th April 2003.'.—[Mr. Lazarowicz.]

Brought up, and read the First time.

10.45 am

Mr. Lazarowicz: I beg to move, That the clause be read a Second time.

The clause simply provides a commencement date of 6 April 2003.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Bill, as amended, to be reported.

Committee rose at fourteen minutes to Eleven o'clock.

The following Members attended the Committee:
Illsley, Mr. Eric (Chairman)
Bailey, Mr.
Barrett, John
Duncan, Mr. Peter
Field, Mr. Mark
Gilroy, Linda
Harris, Mr. Tom
Lazarowicz, Mr.
Luke, Mr.
McKenna, Rosemary
Munn, Ms
Naysmith, Dr.
Pond, Mr.
Primarolo, Dawn

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