Finance Bill

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Dawn Primarolo: It seems that, whatever I say this afternoon, I cannot win. If I tell the Opposition honestly why their amendment does not work, they say that I am pulling rank with the parliamentary counsel; and if I tell them that it breaks the anti- avoidance rules, they say that I am hiding behind the anti-avoidance issue. If I am absolutely honest and gentle with them and tell them that their proposal would allow double taxation, which in my humble opinion would be unwise, they complain about that as

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well. How am I to answer their amendments if they do not allow me to describe the position?

Mr. O'Brien: I hope that the Paymaster General is not misinterpreting me. I am saying that, given those answers, the official Opposition do not intend to press to a vote an amendment that she has just explained would have the unintended consequence of giving rise to double taxation. Hence, we are listening to her very carefully.

I take the Paymaster General at her wordóI would not want that to be misunderstoodóbut the specific issues raised, and therefore addressed by amendments, are answered not simply on those grounds but on the ground of the clarification sought in relation to the schedule? Ultimately, the practitioners, if they can understand it, will be the Government's best friends in relation to compliance in seeking to address the anti-avoidance mischiefs in the clauses.

I was anxious to put two matters on the record, having had this discussion. Although I had thought that we might press the amendment to a vote, I do not intend to do that, because I have taken seriously the Paymaster General's comments about possible double taxation in certain circumstances. She gave an example, which we have had clarified, and also made the important statement that in trying to scrutinise the Bill and the interaction between schedules 22 and 23 we are being inconsistent. She said that that interaction between the two schedules is causing misconceptions on our part. It is only right to say that we are not alone. People in practice and knowledgeable professionals in this area have made representations about the interplay and interpretative skills necessary to understand how schedules 22 and 23 are likely to operate, and they have said that it is one of the most difficult matters to interpret in the Bill.

I shall not press the matter to a vote, but I hope that this discussion has made it clear that this is a genuine attempt to gain clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4 pm

The Chairman: I assure the Committee that when I was trying to get my head round the schedule this morning, it took me a quite a long time.

Mr. O'Brien: I beg to move amendment No. 238, in

    schedule 23, page 334, line 41, after 'shares', insert

    'that is not a warrant'.

The Chairman: With this it will be convenient to discuss the following:

Amendment No. 239, in

    schedule 23, page 334, line 41, after 'shares', insert 'including a warrant'.

Amendment No. 240, in

    schedule 23, page 334, line 44, leave out from 'includes' to end of line 1 on page 335 and insert

    'has the same meaning as ''securities'' in section 420 of the Income Tax (Earnings and Pensions) Act 2003.'.

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Mr. O'Brien: Amendments Nos. 238 and 239 are deliberately contradictory in that if one is right, the other cannot be right. We are testing the Government and hope that one of the amendments will be adopted.

This group of amendments was designed to probe and to establish the scope of schedule 23, and to test a possible uncertainty. As the Paymaster General is aware, the Law Society identified in schedule 22 a possible anomaly in that warrants come within the new definition of securities but options do not. Under the previous law, both would have been taxed as options.

We tabled a Law Society technical amendment to schedule 22, and it is worth making a equivalent point on schedule 23. If an employee holds warrants rather than pure options, is the employer within the relief? I direct the Committee's attention to the discussion on 22 May at column 249, which was ably led by my hon. Friend the Member for Arundel and South Downs, when we considered amendments Nos. 107 and 108. The Paymaster General's response at column 255 was for consistency of application.

It would be more sensible to align the definition of shares to match securities in schedule 22. If something is considered a taxable employment benefit, it is only fair and reasonable that it should be deductible as an expense for the employer. Amendment No. 240 addresses that point separately from the deliberately contradictory amendments Nos. 238 and 239.

Dawn Primarolo: I gently point out to the hon. Gentleman before he takes offence that if the amendments or any combination of them were accepted, they would be very expensive and cost around £500 million. I am just putting that on the record very gently, but not to provoke him.

I accept the hon. Gentleman's points that some of the amendments involve either/or suggestions, but they would produce similar results. If he presses them to a vote, I shall ask my hon. Friends to resist them.

Amendments Nos. 238 and 239, which may be alternatives, seek to change the meaning of ''option'' for schedule 23 purposes. Amendment No. 238 would exclude warrants from the definition of ''option'' and amendment No. 239 would specifically include them. The definition of ''option'' in schedule 23 is widely worded to ensure that any right acquired by an employee that later gives rise to the acquisition of qualifying shares will allow the employing company to qualify for relief. Amendments Nos. 238 and 239 would, respectively, exclude or include warrants from the definition and would serve no purpose except to add complexity and confusion.

Amendment No. 240 would change the definition of shares to include any securities defined for the purposes of the new rules introduced in schedule 22. As I have said many times, schedule 23 provides relief for companies in respect of shares acquired by employees that give them a real stake in the company for which they work. Other securities, while admittedly awarded to employees as part of their remuneration package, do not fall into that category. To include such securities within the rules of schedule 23 would undermine the policy objective.

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It should also be remembered that assets other than shares can be purchased and held by the employing company prior to being awarded to employees, and the cost of acquiring those assets might be allowable for tax purposes in accordance with ordinary accounting and tax principles. That change might also require additional rules to ensure that companies could not obtain a double deduction, hence the cost. Those additional rules do not exist, so the double deduction would stand. I urge my hon. Friends to resist the amendments.

Mr. O'Brien: Not dissimilarly to the Paymaster General's response to my hon. Friend on 22 May, she sought to clarify the position concerning warrants, which is not as simple as some representations to us suggested. In the light of her explanation, I am happy to withdraw the amendment. As our discussion is on the record, guidance may be forthcoming. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. O'Brien: I beg to move amendment No. 241, in

    schedule 23, page 335, line 29, at end insert

    'The award of shares or grant of an option prior to that date shall not prevent relief being given under this Schedule in respect of those shares or that option.'.

This may be the tail-end Charlie amendment and it should be the shortest. It is unquestionably a probing amendment to obtain a ministerial statement with belt-and-braces clarification that awards made prior to commencement are not outside the new rules. The matter has been raised by a number of people who made representations to us, and the point is obviously worth making given the apparent confusion over commencement dates and so on elsewhere in the Bill. I look forward to hearing the statement that the Minister has already prepared, and I shall not press the amendment to a vote.

The Chairman: I did not hear that last comment.

Dawn Primarolo: The cost of the amendment would be between nil and £1 billion. The hon. Gentleman said that it is a probing amendment, and understanding his sensitivities on such matters, I have said that the amount could be nil or £1 billion. The amendment seeks to add an additional phrase to the commencement rules to provide that relief would be available in respect of shares awarded or options granted before the start date in January 2003. It appears to be an attempt to add further certainty to the new rules, but in reality it would serve only to increase unnecessarily the length of the legislation. Also, and rather unfortunately, as I am sure that the hon. Gentleman will agree, the amendment's wording could mean that in the first year of the new relief a company would receive a corporation tax deduction in respect of every share that it has ever awarded to its employees. Hence the cost. That cannot be the result that the hon. Gentleman or the Committee would wish to endorse.

I assume that the hon. Gentleman is seeking clarification that the new reliefs apply to shares awarded or options granted before the 1 January 2003 start date. I can assure him that if shares are acquired after that date pursuant to an option granted

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before that date, or if the employee becomes chargeable for tax as a result of having acquired shares before that date, the relief will be available to the employing company. The transitional rules will apply to ensure that the same amount is not relieved more than once. I think that that directly answers the question that the hon. Gentleman asked, so I shall conclude my remarks on the amendment and hope that that has dealt with the point that he was trying to tease out.

 
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