Jane
Kennedy: I beg to move amendment No. 316, in schedule 7,
page 168, line 10, leave out from ‘is’ to end of line and
insert ‘such of the
individual’s specific employment income for that year as
is’.
The
Chairman: With this it will be convenient to discuss
Government amendments Nos. 317 to 328, 331, 329, 330, 332 to 334, 271
to 274, and 335 to
338.
Jane
Kennedy: I believe the amendments will be widely welcomed.
I will wait to hear if there are any specific questions arising from
any elements of them. Again, they have arisen following our
consultations, particularly in relation to employers and employee share
schemes, share incentive plans and save-as-you-earn
schemes.
Mr.
Hoban: I, too, understand that the amendments will be
widely welcomed by those involved in the area. It would appear that the
Government, in a spirit of generosity, thought that as they were
intending to tax non-ordinarily resident employees more, they should
also give them the benefit of exemptions. An act of kindness and
gratitude has apparently led to all sorts of potential compliance
problems for employee share schemes, which the Government have tried to
address in the amendments, although the response I had from one of the
interested groups was:
“The
Revenue listened to companies and advisers and so what has come about
is a return to the status quo ante...it is not simply enough to
rip up the original
amendments.” That
is a wise comment on the difficulty of changing these things. However,
the Government amendments have not addressed the concerns brought to
light only relatively recently by the Quoted Companies Alliance, one of
many organisations—as I found out during a debate on capital
gains tax—with a particular interest in employee share
schemes. 3
pm I
want to raise two points with the Minister to flag up the
alliance’s concerns. The first problem that it identified is
that the principle should be that a relevant person should not be taxed
until a remittance is offered, in so far as share scheme income is
concerned. HMRC is saying that if a person, who could otherwise claim
the remittance basis for share scheme gains, receives income in UK
shares, that income will be remitted to the UK
automatically, and so be taxable in full. The alliance believes that
that is wrong on two counts. First, the
legislation can be interpreted that way in any event, as it requires
the shares to be used or enjoyed in the UK and, in many cases, the
shares will be transferred to the employee outside the UK only because
most companies use employee trusts, which are based outside the UK for
a variety of reasons—not just tax. Secondly, there is a policy
issue. The stance is potentially extremely disadvantageous to UK-listed
companies, whether they are operating in London or elsewhere. It means
that if they are employing non-doms or non-ordinarily resident
employees, all of their share scheme gains will be taxed in full,
whereas, if their employee were working for, say, a US or German-listed
banking group, the non-UK employment gain would not be taxed unless it
is remitted to the UK, which is the broad policy intention.
It
instinctively makes the UK-listed banking group a less attractive
employer for such a person, as that group can pay out bonuses and share
awards only in fully taxable form. Companies are being encouraged to
pay out more bonuses as shares, to align the interests of the employees
with those of the company as a whole. It cannot be right to
discriminate against UK companies in that way, given that they need to
attract talent to work in London. It goes back to the point about
competitiveness. The way that the changes are drafted appear to put
non-doms working for a UK banking group at a disadvantage compared with
those working for a foreign banking group.
The second
problem identified by the alliance is that HMRC is saying that there
will automatically be a charge up front when employment income is
received by non-dom employees, even if that income is not remitted.
That goes against the principle that there should be such taxation of
foreign income only as and when it is remitted. It could also lead to
large amounts of NICs being payable, even though the non-dom or the
non-ordinarily resident employee has only a very small amount of UK tax
to pay. That could create an extra expense for companies, which has not
existed previously, and it may lead to NICs being paid for an employee
with little or no UK connection, and so with no benefit to that
employee. The representation that I have received suggests that the
alliance’s earlier understanding was that additional automatic
up-front NIC payments did not apply, but since it has discussed the
matter with HMRC it appears that those payments could
arise. Will
the Minister take up those points? I have chosen to raise them on this
grouping, rather then in a clause stand part debate, since we are
dealing with the issue of employee share
schemes.
Jane
Kennedy: The hon. Member for Fareham asked whether
it is fair to treat an automatic remittance for UK assets in this way.
The remittance basis specifically treats cases differently depending on
whether the employee is resident, ordinarily resident or domiciled in
the UK, whether the employer is UK-based and whether the assets in
question are used in the UK. Those distinctions exist in all contexts,
not just in the context of employment-related securities. If the share
is in the UK, taxing it as a remittance is in accordance with the
overriding principle that income and assets enjoyed in the UK should be
taxed as remittances. I do not see a case for making a special
distinction for UK employment-related securities,
although I would like to read the hon. Gentleman’s comments and
the representations he has received in detail when they are published
in
Hansard. There
are a number of instances where national insurance contributions and
PAYE treatment differ so that a mismatch already exists. Although there
is a broad policy to align national insurance contributions and PAYE
whenever possible, there are necessary limits and alignment is not
always practical or desirable. For example, where an employee meets the
employer’s secondary NICs liability on payments by way of
securities, the amount liable for class 1 NICs differs from the amount
accountable for PAYE.
Government
amendments Nos. 271 to 274 respond directly to representations from
employers by ensuring that they are not obliged to offer the schemes to
employees who are resident but not ordinarily resident. I anticipate
that they will be welcome. Government amendments Nos. 316 to 338 ensure
that the provisions of the schedule work as intended with relation to
employment-related securities, including for awards of shares and share
options.
Mr.
Hands: This is a simple question relating to the
regulations on share options or securities options. The phraseology of
Government amendment No. 323 seems a little odd. It
states: “The
assignment or release of the relevant securities
option,” Does
that include the exercise of the
option?
Jane
Kennedy: Yes. I appreciate the points that have been
raised in this short debate. I will look at the points raised by the
hon. Member for Fareham when I have time to read them in
Hansard, and give them detailed consideration to see whether
there is any further merit in
them. Amendment
agreed to.
Amendments
made: No. 317, in page 168, leave out lines 13 to
16. No.
357, in page 168, line 21, at end
insert— ‘(8)
“The Commissioners” means the Commissioners for Her
Majesty’s Revenue and
Customs.”’. No.
318, in page 170, line 31, leave out sub-paragraph
(3). No.
319, in page 171, line 40, at end
insert— ‘(2A) The reference
in subsection (2) to an amount that counts as employment income under
any of the provisions mentioned there does not include an amount which
counts as employment income by virtue of any provision of Chapter 3A or
3B of Part
7.’. No.
320, in page 172, line 8, leave out ‘section 41C’ and
insert ‘sections 41C to
41E’. No.
321, in page 172, line 13, leave out ‘earnings are’ and
insert ‘foreign securities income is’.
No. 322, in
page 172, line 16, leave out from beginning to ‘treat’ in
line
25. No.
323, in page 172, line 26, at end
insert— ‘(7A) But
where— (a) the
chargeable event is the disposal of the relevant securities or the
assignment or release of the relevant securities option,
and
(b) the individual receives consideration for the
disposal, assignment or release of an amount equal to or exceeding the
market value of the relevant securities or securities
option, for the purposes of
those sections treat the consideration (and not the relevant securities
or securities option) as deriving from the foreign securities
income.’. No.
324, in page 173, line 2, leave out ‘an
employment-related’ and insert
‘a’. No.
325, in page 173, line 6, leave out from ‘with’ to end of
line. No.
326, in page 173, line 8, leave out from ‘otherwise,’ to
end of line 10 and insert ‘the relevant period
is— (i) the tax year in which the
notional loan (within the meaning of Chapter 3C) is treated as made,
or (ii) if the chargeable event
occurs in that year, the period beginning at the beginning of that year
and ending with the day of that
event.’. No.
327, in page 173, line 16, leave out ‘such period as is just and
reasonable’ and insert ‘the
tax year in which the chargeable event
occurs’. No.
328, in page 173, leave out line 25 and insert
‘For the purposes of this section an option
“vests”’. No.
331, in page 174, line 21, at end
insert— ‘(8) This section is
subject to section 41E (foreign securities income: just and reasonable
apportionment).’. No.
329, in page 174, line 33, leave out ‘earnings’ and
insert ‘employment
income’. No.
330, in page 174, line 35, leave out ‘those earnings that
are’ and insert ‘that income that
is’. No.
332, in page 174, line 44, at end
insert— ‘41E Foreign
securities income: just and reasonable
apportionment (1) This section
applies if the proportion of the securities income that would otherwise
be regarded as “foreign” is not, having regard to all the
circumstances, one that is just and
reasonable. (2) The amount of
the securities income that is “foreign” is such amount as
is just and reasonable (rather than the amount calculated in accordance
with section
41C).’. No.
333, in page 176, line 19, at end
insert— ‘31A In section 446N
(securities subject to restriction during relevant period), after
subsection (6)
insert— “(7) If
any of the employment income arising under section 426 by virtue of the
chargeable event is foreign securities income within the meaning of
section 41C, reduce the taxable amount mentioned in subsection (5) by
the amount of the foreign securities
income. (8) If any of the
employment income that would have arisen (if the non-commercial
interests mentioned in subsection (6) had been disregarded) under
section 426 by virtue of the chargeable event would have been foreign
securities income (within that meaning), reduce the taxable amount
mentioned in subsection (6) by the amount of the foreign securities
income.”’. No.
334, in page 176, line 31, at end
insert— ‘34A In section 698
(PAYE: special charges on employment-related securities), after
subsection (7) insert—
“(8) This section is subject to section 700A
(employment-related securities etc: remittance
basis).” 34B In section
700 (PAYE: gains from securities options), after subsection (6)
insert— “(7) This
section is subject to section 700A (employment-related securities etc:
remittance basis).”
34C After that section
insert— “700A
Employment-related securities etc: remittance
basis (1) This section applies
if— (a) section 698 or
700 applies, and (b) part or
all of the amount that counts as employment income is foreign
securities income or is likely to be foreign securities
income. (2) The amount of the
payment treated under section 696 as made is limited
to— (a) the amount that,
on the basis of the best estimate that can reasonably be made, is
likely to count as employment income,
minus (b) the amount that, on
the basis of such an estimate, is likely to be foreign securities
income. (3) References in this
section to “foreign securities income” are to income that
is foreign securities income for the purposes of section
41A.”’. No.
271, in page 176, line 40, leave out ‘8(2)’ and insert
‘8’. No.
272, in page 176, line 41, leave out from ‘plan),’ to end
of line 42 and insert ‘for sub-paragraph (2)
substitute— “(2) An employee
is a UK resident taxpayer
if— (a) the
employee’s earnings from the employment by reference to which
the employee meets the employment requirement are (or would be if there
were any) general earnings to which section 15 applies (earnings for
year when employee UK resident),
and (b) those general earnings
are (or would be if there were any) earnings for a tax year in which
the employee is ordinarily resident in the United
Kingdom.”’. No.
273, in page 176, line 43, leave out ‘6(2)(c)’ and insert
‘6(2)’. No.
274, in page 176, line 44, leave out from ‘scheme),’ to
end of line 45 and insert ‘for paragraph (c)
substitute— “(c) E’s
earnings from the office or employment within paragraph (a) are (or
would be if there were any) general earnings to which section 15
applies (earnings for year when employee UK
resident), (ca) those general
earnings are (or would be if there were any) earnings for a tax year in
which E is ordinarily resident in the United Kingdom,
and”.’.—[Jane
Kennedy.]
Mr.
Hoban: I beg to move amendment No. 381, in page 178, line
2, at end insert ‘where the source
ceased after 5 April
2007’.
The
Chairman: With this it will be convenient to discuss
amendment No. 382, in page 178, leave out lines 40 to 45 and
insert— ‘(1) Deductions are
allowed from the income mentioned in section 832(2)
where— (a) the income is
from a trade, profession or vocation carried on outside the United
Kingdom; and (b) the income is
overseas property income. (2)
In the case of section 832B(1)(a) the same deductions are allowed as
are allowed under the Income Taxes Acts where the trade, profession or
vocation is carried out in the United
Kingdom. (3) In the case of
section 832B(1)(b) the same deductions are allowed as are allowed under
the Income Taxes Acts where the property business is carried on
overseas and taxed on the arising
basis.”’.
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