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 individuals 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 organisationsas I found out during a debate on capital gains taxwith a particular interest in employee share schemes.
I want to raise two points with the Minister to flag up the alliances 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
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 reasonsnot 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 alliances 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,
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 employers 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 Majestys 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 employees 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) Es 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.]
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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