Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Government amendments 17 to 19.

That schedule 2 be the Second schedule to the Bill.

Clause 14 introduces schedule 2, which gives effect to the recommendations of the Office of Tax Simplification on the four tax-advantaged employee share schemes that currently exist. Such schemes are popular with businesses and employees alike, but they can sometimes be complex to operate. That is why in 2011 the Government asked the Office of Tax Simplification to review the schemes to identify where they place unnecessary administrative burdens on their users and to suggest ways in which they could be simplified. Following detailed work and consultation with businesses and other scheme users, the OTS published its report and recommendations last year. I pay tribute to the OTS for its work in this important area.

The changes set out in schedule 2 will make the tax advantaged employee share scheme simpler and more attractive to both employers and employees. In some cases, they will increase the tax benefits available to participants. Details of the changes are set out in the explanatory notes, but I will single out a few as examples of the improvements we have made.

The provisions on retirement in part 1 of the schedule will establish uniform rules across the schemes and allow companies more flexibility to set rules that match their own retirement policies. The provisions set out on cash takeovers in part 2 will allow employees to benefit from tax advantages on their shares even if their company is taken over and it is not possible to continue with the scheme. The changes in part 4, which will relax the rules on the shares that may be used in the schemes, will particularly benefit smaller companies, many of which feel that the current rules are too inflexible and do not enable them to operate the schemes properly. All the  changes have been subject to extensive consultation and have been widely welcomed by businesses, advisers and other interested stakeholders.

Government amendment 17 will remove some minor duplication that we identified in the current drafting of the provision in part 4 of schedule 2, which enables the use of restricted shares in tax advantaged employee share schemes. The amendment will put that right and prevent any possible confusion.

Government amendments 18 and 19 respond to concerns that a provision in the Bill as it is currently drafted is too restrictive. Part 6 will remove the current statutory limit on the cash dividends on shares in share incentive plans that can be reinvested into SIP dividend shares each year. However, companies may, if they wish, apply their own limit to the total cash dividends that may be reinvested. We accept the point put to us that the way in which part 6 allows companies to do so is too inflexible and may cause administrative difficulties. The amendments will address those concerns by allowing companies, for example, to cap a total amount to be reinvested at a fixed sum as an alternative to setting the amount as a percentage of the total dividends.

The measures demonstrate the Government’s support for employee share ownership and for simplifying the tax system where possible. As we heard earlier, a number of hon. Members on both sides of the Committee believe that the economy can benefit from tax simplification.

I appreciate the fact that the Minister gave us advance information on the Government amendments; that was helpful. As the Minister said, the measure will give effect to some of the changes recommended by the Office of Tax Simplification to the rules governing the four tax advantaged employee share schemes—the share incentive plan, the save-as-you-earn share option scheme, the company share option plan, and enterprise management incentives—with the aim of simplifying the rules of the employee share scheme where it has been acknowledged that they currently create undue complexity or unnecessary administrative burden. Generally speaking, we welcome the changes.

We welcome attempts to simplify the tax system and the update of recommendations from the OTS following a wider consultation on recommendations last year. The Minister may recall that the briefing provided by the Institute of Chartered Accountants in England and Wales for the debates on Second Reading and in the Committee of the whole House states that the Bill would only add to the incredible complexity of the tax system. The UK tax code is the longest in the world. The Finance Act 2013 would be one of the longest on record, coming hard on the heels of the Finance Act 2012, which itself was the longest ever. Having sat through all its proceedings, I remember it well. The Minister was in a different role at that time and was, therefore, spared sitting through the longest ever Finance Bill and dealing with all those issues.

As I said, we want to see simplification. The ICAEW again highlighted the issue of being

“caught in a culture of constant change” with

“tweaking, new initiatives, rate changes and compliance requirements”.

It wanted to see something less burdensome and damaging to the Government’s reputation with SMEs.

I appreciate that the concerns raised do not relate specifically to the clause, but many in the business community will be concerned about the extra burden that the changes might place on them. It is important to have a clear assurance from the Minister that the business community—particularly small businesses—will not have further undue burdens imposed on them.

In the summary of impacts for the clause the Government stated:

“There may be some one-off costs to businesses associated with familiarising themselves with any changes to scheme rules.”

I go back to the point made in relation to previous clauses on real-time information. Something can be potentially sensible and should overall simplify a process. Of course, there are difficulties in setting things up and people have to familiarise themselves with requirements. Small businesses will be concerned about not only the time it takes to do that but whether there are going to be costs. I am interested to hear from the Minister what assessment he has made of the level of those costs for business, and how many businesses he thinks will be affected by them. What guidance will be issued to businesses and employees about the new changes? Will there be any further consultation on the content of any guidance to ensure that it meets the needs of everyone affected?

Small businesses will want to be reassured that HMRC is able to cope with any extra demands placed on it by these measures, to ensure a smooth transition once the measures kick in, and to ensure that small businesses get the help they need to deal with changes.

I note that the Minister did not respond to my previous comments about job reductions at HMRC and the potential loss of HMRC offices in some areas. Perhaps in this context he could say something about the impact those changes will have on resources within HMRC and what processes are going to be put in place to ensure that resources and staffing are sufficient to aid the transition.

The Government also stated in the summary of impacts that they anticipate many of the proposed changes encouraging further take-up of the schemes by employees. I am interested to hear whether the Minister has assessed the impact of the changes on the number of extra employees entering into the schemes and on levels of tax avoidance.

As the Minister knows, the Bill did not initially include all of the recommendations made by the Office of Tax Simplification and accepted by HMRC. Is the Minister confident that all of those issues have been addressed by the Bill and the amendments? Was anything put forward or suggested at that stage that the Minister has not yet acted on? Is there anything tucked away somewhere for potential future legislation?

I have a couple of technical questions in relation to the Income Tax (Earnings and Pensions) Act 2003. The first concerns SAYE and leavers. In what circumstances do the Government consider a non-tax relieved early exercise of SAYE options could likely occur under paragraph 34(5) of schedule 3 that does not fall within paragraph 34(2)(c) or (d) of schedule 3? Does that mean that paragraphs 34(5) and (5A) are obsolete?

Secondly, is it fair to employees that, further to a cash takeover within three years of the grant of a SAYE or CSOP option, an employee who receives cash for his shares benefits from tax relief while an employee who does not have a cash alternative in the transaction and receives shares—loan notes—in the acquirer does not benefit from tax relief? Finally, particularly given that the Government’s policy objective of employee share schemes is to encourage employee share ownership, would it not be more fair for all early exercises of CSOP and SAYE new options in a takeover scenario to benefit from income tax and national insurance relief subject to suitable anti-avoidance provisions? I should be interested to hear what consideration the Minister has given to such matters. If he is not able to answer the specific questions now, perhaps he would write to us about them.

I thank the hon. Lady for her questions, and what I believe is a general welcome for the changes and the simplification that we are proposing. They are all designed to increase take-up of employee share ownership schemes and help to incentivise individuals working for such companies to play a greater role and have a greater stake in the success of the companies for which they work.

The hon. Lady quoted the ACAW, which said that Britain has the longest tax code in the world. Of course, she is right about that but, as we heard earlier, the primary reason why that is so is due to what the Government whom she supported did for 13 years by tripling the size of our tax code to it being more than 11,000 pages long, longer than Tolstoy’s “War and Peace”. Clearly, it is probably still the most complicated tax code in the world. That brings me to the Office of Tax Simplification, and why we set it up. Its purpose is to recommend to Ministers changes that can simplify our tax code, to make sure that it serves the purpose for which it was set out to serve and that it is not only simple and less complex, but competitive in the global race.

The OTS has made several recommendations to the Government, some of which we have discussed. Further clauses are also based on its recommendations. The hon. Lady asked whether it has made other recommendations that we have not yet made public. It is undertaking diligent work all the time. We are in constant communication with it, and when it makes further recommendations and we have had time to digest and reflect on them, we will, of course, bring that to the attention of the House.

The hon. Lady also asked whether we have heard from companies, and how the policy had been generally received. As I said earlier, several business groups representing large companies across the board have welcomed the changes, as have those representing small and medium-sized enterprises. She also asked a more general question about resources and HMRC in respect of personnel. In order to make sure that the Government are once again living within their means after the experiences under the previous Government, HMRC, like any other Department, is trying to find efficiencies by more use of IT and other methods of efficiency savings.

However, HMRC’s headcount is increasing, which touches on another issue raised by the hon. Lady. One of the key reasons for the increase is that the Government are rightly investing significant amounts in fighting  aggressive tax avoidance and tax evasion, which requires more dedicated resources in respect of HMRC. We do not believe that the policies under discussion can be taken advantage of for aggressive tax avoidance schemes, but I am that the hon. Lady will agree that the Government need to remain diligent in respect of such issues, and would welcome the fact that they are investing resources to counter tax avoidance and evasion.

The hon. Lady also asked three questions that I will not repeat because she described them herself as quite detailed and technical. I believe that that was an appropriate description. She invited me to write to her with more details, and I will take her up on that invitation. With that, I commend the clause to the Committee.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.