Clause 39 - Corporation tax relief for employee share acquisitions etc

Part of Finance Bill – in a Public Bill Committee am 3:00 pm ar 4 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 3:00, 4 Mehefin 2013

I am grateful for the opportunity to say a few words about the clause, which relates to the rules on the availability of corporation tax deductions where firms award shares or share options to their staff. Apparently, the clause is not designed substantially to change the rules; it merely clarifies. If an award does not fit within the specified circumstances, no relief would be available. I understand that there might have been some grey areas around the provisions, which is why the Government are seeking to clarify that no deduction would be available for other expenses relating to the provision of shares or for any connected matter beyond that set out in the Corporation Tax Act 2009, and that no deduction is possible for the grant of a share option unless the employee requires the shares under that particular option.

It is not a particularly unexpected clause. It provides some clarification, although I have a couple of points that I want to raise with the Minister on the general provisions relating to tax relief for employee share acquisitions. First, can the Minister clarify the extent of the claims that HMRC may have queried or may feel were illegitimate, which were behind the need to introduce this clause? I assume there must have been various attempts to claim relief that were frowned upon or were not permitted under the provision. Have the Government estimated the cost to the taxpayer as a result of the avoidance arrangements or practices that were being examined?

I want to ask about the changing nature of employee share payments and share options, especially in the banking sector. The Minister will know that, for various reasons, inspired predominantly by the European Union, there has been a shift in the composition of remuneration arrangements for many in the banking sector; it is becoming less about salary or cash bonus payments and much more about rewards in the form of share payments and share options. Clearly such payments present a changing environment for taxation.

The Minister will have to forgive me for asking some naive questions about the practice. I assume that bankers who are remunerated in shares have to pay income tax at some level on the value of those payments, even if they are essentially payments in kind rather than in cash. Or is it the case that taxation is taken at the point at which the shares are disposed of? A big shift is taking place in the banking sector, particularly following some of the European Union decisions regarding payment of employees by share options or transactions. Has there been a change in the tax yield for the Exchequer as a result of that shift in behaviour? If banker A is given a £1 million payment, the calculation of the income tax deduction will be quite clear, but I am not sure—and it would be helpful for the Committee to know—if individuals are paid in shares, at what point they mature and at what point there are options on them. Inspiration will probably strike at any moment, but I would be grateful to the Minister if he elaborated on that.