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

Clause 3 and schedule 1 set out the connected persons rules for the purpose of the employment allowance where companies are linked in a group or are otherwise under common control. We want those companies as a whole to receive one employment allowance. That means there is no incentive for larger businesses to fragment to receive more than one employment allowance. Given that the allowance extends to the charitable sector, it is only fair that the connected persons rule should also apply to charities, albeit one that is tailored to the different forms and structures taken by charities compared with companies.

Clause 3 provides that if at the start of the tax year two or more companies which are not charities are connected with each other, or two or more charities are connected with each other, only one of those companies or charities which would otherwise each qualify for the employment allowance can qualify for the employment allowance for that year. It would be up to the companies and charities concerned to decide which one will qualify for and claim the employment allowance.

Schedule 1 sets out in more detail the rules for determining whether persons are connected with each other for the purpose of clause 3. Given the different legal forms and operational structures of companies and charities, it has been necessary for the schedule to be divided into two parts. In each case, however, we have adapted the provisions in existing tax legislation so that companies and charities will be familiar with them. I should also stress that where two companies are connected with each other only through the attribution of rights between certain associated persons—for example relatives—the connected persons rule will bite only if the companies in question are commercially interdependent. For example, when one company gives financial support to another, they have the same economic or commercial objectives and have common management, employees and premises.

Charities will be connected with each other for the purpose of the employment allowance only if their purposes and activities are the same, or substantially similar and they are controlled by the same or connected persons. Part 1 deals with companies and is similar to the associated companies rules at sections 25 and 27 to 30 of the Corporation Tax Act 2010. No doubt, members of the Committee will have already noticed  that. The definition of a company for the purpose of the employment allowance is based on the definition in that Act, but it has been extended to include limited liability partnerships, given that those are also bodies corporate.

Part 2 deals with charities and is similar to the connected charities provisions in section 5 of the Small Charitable Donations Act 2012. I hope that that is of help to the Committee, but I am happy to answer any subsequent questions.

The Minister answered my main question in his opening remarks, regarding the wording used in clause 3 and schedule 1 on connected persons, when he confirmed that the way in which the Bill seeks to decide whether two or more companies fall within the connected persons test is the usual way that businesses and charities are treated in tax legislation. Does anything in clause 3 or schedule 1 represent an innovation in how businesses and charities are treated for the purposes of deciding whether they are connected persons in the context of tax legislation?

I am delighted that I anticipated the hon. Lady’s question. The Bill leans heavily upon legislation elsewhere. To answer her question about whether anything constitutes a great innovation or change in terms of those definitions, the answer to that is no.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Schedule 1 agreed to.