Clause 61 - Employee share ownership plans
Finance Bill
11:15 am

Mr Howard Flight (Arundel and South Downs, Conservative)

I, too, welcome you to our deliberations, Mr. O'Hara.

We welcome clause 61 and schedule 13, which address some of the issues that we raised in Committee on last year's Finance Bill about employee share ownership schemes, in particular the territory of people belonging to a scheme as part of a group and changing employment from one subsidiary to another. However, the issue that we raised last year in respect of non-UK employees was not picked up in schedule 13. The Government's amendment to our amendment No. 14 leads me to believe that they accept our point.

As the schedule stands, an employee share ownership plan cannot extend partnership share awards to non-UK employees who do not have a salary as defined for the purposes of the schedule. That issue has cropped up in practice and has led employers to adopt additional plans, with additional costs, if they have significant numbers of non-UK employees. The objective of our amendment is that non-UK employees will be able to contribute out of salary to the same plans to which UK employees contribute, and we suggest that that change should be backdated to last year, as we believe that a drafting error led to the omission.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

Amendment No. 14 is similar to one moved by the hon. Gentleman in last year's Committee. In that debate, there was a suggestion that Opposition Members might seek to identify some groups of employees who were UK taxpayers, but not included under PAYE, who would benefit from the amendment that they proposed. In fact, there has been no further discussion about that. PAYE operates on the salaries of employees who are UK taxpayers but not on the salaries of those who are not within the scope of UK taxation. The hon. Gentleman made the intention of the amendment clear. We accept that an amendment along those lines could add a useful facility for employers who have employees working overseas, such as those on long-term secondment abroad. There is already provision in the plan to enable those individuals to be awarded free shares.

The amendment included a commencement date provision with effect from the passing of the Finance Act 2000, which is some time between now and July. That would be unnecessary and somewhat confusing. Partnership shares can be purchased only with deductions from salary, usually monthly or at the end of an accumulation period. The maximum deduction is £125 a month. Employees cannot make up deductions that have been missed so the amendment could only ever have a prospective effect. If the provision were silent as to commencement and so took effect on the passing of the 2001 Act, it would not be clear what that meant in practical terms for employers and employees.

I may have confused the Committee slightly. The reference in the amendment is to the passing of the Finance Act 2000, which was in July 2000. If no reference is made to that date, the measure would take effect on the passing of the 2001 Act. If no commencement provision is included, it would not be clear whether any change applied to the salary deduction or the later award of the shares. Other commencement provisions in schedule 13 that have a similar effect are more specific. The amendment provides commencement provisions in the same way.

In order to participate in an award, an individual must be eligible at the time of that award. In the case of partnership shares, the individual may participate in an award only if he meets the eligibility criteria at the time that the partnership share money relating to that award is deducted from his salary. If there is an accumulation period of partnership money deduction, the eligibility criteria must be met at the time of the deduction of the first payment relating to the particular award.

We have therefore tabled an amendment to amendment No. 14, which appears on the order paper this morning. I am grateful to you, Mr. O'Hara, for your helpful acceptance of this starred amendment. It provides that amendment No. 14 has effect in relation to awards of shares where the deduction of partnership share money, or, if there is an accumulation period, the first deduction of partnership share money relating to the award, is made after the passing of the Act. We are able to take on the helpful point that the Opposition made in a way that does not give rise to the potential difficulties that I described. I hope that we identified a way forward that will please the entire Committee.

Question put and agreed to.

Clause 61 ordered to stand part of the Bill.