Clause 1 - Notices relating to share optionsacquired before 19th May 2000
Social Security Contributions
10:30 am
Mr Howard Flight (Arundel and South Downs, Conservative)
I, too, welcome you, Mr. Benton. I am sure that your chairmanship will be businesslike. I also welcome all Committee members.
I am a director of companies that hold share options, but none to which the Bill explicitly relates. However, I have some knowledge of the territory from personal business involvement, as well as political involvement.
This is a relieving Bill, which improves the existing position. It also corrects the fact that many companies have issued options since April 1999 and will not be able to avail themselves of the measures introduced in May 2000 under which corporate liabilities can be transferred to employees. The problem is that many companies issued options during that 13-month period and would have the same cash flow problems in meeting national insurance contribution charges on employees who exercise those options. The purpose of the Bill is to relieve that by making a special NIC charge payable on gains to November 2000.
The Bill is overcomplicated for relatively simply issues. It contains drafting errors and invites companies to gamble, because it requires payment now on options that may never be exercised. It could also put companies in the position of committing the offence of market abuse.
Amendments Nos. 6 to 9 are straightforward and would move the deadline period for the once-and-for-all election from 60 days to 92 days. The Government recently changed the reporting deadline for unapproved options from 30 days to 92 days to take account of changes in NIC rules for such options, and we are suggesting the same deadline. When an election is made under the Bill, the Inland Revenue must accept it and confirm the sum due. Then there may be some dispute in the case of companies that are not listed but are close to a listing in agreeing a valuation. Finally, the contribution must be paid. A 60-day period is unrealistic.
Although the Bill provides extension powers, it would be more sensible to have a manageable period in the first place. In amendments Nos. 32 and 33, we propose a simpler, fairer alternative that would remove the element of forcing companies to gamble on their tax liabilities. The amendments would remove the 60-day deadline and place the liability on the exercise of the options, which is the normal point of all tax liabilities. The arrangements in the Bill not only have a gamble element but could have unfortunate accounting implications. Latent liabilities could be created that might crystallise later. It would be simpler and safer for the special liability to crystallise on the exercise of the options.
New clause 4 offers another choice, if we are forced to have liability up front. It would allow the NIC to be repaid in the event of the relevant options lapsing.