Schedule 6 - Minor amendments to Schedule E charge
Finance Bill
5:00 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
No, it is not on the exercise. Perhaps I should explain what the amendment would do, why it is not possible and why it is perhaps not quite what the hon. Gentleman is speaking to.
At the moment, if an employee obtains any asset as a direct result of their employment, it is taxable on its value at the time that it is received. For example, if a valuable oil painting is given to an employee as a reward for services, liability arises on the value of the painting at the time. The award of shares is no different where it is basically being paid as a salary—a payment—to an employee.
The hon. Gentleman is discussing shares received outside an approved scheme, perhaps those paid as a form of salary sacrifice, which is a different way of paying them, basically to avoid tax—that is perhaps a less charitable way of interpreting the reason for paying them like that. If an employee who receives shares outside of an approved share scheme, which is when the tax liability that arises is different, those shares are taxable on their value in the year in which the award is made, not the year in which they are disposed of. Inside an approved tax scheme, the rules
are different. The Government have a wide range of approved schemes on offer, having undertaken extensive consultation with employers about the types of scheme that they want.
The existing legislation puts an employee who has acquired shares through exercising an option granted by reason of their employment in the same position as one who is awarded the shares directly. Liability arises on any gain in the year in which the shares are received, through the exercise of the option. It would be wholly inconsistent and unfair to defer the assessment of a gain arising through the exercise of an option simply because the taxpayer chose to retain the shares rather than sell them. We are talking about unapproved schemes.
The amendment goes further. It wants the tax so chargeable to be deferred, but does not make it clear when that tax would become payable. Would it be on the disposal of the first share, on disposal of all the shares or not until the very last share had been sold? The amendment would operate so that, in effect, the payment of any tax arising could easily be deferred indefinitely. I am not attracted to that. I want to make it very clear that I am not attracted to an amendment that allows tax to be deferred indefinitely by the manipulation of how many shares have or have not been sold.
The amendment does not make it clear whether or how PAYE should be operated at the same time as the disposal of the share. The employer should know when an option is exercised, because he or she provides the share. It may be inconvenient to have to monitor employees to whom options are granted, although it is feasible, but how can an employer be expected to know, in time to operate PAYE properly, when an employee or ex-employee disposes of his shares?
I understand the hon. Gentleman's point, but such an amendment would not be acceptable. It would enable people to be paid in shares rather than a salary, not to be taxed on those shares when they are awarded and then to manipulate over an indefinite period the disposal of some or all of the shares, without the disposal ever incurring a tax charge.
Accurate as the hon. Member for Arundel and South Downs sometimes is, on this amendment I must say to him absolutely no, not under any circumstances. If he wishes to make further points about the disposal of shares, I shall be happy to consider them, but I shall ask my hon. Friends to vote against the amendment if the hon. Gentleman chooses to put it to the vote.