Schedule 21 - Approved share plans and schemes
Finance Bill
9:45 am
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I hope that the weather improves to allow us to see some dynamic batting.
In introducing the amendment, the hon. Member for Arundel and South Downs made several general points about schedule 21 to which I shall quickly respond. The schedule's purpose is to produce a balanced package aimed at simplifying and modernising the operational schemes. The majority of the proposals are a response to industry
representations and have been welcomed. The operation of the PAYE mix on early exercise of existing options to close a loophole in legislation has not been welcomed. Anti-avoidance measures rarely are, because those exploiting the loophole wish to continue to do so. The proposal has been balanced with withdrawal of the tax charge under the second three-year rule, which has been welcomed. We shall come to all those changes at various points in our debate.
There are four changes to the share incentive plans provided for in the schedule: the one-off payment allowing the purchase of partnership shares, which is welcomed; flexibility in the amount of salary to be used for purchase of partnership shares; employees who move between companies in a group can participate in more than one SIP, which is welcomed; and simplifying the dividend share holding period, to which the hon. Gentleman has referred. I will come to that later during debate on the Government amendments.
There are five changes to the company share option plans. There is a change to PAYE and national insurance, operated if options are exercised within three years of grant. The definition of material interest has been aligned with that for SIP and SAYE. Only changes to key features in the scheme rules need to be approved. We will provide for what we call good leavers, touched on by the hon. Gentleman, which are injury, disability, redundancy and retirement. In those cases, people are able to exercise an early option tax-free. The second three-year rule has been removed. There are three administrative changes not requiring legislation, and there are two changes to SAYE.
Overall the changes have been welcomed. There is a particular issue with the company share option plan, which the hon. Gentleman has touched on, regarding the closure of the loophole and the PAYE mix. Some people think that we should not do that without giving a year's notice, so that others may continue to use it. We will debate that later. The changes to SAYE have been generally welcomed, but there are some concerns about the changes, particularly in relation to demergers. I know that the hon. Gentleman will want to touch on that. Schedule 21 has been welcomed overall, and it provides for many good improvements in the operation of the schemes.
I turn to amendment No. 13. Currently, if employees participate in a share incentive plan, they are unable to participate in another SIP in the same tax year. That is the point I made about connected companies. We have been told by the industry that that rule penalises employees who have moved between connected companies in the same tax year. They have to leave one SIP but they cannot join the next until the next tax year.
We are proposing to allow employees who move to a connected company following a group restructuring to participate in the SIP of the connected company, even if they have participated in another SIP plan in the same year. At the same time, the trustees of the SIP must keep records of the share award limits, to check
that those are not exceeded in any tax year. That is perfectly reasonable and an obvious step. We have not specified how the records should be kept, as trustees already have to keep records and details, which they report to the Inland Revenue. Amendment No. 13 seeks to specify and so limit the records that share incentive plan trustees need to keep for people who have participated in more than one SIP established by the same company or connected company. That is unnecessary, and it is unusual for legislation to specify the types of record that are to be kept.
The legislation needs to provide the general framework for the administration of the SIP, while allowing the practical details of administration and record keeping to be determined, as has always happened in the past, by those who know the field best: the trustees and administrators, in conjunction with the Revenue. The amendment is simply unnecessary and, if I may say this ever so gently to the hon. Member for Arundel and South Downs, an overreaction to the good suggestion in the proposals.