(Except clauses 11, 18, 40, 43, 44 and 69 and schedule 8) - Clause 12 - Employee securities: anti-avoidance
Finance Bill
4:30 pm
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
It is not my intention to stray into the important debates on amendments to schedule 2, but there has been some discussion about the scope of the proposal on employment-related securities in clause 12 and schedule 2, about which I spoke briefly to the hon. Member for Runnymede and Weybridge (Mr. Hammond). These arrangements are devised to deal with the minority of cases where there are complex, contrived arrangements to avoid paying income tax and national insurance on employment rewards. The Government have made clear their intention to close that activity down permanently.
There has been some debate about whether small businesses are caught by the provisions, so I am grateful to have the opportunity to offer small businesses some reassurance.
A change being made to chapter 4 of the Income Tax (Earnings and Pensions) Act 2003 will remove, where avoidance is involved, the provision that automatically exempts benefits received in connection with securities from a full income tax and national insurance charge, if income tax has been paid elsewhere. I am aware, from representations made directly to me and my Department, that professionals have expressed concern about the possible scope of the change. I want to make it clear that this change does not bring all benefits derived from securities into a tax and national insurance charge. A reference to benefits in the context of the schedule means the employment reward—the passing of value to an employee in return for the employee's labour. Where investors are carrying out their normal investment transaction, this charge will not affect them.
The purpose test introduced in section 447 of the 2003 Act has been carefully designed to target complex, contrived avoidance arrangements that are used mainly to disguise cash bonuses. If taxpayers use contrived arrangements to get round anti-avoidance legislation—to avoid paying the proper amount of tax and national insurance—they cannot expect to be excluded from the charge. However, it will be absolutely clear from what I say about the purpose test that this measure will not affect the taxation of those small businesses that do not use contrived schemes to disguise remuneration to avoid tax and national insurance.
There is no connection between the changes proposed in this clause and schedule to tackle contrived avoidance schemes and last December's discussion paper on the taxation of small business, which focuses on the strategic issues relating to the taxation and treatment of the legal forms used by small businesses. Taxation of small businesses is a live issue that is being considered as part of our ongoing discussions with small businesses and their advisers. The provisions before the Committee today are not intended to address those points. Any proposals coming out of the discussion paper and further consideration will be brought before the House in the normal way.
I am grateful to you, Sir Nicholas, for allowing me to spell that out. There has been some confusion, and many inquiries have been made about that point. I was asked to explain the purpose of clause 12 and schedule 2 at the beginning of the debate on them. Clause 12 and schedule 2 contain important and necessary measures, which I should address on a point-by-point basis in our discussions on the amendments to the schedule.