I beg to move amendment No. 6, in page 1, line 12, leave out `sixty' and insert `ninety-two'.

With this it will be convenient to take the following amendments: No. 7, in clause 2, page 3, line 26, leave out `sixty' and insert `ninety-two'.

No. 8, in clause 2, page 3, line 34, leave out `sixty' and insert `ninety-two'.

No. 9, in clause 2, page 3, line 45, leave out `sixty' and insert `ninety-two'.

No. 32, in clause 2, page 3, line 3, at end insert

`on the subsequent exercise, assignment or release of that right, or entitled to a repayment as directed by subsection (7) below'.

No. 33, in clause 2, page 3, line 27, leave out

`on which this Act is passed' and insert

`of the exercise, assignment or release of that right'.

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.

It is with great pleasure that I welcome you as Chairman of the Committee, Mr. Benton. I want to speak to the amendments referring to time limits, and draw the Minister's attention to the problem of over-bureaucratisation for small companies. Although the measure is welcome, it is using a sledgehammer to crack a nut.

I declare an interest, as I am a lawyer, specialising in taxation matters. However, I do not practise now, and have not done so since a year or so after being elected to Parliament. Share options are a complex matter, and small and medium-sized companies will need to take advice from lawyers and accountants. Sometimes

businesses are not aware of changes, although the Inland Revenue will say that its internet site has all the information. Sixty days is not long enough for small and medium-sized companies to decide which way to opt, as negotiations and discussions will have to take place. We support amendment No. 6.

I shall come to the bureaucracy involved later and I shall ask why an employer cannot elect either to freeze an unexercised option on 7 November 2000, or wait for the exercise, and use entirely normal procedures? I am merely flagging the points that we shall raise later in the debate.

I, too, welcome you to the Chair, Mr. Benton. I support amendments Nos. 6 to 9. My hon. Friend the Minister has met a range of advisers and specialists in share option schemes in the past three years, and I hope that he will take my advice in the way in which it is meant when I say that there should be an extension from 60 to 92 days. He has been very supportive of widening share ownership as part of the socialising of capitalism, with which I agree.

There are good practical reasons for extending the period from 60 days to 92 days. There is also a precedent: the raising of the time limit for approved share scheme returns from 30 days to 92 days. However, there are problems in terms of the time it would take for unlisted companies to have their shares valued, and the need for them to decide whether the shares are readily convertible assets. If the shares were not, there would of course be no basis on which to proceed in national insurance terms.

There is a further practical note. I have always admired the pragmatism of my hon. Friend the Minister in respect of these matters. The Bill was published on 20 December—just before the Christmas recess, when many companies are winding down. According to various advisers, most companies are not back in running order until mid-January, so only now are they being alerted to the nature of the Bill. For that reason, one might be critical of this three-week gap.

The assumption that companies do not get back in the flow until the middle of the month may be correct in respect of those who run them, but it certainly is not the case for the workers in my constituency.

I accept that that is the reality on the shop floor. I was making the point that the opinion of the City and of business in general—which we as a Government have listened to, as demonstrated in a Bill that they urged us to introduce—is that mid-January is an inconvenient time to alert companies to these changes. Some three weeks have been lost. On that pragmatic basis, and for other cogent reasons that I have given, I urge my hon. Friend the Minister to accept amendments Nos. 6 to 9.

I expect that I am not the only member of this Committee who is still struggling with his tax return. It was supposed to be submitted by tomorrow, and I want to put on the record my gratitude to the Inland Revenue for extending the deadline until Friday morning. We all know that the annual deadline is coming up, but many still find it difficult to meet. How much harder will it be for small business men, in particular, to meet a deadline on a one-off opportunity, about which, as the hon. Member for Putney said, they learned about only this week, on returning to their boardrooms from the ski slopes? That said, I wish that businesses in Guildford had as leisurely an existence as those in Putney.

I was certainly not suggesting that business people in Putney have only just returned to work from the ski slopes. I was simply apprising the Committee of the City's view that it is not appropriate to inform business of the nature of the Bill as late as mid-January. I am not suggesting that I approve of that view—I am merely pointing out that, in this instance, a request for an extension from 60 days to 92 days has been made.

I am sure that the hon. Gentleman's defence of business people's reputation for hard work, for which I can vouch from first-hand experience, will be toasted in wine bars up and down the City.

In addition to distractions such as Christmas, businesses have had to consider filing company returns. Indeed, the end of January is a very busy period for companies that come up against their 10-month deadline, and in the light of all such pressing matters, many with unapproved share option schemes will have yet to focus on the Bill. In the context of a one-off election, extending the deadline by a mere 32 days would seem a modest proposal.

In relation to amendments Nos. 32 and 33, I should point out that the imposition of national insurance contributions on the exercise of such share options creates a hybrid tax—in effect, a supertax on capital gains. The tax should be approached from a capital gains tax angle, not an income tax or income accruing angle.

The way in which capital gains are taxed recognises the fact that it is fair to tax them only when they are crystallised. There is no year-end assessment of people's capital gain in paper terms on the value of their shareholdings, followed by a tax demand. That is because the value of shares may go up or down before they bank the money. Similarly, it makes no sense to crystallise a notional gain on share options, because by the time that they are exercised the gain may be significantly less.

The concession has been introduced with a view to the impact on the new economy of the previous rules. New economy shares have been especially volatile over the past year. It is appropriate that the matter should be determined at the point of exercise, not at some arbitrary point—even if that is after 92 days rather than 60.

It might be helpful if I set out some of the background to the Bill. On 6 April 1999, changes to the taxation of share options were introduced. Before then, although income tax was always payable on the exercise of share options, national insurance was payable at the earlier point, when the options were granted—and then only on the amount of any discount on the grant of the options. On 6 April 1999, the national insurance charge on unapproved share options was aligned with the income tax charge.

There were two good reasons for that change: first, to continue the Government's policy of aligning more closely the arrangements for income tax and national insurance and, secondly, there was increasing evidence of straightforward tax avoidance initiatives that created artificial share option arrangements to exploit the fact that national insurance was not payable on option gains, whereas it was payable on income. That is the problem with the suggestion by the hon. Member for Guildford (Mr. St. Aubyn) about different treatment for option gains.

After the change was introduced, many companies expressed concern about the unpredictability of the employer's national insurance charge, which was leading to accounting difficulties and creating serious uncertainties. The employer's national insurance liability is uncapped and, in that respect, dependent on the company's share price, and there has been a great deal of share price unpredictability in the past few years.

Last year, following a period of consultation, measures were introduced to allow employers to ask the employee to bear the employer's national insurance charge on the share option gain. I announced that change to the Committee that considered last year's Finance Bill.

The Minister is a fine mathematician, and I hope that he agrees that the thrust of the change is that it is a tax-raising measure to garner more revenue. If the employer pays the national insurance charge, he will get a deduction on his corporation tax bill. If the employee pays, he will not.

That is not the case, because the employee can offset the charge against his or her income tax bill. If anything, there is a slight loss of revenue to the Treasury. However, as the hon. Member for Guildford has already paid tribute to the Inland Revenue's generosity, that will come as no surprise to the Committee. The legislation allows companies to escape the accounting difficulties and uncertainty presented by the national insurance charge while retaining the advantages of the April 1999 change.

The Committee will be aware that the Government attach a high priority to establishing an environment in which entrepreneurship can flourish and enterprise is open to all. We are working towards the goal of making the United Kingdom the best environment in the world for electronic commerce. I have been heartened by the recognition, revealed also in a couple of independent surveys published last week, that last May's changes have been helpful in securing those objectives. However, they left one point outstanding: the legislation was drafted to cover all options already granted. In practice, employers have rarely been able to negotiate with employees terms that change options that they already hold, so for many companies that granted options before 19 May 2000 the uncertainty has remained. That is the problem addressed by the Bill.

We have accepted the strength of the concerns on this point, and the Bill meets them in a simple and practical way. We are giving companies the chance to settle their national insurance liabilities on the gap options--options issued in the gap period between 6 April 1999 and 19 May 2000—in advance of the date when the option is exercised and the gain made by the employee. Companies can calculate the amount of national insurance due by reference to the accrued gain up to 7 November 2000, the day before the pre-Budget report in which the proposals were announced. That caps the national insurance liability at the company's share price on 7 November 2000, so the company no longer needs to make further provision against profits: it will be able to remove the liability from its balance sheet and avoid any national insurance charge from further upwards movement of its share price. The change has been widely welcomed.

The Bill will provide the certainty that employers have been calling for, which is an important step forward. I do not accept the point made by the hon. Member for Arundel and South Downs that the Bill encourages market abuse, but no doubt we shall discuss that in a few moments. That certainty will allow employers to quantify the unpredictable national insurance liability that they have faced up to now, and to pay the special contribution during the fixed period, so that they can, once and for all, allay their concerns about the amount of national insurance that must be set aside for share option gains for share options granted between 6 April 1999 and 19 May 2000.

We are conscious of the impact of any legislation on business. That is why we have introduced the Bill. Our initial view was that 60 days was adequate, as the announcement was made last November, but I have listened to the concerns expressed by members of the Committee and also to what companies have been saying, and it is clear that an increase in the time limit would be helpful. I accept that an extension to 92 days would be widely welcomed, particularly by foreign companies operating in the UK, as it would give them adequate time to review their national insurance contribution position in relation to the gap options.As my hon. Friend the Member for Putney said, the extension to 92 days would also mirror the time limit now applied to returns for unapproved share option schemes, which was increased in last year's Finance Act from 30 to 92 days to ease the reporting time limits for employers. The hon. Member for Arundel and South Downs made the same point.

The change would give employers additional time to make the necessary inquiries. In some cases, they may need to establish whether shares are readily convertible assets, or obtain a valuation from the shares valuation division.

In light of those considerations, I am willing to accept amendments Nos. 6 to 9. In addition to extending the deadline to 92 days, the Inland Revenue will advise all companies that have an unapproved share option plan of the measure. Every company affected will know about the measure, if they are in a position to use it. I hope that that will address the concern expressed by the hon. Member for Torridge and West Devon.

Amendments Nos. 32 and 33 go so far that they undermine the principle of the Bill, which is that early payment in the 92-day period following Royal Assent is a fair quid pro quo for certainty. Indeed, it is companies that have been asking for certainty: the initial proposal that there should be early payment in return for certainty came from the companies affected. I am aware that one or two companies, having secured their initial request, have asked for more along the lines of amendments Nos. 32 and 33. In other words, they have asked for an end to uncertainty, but without early payment. In my view, that is not a fair and balanced settlement of the difficulty. The Government made a concession concerning the mechanism on 7 November, so it is understandable that some people came back and asked for more.

Why is my hon. Friend persuaded that 92 days, which was suggested by the Opposition, is the appropriate amount of time? Why not 75 or 115 days? Is it cynical to assume that there will be wide boys in the City and elsewhere who will use whatever time is available to find ever more inventive ways to avoid paying their fair share to the Exchequer?

I can reassure my hon. Friend that the extension from 60 to 92 days will not give wide boys, or anyone else, an opportunity to avoid paying what is due to the Exchequer. The 92-day period mirrors the time limit that we introduced on the returns for unapproved share option schemes. It is a period that is used elsewhere in the tax system, and it strikes a balance between the need for a rapid settlement of liabilities, the helpful certainty that we are providing, and the need for adequate planning and preparation by the companies affected.

Amendments Nos. 32 and 33 would also increase the administrative costs that businesses face in applying the special contributions proposed in the Bill. Employers would need to keep track of the gains made by options granted between 6 April 1999 and 19 May 2000. Furthermore, employers would need to establish suitable arrangements to ensure that they could pay the special contributions, perhaps over a period of years, that could have been paid within the fixed period, rather than the full national insurance contributions liability that would have been due without the Bill. The measure offers the opportunity for a company to obtain certainty by settling early. That is the balance that we have offered, and it is the right balance.

On the basis that I am willing to accept amendments Nos. 6 to 9, I hope that the hon. Member for Arundel and South Downs will not press amendments Nos. 32 and 33, but if he does, I urge the Committee to resist them.

I thank the Minister for accepting amendments Nos. 6 to 9, because they will make the Bill workable where it would have been chaotic. Although I understand the quid pro quo argument, it is a new and undesirable principle to introduce into the tax system. It amounts to holding a gun to companies' heads and asking them to take a gamble with you're their tax liabilities and pay on everything now, because that will probably cost less than waiting until later.

Many companies will not know what the future is likely to hold in terms, for example, of how many staff may leave. Furthermore, given what has happened over the past year, the price of high-tech options may be under water for ever. Finally, the members of pension funds that own shares in those companies would not welcome their pension moneys being gambled with, which is what the measure amounts to. However, we shall obviously not win amendments Nos. 32 and 33—

I would like to add a few words to my hon. Friend's comments on amendments Nos. 32 and 33. He should reserve until later the decision whether to withdraw them. If he withdraws them now, will my comments be out of order? If—

Order. The amendments cannot be dealt with now. We are dealing with amendment No. 6.

I was in the middle of saying that we are unlikely to win a Division on amendments Nos. 32 and 33. Nevertheless, the principles that tax liabilities should be payable when they arise, and that there should not be an element of gambling in the tax system, are, in our view, correct.

Last May's measures had the net effect of putting a 47.3 per cent. tax charge on employees' unapproved options. The thinking behind that assumed that option remuneration is the same as pay, when in fact it is entirely different. If a talented person, working for a mature company such as Unilever, is considering working for a new, small, high-tech company, it will be unable to pay him his previous salary, so it will attempt to attract and motivate him with an options package. Whether those options will ever be worth anything is a complete risk. If he works hard and the company succeeds, they could be worth a great deal, but large numbers of new businesses, especially in the high-tech sector, do not succeed. The safe pay packet and perks offered by a mature company are different from the risky options that form part of the package from new businesses.

If the Minister talks to the many accounting firms that specialise in employment, they will tell him that a 47.3 per cent tax charge has altered the risk-reward ratio for unapproved options, which will kill their use. New businesses will be forced to increase pay, which they cannot afford. The overall impact will be to discourage entrepreneurial endeavour.

The rate of 47.3 per cent. is not dissimilar from the rate in the US, and less than that in a number of European countries. The key point is that the enterprise management incentives that we have provided for address precisely the type of high-risk start-up companies to which the hon. Gentleman has referred. He is right to say that people who leave a secure, well-paid job in a big company to contribute to a start-up company are taking a substantial risk, but that is precisely the situation that the enterprise management incentives address, so the inference that he is drawing is incorrect.

I recollect that the Red Book provided £20 million to £30 million for the enterprise management incentives scheme. It sounds attractive but, again, out there in the real world there has been little take-up, because of the exclusions and complexities and because a company that succeeds is quickly disqualified if it has grown too large. The issue has not yet been dealt with practically.

As the Minister is aware, in the United States there are enormously more generous approved option schemes. Staff can have $100,000 each year, as against a total limit of £30,000 here. Even with unapproved schemes in the US, while the tax rate is 39.6 per cent. or more with state taxes, companies can offset the tax that employees pay against their own corporate tax liabilities, so the net combined tax is 10 or 15 per cent., which makes companies much more generous with the volumes of unapproved options that they are willing to issue. The suggestion that our tax regime for share options is now parallel to that of the US is a travesty. The approach in the US is much more generous, particularly with new economy high-tech companies that may not have the profits to offset in the case of the tax rules on unapproved schemes, they generally use approved schemes where they can offer more than enough options to satisfy individuals.

I put it to the Minister that, while I do not question his good faith, he must be aware that the venture capital industry is extremely critical of the Government's measures. I have a letter from the chairman appointed by the Government's small business investment taskforce, in which he comments that the current national insurance arrangements are ``punitive'', so even one of the Government's own helpers in their entrepreneurial endeavours accepts that point.

I am grateful that the Government have accepted that the 92-day period is practical. It would, however, be theoretically correct for these NIC liabilities, if we are stuck with them, not to arise until exercised.

I welcome the Minister's comments and his acceptance of amendments Nos. 6 to 9. He made a typically thoughtful contribution. It is always a pleasure to debate with him, because he has considerable knowledge in matters of tax law. I shall try to tempt him to go a little further, or at least to address the point to which I alluded earlier: why not give individuals a choice to pay either at the value on 7 November 2000 or at the value on the date of exercising the option? I realise that in most circumstances the payment of tax will be deferred to the date of the exercise of the option, but there would be advantages to the Revenue, which would save on bureaucracy; there would be no time limits; there would be flexibility; the small and medium-sized business sectors would be saved considerable effort, problems and fees; and it would be simpler. I do not know whether the Revenue is concerned that such a change would encourage tax avoidance. If so, I would welcome the Minister's comments on that point. It is fairer to the taxpayer to pay at exercise because the value could be lower and the tax less.

The Bill is welcome, as it ends uncertainty. I welcome the Minister's acceptance of amendments Nos. 6 to 9, especially because it may help the smaller business and the smaller company to avoid some of the bureaucracy that this small Bill will create.

I, too, thank the Minister for going some way towards responding to our pleas. Certainly, an extra period for people to make a decision is helpful. However, since the announcement in November of the concession behind the Bill, the outlook has changed: there has been a change in the world economy, particularly in the United States. There are reports this week of a crisis of confidence in the US economy: there have been dramatic cuts in US interests rates and there may be more to come this week and thereafter to try to revive confidence.

In those circumstances, particularly as the loss of confidence relates to uncertainty about the future of the new economy and the new economy companies, many of which will be the sort that the Minister described—overseas companies that have come to this country and granted the options to attract employees—it seems a little harsh that they should pay now for the certainty that he tantalisingly offers them in respect of their tax liability. He appears to be saying that they can have the certainty if they are prepared to pay for it, but it is the companies that cannot afford to pay for the certainty now that most need it to get through the coming year or so. The Government are offering certainty to those for whom it matters least.

I am sure that the Minister, who has a great deal of expertise in this area, knows that if the Government were really concerned about the new economy, they would extend a helping hand not only to those who can easily produce the cash in a few months' time but to those for whom every single penny counts, as they try to realise the potential of their business. At a time when the capital markets have dried up for them and they face a great deal of uncertainty in their business world, the last thing they want is continuing uncertainty in their tax affairs, but because of the nature of the deal on offer, that may be the only choice open to them.

The hon. Member for Arundel and South Downs suggested that enterprise management incentives had not been widely taken up. More than 100 companies have already taken them up, and the number is rising rapidly. As he will know, we are currently consulting on changes to make the arrangements more generous, and we will announce the outcome at the time of the Budget. That is proving an effective device for targeting the kind of companies about which he expressed concern.

I also draw the hon. Gentleman's attention to the Arthur Andersen survey, carried out for the Brussels-based GrowthPlus organisation, which exists to promote entrepreneurship throughout the European Union. Arthur Andersen undertook research on nine European countries and the USA to examine the conditions for the companies that it supports in each of those countries. The survey included not only an assessment of the treatment of share options, but all the other influencing factors. Its conclusion, published last week, was that the United Kingdom was the best country of all those examined in which to establish and grow an entrepreneurial business. That is a pretty fair assessment of the current position. The hon. Gentleman should reflect on its conclusions in forming a view.

I do not believe that it would be appropriate to accept amendments Nos. 32 and 33. Let me remind the Committee of the background. When the options were issued by the companies, the law was clear: there was no ambiguity about the national insurance position. We are now offering companies the ability—another avenue, if they wish to take it—to settle those liabilities early and obtain the benefit of certainty, but with the clear quid pro quo of early payment. That is a fair settlement. The Committee should bear it in mind that several companies did not award options during the period in question because they understood perfectly well the difficulties that they might encounter in doing so.

The proposal is a fair one. The hon. Member for Arundel and South Downs said that he would not insist on amendments Nos. 32 and 33, but if he changes his mind, I urge the Committee to resist them.

The Minister's observation that companies have refrained from granting options is doubtless correct in respect of the large company sector, but my particular concern is the smaller company sector, in which advisers are perhaps not as shrewd and far-sighted, and where the opposite might therefore be true.

I can reassure the hon. Gentleman that small companies are also considering the opportunities that the measure will provide, and I do not expect them to hold back from taking such advantage. Many will find it very attractive, because their accounts already provide for the sum relating to national insurance obligations.

The Minister's argument about companies holding back from granting options might be true in respect of larger companies with advisers of great expertise and foresight, but given the period allowed, smaller companies could rush matters and thereby prove vulnerable to associated problems.

I do not think that that is right. I know a number of large companies that issued options in the period in question, so the distinction that the hon. Gentleman draws between small and large companies is not correct.

A couple of questions passed through my mind during this debate. Companies in Britain pay less tax than those in any other EU country, and, as I understand it, their liabilities are to be passed to their employees. Does my hon. Friend agree that it is clear that whatever is offered is never enough? We never hear those companies saying that the Government have given them too much and should take some of it back. Has anyone consulted the employees? We hear a lot about employers, but has research been carried out on the opinions of those who, in certain cases, will be paying? Many of my constituents would say that, if anything, the Government are being overly generous.

My hon. Friend is absolutely right: the survey to which I referred concluded that the UK is the best place in which to set up and develop a small business, and the tax environment forms an important part of the necessary background. We have received representations from some employees who will be affected by the provision. Of course, in small firms there is often a close coincidence between the company's interests and those of the employee. Many employees have willingly signed up to the scheme that enables them to take on an employer's national insurance liability for share options gains, because they stand to gain substantially on exercising those options.

Given that only 100 companies have taken up the EMI scheme, from a target of several thousand—if not more than 100,000—the success ratio is well below 1 per cent. I urge the Minister to consult fully the relevant accounting firms, so that take-up can be rendered more effective. Moreover, it is no surprise that the regime in this country is more attractive for new business than the regimes in continental Europe, which involve employment taxes and generally higher tax rates.

The United States has been far more successful than this country—in terms of the proportion of the economy involved and the proportion of investment measured against population weighting—in creating new businesses through venture capital investment. In February, Gouldens, a law firm that specialises in such matters, will publish a report in which its senior partner powerfully argues that the key difference between the United States and ourselves in this respect is the considerably more generous option arrangements that pertain in the former. Moreover, people in the United States are not taxed on approved options until they sell. If they join a business, work with it and get their options and shares, they can continue to own part of the business. In this country, one is virtually forced to sell in order to pay the tax, because the tax liabilities crystallise on exercise.

We still believe that it is wrong in principle that the NIC liability should not crystallise on exercise. However, we did not expect to be able to persuade the Government of that, given that they are apparently keen to encourage pension funds to gamble with our pension money in respect of whether companies should have such quid pro quo arrangements, so we shall not press amendments Nos. 32 and 33 to a vote.

Amendment agreed to.

I beg to move amendment No. 1, in page 1, line 13, leave out `is passed' and insert `comes into force'.

With this it will be convenient to discuss the following amendments: No. 2, in clause 2, page 3, line 27, leave out `is passed' and insert `comes into force'.

No. 3, in clause 2, page 4, line 6, leave out `passing' and insert `coming into force'.

No. 4, in clause 3, page 6, line 3, leave out `passing' and insert `coming into force'.

No. 5, in clause 6, page 7, line 39, at end add—

`(3) This Act shall come into force on the day appointed in regulations made by the Inland Revenue pursuant to subsection (5) of section 1 above.'.

The amendments essentially cover the same point about 60 days, but they include a slightly more subtle aspect. As the Bill is drafted, the arrangements will come into force immediately on Royal Assent. However, further regulations will clearly be required in order to determine how the detailed arrangements will be implemented. The Minister assured me that they will be published in the near future, but no draft regulations are yet available. It is not practical to ask companies to operate a scheme without knowledge of their contents.

The Inland Revenue takes about 10 days to process applications that are made under the measure that was introduced last May to pass NIC liabilities on to employees. The volume of people making such applications is still extremely low, but once the Bill is enacted there will be a flood of applications. Not only should there be a reasonable time period, but it should start when the regulations come into force to ensure that there is not a mess-up if they are not available in time.

Presumably, the regulations will be extremely lengthy and detailed, and I hope that the Minister will confirm that they will be subject to widespread consultation. I support the hon. Gentleman's point: as the regulations will have an important impact on the working of the Bill, people should know the details before it comes into force.

The amendments would simply introduce the possibility of a delay into what I think the whole Committee has accepted as a helpful and necessary measure that gives companies additional flexibility and freedom.

The hon. Member for Torridge and West Devon will be pleased to know that the regulations will not be complex. They will set out the precise nature of the notification required from employers who wish to take advantage of the Bill. It is a straightforward measure, and the regulations can be produced quickly.

I want to clear up one misunderstanding that might also crop up later. The hon. Member for Arundel and South Downs referred to a flood of applications. We are talking here about notifications. Companies will be required to inform the Inland Revenue of what they are doing: there will not be an application process in which the Inland Revenue has to say yes or no. It is simply a question of notification.

I can understand the concern that the regulations may be delayed. We plan to lay them on the day that the Bill receives Royal Assent. I assure hon. Members that notification will be straightforward and that there will be no delay in laying the regulations. Given that reassurance, I hope that the hon. Gentleman will withdraw the amendment.

There is in effect an application—I should have used the word ``notification''—for the category of company that is not listed, but does not qualify as a not readily realisable asset, because it may be close to a listing, and the Revenue must agree a valuation with it under the Bill. Such a company is likely to be time-consuming to the Revenue unless the Government accept our later amendments to address the problem.

Clearly, it is on trust that the regulations will be laid at the time of Royal Assent. I simply ask the Minister what his plans are in the event that, for reasons beyond his control, that does not happen. The wording ``coming into force'' still seems to us to make more sense. It is not a huge issue of principle on which to divide the Committee, but a practical problem with which the Government will have to live. The amendments do not make major points, but they would avoid the danger of the regulations not being available in good time.

I am entirely confident that the regulations will be available on time, so I do not have a plan B if they are not.

On the basis of that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment No. 11, in page 2, line 15, after `election', insert

`, to the extent of that election'.

The Chairman: With this we may take amendment No. 12, in page 2, line 17, after `force', insert

`, or to the extent not covered by any such election'.

The amendments are designed to cure what we think is a mechanical defect in the Bill. Under the set of national insurance charge changes introduced last May, which enabled employers to agree with employees to pay the employer's national insurance charges, the legal liability for part rather than all of the NIC charge payable by the employer could be agreed to be charged on exercise. Where that occurs, the Bill requires the employee and the employer to make an election to pay the NIC in advance. That is likely to be inconvenient in practice and it would make more sense to allow employers to advance-pay their residual liability for the options and leave it to employees to advance-pay their own liability. It would be unfortunate for delay or refusal by either side to prevent the other from taking advantage of the Bill. In essence, this should not be a joint approach: each side should be free to make its own election.

I do not think that the amendments are necessary. The hon. Gentleman makes an interesting point, but from an analysis of the number of share option national insurance elections that have been received by the Inland Revenue, it appears that only a small proportion have asked the employee to meet a part of the secondary contributions due from share option gains, rather than the full liability. The overwhelming majority have been for the full liability.

There are not, in any case, many share option elections for options granted before 19 May 2000, in the gap period. That is why the Bill is necessary: because for so many of the options, no election has been made. It would not surprise me if there were no cases at all in which there has been a partial switch of liability for options issued in the period 16 April 1999 to 19 May 2000, although there may be a few.

If the amendment were made, further amendments would be required to ensure that the roll-over provisions and the assessment of the special contribution could apply to options only partly settled. Those amendments would considerably increase the complexity of the way in which the special contribution has to be calculated. That could leave some options partly settled and would increase administration.

Where there has been no election, but the employer has entered into an agreement with the employee, the paying of the special contribution remains in its entirety with the employer. That is the most sensible way to proceed. The amendment is not helpful in a practical way and would introduce considerable extra complexity, and I hope that the hon. Gentleman will not press it to a vote.

I confess that when I first read the Bill, I thought that there was an error in the wording providing for the special NIC liability to be paid at all by employees. As I commented, I subsequently checked that the arrangements were included in the May 2000 changes. While the Minister is correct when he says that it is highly unlikely that any companies and employees will avail themselves of those measures in the time period—indeed, employers will lack the leverage to persuade employees to bear part of their NIC liabilities in relation to options granted before last May—if even one or two were to do so, there would be a legal problem. The arrangements from May 2000 mean that it cannot be a joint application. Legally, there must be separate applications.

I accept the Minister's common-sense response, but the Government will need to find another measure if they do not like those provided by the amendments, to address the problem, should it arise. It is not satisfactory to have legislation on the statute books that does not cater for certain foreseeable situations. Even if, in practice, such cases are unlikely, what happens when they arise? I bounce that question back to the Minister. He is probably right, but what do the Government propose to do if there is a partial liability split between employer and employee?

The most sensible way to handle such a situation might be for the employer and employee to agree that one or the other--probably the employee--should bear the full liability, and the other provisions of the Bill would then apply. That would resolve the problem satisfactorily, but it is highly unlikely that it would arise.

My diagnosis is that, without a change, no company will be able to avail itself of the May 2000 arrangements in respect of options during the 13-month period, because it will not be able to meet the requirement for joint election when it would need to be separate. My message is that company advisers will suggest that, if companies want to avail themselves of the measures in the Bill, the liability will need to be all on the employer's side. That is reasonable, but it is the net effect, so it will negate those provisions that otherwise prescribe for partial election. That is how the issue will have to be interpreted.

The hon. Gentleman is right, but the employer, not the employee, would probably take on the full liability and then settle it in the way set out in the Bill.

We have raised the problem, and its legal effect has been described, but we do not want to press the matter to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment No. 34, in page 2, line 35, at end insert—

`(6) For the purposes of this Act where, in the case of any right to acquire shares, the person entitled or (if there is more than one) each of the persons entitled to give a notice under this section in respect of that right is a person whose liability by virtue of the giving of such a notice to pay a special contribution under section 2 in respect of that right would be nil, that person or, as the case may be, each of those persons acting jointly shall be deemed—

(a) to have given such a notice in respect of that right in accordance with this section and immediately before the end of the period specified in subsection (1)(c);

(b) to have accompanied that notice with a notification to the Inland Revenue that the liability arising by virtue of that notice was nil; and

(c) to have given that notification in the belief that the facts reasonably ascertainable by him at the time at which he is deemed to have given it were grounds for giving it.'.

With this it will be convenient to take the following: New clause 1—No liability to Class 1 contributions—

`(1) Notwithstanding any other enactment, no liability to Class 1 contributions under the Contributions and Benefits Act shall lie in respect of the exercise of any relevant right, or any right to acquire shares granted or acquired in consideration of the assignment or release of a relevant right.

(2) In subsection (1) above a ``relevant right'' is a right to acquire shares in a body corporate, whether or not granted or acquired in consideration of the assignment or release of any other such right,

(a) which was granted or acquired after 5th April 1999;

(b) which was granted or acquired before 20th May 2000;

(c) which, on 7th November 2000, was not a readily convertible asset nor a right to acquire shares which were readily convertible assets.

(3) In this section ``readily convertible assets'' has the meaning given it in section 203F of the Income and Corporation Taxes Act 1988.'.

New clause 2--Automatic rights: notice under section 1 and payment under section 2--

`(1) The appropriate notice under section 1 and the payment of the special contribution under section 2 shall be deemed to have occurred in respect of any automatic right on the coming into force of this Act.

(2) In subsection (1) above an ``automatic right'' is a right to acquire shares in a body corporate obtained after 5th April 1999 and before 20th May 2000 where, on 7th November 2000, the amount payable to acquire the shares which are the subject of that right was not manifestly less than the market value of those shares.

(3) In this section ``market value'' has the meaning given it in Part VIII of the Taxation of Chargeable Gains Act 1992.'.

The amendment addresses the issue raised in new clauses 1 and 2, and I hope that the Committee will accept it.

We all want to reduce the burdens on employers. The Bill requires all employers who want to take advantage of the new provision to notify their intention to do so within a fixed period. That includes companies for which the special contribution would be nil either because the shares were not readily convertible assets on 7 November 2000 or because the option was under water on that date--that is, the value of the shares was less than when the option was issued. In both circumstances, there would be no liability when the special contribution is calculated.

Some companies and their advisers have criticised the provision on the grounds that it amounts to unnecessary bureaucracy and have suggested that it is unfair on small companies, such as those to which the hon. Member for Torridge and West Devon referred, because they might not notice--we shall be writing to all of them--that if they made an application, they would have nothing to pay. The hon. Member for Arundel and South Downs raised the matter on Second Reading and we have listened to the concerns expressed, as I promised then. We want to make the new provision as simple as possible, and the amendment will allow those companies whose special contribution would be nil to be deemed to have notified us. The amendment will also ensure that other provisions continue to apply--for example, the roll-over provision in clause 3 and appeal rights.

The amendment will achieve the effect of the new clauses and goes a little further, so I hope that the Committee is able to welcome it and that the hon. Member for Arundel and South Downs will not insist on new clauses 1 and 2.

I am grateful that the Government have taken this point on board. As the Minister said, the amendment achieves approximately the same end as the new clauses. Given the brief periods of notice involved, this is the area in which the greatest injustice might have arisen, particularly in respect of small companies. Had there been no liability under the Bill, it would have been particularly unjust for failure to understand the requirement, or to act in time, to have crystallised into substantial, on-going liabilities down the line.

Perhaps the deeming approach will add to the regulations, and I look forward to discovering how the Government propose to operate the clause. Most businesses that the Bill deals with have had a rough time in the past 13 months—particularly new, small, high-tech and new economy businesses—so it is likely that the overwhelming majority will fall into the category covered by the amendment. They will be excluded either because their assets are not yet realisable or because their share price in relation to the price at which options were granted is substantially under water. This is a practical relieving measure that will avoid unfairness for the very businesses that are most in need of help.

We support this helpful provision. It is a useful and sensible solution to what would have proved a problem to those companies whose liabilities were nil. Such companies will now be deemed to have notified, so they will not be adversely affected.

Amendment agreed to.

Clause 1, as amended, ordered to stand part of the Bill.