Clause 141 - Ending of relief for contributions to QUESTS

Part of Finance Bill – in a Public Bill Committee at 4:15 pm on 12 June 2003.

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Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury 4:15, 12 June 2003

I should like to record my appreciation of all members of the Committee for having had the patience to wade through the most difficult area of schedule 23. I was glad to have the

opportunity to place the arguments on the record and to gain such clarifications as were possible. That has been a major part of our proceedings this afternoon, and I hope that we will now be able to make more rapid progress.

Clause 141 ends relief for contributions to QUESTs—qualifying employee share ownership trusts—which are a special type of employee trust introduced in 1989 with specific statutory corporation tax deductions for contributions. Because of the restrictive statutory rules on how they could operate, they were mainly used as part of a tax planning scheme and not necessarily for their intrinsic merit. The statutory deduction has been replaced by the rules in schedule 24.

One draconian aspect of QUESTs is the clawback, whereby money going in attracts a deduction of 30 per cent. but is re-taxed at the trust rate of 34 per cent. if it is applied for a non-qualifying purpose, thus creating a net loss to employers. That is particularly harsh when, for example, a takeover of the group could leave cash stranded in a QUEST with no possibility of using it for a qualifying purpose, because QUESTs cannot buy shares in a company that is controlled by another company. Unquestionably, that will be common ground.

Given that relief for QUESTs has now gone, amendment No. 242 would remove the draconian aspect by reducing the clawback rate from 34 per cent. to the group's average corporation tax rate.