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 Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 4:15, 12 June 2003

I urge the Committee to resist the amendments. They seek, as the hon. Gentleman says, to change the qualifying employee share ownership trust rules in the Finance Act 1989. QUEST works by providing generous, up-front corporation tax relief for payments into the trust. There are detailed rules, including allowing up to 20 years to distribute shares to the beneficiaries, that determine whether relief is already claimed and will be lost.

Relief for future payments into QUEST is being ended by clause 141 to coincide with the start of the new corporation tax deduction, while leaving the other rules unchanged. Companies that have already claimed QUEST relief will not lose it if they continue to satisfy the QUEST rules. Ending future QUEST relief when the new corporation tax deduction is introduced is another step in simplifying the corporation tax treatment of employee share schemes. It avoids the potential for excessive relief and the associated need for complex anti-avoidance rules, and reduces the administrative burden on employers operating share option schemes.

Amendment No. 242 is intended to change the rate at which tax is charged if a chargeable event occurs because the QUEST rules are breached. An inevitable consequence of the amendment would be lost tax to the Exchequer, because the rate resulting from the proposed new wording could be as low as zero. That would be an open invitation to those who abuse the generous relief for avoidance purposes to extract funds from their QUEST without risk of losing the generous relief already enjoyed. Clearly, the Government are not attracted to that and I urge the Committee not to be attracted to it or allow it. I urge my hon. Friends to vote against the amendment.

Amendment No. 243 is intended to change the rules that determine whether relief already claimed should be clawed back. It would allow any asset held by the QUEST to be transferred to another trust without any risk of relief being lost. The amendment would make the current clawback rules ineffective.

I urge my hon. Friends to reject both amendments and to leave the rules as they apply intact.