With this it will be convenient to discuss the following amendments: No. 274, in
clause 185, page 157, line 32, leave out
'if they are allowed to be deducted'.
No. 283, in
clause 188, page 160, line 33, after 'Ireland)', insert ', or
(c) in prescribed circumstances.'.
The clause deals with tax relief for employers' contributions to pension schemes. The amendments are fairly technical, so I will rattle through them.
On amendment No. 273, it is not clear from clause 185 whether employer contributions, except in the form of cash, will benefit from tax relief. Of course, that ambiguity exists in current legislation, although the Revenue will accept employer contributions as long as the transfer is unconditional. Given that we have a new regime, and will not have the approval system any more, it seems sensible to clarify that. The amendment would make it clear that a contribution in the form of shares or in another non-monetary form will benefit from tax relief.
Amendment No. 274 is also to clause 185. The Government want to replace the mandatory declaration in respect of employer ordinary contributions with a reference to the normal principles of schedule D, which of course comes under the Income and Corporation Taxes Act 1988. That is understandable, because in this case—though not in others—it wants to remove the distinction between occupational and personal schemes. Of course, one assumes that the underlying policy intention is to encourage pension saving through tax relief. Our amendment makes it clear that mandatory tax relief is granted to employers. Otherwise, the clause allows doubt as to whether the employers are absolutely entitled to a reduction in respect of pension contributions. We do not think that it is clear that tax relief is mandatory.
Amendment No. 283 is to clause 188. The clause limits deemed contributions that qualify for tax relief to the statutory debt under section 75 of the Pensions Act 1995 and the relevant equivalent Northern Ireland legislation. In practice, employers may find themselves making other payments, even when statute does not require it. For example, the section 75 debt includes an estimate for expenses of wind-up. As hon. Members may know, in practice this may be insufficient, so an employer may simply agree to meet the full expenses and/or the cost of any necessary or appropriate trustee
insurance, even if the estimate for section 75 purposes proves insufficient. In such circumstances—and there may be others—relief should none the less be available. There may be other payments, such as those envisaged under the amendments proposed to the Pensions Bill, which will also need to be covered if they are brought into effect.
As I say, those are technical amendments, but they are an attempt to improve the legislation and to help the Government achieve what they want.
The hon. Gentleman is, of course, correct to say that the Government's aim is to encourage more people to save now for pension provision in future, and we want to encourage employers to contribute to their employees' pension provision. Employers have, of course, traditionally had a key role in providing pensions for their employees, and we want that to continue under the new regime. In pursuit of those aims, clause 185 will allow an employer to claim a deduction for contributions made to any registered pensions scheme. In a simplified regime, instead of there being different rules for employer contributions to an occupational scheme or a personal pension scheme, as the hon. Member for Tatton pointed out, single sets of rules will apply to all employer contributions.
The clause provides that contributions will be allowed as a deduction in the accounting or other period only as they are paid and only if they meet the normal tax rules of deduction for computation of profits. That means that, where a contribution is paid wholly and exclusively for the purpose of the business, it will be allowed as a deduction.
Not all the normal tax rules that apply to deductions will apply here. The normal tax rule that disallows capital expenditure from deductions will not apply for contributions paid to registered pension schemes, so initial contributions to establish a scheme, which might under normal rules be considered to be capital and therefore not appropriate for a deduction, will be allowed under the rules in clause 185.
The amendments would extend the circumstances in which deductions were allowed. Amendment No. 273 would allow employers to make their contributions in the form of transfers of assets, while No. 274 would allow those contributions to be deducted automatically. Amendment No. 283 would deem payments made in ''prescribed circumstances'', which are not defined further, as contributions.
On amendment No. 273, we do not accept that the transfer of assets or money's worth should be allowed as a contribution. It could lead to abuse in a scheme where a member exercised particular control in the sponsoring employer. I note that there is no provision in the amendment as to how such a transfer should be valued. That would inevitably lead to complex arguments between the Inland Revenue and employers on the correct valuation of assets transferred. We think it right that contributions to a registered pension scheme on which tax relief is available should be limited to monetary amounts paid.
We see a case—in limited circumstances—for assets transferred to be allowed as a contribution and have, as the hon. Gentleman has pointed out, provided for that in clause 184. That allows the transfer of certain Inland Revenue-approved shares to be treated as a member contribution. We do not accept that any additional provision should be made for non-monetary contributions.
On amendment No. 274, we have moved away from automatic deduction to a ''wholly and exclusively'' test. Under the new regime, we have removed all existing controls on funding contributions and benefits. That means that there could be some situations in which automatic relief was not appropriate. For example, in respect of directors of the employing company, or people connected to proprietors of or partners in a business, to introduce rules that excluded such payments would have been long, complex and against the aims of simplification.
The ''wholly and exclusively'' test is well understood and has applied to employer contributions to personal pension schemes for 14 years without causing any great difficulty. Any employer providing pensions to all their employees on an equal basis will continue to get a deduction on contributions paid and need not worry about falling foul of the test.
Amendment No. 283 would extend the meaning of deemed contributions in clause 188 to include payments made in ''prescribed circumstances''. There is no indication in the amendments as to what the prescribed circumstances might be. Clause 188 is designed to deal with a situation where an employer has a legal obligation to pay a debt in specified circumstances. Extending the clause to cover payments that were not incurred under a legal obligation without any clarification in the legislation as to what those circumstances might be would extend the meaning of deemed contribution far too widely. Of course, if the payments satisfied the general rules for employer deduction in clause 185, they would be allowed as a deduction.
I urge the hon. Gentleman not to press the amendments.
On amendment No. 273, it is interesting that the Financial Secretary has ruled out contributions other than in the form of monetary contributions, with the exception of those permitted under clause 184. I do not know whether that is more restrictive than the current regime, which is more ambiguous, with the Inland Revenue accepting contributions provided that the transfer is unconditional. We shall see.
I understand the Financial Secretary's arguments on amendment No. 274. We disagree on the issue, but I will not press it to a vote.
Amendment No. 283 talks about ''prescribed circumstances'' in the sense that the Inland Revenue, rather than anyone else, will do the prescribing. I gave the Financial Secretary an example of an expensive wind-up, where, although the debt under section 75 of the 1995 Act included an estimate of that cost, it was insufficient, as is often so, and the employer agreed to
meet the full expenses and the cost of any necessary or appropriate trustee insurance. In those circumstances, relief is currently available. I am not sure whether it would be available under the Bill, given the fairly restrictive nature of clause 188. However, these points will be argued out with the Revenue at length, and perhaps in the courts. They have had their day in Committee.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 185 ordered to stand part of the Bill.