Clause 39 - Corporation tax relief for employee share acquisitions etc

Part of Finance Bill – in a Public Bill Committee at 3:15 pm on 4 June 2013.

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Photo of David Gauke David Gauke The Exchequer Secretary 3:15, 4 June 2013

Clause 39 clarifies the legislation on the corporation tax deductions available where companies grant share options or award shares to their employees.  It is one of several provisions in the Bill to ensure that corporations pay their fair share of tax and cannot exploit legislation to gain unintended tax advantages. The normal rule for employee share options and awards is that the availability of corporation tax relief for companies is linked to employees being charged to income tax on acquiring the shares. However, some companies have recently been claiming deductions for accounting expenses for share options and awards in cases that run clearly counter to this principle.

We are introducing the clause to put the tax position beyond doubt. It confirms that, other than in specified circumstances, no deduction is available for share options where an employee does not acquire the shares in question. It also confirms that where statutory relief for a share option or award is available, no additional deduction should be made. In the Government’s view, that is already the case under current corporation tax legislation. That brings me directly to the first question asked by the hon. Member for Nottingham East, which concerned the cost if we did not go ahead with clause.

Our view is that the measure confirms the law as it has been applied by HMRC since the current rules were introduced in 2003. It is entirely consistent with the principles set down by Parliament in 2003 that there should be symmetry between the availability of corporation tax relief for a company and the employee being chargeable to income tax on acquiring the shares in question. We are confident that our current application of the rules is correct. HMRC will continue to pursue any outstanding current cases under the normal procedures if need be before tribunals or the courts. This is a clarification of what the law currently is and we have not made any assessment as to revenue protected because we think that revenue was already protected under existing legislation, but it is always helpful to remove any uncertainty in these areas.

The wider question raised by the hon. Gentleman was about the taxation of shares in these circumstances. Income tax is chargeable on shares provided by reason of employment in the same way as other employment income. Usually income tax is due when the shares are acquired by the employee but there are some exceptions. Where there are share options, income tax is due when the options are exercised. The purpose of the rules is to tax rewards delivered through shares in the same way as other remuneration. The new provision aims to remove any possible uncertainty and to make it quite clear to companies that these claims are not valid. It is consistent with the intentions of Parliament when the current legislation was passed in 2003 and with the way HMRC has applied the rules since they were first introduced.