“(c) after subsection (4) insert—
‘(5) Within three months of the passing of the Finance Act 2019, the Chancellor of the Exchequer shall review the revenue effects if—
(a) the provision of section 49(2) of that Act had not been made, and
(b) the exemption under subsection (3) of this section did not apply to a Schedule 2 SIP that was not approved between the coming into force of the relevant provisions of the Finance Act 2014 and the passing of the Finance Act 2019.
(6) A report of the review under this subsection (5) section shall be laid before the House of Commons as soon as practicable after its completion.’”
This amendment would require the Chancellor of the Exchequer to review the revenue effects if the tax exemption under section 95 of the Finance Act 2001 had not applied to self-certified share incentive plans.
The clause makes a minor change to ensure that existing stamp duty relief continues to apply to both non-approved and approved share incentive plans. Our amendment 91 calls for a review of the revenue effects of that measure compared with the status quo, under which only approved plans are covered. The amendment is intended to give us a better handle on the overall cost of SIPs and how that relates to their benefits.
As I am sure Committee members know, SIPs have been tax advantaged since 2001, when stamp duty and what was then stamp duty reserve tax—it is now SDLT—were removed from the transfer of shares in a SIP from trustees to an employee. The requirement for approval was removed in 2014, but the appropriate corrections to legislation were not made. I note that the changes in the clause are required purely because of errors of omission back then, which perhaps highlights some of the issues the Committee has discussed.
SIPs avoid many of the problems with other share incentive plans, not least by being provided to all employees rather than only to a subset. We have seen how share plans have been manipulated when they have been provided only to the top management of companies. SIPs avoid that. Although so-called free shares can be linked to the achievement of performance targets, they cannot be allocated individually. They can be provided only to a particular business unit or to the whole company, so they cannot be manipulated by, for example, very top management.
Some categories of shares can be removed from employees who leave the firm through either voluntary resignation or dismissal within three years of their joining the SIP. That and the stake that SIPs create for employees in their company are viewed by some commentators as positive aspects of the plans. In addition, there is a considerable cost saving for firms of up to £138 for every £1,000 invested in SIPs by their employees. We must acknowledge, however, that the people who gain most from such schemes are those who are already in a higher-rate tax band, who by my calculation gain around an additional third of the tax they would otherwise pay, compared with a basic rate taxpayer.
In addition, SIPs have complex interactions with the social security system. I want to ask the Minister for clarification in that respect. Information provided to SIP holders states clearly that a small number of people may be affected by the fact that, because of their salary sacrifice—I suppose in practical terms that is what this is—for their SIP, they will not have paid enough national insurance contributions to qualify for particular benefits. However, it is unclear whether contributions to a SIP are treated differently for tax and social security purposes.
Some claimants of tax credits have received mixed messages about whether contributions to SIPs should be added back on to their gross pay for the purpose of informing the Department for Work and Pensions about their income. Individuals do not have to declare their SIP contributions for the purpose of income tax, or at least those contributions generally are not chargeable to income tax. There is a peculiar and potentially unfair difference there.
That is compounded by the fact that tax becomes payable on some of the different types of shares within a SIP if an individual sells them within five years—for example, if they have to switch jobs. Some individuals have said that that is almost a form of double taxation for people who claim social security. They suggest it is a bit of an anomaly, and I can see why. For people affected in this way, they would be better off buying their firm’s shares at market prices rather than taking part in a SIP in the first place. That is the situation with tax credits, but I cannot find any information anywhere about the treatment of these schemes for those claiming universal credit.
I looked at the IR177 document “share incentive plans and your entitlement to benefits” but that was produced in January 2011, and there seems to have been no amendment of it since then. There does not seem to have been any amendment to the SIP manual relating to universal credit either, or at least not since November 2015. Having gone through all the iterations of the manual, I did not wish to waste any more time searching for a potentially non-existent needle in a haystack.
Will the Minister clarify whether contributions to SIPs are counted as income for the purposes of calculating working tax credit or universal credit? If so, will the Department be looking at this issue? Might it be trying to devise a different approach, given that individuals will be affected by the counting of those shares as income if they leave a SIP scheme early? People on low incomes may well have to switch jobs more regularly than others do, so it would be helpful if he looked into that. Perhaps he knows the answer already. If not, will he write to us? Some people would find that enormously helpful.
On the hon. Lady’s specific question about the interaction of SIP contributions and the reporting of income, and the further interaction with working tax credits and universal credit, I do not know the answer, and I do not think my officials can immediately answer it. I will have a closer look at that and write to her, as she requests.
Clause 49 makes a minor correcting amendment to section 95 of the Finance Act 2001 concerning stamp duty and stamp duty reserve tax exemptions for SIPs. Stamp duty and stamp duty reserve tax exemptions for SIPs were introduced in the Finance Act 2001. Until 2014, share incentive plans had to be approved by HMRC before an employer could operate them. These were referred to as approved share incentive plans. The Finance Act 2014 removed the requirement for HMRC to approve share incentive plans and replaced it with a self-certification process. All references to approved share incentive plans should have been removed from legislation, but a change to section 95 of the Finance Act 2001 was omitted. The clause changes the wording of section 95 of the Finance Act 2001 to ensure that it is consistent with other provisions of the share incentive plans code. No taxpayers should have incurred stamp duty on self-certified SIPs since the rule changed in 2014, and this provision confirms and clarifies the position. No changes are made to the existing exemptions available for share incentive plans.
Amendment 91 would require a review of the revenue effects if the stamp duty exemptions for SIPs had not applied to self-certified share incentive plans from 2014. This provision is a minor technical change that brings the wording of the legislation back in line with its application. There will be no revenue impact as a result of the correction. SIPs offer a combination of tax incentives to employers, and estimates for the cost of the stamp duty exemptions for SIPs are not available. The clause makes a minor correcting amendment to exemptions for share incentive plans, and I commend it to the Committee.
I am willing to withdraw amendment 91, given the Minister’s clarification, and I am grateful for his willingness to write to me about the issue that I raised. I make the general point that it is important that we consider these interactions between the social security system and the taxation system. It is particularly important for people on low incomes that we always bear that in mind.