Standing Committee A
Tuesday 1 May 2001
[Mr. Edward O'Hara in the Chair]
(Except clauses 1 to 3 and 16 to 53 and
schedules 4 to 11)
Clause 63 ordered to stand part of the Bill.
Enterprise investment scheme: amendments
Mr. Howard Flight (Arundel and South Downs): I beg to move amendment No. 24, in page 156, line 35 at end insert
`(and for these purposes an amount is significant in relation to the amount subscribed by an individual if it does not exceed 5 per cent. of the amount subscribed by them)'.
The amendment arises from Government changes that start by being helpful in clarifying uncertainty about what is regarded as an insignificant return of value to an investor. However, the clarification itself contains an uncertainty in that it exempts value received below £1,000 or a level that is insignificant in relation to values subscribed without stating what the second test is. The amendment proposes the test of not exceeding 5 per cent. of the amount subscribed.
The Economic Secretary to the Treasury (Miss Melanie Johnson): The amendment seeks to make a change to measures introduced by the Bill that improve the way in which the enterprise investment scheme operates. They were introduced because the Government listened to representatives of users of the EIS and the changes have been warmly welcomed, some of them by the hon. Member for Arundel and South Downs (Mr. Flight).
We intend to knock some of the sharp edges off the EIS ``value received'' rules that were introduced by the Conservative Government in 1994. We have provided a de minimis limit of £1,000 below which the ``value received'' rules will generally not apply. In addition, where the total amount is exceeded, the value can still be treated as ``insignificant'' if the amount is insignificant in relation to the amount that was subscribed for the shares in question. The amendment seeks to introduce a definition of ``insignificant'' as any amount up to 5 per cent. of the amount subscribed for the shares, and I shall explain why I am not happy about it.
The use of ``insignificant'' is not new in this context. The same wording is used in the corporate venturing scheme which was introduced last year and which has not caused any difficulties in practice. It would certainly not be appropriate to treat a 5 per cent. return of value as being ``insignificant'' in relation to the amount subscribed. That would mean that someone investing £100,000 for example, would be able to get a return of £5,000 without losing any relief. The hon. Gentleman's body language seems to indicate that he believes that that might cause problems.
The purpose of the £1,000 limit is to ease the compliance burden of the ``value received'' rules, so that small amounts of money can, in effect, be ignored provided they do not exceed £1,000 in total. Where a larger amount is returned, it would need to be very small in relation to the amount subscribed if it is to be treated as being an amount of insignificant value, and we do not expect many cases where that applies to arise in practice.
The current wording allows the facts and circumstances of any particular case to be taken into account in a way that a fixed percentage would not. The Inland Revenue will, of course, be prepared to issue guidance in the future, should it be needed, but that guidance should be based on experience, and not on hypothetical cases.
For the reasons I have given, I have no hesitation in asking the Committee to reject the amendments.
Mr. Flight: May I ask the Minister to provide some useful guidelines on what ``insignificant'' means? It appears several times in paragraphs 20, 31 and 35 and leaves uncertainty, especially for those trying to decide whether they have a reporting obligation. While I appreciate that 5 per cent. does not really work, representations have been made by most of the accounting bodies to the effect that the current draft lacks clarity.
Miss Johnson: The word ``insignificant'' is defined in the schedule as an amount that does not exceed £1,000, or
``if it does exceed £1,000, is insignificant in relation to the amount subscribed by the individual in question.''.
There are caveats to prevent entitlements to receive value back and to aggregate more than one return of value. The point that I have already made is relevant to the hon. Gentleman's concern: the provision already operates in respect of the corporate venturing scheme and nobody has yet had any difficulty with it. Normally, discussion with the Inland Revenue would resolve any uncertainty. The Revenue stands ready to prepare guidance should it be needed, but there is no indication that it will.
Mr. Flight: We know that £5,000 is not insignificant. Somewhere between £1,000 and £5,000 is involved. The corporate venturing scheme is new and, therefore, this has not been raised. However, it appears that we can look to the Revenue for some sort of guidance to save it being bothered by numerous applications about what the term means. We have made our point and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 15 agreed to.
Qn proposed, That the clause stand part of the Bill.
Mr. Michael Jack (Fylde): The clause makes some useful improvements to the venture capital trust arrangements, and indeed to the corporate venturing scheme. I rise merely to tell the Economic Secretary that I was grateful during my Second Reading speech for the Paymaster General's kindness in agreeing to consider two points that I made in connection with both venture capital trusts and the enterprise investment scheme, which was the subject of an earlier clause, about the qualifying trades that could benefit from the provisions. The reason that I mention that in this context is that, sadly, land-based industries will not benefit from the provisions of clause 64, because currently they cannot benefit from venture capital trusts or enterprise investment schemes. In the context of the recovery of the agriculture industry and associated industries from the effects of foot and mouth disease there is a case for a temporary reprieve to consider the qualifying trades that could benefit from the clause and to lift the current restriction that prevents land-based industries from benefiting from those ways to bring new investment capital to their activities.
I do not expect for one moment that the Economic Secretary will give me a definitive reply to that point; I merely ask her if she would be kind enough to convey to the Paymaster General my continuing interest in the matteroh, the Paymaster General is present, I do apologise. Those two investment vehicles, with the changes proposed in the clause, could well be useful for the regeneration of agriculturally based businesses and businesses in the areas affected by foot and mouth.
Miss Melanie Johnson: The hon. Gentleman has raised the point and my hon. Friend the Paymaster General has undertaken to bear it in mind. I should not want to cut across what were obviously happy exchanges of views on the Floor of the House. However, as the right hon. Gentleman mentioned foot and mouth in the context of CVS, it may be worthwhile my making one point. It is much the same point as I made earlier in the context of foot and mouth: CVS is not an appropriate vehicle as it targets only companies. Our figures show that fewer than 5 per cent. of livestock farms could potentially qualify. In terms of the farming community, not many people are likely to qualify for CVS because not many work on the basis of company organisation. The measure would not therefore particularly help farmers hit by foot and mouth.
Mr. Jack: We are not considering farming as it is, but in the context of what may result. Under the English rural development plan, opportunities exist for all types of co-operative ventures that may not replicate the current situation. Many schemes might be appropriate in future.
Miss Johnson: I appreciate the point that the right hon. Gentleman makes. There may be changes and we keep the list under review. If we needed to take account of significant developments, I assure him that we would want to do so. For the moment, those wishing to invest in more traditional rural industries, other than farming and market gardening, can do so under the existing laws. There is scope for some rural economy industries to be helped in that way and we can make sure that they are. CVS would not prevent such companies from being based on existing farms if appropriate. I will bear the right hon. Gentleman's points in mind.
Question put and agreed to.
Clause 64 ordered to stand part of the Bill.
Mr. Flight: I beg to move amendment No. 25, in page 169, line 20, after `(a)', insert `at least'.
The amendment raises a brief drafting point. As drafted, the schedule provides that a figure of 80 per cent. has to be invested during the first 12 months. I am sure that the Government mean not that it should be exactly, but at least, 80 per cent. It would clearly not be practical to achieve precisely 80 per cent.hence the amendment. I hope that the Government support it.
Miss Johnson: I am grateful to the hon. Gentleman for his remarks. He says that it is just a small amendment, but it is a helpful one and we understand why it has been tabled. There are similar changes in schedules 15 and 16 to the EIS and CVS schemes, both of which use the phrase ``at least 80 per cent.'' While the existing drafting probably still allows the meaning to be construed as at least 80 per cent., it would be helpful to include the words ``at least''. It would therefore be instructive to avoid the possibility of confusion by having the same language used in regard to all the schemes.
Mr. Flight: I thank the Minister for her comments. I am ``Shocked of Arundel''.
Amendment agreed to.