|Social Security Contributions (Share Options) Bill
Mr. Timms: I do not think that the amendments are necessary. The hon. Gentleman makes an interesting point, but from an analysis of the number of share option national insurance elections that have been received by the Inland Revenue, it appears that only a small proportion have asked the employee to meet a part of the secondary contributions due from share option gains, rather than the full liability. The overwhelming majority have been for the full liability.
There are not, in any case, many share option elections for options granted before 19 May 2000, in the gap period. That is why the Bill is necessary: because for so many of the options, no election has been made. It would not surprise me if there were no cases at all in which there has been a partial switch of liability for options issued in the period 16 April 1999 to 19 May 2000, although there may be a few.
If the amendment were made, further amendments would be required to ensure that the roll-over provisions and the assessment of the special contribution could apply to options only partly settled. Those amendments would considerably increase the complexity of the way in which the special contribution has to be calculated. That could leave some options partly settled and would increase administration.
Where there has been no election, but the employer has entered into an agreement with the employee, the paying of the special contribution remains in its entirety with the employer. That is the most sensible way to proceed. The amendment is not helpful in a practical way and would introduce considerable extra complexity, and I hope that the hon. Gentleman will not press it to a vote.
Mr. Flight: I confess that when I first read the Bill, I thought that there was an error in the wording providing for the special NIC liability to be paid at all by employees. As I commented, I subsequently checked that the arrangements were included in the May 2000 changes. While the Minister is correct when he says that it is highly unlikely that any companies and employees will avail themselves of those measures in the time periodindeed, employers will lack the leverage to persuade employees to bear part of their NIC liabilities in relation to options granted before last Mayif even one or two were to do so, there would be a legal problem. The arrangements from May 2000 mean that it cannot be a joint application. Legally, there must be separate applications.
I accept the Minister's common-sense response, but the Government will need to find another measure if they do not like those provided by the amendments, to address the problem, should it arise. It is not satisfactory to have legislation on the statute books that does not cater for certain foreseeable situations. Even if, in practice, such cases are unlikely, what happens when they arise? I bounce that question back to the Minister. He is probably right, but what do the Government propose to do if there is a partial liability split between employer and employee?
Mr. Timms: The most sensible way to handle such a situation might be for the employer and employee to agree that one or the other--probably the employee--should bear the full liability, and the other provisions of the Bill would then apply. That would resolve the problem satisfactorily, but it is highly unlikely that it would arise.
Mr. Flight: My diagnosis is that, without a change, no company will be able to avail itself of the May 2000 arrangements in respect of options during the 13-month period, because it will not be able to meet the requirement for joint election when it would need to be separate. My message is that company advisers will suggest that, if companies want to avail themselves of the measures in the Bill, the liability will need to be all on the employer's side. That is reasonable, but it is the net effect, so it will negate those provisions that otherwise prescribe for partial election. That is how the issue will have to be interpreted.
Mr. Timms: The hon. Gentleman is right, but the employer, not the employee, would probably take on the full liability and then settle it in the way set out in the Bill.
Mr. Flight: We have raised the problem, and its legal effect has been described, but we do not want to press the matter to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Timms: I beg to move amendment No. 34, in page 2, line 35, at end insert
The Chairman: With this it will be convenient to take the following: New clause 1No liability to Class 1 contributions
New clause 2--Automatic rights: notice under section 1 and payment under section 2--
(2) In subsection (1) above an ``automatic right'' is a right to acquire shares in a body corporate obtained after 5th April 1999 and before 20th May 2000 where, on 7th November 2000, the amount payable to acquire the shares which are the subject of that right was not manifestly less than the market value of those shares.
(3) In this section ``market value'' has the meaning given it in Part VIII of the Taxation of Chargeable Gains Act 1992.'.
We all want to reduce the burdens on employers. The Bill requires all employers who want to take advantage of the new provision to notify their intention to do so within a fixed period. That includes companies for which the special contribution would be nil either because the shares were not readily convertible assets on 7 November 2000 or because the option was under water on that date--that is, the value of the shares was less than when the option was issued. In both circumstances, there would be no liability when the special contribution is calculated.
Some companies and their advisers have criticised the provision on the grounds that it amounts to unnecessary bureaucracy and have suggested that it is unfair on small companies, such as those to which the hon. Member for Torridge and West Devon referred, because they might not notice--we shall be writing to all of them--that if they made an application, they would have nothing to pay. The hon. Member for Arundel and South Downs raised the matter on Second Reading and we have listened to the concerns expressed, as I promised then. We want to make the new provision as simple as possible, and the amendment will allow those companies whose special contribution would be nil to be deemed to have notified us. The amendment will also ensure that other provisions continue to apply--for example, the roll-over provision in clause 3 and appeal rights.
The amendment will achieve the effect of the new clauses and goes a little further, so I hope that the Committee is able to welcome it and that the hon. Member for Arundel and South Downs will not insist on new clauses 1 and 2.
Mr. Flight: I am grateful that the Government have taken this point on board. As the Minister said, the amendment achieves approximately the same end as the new clauses. Given the brief periods of notice involved, this is the area in which the greatest injustice might have arisen, particularly in respect of small companies. Had there been no liability under the Bill, it would have been particularly unjust for failure to understand the requirement, or to act in time, to have crystallised into substantial, on-going liabilities down the line.
Perhaps the deeming approach will add to the regulations, and I look forward to discovering how the Government propose to operate the clause. Most businesses that the Bill deals with have had a rough time in the past 13 monthsparticularly new, small, high-tech and new economy businessesso it is likely that the overwhelming majority will fall into the category covered by the amendment. They will be excluded either because their assets are not yet realisable or because their share price in relation to the price at which options were granted is substantially under water. This is a practical relieving measure that will avoid unfairness for the very businesses that are most in need of help.
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