HC Deb 11 July 1978 vol 953 cc1291-4

"(1) Any sum expended by the company concerned or, in the case of a group scheme, by a participating company in making a payment to the trustees of an approved scheme shall be included—

  1. (a) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by that company, or
  2. (b) if that company is an investment company within the meaning of section 304 of the Taxes Act or a company in the case of which that section applies by virtue of section 305 of that Act, in the sums to be deducted as expenses of management in computing the profits of the company for the purposes of corporation tax,
if, and only if, one of the conditions in subsection (2) below is fulfilled.

(2) The conditions referred to in subsection (1) above are—

  1. (a) that before the expiry of the relevant period the sum in question is applied by the trustees in the acquisition of shares for appropriation to individuals who are eligible to participate in the scheme by virtue of their being or having been employees or directors of the company making the payment; and
  2. (b) that the sum is necessary to meet the reasonable expenses of the trustees in administering the scheme.

(3) For the purposes of subsection (2)(a) above, 'the relevant period' means the period of nine months beginning on the day following the end of the period of account in which the sum in question is charged as an expense of the company incurring the expenditure or such longer period as the Board may allow by notice in writing given to that company.

(4) For the purposes of this section, the trustees of an approved scheme shall be taken to apply sums paid to them in the order in which the sums are received by them.".—[Mr. Robert Sheldon.]

Brought up, and read the First time.

5.15 p.m.

Mr. Robert Sheldon

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Oscar Murton)

It will be convenient to take at the same time the following Government amendments: No. 86, in schedule 8, page 74, line 14, at end insert— (1A) Where the company concerned has control of another company or companies, the scheme may he expressed to extend to all or any of the companies of which it has control; and in this Schedule a scheme which is expressed so to extend is referred to as a 'group scheme' and, in relation to a group scheme, the expression participating company' means the company concerned or a company of which for the time being the company concerned has control and to which for the time being the scheme is expressed to extend.". NO. 159, in clause 49, page 45, line 27, at end insert 'group scheme' and, in relation to such a scheme, 'participating company' have the meaning assigned by paragraph 1(1A) of that Schedule".

Mr. Sheldon

This new clause has been tabled to make clear the situation concerning the deductibility for corporation tax purposes of money spent by companies on profit sharing under the approved schemes made available to them in the Finance Bill of this year.

The hon. Member for Norfolk, South (Mr. MacGregor), the CBI and others have asked for clarification as to the precise circumstances under which deductions are allowable under the schedule D rules. The purpose of the clause is to make clear what the rules are.

In subsection (2) we have specified two conditions to enable sums to qualify for deduction. First, the sums must be used to purchase shares within nine months of the end of the accounting period. Second, the amounts paid must be the amounts necessary to meet the reasonable expenses of the trustees.

Amendment no. 86 relates to group schemes. We shall come to a number of others in due course. It provides that if a company which establishes a profit-sharing scheme controls another company or companies, its scheme or schemes can extend to all or any of its subsidiaries. This was done in response to representations in Committee and from outside. Amendment no. 159 is drafting and consequential.

Mr. John MacGregor (Norfolk, South)

I am in this somewhat unaccustomed position on the Front Bench because I handed the profit-sharing clauses for the Opposition in Committee and put forward the substance of these amendments. I am grateful to the Financial Secretary for meeting his commitments and bringing them forward. There are several other related amendments later.

This whole scheme has been much improved by our Committee debates and by the efforts of the Conservative Party, supported sometimes by the Liberals. We should still like more generous tax reliefs, and we shall come to that matter later.

We are pleased with the drafting of new clause no. 49. It meets our fundamental point about expenses, on which companies were in a good deal of uncertainty. The time limit also is reasonable, although we may wish later to extend the relevant period in the light of how it works. We shall want to monitor the extra nine months after the end of the financial year.

Subsection (3) gives the Revenue flexibility to allow a longer period in notice in writing given to the company. It may not always be possible, perhaps because of market conditions, for companies to appropriate shares exactly when the trustees may wish. We may need the flexibility and I hope that the Revenue will use it.

Amendment no. 86 meets the point made firmly in Committee and which worried many companies that might wish to introduce these schemes—that the administrative complexities would be enormous if they were to have separate schemes for every subordinate company within a holding company or group. The amendment makes possible a single scheme for a group. We are glad of these changes, which remove some difficulties and restrictions.

Question put and agreed to.

Clause read a Second time, and added to the Bill.