HC Deb 11 July 1984 vol 63 cc1075-7

'(1) After subsection (1) of section 79 of the Finance Act 1972 (share incentive schemes) there shall be inserted— (1A) Where—

  1. (a) director or employee of a body corporate acquires shares in pursuance of an opportunity to acquire shares of that class offered to directors and employees of the body in their capacity as such ('the discount offer'); and
  2. (b) the discount offer is made in conjunction with an offer to the public (`the main offer') under which shares of the same class may be acquired on the same terms, except that a discount in price is offered to directors and employees; and
  3. (c) the director or employee is chargeable to tax under Schedule E on an amount equal to the discount in the price of the shares acquired by him; and
  4. (d) at least 75 per cent. of the aggregate number of shares of the class in question which are acquired in pursuance of the discount offer and the main offer taken together are shares acquired in pursuance of the main offer,
he shall be treated for the purposes of subsection (1) above as acquiring the shares in pursuance of an offer to the public. (1B) Where a director or an employee acquires an interest in shares, subsection (1A) above shall apply as if the references in that subsection to the acquisition of shares were references to the acquisition of an interest in shares.".

(2) In paragraph 3 of Part VII of Schedule 12 to that Act (furnishing of information) there shall be inserted at the end— (2) For the purposes of this paragraph subsections (1A) and (1B) of section 79 shall be disregarded.".'.—[Mr. Moore.]

Brought up, and read the First time.

6 pm

Mr. Moore

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

This new clause is a relieving provision that seeks to deal with a technical deficiency — [Interruption.] It removes the possibility of an unintended tax charge under section 79 of the Finance Act 1972 in the context of a share acquisition by an employee resulting from an offer to the public by his employing company.

Perhaps I may explain how that could occur and why the tax charge was unintended. The purpose of section 79 was to deter a company from setting up a share scheme in a way that would enable it to pass remuneration to its employees in the form of capital rather than income, and therefore income tax free. We discussed this issue in Committee, and I know that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is fully aware of it. Section 79 achieves its aim by imposing an income tax charge instead of a capital gains tax charge on the capital appreciation of an employee's share over a period of time, in situations in which there is a significant risk of share values being increased other than by market forces. I think that we all understand the basic avoidance protection there.

Following our review of this whole area, resulting in clauses 38 to 40, an anomaly has come to light. If a company makes an offer of its shares to the public and allows its employees to buy shares at a discount, although in other respects on exactly the same terms, and if payment for the shares is spread in any way the employee would not only be liable to pay income tax on the discount—which is right and proper under the normal rules of schedule E—but would incur the penal growth in value charge imposed by section 79.

This treatment of employees may constrain companies planning to offer shares to the public and employees and was not intended when the legislation was introduced in 1972. We decided to take the opportunity afforded by the current Finance Bill to remove the possibility of an income tax charge on the growth in value where it is clear that both the offer to the public and the discount to the employees are genuine. That is why the other protective conditions are embodied in this new clause.

Mr. Rooker

The clause is intended to ensure that the offer to employees and the public is genuine. If the anomaly has only just come to light and the problem has been around since 1972, why are the Government acting now? Has a particular company had a problem or is the change the result of a review of legislation?

Mr. Moore

The technical deficiency came to light as the result of our review of legislation.

Mr. Rooker

In that case I have even less reason to pursue the other questions that I intended to ask.

Question put and agreed to.

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

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