My noble friend makes an excellent point. That is absolutely true. I can confirm that if any legal firms are connected at all with the employer seeking to employ the employee shareholder, they will not be permitted to give legal advice.
Returning to the individuals, as I was saying, it gives them time not to be pressurised into accepting a contract and an opportunity to think about what the contract will mean to them. An individual cannot become an employee shareholder unless this and all the other criteria set out in the clause are met. This package of amendments means that an individual who has chosen to apply for and been offered an employee shareholder job has the information, advice and time that they need to consider whether the job is right for them.
I now turn to the amendment tabled today by the noble Lord, Lord Lea of Crondall. We do not believe that such provision within the clause is necessary. We believe that it should be up to employers to recruit as they see fit, and if companies want to recruit an employee shareholder, as they already do for employees or workers, they should be able to do so.
I take a moment to clarify points that have been raised repeatedly in both Houses. In the debates about this clause, it has been stated that the shares issued to the individual could be worthless. I should like to make it absolutely clear that shares issued as part of the employee shareholder status must be worth at least £2,000. The shares must be fully paid up by the employer and the clause also prevents the individual paying for them.
I understand the concerns raised by my noble friend Lord Forsyth in relation to valuing shares. As I have made clear previously, established practices are in place that cover this. Let me repeat, we recognise that for private companies there is no traded market which enables easy valuation of shares. Private company shares are valued for many different reasons—for example, when someone leaves the company and wants to sell shares, or following the death of a shareholder or if the company is to be sold. Practitioners such as actuaries and accountants undertake this work using standard methods to reach a valuation. They will consider such things as examining the company’s performance and financial status as shown in its accounts for a period up to the date of valuation. They may also consider future plans of the company, by looking at order books and analysing future commitments.
If a private company is considering issuing new shares as part of an employee shareholder scheme, it will probably be taking advice from its accountant, who will be able to advise on how best to value the shares to be issued. In this case, the company will be able to demonstrate how the valuation has been made to the individual. In addition, I reassure the House that we will not allow individuals to use this employment status for tax avoidance.
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My first point is that some of the mischiefs that may be causing concern are already prevented by existing tax rules. There are rules that prevent, for example, the manipulation of share value so that it is inflated. They help safeguard against abuse by those who are seeking to obtain disproportionate capital gains.
My second point that I would like to reiterate is that the Finance Bill, published on 28 March and currently progressing through the House, includes a number of stringent anti-avoidance rules. These will
prevent those who have a substantial interest in a company from benefiting from any tax advantages, as they may otherwise use the status to secure tax advantages for themselves or family members. There are also rules to safeguard against a person exploiting the tax advantages available through multiple use of the arrangement involving connected companies.
There have been concerns that highly paid employees in companies that are already well established may look to take on the maximum share ownership available in order to reduce their capital gains tax liabilities. However, a highly paid employee would face income tax and national insurance contributions on any share value above the first £2,000. The employer would also face employer national insurance contributions when providing employee shareholders with substantial share value.
I also point out that employee shareholder legislation prevents an employee sacrificing taxable remuneration or employment benefits to take up this status for the purposes of obtaining a tax advantage. That is because an employee shareholder is not permitted to give any consideration—which means forgoing anything—for the shares that they receive. That will prevent the type of salary sacrifice behaviours that my noble friend Lord Forsyth and others have rightly described. If necessary, further provisions to that effect could be considered as part of the Finance Bill.
I reassure the House that the Treasury, HMRC and my department, BIS, are already monitoring and will continue to monitor potential scope for abuses of the employee shareholder status for excessive and unacceptable tax purposes.
When we debated the new employee shareholder status on Monday, I recognised the strength of feeling in the House. I hope that the House recognises that we have now brought forward a package of amendments to the clause that will provide significant further protections to individuals. I therefore hope the House will now feel able to support the inclusion of an amended Clause 27 in the Bill and the greater choice for companies and individuals that it will provide. I beg to move .