1. The purpose of this clause is to remove the present rule that profit- related pay (PRP) should not count towards the existing agricultural minimum wage. It takes effect retrospectively from 28 July 1998, following the then Economic Secretary’s announcement of that date.

2. At present, one specific requirement for registration for a tax-relieved PRP scheme is that the application must contain an undertaking that the emoluments paid to any employee to whom the scheme relates and to whom the existing agricultural minimum wage legislation applies satisfy that legislation without taking account of PRP.

3. This clause will remove any potential unfairness caused by continuing to insist on the possibility of downward pay flexibility only for a small minority of low-paid workers in PRP schemes in the agricultural sector. It will ensure that the PRP rules treat employers and employees in the agricultural sector in the same way as employers and employees in other business sectors. This change will not affect the agricultural worker’s right to be paid at least the appropriate agricultural minimum wage - which must not be less than the National Minimum Wage (NMW).

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4. The Clause amends Section 175 subsection (1) paragraph (c) and subsection (4), and Section 178(1)(d) to the Income Tax and Corporation Taxes Act 1988.

5. Subsection (1) relates to the requirements for an application to register a PRP scheme. For applications made at any time on or after 28 July 1998 it removes paragraph (c) of Section 175(1). Paragraph (c) provides that a registered PRP scheme must contain an undertaking by the applicant that the emoluments paid to any employee to whom the scheme relates and to whom minimum wage legislation applies will satisfy that legislation without taking account of PRP. The effect of removing paragraph (c) will therefore be that employees to whom minimum wage legislation applies will be subject to the same PRP rule as other employees and any PRP, whether or not it is tax relieved, will count towards the minimum wage.

6. Subsection (2) relates to the cancellation of a registered scheme. It removes paragraph (d) of Section 178(1) and the word "or" immediately preceding it. Paragraph (d) provides that, if the undertaking in respect of emoluments paid to any employee to whom the scheme relates and to whom minimum wage legislation applies has not been complied with in relation to employment at any time during a profit period, the scheme may be cancelled. As the undertaking is no longer required the subsection removes non-compliance with the undertaking as a reason for cancellation of a registered scheme.

7. Subsection 3 provides that non-compliance with the undertaking in respect of emoluments paid to any employee to whom the scheme relates and to whom minimum wage legislation applies has effect only to failures to comply taking place on or after 28 July 1998. Failures to comply earlier than that date may still result in the cancellation of the registered scheme.

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8. PRP is that part of pay which varies with changes in the profits of the business in which the employee works. PRP paid to an employee under a scheme registered by the Inland Revenue before the date when the scheme is due to start, is free of income tax for profit periods commencing between 1 January 1999 and 31 December 1999 up to the lower of £1,000 or 20 per cent of the employee’s pay in the profit period to which the PRP relates. A "profit period" is normally the employer’s accounting period, and must usually run for 12 months. No relief will be allowable for profit periods commencing on or after1 January 2000.

9. The legislation governing the provision of tax relief for PRP is contained in Sections 169 to 184 of, and Schedule 8 to, the Income and Corporation Taxes Act 1988, as subsequently amended.

10. At present, if a scheme covers employees who are protected by minimum wage legislation, namely agricultural workers, their wages, excluding PRP, must satisfy that legislation.

11. The exclusion of PRP under these circumstances conflicts with the Low Pay Commission’s recommendation that incentive payments - and, in particular, payments of tax-relieved PRP - should be included in the earnings that count towards the NMW.

12. In a written reply to a Parliamentary Question on 28 July 1998 the then Economic Secretary said that the Government accepted the Low Pay Commission’s recommendation that incentive payments should be included in the earnings that count towards the NMW. She went on to say that this represented a significant step towards achieving the Commission’s aspiration that the definition of the NMW should be "simple and fair".

13. The Economic Secretary said that in order to ensure that employers and employees in the agricultural sector were subject to the same PRP rules as employers and employees in other business sectors, the present PRP rule that tax-relieved PRP should not count towards the existing agricultural minimum wage, would be repealed in the Finance Act 1999, with effect from 28 July 1998.