Share Incentive Plans and Save As You Earn Limits
The share incentive plan annual limits will increase to £3,600 per tax year for free shares and £1,800 per tax year for partnership shares. The maximum monthly amount that an employee can contribute to Save As You Earn plans will increase from £250 to £500. Both changes will take effect from April 2014. This is the first increase in the SIP limits and the first change in SAYE limits since 1st September 1991.
The Pett Franklin View
These changes should be seen in the wider context of moves to encourage the use of these plans to encourage wider share ownership. When combined with the simplification of the rules relating to the plans, the removal of the need for prior HMRC approval and allowing existing owners with a “material interest” in the companies to participate, the scope for the use of these plans to encourage wider share ownership tax effective is increasing significantly and the total benefits available can be substantial.
With the maximum use of reliefs under each of the schemes but without the benefit of any share price growth, a basic rate tax paying employee could receive tax advantaged shares over a three year period with a total value of £49,500 in return for an effective investment of £21,672 after tax relief, delivering a tax free profit of £27,828. Those benefits increase further if the share price increases during that time.
SIPs and SAYE schemes should be reconsidered by all independent companies, particularly private companies which may not have been able to use such schemes under the old legislation and where the scope for share price growth may be more substantial than with a well established listed company.
How can we help?
We are happy to talk to you about the impact of the new changes and their impact on your company and advise on the steps to be taken to benefit from the changes or introduce SIP or SAYE schemes where these are not already in place.
Employee Ownership
There had been much anticipation in the world of employee share schemes relating to the expected announcements of tax reliefs to support wider employee ownership.
Employee ownership goes beyond traditional employee share schemes. It builds on work by the Department for Business Innovation and Skills with advice and preparation of draft documentation by our Firm.
The reliefs expected and announced in the Autumn Statement relate to indirect employee ownership, namely the ownership of shares in a company collectively on behalf of the employees. This normally operates through an employee benefit trust supported by the documentation we prepared.
The Reliefs
The Government consulted on the forms of relief in July 2013. Following the consultation, it has announced reliefs with an expected value of £50m to support indirect employee ownership. The Autumn Statement confirms the introduction of a number of reliefs:
Income Tax – From October 2014, up to £3,600 of bonus free of tax and national insurance contributions per year made to employees of indirectly employee owned companies which are owned by an employee ownership trust.
Capital Gains Tax – From April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from capital gains tax.
Inheritance Tax – There is to be a separate relief for the transfer of shares and other assets to employee ownership trusts provided that certain conditions are met.
The Pett Franklin View
The reliefs demonstrate the commitment of BIS to encouraging employee ownership. The steps being taken are not limited to tax benefits but the reliefs offer a fiscal encouragement which is designed to trigger a step change in encouraging employee ownership.
David Pett commented that “it is encouraging to see the work which many advisers, including our Firm, have put into developing employee ownership into an important feature of the UK economy being reflected in hard Government action and fiscal encouragement”.
How can we help?
We are well placed to advise on the tax and legal issues arising in relation to employee ownership, including creating the appropriate ownership structure obtaining the tax reliefs now on offer.
Close Companies
More good news for companies (typically smaller companies) with a tight shareholding structure resulting in them being close companies for tax purposes is that it has been confirmed that the government does not intend to make any immediate changes to the structure or operation of the tax charge on loans from close companies to their investors.
In addition, from April 2014, the income tax relief for interest paid on loans to invested in close companies and employee owned companies will be extended to investments in such companies resident throughout the European Economic Area.
How can we help?
We advise many companies and their shareholders who will benefit from these changes will advise on their impact and potential benefits.
Other Changes
The Chancellor confirmed expected changes to restrict the use of partnerships to achieve tax reductions particularly where there is a mixed partnership of individuals and companies as well as to address other forms of tax avoidance such as the use of intermediaries to reduce tax and national insurance contributions and dual contracts.
Further details are expected to be announced next week.
The Pett Franklin View
As a Firm, we do not promote, encourage or advise on establishing tax avoidance schemes. As such, we welcome measures to ensure that tax reliefs are given in accordance with the terms of the legislation to the intended recipients.
How can we help?
We can assist in two mains ways. First, where existing plans are affected by the new measures, we can advise on restructuring them in accordance with the intent of the legislation. Second, where existing plans are challenged by HMRC under their policy of litigating tax avoidance schemes which they believe are ineffective, we can advise on the appropriate response.