The Chancellor’s Autumn statement provides some welcome news for both employers and employees. Many of the employment tax measures reflect the government’s priorities of promoting employee share ownership, simplifying the tax system and cracking down on tax avoidance.
We set out below a summary of the main measures that have been announced in the areas of employment and partnership taxation. Further announcements together with draft legislation are expected over the coming days and weeks so we will keep you updated on any developments.
Increase in HMRC approved share plan limits
From 2014, there will be an increase in the individual limits for both HMRC approved SAYE plans and Share Incentive Plans (SIPs).
- The SAYE monthly limit on the amount that employees can save and apply towards the purchase of share will be increased from £250 to £500 per month.
- The limit on free shares that can be awarded under a SIP will increase from £3,000 to £3,600 per year and the limit on the ‘partnership’ shares employees can purchase will be increased from £1,500 to £1,800 per year (or 10% of an employee’s annual salary).
This is very welcome news and comes after many years of lobbying by the share plans industry.
The SAYE plan in particular now has the potential to become a very valuable part of an employee’s total reward package. The changes come on top of the broadening, earlier this year, of the type of company that can operate HMRC approved plans, and the new self-certification regime which will come into effect next year, and show the government’s continued commitment to promoting tax efficient employee share ownership.
Tax boosts for employee controlled companies
Another part of the government’s push to encourage employee ownership was the announcement of tax reliefs for employee controlled companies (which had first been announced earlier in the year).
These reliefs consist of a capital gains tax exemption for the sale of shares that result in a controlling interest in the company being held by an employee trust, and an income tax exemption for bonuses of up to £3,600 paid to employees of employee owned companies.
The indirect employee ownership model using an employee trust is still relatively rare in the UK. It remains to be seen whether these measures will be sufficient to tempt existing majority shareholders to embrace employee ownership as a route for selling their holdings.
Simplifying the expenses and benefits system
The government will start to implement the proposals of the Office of Tax Simplification (OTS) for simplifying the expenses and benefits system. Nine of the proposals will be implemented by January 2014 with a further ten to be implemented later in 2014. These proposals will not result in any significant changes to the taxation of expenses and benefits, but are mainly intended to improve the way the current system works (for example, by improving the HMRC guidance in a number of areas).
Income tax - transfer of personal allowance between spouses
From 2015, individuals will be able to transfer up to £1,000 of their income tax personal allowance to their spouse or civil partner (provided neither is a higher rate taxpayer). This will benefit families where one individual earns less than the personal allowance.
Income tax exemption for medical treatment
From 2014, there will be a new income tax exemption for up to £500 worth of medical treatment paid by employers for their employees.
Employer National Insurance contributions exemption for employees under 21
From April 2015, employer’s NICs will no longer be payable on earnings paid up to the Upper Earnings Limit (which will be £42,285 for the 2015-16 tax year) to any employee under the age of 21.
LLP taxation - allocation of profits in mixed member partnerships
As expected, the government is proceeding with legislation to crack down on tax avoidance involving mixed member LLPs (typically arrangements involving the use a corporate member). Under the new rules, where a corporate member is allocated excessive profits and an individual partner has the power to benefit from the profits allocated to the corporate member (for example, by owning that corporate member), the profits will be reallocated for tax purposes to the individual member.
During the consultation, it was highlighted that these new mixed member rules may pose significant difficulties for fund managers who are required to defer variable pay under the new AIFMD remuneration rules due to be implemented in 2014. There is reference in the HMRC proposals to a new paper based process for the collection of tax and NICs which fund managers may be able to apply in these circumstances, so we await further details on how this will work.
Other tax avoidance measures - intermediaries and dual contracts
It was also announced that there would be further measures to crack down on tax avoidance involving onshore intermediaries to disguise employment as self-employment, and where non-resident individuals use dual contracts to create an artificial division of duties.
Further announcements expected
We are also expecting further detail on the following measures over the next few days:
- proposals under which certain LLP members would be deemed employees for tax purposes
- implementation of the OTS proposals relating to unapproved share schemes (including changes to the taxation of internationally mobile employees)
- implementation of online filing for share schemes and the self-certification regime for HMRC approved share schemes
For further information or to discuss the issues raised, please contact one of our Compensation and Benefits and Employment Taxation specialists on +44 (0) 203 051 5711.
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