The government said on Friday it would introduce legislation to help companies which grant share options to employees as part of their remuneration but who experience highly volatile share prices.
The change, which follows consultation announced in the March Budget, will allow employer’s National Insurance contributions to be recovered from or transferred to the employee. This is intended to solve accounting difficulties and also help smaller start-up companies with limited cash flow.
PwC tax partner John Whiting said: ‘This is undoubtedly a step in the right direction but it is not exactly a giant stride. It remains to be seen if this will be enough to answer the concerns of e-business which may still feel that it is stubbing its toes against an unhelpful tax system.’
Employer’s NIC has been viewed as a strain on emerging businesses. The problem centres on the widely used method of rewarding employees in the new economy with shares where cash is scarce. When they are cashed in, shares carry a 12.2% employer’s National Insurance charge, as well as 40% income tax. The government had previously suggested this charge could simply be passed to the employee – which would leave employees with a 52.2% rate of tax.
‘We can’t expect that the government will do other than impose income tax at 40% on the option gains – and it’s sadly clear that they are wedded to NIC as a tax that hits such gains,’ Whiting added.
‘Allowing an offset of the NIC for income tax purposes at least brings down the tax rate to 47%. But will this stop people going outside the UK to base their e-businesses – or will they simply pay their employee in shares from the outset so they can aim for the 10% Capital Gains Tax rate?’
Andrew Tyrie airs views on the Finance Bill, 'Making Tax Policy Better' report, and Brexit
In our latest managing partner Q&A looking towards 2017, CVR Global's Richard Toone talks about recruitment, and the potential threat of competition from the legal sector, as key issues for the firm in the coming year
Deloitte to avoid tendering for government contracts over the next six months, to appease Theresa May following consultant's report that painted a less-than-flattering picture of Brexit plans
In our first Q&A looking towards 2017, Menzies senior partner Julie Adams flags up increasing digitisation, aligned with more hands-on consultative services, as the key mix for her practice