The government has backed down over the national insurance treatment of dot.com companies’ share options – but has been accused of ‘copping out’ for not going far enough.
In a victory for the dot.coms, ministers have rushed through legislation to end the dispute between the two parties.
The solution – introduced in the Child Support, Pensions and Social Security Bill, which is going through parliament – had been widely expected.
The government has agreed to move the NIC burden away from companies to the individual shareholders when they exercise their options, as long as they agree. But employees will be able to set NICs against income tax arising on the share option gains.
The updated legislation is expected to receive royal assent next month.
Financial secretary Stephen Timms, said: ‘I am very grateful to everyone who responded so quickly to the consultation announced in the Budget.
Allowing employers and employees to come to an agreement to recover or transfer the NI charge should provide a technical solution by completely eliminating the unpredictability of the charge’.
Timms denied companies weren’t completely happy with the amendments.
He added: ‘Most of the companies that responded to the consultation said they will use this solution.’
However Lastminute.com financial director, Julian Culhane, said: ‘This move is a complete cop-out from the government. ‘Its attitude has always been “as long as we get our tax, you can fight over who will pay it”. The legislation is not ideal but is as much as we could have realistically hoped for’.
A major factor in the government’s climbdown was understood to be the government’s fear that technology manufacturers such as Cisco Systems would scrap plans to expand operations in the UK.
This followed a threat by Cisco to cancel its plans to expand in the UK if the situation was not thrashed out. That move would have meant the loss of 4,000 new jobs to mainland Europe. However it is still unclear if Cisco will carry out the threat. The new measures will be backdated to 19 May and will be applied to options granted since 6 April 1999, but not yet exercised.
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