PracticePeople In PracticeProtests over share option NICs persist

Protests over share option NICs persist

The government is rushing through legislation capping national insurance contributions on share options amidst further protests that taxation is continuing to damage the IT industry.

Chancellor Gordon Brown announced the expanded tax relief in November’s pre-Budget report and said he was looking ‘to create the perfect environment for e-commerce’.

But the Tory’s renewed their attacks on the government as the House of Commons gave final approval for the Bill allowing companies to cap NICs liabilities.

Businesses have just over 92 days to opt to limit NICs payments to gains made before 7 November last year – when legislation sending potential NICs bills on options soaring was announced.

The legislation allows companies to agree with employees that they should cover the NICs liability on actual gains made when shares are disposed of, instead of a notional value of the option when granted. It applies to options granted between 6 April 1999 and last 19 May 2000.

Tory spokesman Howard Flight welcomed the concession, but denounced the governments strategy encouraging IT investment in the UK.

He claimed leading IT companies, such as Cisco, were moving their operations out of the UK because high taxation on options makes it difficult to motivate staff. Internet auction house QXL has warned ‘the NIC situation will force talented staff out of the UK’.

‘The message from hi-tech industry is loud and clear. This Bill is welcome, but it does not address the fundamental issue – that the government has hit the venture capital and new tech industries by applying a 47.3% tax charge on unapproved options when individuals exercise them,’ he said.

He said it was ‘palpably nonsense’ to tax a risky form of remuneration higher than a safe salary.

Chichester Tory MP Andrew Tyrie said the government did not understand the damage it was doing.

But financial secretary Stephen Timms said the new Bill was needed because companies had found it difficult to persuade staff to take on the NICs liability and faced accounting difficulties coping with unquantifiable NICs bills on options not yet exercised.

Earlier, he admitted that to date, only 100 of the 20,000 qualifying companies had taken up chancellor Gordon Brown’s tax reliefs for a limited number of key staff.

Links

Pre-Budget statement: More tax relief for share options

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