CISCO responds to Finance Bill

CISCO’s concerns relate to significant changes to capital gains tax rules and to National Insurance contributions payable on certain share incentives:

1. Despite the major tax relief in the proposed changes, very many employees will not benefit from them and will still pay tax at rates up to 40% on gains arising on their holdings. The combined rates of tax payable by employees and employers on employee share gains will now range between 10% and 52.2%.

2. CISCO believes that the current National Insurance Contributions burden on employers on the exercise of unapproved share options is wrong in principle. It can only be justified if employers are given a corporation tax deduction for the gains charged to income tax on employees. Even this will not solve the problems of dot.com companies which have large capital values but lack the cash to pay tax. Alternatively, the contributions should be capped.

3. The old, broadly-based approved share option schemes (the Company Share Option Plan and the Savings-Related Share Option Scheme) are now widely seen as being much less advantageous than they were.

4. There is a lack of clarity on key issues relating to the new CGT rules. The new tax relief will particularly go to employees who buy shares in their employer, provided that the shares are in a trading company. But what defines “employee”, “trading” or a “Company” for these purposes? Existing legislation will need to be radically changed to clarify these and other key terms.

5. Red Tape. The additional complexity imposed by the proposed changes will add significant extra costs and administrative burdens on companies, employers, employees and outside shareholders.