Budget highlights share scheme tax benefits
The tax changes announced in the 2009 Budget are causing many companies to look again at the tax advantages of employee share schemes.
Effective from April 2010, income tax will rise to a top rate of income tax to 50 per cent. (on income above £150,000) and personal allowances will be reduced by £1 for every £2 of income above £100,000. Restrictions on tax relief for pension contributions will be introduced from April 2010 for higher earners (assuming Labour is still in office!) Knock on effects include a rise in the additional dividend rate to 42.5 per cent.
The maximum tax take on a cash bonus will now rise to an eye-watering 63.8 per cent., comprising income tax plus employer NICs of 12.8 per cent. and incremental employee NICs of 1 per cent. The rates of NIC will increase by another 0.5 per cent. (employer and employee) from April 2011.
Against this background, employers have a compelling motive to structure incentives in the form of capital gain - taxed at 18 per cent. or less - rather than income. Several equity based employee incentive schemes meet this need, including the government-sponsored Enterprise Management Incentive and Approved Company Share Option Plan. If these plans are not available or suitable, companies should consider the Joint Share Ownership Plan or Deferred Share Purchase Plan. Contact us now for details on how these arrangements could benefit your business.
Effective from April 2010, income tax will rise to a top rate of income tax to 50 per cent. (on income above £150,000) and personal allowances will be reduced by £1 for every £2 of income above £100,000. Restrictions on tax relief for pension contributions will be introduced from April 2010 for higher earners (assuming Labour is still in office!) Knock on effects include a rise in the additional dividend rate to 42.5 per cent.
The maximum tax take on a cash bonus will now rise to an eye-watering 63.8 per cent., comprising income tax plus employer NICs of 12.8 per cent. and incremental employee NICs of 1 per cent. The rates of NIC will increase by another 0.5 per cent. (employer and employee) from April 2011.
Against this background, employers have a compelling motive to structure incentives in the form of capital gain - taxed at 18 per cent. or less - rather than income. Several equity based employee incentive schemes meet this need, including the government-sponsored Enterprise Management Incentive and Approved Company Share Option Plan. If these plans are not available or suitable, companies should consider the Joint Share Ownership Plan or Deferred Share Purchase Plan. Contact us now for details on how these arrangements could benefit your business.
Created: April 29, 2009, 7:30 am
