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Budget highlights share scheme tax benefits

Posted on April 29, 2009

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% (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%.

The maximum tax take on a cash bonus will now rise to an eye-watering 63.8%, comprising income tax plus employer NICs of 12.8% and incremental employee NICs of 1%. The rates of NIC will increase by another 0.5% (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% or less - rather than income. Several equity based employee incentive schemes meet this need,  including the government-sponsored Enterprise Management Incentive (EMI) and approved Company Share Option Plan (CSOP). If these plans are not available or suitable, companies should consider the Joint Share Ownership Plan (JSOP) or Deferred Share Purchase Plan (DSPP).

Contact us now for details on 020 8949 5522 to find out how these arrangements could benefit your business.


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