The Budget 2014: a share scheme perspective
This next year looks like it will bring exciting changes to the world of employee share schemes.
So much has been changing over the last 18 months and this year's Budget is mostly confirming or consolidating the alterations proposed in the Autumn Statement. The only disappointing news is for internationally mobile employees (IMEs) as the new rules for employment related shares will be put off till April 2015. That's frustrating as it's a particularly complicated part of the legislation.
The new online filing and increased limits for tax advantaged plans are still going ahead. Growth Market Shares (expected to be AIM and ISDX) go exempt from stamp duty from 28th April 2014 and can be transferred into ISAs, the limit for which has gone up to £15,000.
One new announcement might help where there is a tax and national insurance liability on employment related shares at a time when it is not possible to sell the shares to pay the tax. There is to be consultation on the concept of "marketable security" to help with this so-called "dry tax charge".
The other new announcement is a proposed user-friendly employee shareholding vehicle which might help companies deal with shares from retirees and other leavers. And we are still awaiting the final details on how the new Employee Ownership Trust will work.
- A switch from HMRC approval of share schemes to self-certification by companies (i.e. online registration); and on-line filing of all employee share scheme returns, both tax advantaged and non-tax advantaged share arrangements: (announced last year following the OTS review of tax advantaged employee share schemes but now to be implemented affecting:
- Some technical modifications to the self-certification of tax advantaged share schemes; and the option exercise rights of SAYE and CSOPs. These changes will apply from 6th April 2014.
- The changes to increase the maximum value of shares that an employee can acquire under a SIP – to £3,600 of "free" shares and £1,800 of "partnership" shares - will apply to SIP awards from 6th April 2014.
- Corporation Tax relief to be available for option exercises:
- During a limited period after a sale or other change of control of a company
- Relating to IMEs
- Removal of unfair tax charges relating to the timing of the payment for deferred purchase shares and nil or partly paid share issues.
The changes to non-tax advantaged share arrangements will have effect from 6th April 2014 or from Royal Assent to the Finance Bill 2014.
- Corporation Tax rates will fall to 21% for larger companies from April 2014.
Employee benefits in kind
The complex system of taxing benefits in kind and expenses is under review following the Office of Tax Simplification review, including the rules on the tax treatment of travel and subsistence expenses.
In particular government will consult on 4 specific simplifications:
- Abolition of £8,500 threshold for higher earners
- Voluntary pay rolling of benefits
- A trivial benefits exemption
- General exemption for non-taxable expenses
All this is set for "a future Finance Bill" so watch this space!
Seed Enterprise Investment Scheme/Enterprise Investment Scheme
Good news for smaller companies looking for investment as the Chancellor announces the SEIS – with its 50% Capital Gains Tax (CGT) reinvestment relief – will become permanent.
Careful with the EIS (and Venture Capital Trusts), though, as government is getting concerned about tax avoidance activities here. There will be a consultation exercise this summer.
The Chancellor is coming down hard on tax avoidance. In particular, where taxpayers are using a scheme promoted under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, or covered under the General Anti Abuse Rule, they must pay any disputed tax upfront. (Previously this only applied where the scheme had been defeated in litigation in the courts). That's not good for the taxpayer's cash flow, but if they win in the courts later they will be reimbursed with interest.
HMRC will be glad to hear the Chancellor is going to increase their budget to seek out tax avoiders. They will also be given the power to collect directly from the bank accounts of tax avoiders who have repeatedly ignored requests from HMRC to pay their dues. Additional powers will include the ability to issue conduct notice & levy large financial penalties for non-compliance.
Government will also look to improve the current DOTAS regime in next year's Finance Bill.
In other news...
- One of the biggest announcements – which will cost the government £2 billion – is the doubling of the Annual Investment Allowance for companies from £250,000 to £500,000. This will last from April 2014 to the end of 2015. Government estimates that nearly 5 million businesses will now have an effective 100% investment allowance as a result of this measure. This is great news for small and medium sized businesses.
- R&D tax credit payable to loss making small and medium sized companies will increase from 11% to 14.5% from April 2014 but there will be anti-avoidance rules applying where companies claiming relief change control.
- Capital gains made on tangible assets can be relieved from corporation tax if rolled over into intangible assets.
- £74 million to be invested over 5 years in a Cell Therapy manufacturing centre and a Graphene Innovation Centre which will enable large-scale manufacturing of cell therapies for late-stage clinical trials, and will provide SMEs with access to cutting-edge equipment for research and development of novel graphene products.
- Carbon Price support rate will be capped. Potentially very good news for large manufacturers in the UK!
- The Alan Turing Institute will be set up to pioneer computing research in the UK.
- An extra £85 million (in 2014 and in 2015) for the Apprenticeship Grants for Employers Scheme, helping support 100,000 more apprenticeships.
- £7 billion package to cut energy bills for British manufacturers.
- Interest rates to exporters will be cut by a third (and government lending will double to £3 billion.)
- Bingo duty halved to 10% - but fixed odds betting terminals in bookies will now be taxed at a higher rate of 25%
- If people choose to take their pension pot early, it will be taxed at a normal marginal tax rate - typically 20% instead of 55%.
- New merged Stocks and Cash ISA accounts with an allowance of £15,000.
- Inheritance Tax exemption for estates of emergency services workers who die in the line of duty but the threshold for IHT stays at £325,000.
- 15% stamp duty for corporate purchasers of homes worth £500k or more.
- Personal Tax allowance will be £10,000 from 6th April 2014 to go up to £10,500 from 2015.
- 10% starting rate for savings abolished from 6th April 2015 so that those savings will now be taxed at 0% up to £5,000.
- Tobacco duty has been rising by 2% above inflation and will do so again, but a penny off a pint for second year running.
- Fuel duty rise planned for September will not take place.
- The Deposit Interest Retention Tax (DIRT) rate will increase from 33% to 41% from 1st January 2014.
- The rate of tax that applies to life assurance policies and investment funds has also increased from 36% to 41% for payments including deemed payments made on or after 1st January 2014.
- A shiny new £1 coin!
If you are a business owner and wish to discuss the impact of The Budget on your plans to implement a share scheme, or exactly how the changes could affect your company's current arrangement, contact a member of the RM2 team on 020 8949 5522.