Autumn Statement 2012 - A Share Scheme Perspective
After a busy year full of Government consultations on share related matters the Chancellor's Autumn Statement this year had been eagerly anticipated. Sadly after reviewing the Treasury Press Releases today it is clear that on many matters we are to be held in suspense for a little longer as much of the detail will only appear in the draft Finance Bill 2013 to be published on 11th December 2012.
However, what we do now know is as follows:
Shares for Rights the new Employee Owner proposition
In the Chancellor's Autumn Statement the Government has reconfirmed it is legislating to introduce a new employee shareholder status that will give staff a stake in their firms' future success and give firms greater choice about the contracts they can offer to individuals.
When the proposal was first announced it was intended that a new "Employee Owner" status would be created however the revised intention is to re-name this as "Employee Shareholder".
Employee Shareholders will have reduced employment law rights and in return will receive shares worth a minimum of £2,000. As announced, the Government will exempt from Capital Gains Tax (CGT) up to £50,000 of shares acquired by Employee Shareholders. This new employment model will be effective from 6 April 2013.
In its response to the consultation, the Government is now also, thankfully, considering ways to reduce the income tax and National Insurance Contributions (NICs) liabilities that arise when employee shareholders receive their shares, including an option to deem that employee shareholders have paid £2,000 for shares they receive. This option would mean that the first £2,000 of shares received under the new status would be free from income tax and NICs and exempt from capital gains tax.
The Government's response was published on 4th December and is available here. It acknowledges the many concerns raised by respondents (only 3 out of 209 respondents indicated a desire to adopt the new model) and accepts that a number of changes are required to the draft legislation. Amendments will therefore be made to Clause 23 of the Growth and Infrastructure Bill.
The changes proposed include:-
- explicitly stating that the shares should be issued fully paid up and free of charge to the Employee Shareholder and that the individual should give no payment or consideration for the shares other than by entering into the agreement;
- allowing non-UK registered companies to adopt the new model;
- allowing shares to be issued by a parent company and not just the immediate employing subsidiary company;
- introducing a power to enable the lower limit of £2,000 to be increased, but not decreased, should economic factors so require; and
- removing the £50,000 upper limit in relation to the value of shares that can be transferred to the Employee Shareholder. The £50,000 cap will however remain in relation to the amount that is exempt for CGT purposes.
Furthermore it acknowledges that further consideration is required in respect of share valuation and taxation matters in particular. These issues have been highlighted in our earlier commentary on the proposals here. The Government have now stated "In order to allow people to make informed choices about whether to accept an employee owner contract, we will develop clear guidance for people that helps them work out the employment law and tax consequences of these contracts." We therefore await their further publications but remain sceptical that such proposals, even revised, provide any better solution to that already available to employers under existing HMRC approved share plan arrangements.
Employee Benefit Trusts
Budget 2012 announced an internal Treasury review of the link between employee ownership and growth. The Government supports employee ownership as a business model, which offers benefits to employers and the wider economy, and recognises that a range of employee ownership models may be legitimately applied including employee share schemes and Employee Benefit Trusts that are not aimed at avoiding tax. The Nuttall Review set out recommendations to support an expansion in the number of employee-owned businesses. The Treasury and HMRC will support the Department for Business, Innovation and Skills and Cabinet Office in implementing the Government's response to the Nuttall Review of employee ownership. The Government is considering further incentives to support this objective and will report at Budget 2013.
Employee Benefit Trusts have had bad press in recent years and this is an encouraging statement that the Government recognises the validity and genuine commercial benefit of Employee Benefit Trusts as a mechanism to provide liquidity in private company shares when used for bona fide purposes in conjunction with employee share schemes.
It sounds like we can expect some further positive developments next year. Our fact sheet on how an EBT can be used in this context is available for download here.
Enterprise Management Incentives
As announced in Budget 2012, an enhancement to EMI will feature in the Finance Bill 2013 to enable gains made on shares acquired through exercising EMI options on or after 6th April 2012 to be eligible for Entrepreneurs' Relief (thus reducing the effective rate of tax on gains to just 10%). Some guidance on this matter was issued in March and we have identified the main issues here.
We have not been given any further insight into the detail of this in the Autumn Statement Press Releases from HM Treasury so we await and will review the draft legislation on 11th December. An update will follow in our next newsletter.
Government response to Office of Tax Simplification (OTS) employee share schemes review
The Government announced at Budget 2012 that it would consider recommendations made by the OTS on the Government's tax advantaged employee share schemes (EMI, CSOP, SIP and SAYE) and consult on taking these forward. Following this consultation, the Government has now confirmed that it will implement a package of simplifications to such employee share schemes. Most of these changes will take effect during 2013. So, yes you guessed it, we await publication of the draft Finance Bill on 11th December and will provide an update in our next newsletter.
Office of Tax Simplification future review
The Government has now stated that it will also ask the OTS to carry out a review of ways to simplify the taxation of employee benefits and expenses and employee termination payments. This will include an initial scoping exercise to identify which areas are most complex for taxpayers. Further details will be provided by the OTS shortly.
Other points to note:
Income tax: Capping unlimited reliefs and pensions relief changes
As announced at Budget 2012, the Government will cap all previously unlimited income tax reliefs at the greater of £50,000 or 25 per cent. of an individual's income. Charitable reliefs will be exempt from this cap.
Pensions tax relief caps are to be further reduced from April 2014. Currently such relief has been capped at £50,000 per year however this will reduce down to £40,000. The overall lifetime limit is now £1.5 million but will decline to just £1.25 million. High earners or higher contributors might therefore want to maximise contributions in the short term but going forward will have reduced opportunities to make tax efficient savings. Consideration might therefore be given to alternatives, for example a company Share Incentive Plan (SIP).
Individual Savings Accounts (ISAs): Qualifying Investments
The Government will consult on expanding the list of Qualifying Investments for stocks and shares ISAs to include shares traded on small and medium enterprises (SMEs) equity markets such as the Alternative Investment Market (AIM) and comparable markets. This is a move which we welcome and would provide opportunity for more employees to port matured Share Incentive Plan shares into an ISA should they wish to do so. We have previously explained the tax advantages of doing so here.
Digital tax services
The Government will invest in expanding the online services that HMRC offers over the next three years. SMEs will be able to access all the tax services they need from a personalised homepage with secure digital messaging. Taxpayers in Self-Assessment will be able to conduct all tax transactions online. Pay As You Earn taxpayers will be able to transact with HMRC online for the first time.
If you would like more information about the benefits of share schemes or the impact of the Autumn Statement on your share plan, then please call us on 020 8499 5522 or email Liz Hunter on Liz.Hunter@rm2.co.uk.