Budget 2013 - Interesting news for employee ownership!
Here is a brief summary of some of the headline points arising from George Osborne's Budget on 20th March 2013, so far as they are relevant to share schemes and employee ownership.
As always, the devil is in the detail and further guidance can be provided over the coming weeks. The below bullet points are intended as a helpful starting point. The Finance Bill will be published on 28th March and the finer detail should then be known. It will also be interesting to see how matters develop in relation to the passage of the Growth and Infrastructure Bill as Clause 27, intended to introduce the new Employee Shareholder status, was voted down in the House of Lords just hours after the Budget announcements, meaning it will now be up to MPs to decide whether to reinstate the clause when that Bill returns to the Commons.
There is a lot of good news and the Government are delivering on their commitment to encourage wider employee ownership.
As announced in the Autumn Statement last year, Entrepreneurs' Relief (ER) is being extended to cover gains made on shares acquired under Enterprise Management Incentives (EMI). This amendment will apply to set disposals from 6th April 2013 with transitional provisions from 6th April 2012. We await the detailed provisions in Finance Bill 2013 to enable us to advise further on this much anticipated and very welcome measure.
The controversial new Employee Shareholder Status (ESS) will not commence before 1st September 2013 (and not 6th April 2013 as originally intended). This new model of ownership has been much criticised however we were pleased to see that the Treasury has now confirmed that the first £2,000 of shares will be income tax and NIC free in addition to the Capital Gains Tax (CGT) exemption. Whilst this does not go quite as far as one might have hoped (and indeed Lord Flight had proposed that up to £25,000 should be exempt when the draft legislation had a second reading in the House of Lords recently) it is a welcome step in the right direction and certainly removes a significant barrier to take-up at the entry level of award. STOP PRESS: However, it now transpires that such Budget announcements have been premature! The draft legislation received its third reading in the House of Lords just hours after the Chancellor finished his speech and was defeated by 232 votes to 178. The Bill will now return to the House of Commons, where the Government will decide whether to accept the defeat (in which case the Employee Shareholder contracts will not happen) or try to re-introduce the clause. We will keep a close eye on the progression of the Bill and keep you posted as to developments.
The Government response to the Office of Tax Simplification (OTS) review of unapproved share schemes will be subject to further consultation and recommended changes to be progressed will appear in the Finance Bill 2014.
The Government will introduce a package of simplification measures in response to the OTS review of tax-advantaged (i.e. approved) share schemes and these measures will appear in Finance Bill 2013 and 2014.
The employer provided benefit in kind Beneficial Loans exemption has been unexpectedly doubled. Legislation will be introduced in Finance Bill 2014 to increase the exempt amount from £5,000 to £10,000 for 2014/15 and subsequent years. Whilst such loans are typically made by employers to employees to assist with the purchase of season tickets for commuter travel there are other areas where this loan legislation can apply. This exemption increase may therefore be relevant for those considering smaller value awards of equity under a Deferred Share Purchase Plan (DSPP).
The CGT annual exemption for 2013/14 is £10,900 and will be £11,000 for 2014-15 and £11,100 for 2015/16.
Employee Ownership Funding & CGT exemption for a qualifying sale of a businesses to employees
The Government will provide 50 million annual funding from 2014/15 to support employee ownership. This will include the introduction of a CGT exemption on qualifying disposals of a controlling interest in a business into an employee-owned structure from April 2014. The Government will also look at further incentives in this area, including measures targeted at employees through indirect ownership models. (This last comment might indicate a consultation on profit related pay reliefs in respect of payments made via Employee Benefit Trusts to employees of employee owned businesses.)
Income tax personal allowance will be £9,440 from April 2013 and £10,000 for 2014/15.
Income tax thresholds
For 2013/14 the basic rate limit will be £32,010 and this will then be reduced to £31,865 for 2014/15. For 2013/14 the higher rate threshold is £41,450 and the NIC upper earnings limit is reducing to align it with the higher rate income tax threshold. The higher rate threshold for 2014/15 will be £41,865.
Income tax rates
The basic and higher rates for 2013/14 will remain as for 2012/13 (i.e. 20% and 40% respectively) but the additional rate of income tax will reduce from 50% to 45% for 2013/14.
Employer NIC relief
A new £2,000 Employment Allowance is being launched. This will provide an allowance of £2,000 per year for all businesses and charities, from April 2014, to be offset against their employer NIC (i.e. Class 1 secondary NIC) bill. This is a measure intended to stimulate employment.
The main rate of corporation tax (CT) reduces to 21% from 1st April 2014 and will further reduce to 20% from 1st April 2015. This measure is designed to make the UK a particularly attractive jurisdiction for corporate enterprises.
The Corporation Tax small profits rate and main rate of CT will be unified in 2015 at 20%. Meanwhile the small profits rate of CT will remain at 20% from April 2013.
Loans to participators
There will be a Government consultation on options to reform the operation of the tax charge on loans from close companies to make the rules fairer and simpler. Also, from 20th March 2013, three loopholes are being closed which attempted to avoid the charge on loans from close companies to individuals with a share or interest in the company. Measures in the Finance Bill 2013 will be deemed to take effect from 20th March 2013. We will provide any relevant update on the likely impact of these measures once further detail is available but as we currently understand matters, these new anti-avoidance rules are being introduced to counter bed and breakfasting of loans to avoid a section 455 charge and the avoidance of a charge by lending funds to an intermediary (e.g. a trust).
Stamp tax on shares: Growth markets
A measure that is already being warmly welcomed by smaller quoted companies is the confirmation that stamp tax will be abolished on shares in companies quoted on growth markets such as AIM and the ISDX Growth Market. This abolition will take effect from April 2014.
The much publicised GAAR (General Anti-Abuse Rule) is being introduced in Finance Bill 2013 to tackle abusive tax avoidance schemes. We do not anticipate this having any impact on the areas of advice provided by RM2.
Corporation tax deduction for employee share schemes
Under current legislation, corporation tax relief may be available in connection with share options. The relief is generally based on the amount that is chargeable to income tax when the options are exercised and shares are acquired by the employee, or the amount that would be chargeable if the employee was UK resident or if relevant tax advantages did not apply. An amendment is made, having effect from 20th March 2013, to the existing legislation to clarify a company's entitlement to corporation tax deductions for accounting expenses in connection with share options or awards granted to employees. The amendment means that where such relief is given no other CT deduction can be claimed in relation to the provision of the shares or share options. This legislation will have effect in relation to company accounting periods ending on or after 20th March 2013 and we will provide a more detailed update soon.
Business bank & funding for business to help access capital, some measures are promised to provide additional funding for SMEs and start-ups and a new fund will be available via the Technology Strategy Board of up to £15m to support digital content production industry (a sector that forms a growing demographic within our client base).
Please contact Liz Hunter or any member of the RM2 team on 020 8949 5522 for advice on how these changes might affect your business.