The Summer Budget 2015
Share schemes outcomes:
Dividend Tax Allowance
Nothing specific on share schemes in the budget but the Chancellor’s announcement on changing the tax rates relating to dividend payments may have an impact on existing employee shareholders who receive dividends.
From April 2016, the Dividend Tax Credit will be replaced by a Dividend Tax Allowance of £5,000 p.a. which will apply to everyone (or everyone who receives dividend payments, at least).
Dividend tax rates will be as follows:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers
It will also be a point for consideration when structuring an employee share scheme – if dividends can definitely be paid out tax free, this may be a tipping point when deciding between optionholders or shareholders, at least for employees in the higher tax brackets. For employees participating in a SIP, tax free dividends are also likely to be attractive – and indeed compare well with the existing £3,600 income tax free cash bonuses that can be paid out under an Employee Ownership Trust.
Even if financially it makes little difference to employees, it will certainly be easier to explain the dividend tax allowance to employees than it has been to explain the dividend tax credit!
Salary sacrifice arrangements and SIPs
There were also rumblings in the share schemes world about a potential attack on salary sacrifice arrangements, which could have had a negative effect on Share Incentive Plans. However, for the time being we are faced with only a warning shot across the bows, as the government has stated that it will “actively monitor the growth of these schemes and their effect on tax receipts”. Time, therefore, for share plan fans to get their arguments together as to why, should any future changes be made, there should be exclusions for a share plan that otherwise receives cross party support.
Venture capital schemes
The announcement on changes to the “tax-advantaged venture capital schemes” broadly repeats what was stated in the last budget. When a share schemes lawyer sees “tax-advantaged venture capital schemes” she also sees the words “Enterprise Management Incentives” standing close behind. Among other things (and subject to state aid approval) the changes include increasing the employee limit for “knowledge intensive companies” to 500 employees, and new qualifying conditions to ensure that a company is a knowledge intensive business. We await further detail with interest.
High net worth individuals and trusts
Hidden in the small print, HMRC will be provided with additional resources to identify tax avoidance by wealthy individuals and trustees by requiring additional information from them so as to improve tax compliance. On the face of it, this looks like it’s not aimed at Employee Benefit Trusts – but given the propensity of EBTS still to be used as a tax avoidance strategy, and the history of “innocent” EBTs caught up in this (disguised remuneration, anyone?), it will be interesting to see if any of these activities inadvertently affects larger EBTs.
In other news...
- Corporation tax (all businesses) to be reduced further to 19% in 2017 and 18% in 2020
- Larger companies (those with profits of over £20m) will have to make payments earlier – in the third, sixth, ninth and twelfth months of their accounting period
- With immediate effect, restriction of corporation tax relief for business goodwill amortisation
- From January 2016, Annual Investment Allowance increased permanently for smaller businesses to £200,000
- From April 2016, raising the National Insurance Contributions Employment Allowance by £1,000 to £3,000. A director who is the sole employee of a company will no longer be able to claim this.
- Tax avoiders – they are still coming for you. The government aims to raise at least an additional £5 billion a year by 2019-20 by tackling avoidance and tax planning, evasion and compliance. They will do this by:
- An extra £800m for HMRC to tackle non-compliance and tax evasion
- Extra powers for HMRC to acquire data from third parties (e.g. business intermediaries and electronic payment providers) to help identify businesses that are trading but not declaring or paying tax
- including new legislation to improve the “transparency of tax strategies” (looking forward to seeing the detail on this)
- IR35: there will be further investigations into improving the effectiveness of IR35 via a “dialogue with business”. It seems that the dialogue on IR35 is never ending but let’s see how it goes.
- Consultation on new detail of a General Anti-Abuse Rule penalty
- Expanded role for the Office of Tax Simplification. Their next jobs are to look at the closer alignment of income tax and NICs and taxation of small companies. The government is also to consult on simplifying the tax treatment of termination payments and of travel and subsistence. Further consultations are due on abolishing Class 2 NICs and reforming Class 4 NICs. Watch this space.
- New National Living Wage: for workers aged 25 or over, starting at £7.20 per hour (NMW is currently £6.50) and intended to rise to £9 per hour by 2020
- Increased personal tax allowance: £11,000 for 2016/17 (£11,200 for 2017/18 and a pledge to increase to £12,500 by the end of this parliament)
- Higher threshold for higher income taxpayers increased to £43,000 in 2016/17 (£43,600 for 2017/18 and a pledge to increase to £50,000 by the end of this parliament)
- Main residence nil rate inheritance tax band effectively allowing the inheritance tax-exempt transfer of a family home with a value of up to £1m to children/grandchildren. Similar rules will also apply if an individual downsizes and sells the family home and assets of an equivalent value are passed onto descendants.
- Tax lock to set a ceiling for main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) NICs rates
- Restricted pensions tax reliefs for higher earners (those with incomes above £150,000) and a consultation on whether and how to undertake a wider reform of pension’s tax relief.
- From the 2016-17 academic year, student maintenance grants will be replaced with maintenance loans, to be paid back only when their earnings exceed £21,000 p.a.
- Changes to vehicle excise duty (for new cars registered from April 2017) to fund road building
- From April 2017, mortgage interest relief for landlords restricted to the basic rate of income tax, phased in over 4 years, limiting the advantage that these individuals currently enjoy over ordinary homeowners
- Non doms: from April 2017, anyone who has been resident in the UK for more than 15 out of the last 20 years will be deemed UK-domiciled for tax purposes.
- The government remains committed to supporting small cider makers given their important role in rural communities, so the current duty exemption will be retained for the time being. Cheers!