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Share plans and other employer matters

The introduction of a new additional (50%) rate of income tax on earnings, in addition to the current basic rate of 20% and the higher rate of 40%, had already been announced in last December’s Pre-Budget Report and therefore should not have surprised employers.

In detail

Other pre-announced areas that could affect employers in the (first) Finance Bill of 2010 include the restriction on tax relief for pension contributions by employees earning £130,000 or more. Technical changes to the rules relating to child care vouchers should change nothing, but are intended to prevent employers falling foul of the requirements for a tax-compliant scheme by excluding the participation of employees earning at or near the national minimum wage. Nothing further was said about the plans to restrict tax relief for higher rate taxpayers, which are likely to prove problematic for employers if the latest proposals are adopted.

Similarly, anti-avoidance measures in relation to company share option plans and share incentive plans are aimed solely at those employers who have attempted to manipulate schemes. Employers whom HMRC regards as having a history of serious non-compliance with their PAYE and national insurance obligations may be required to give a bond to HMRC. The level of this payment will depend on HMRC’s perception of its risk but the concept, which mirrors an existing VAT provision, will not take effect before 2011-2012.

Employers who provide zero-emission company vehicles (e.g. electric cars or vans) will find that, if the Finance Bill is enacted and remains in force, they will have no Class 1A national insurance contributions charge for the five tax years from 2010-2011 to 2014-2015. Employees using such vehicles will suffer no benefit in kind charge either. Where the company car has CO2 emissions of no more than 75g/km the benefit charge will be restricted to 5% of the list price.

Share plans

Perhaps the only significant announcement for employers in the Budget was for those businesses operating as limited companies who wish to offer share options to their employees under Enterprise Management Incentives. Until now, it was a requirement that the company or at least one of its group operated ‘wholly or mainly’ in the UK. In order to comply with EU State Aid guidelines, the Finance Bill is to change this requirement so that the company or a group company must merely have a ‘permanent establishment’ in the UK.