Whilst there was little by way of surprises for this area in the Chancellor's Autumn Statement 2012 yesterday, there were a few issues to note.
Employee shareholder status
Despite support from fewer than 5 of the 209 companies that responded to the consultation, the Government has decided to push ahead with the proposal to enable employees to give up certain statutory employment rights in exchange for shares (see our earlier Law-Now for details of this proposal), and has confirmed that companies will be able to apply restrictions to the shares they give employees.
The Government has also released further details about the tax treatment of the shares, though more details are still to be released.
Although the upper limit of £50,000 worth of shares being given to an employee has been removed, the capital gains tax relief has been capped at gains on £50,000 worth of shares. The Government has also stated it is 'considering options to reduce income tax and NICs liabilities that arise when employee shareholders receive the shares, including an option to deem that employee shareholders have paid £2,000 for shares they receive'. The tax consequence of this could be that the first £2,000 worth of shares received by the employee would not be subject to an income tax and NICs charge. If this is so, this would be a welcome change, but it is unlikely to be sufficient to change the general scepticism of why an ordinary worker would want to forfeit valuable employment rights in return for a speculative capital gains tax saving in the future.
Taxation of controlling persons
The Government was embarrassed when it was revealed that a large number of senior civil servants were in fact supplying their services through companies and benefitting from favourable tax treatment. However, it issued a consultation paper covering senior managers generally, not just those occupying civil service posts.
The Government has decided not to proceed with its controversial measure requiring engaging entities to subject to PAYE payments made to individuals who are 'controlling persons'. The u-turn is good news for both contractors holding senior positions and client companies engaging such individuals. The introduction of another layer of tax rules would undoubtedly have added complexity to an already complex system. It seems the Government has, in this instance at least, taken on board the concerns raised by interested parties as part of the consultation process.
One small point though is that the Government has announced that it is "strengthening the existing intermediaries (IR35) legislation to put beyond doubt that is applies to office holders for tax purposes". The Government has not yet elaborated on what has given rise to the 'doubt' that IR35 does not apply to contractors who are officeholders of the engaging entity and what exactly 'strengthening IR35' will mean in practice.
Simplification of taxation of employment benefits and termination payments
As part of its continuing drive to simplify the taxation rules, the Government has announced that it will ask the Office of Tax Simplification (OTS) to conduct a review of ways to simplify the taxation of employee benefits, expenses and termination payments. It is not clear at this stage what the implications of this review will be, but the mandate given to the OTS includes an initial scoping exercise to indentify the most complex areas for taxpayers. The OTS is due to provide further details shortly. Companies will no doubt be keen to keep the £30,000 tax free exemption for non-contractual termination payments!
To access the Autumn Statement 2012, please click here.
To access the Government response to the implementing employee owner consultation, please click here.