On Wednesday, 15 March, Chancellor Jeremy Hunt delivered the UK's 2023 Spring Budget. The most notable changes impacting employee share plans are for companies offering Enterprise Management Incentives (EMI) options. From April 2023 there will be a simplification of some of the stringent requirements of the EMI grant process. Companies will no longer need to set out details of share restrictions in EMI option agreements or declare that an employee has signed a working time declaration. The deadline for notifying HMRC of an EMI grant will also be extended from April 2024.
The Government will be launching a call for evidence on the Share Incentive Plan (SIP) and Save As You Earn (SAYE) employee share schemes to review whether they can be improved and simplified.
The Government has also implemented several attractive pension savings and tax relief measures to encourage older individuals to rejoin the UK workforce.
The previously announced tax rate increases, and tax threshold freezes addressed in the 2022 Autumn Statement were re-affirmed by the Spring Budget and will come into force from 6 April 2023.
The following important new changes have been announced in the 2023 Spring Budget:
1. Reducing pensions tax by increasing tax-free savings opportunities
From 6 April 2023, the Government will implement the following:
- the Annual Allowance (the annual limit permitted on how much an individual can build up tax-free in their pension savings) will be increased from £40,000 to £60,000. Any unused portion of the Annual Allowance from the 3 previous tax years can still be carried forward into future tax years.
- the minimum Tapered Annual Allowance will be increased from £4,000 to £10,000. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000.
- the Money Purchase Annual Allowance (contributions to a money purchase pension underneath this allowance are tax-free) will be increased from £4,000 to £10,000.
- the Lifetime Allowance Charge will be removed, with the Lifetime Allowance abolished altogether from April 2024.
- Although the Lifetime Allowance will be abolished in April 2024, the maximum tax-free Pension Commencement Lump Sum (25% of the current Lifetime Allowance for those without protections) will be retained at its current level of £268,275 and frozen thereafter (i.e. it will not be impacted when the Lifetime Allowance is abolished).
These measures are expected to entice older workers to rejoin the UK's workforce by providing more attractive tax reliefs and opportunities to grow their pension savings tax-free.
2. Simplifying employee share plans
Grant process for EMI options: From April 2023, the requirement for a company to set out details of share restrictions within the EMI option agreement (previously, this would have to be drawn to the employee's attention in a 'meaningful way'), and the requirement for a company to include a working time declaration confirmation (i.e. for the employee to confirm that they spend at least 25 hours each week or, if less, 75% of their working time, working as employees for that company), will be removed. Currently, failing to include the restrictions or confirmation of the signed declaration could disqualify EMI options from tax-favorable treatment.
From April 2024, the deadline for a company to notify HMRC of the grant of an EMI option will be extended from 92 days following grant, to the 6th of July following the end of that tax year. Currently, failing to notify HMRC of a grant within 92 days disqualifies all EMIs awarded under that grant from tax-favourable treatment.
The changes will apply to: (i) EMI options granted after 6 April 2023; and (ii) existing EMI options granted before 6 April 2023 but that remain unexercised after 6 April 2023.
Call for evidence: The Government will be launching a call for evidence on the SIP and SAYE employee share schemes. The evidence collected will be used to brainstorm opportunities to improve and simplify these non-discretionary tax-advantaged schemes.
3. Confirmation of other previously announced tax and threshold changes
The following other previously announced tax changes were re-affirmed in the Spring Budget:
- Reduction of the annual exempt amount for CGT: The annual exempt amount will still decrease from £12,300 to £6,000 from April 2023, with a further reduction to £3,000 to take place from April 2024. This will likely cause many share plan participants, who are not ordinarily accustomed to paying and reporting CGT (e.g. particularly those participating in tax-advantaged schemes such as SAYE, EMI and CSOP plans) to be personally responsible for reporting any chargeable gains and paying CGT. From April 2023, the CGT proceeds reporting limit will be fixed at £50,000.
- Income Tax Rates and Thresholds: The basic rate of income tax will remain at 20% and the 45% additional rate of income tax will also remain as is. The income tax personal allowance threshold and higher rate threshold will be frozen until 2028. The threshold for the additional rate of income tax will be reduced from £150,000 to £125,140 from 6 April 2023.
- Dividend Tax Rates: The dividend tax rates will not be reduced. The 1.25% increase, which took effect in April 2022, will now remain in place. The dividend allowance will be reduced from £2,000 to £1,000 from April 2023, and then to £500 from April 2024.
- National Insurance: Thresholds for National Insurance contributions will be frozen until April 2028. The increase of 1.25% (in effect since April this year) was reversed from 6 November 2022.
4. Other new updates from the Spring Budget:
- Low tax Investment Zones: The Government will establish 12 Investment Zones across the UK and will legislate in the Spring Finance Bill to allow the designation of special tax sites in or connected with these Zones. Once designated, these special tax sites will benefit from certain tax reliefs, including Secondary Class 1 NICs relief (on the earnings of new employees who spend 60% or more of their working time within these special tax sites). This rate can be applied on the earnings of all new hires up to £25,000 per year for up to 3 years. The policy offer and tax information and impact note provide further information.
- Trust income tax: The Government will legislate new ways to simplify how income tax applies to trusts, estates and their beneficiaries in the Spring Finance Bill. These changes will take effect from 6 April 2024. HMRC also intends to make changes to inheritance tax regulations to remove some reporting requirements of trusts that do not pay tax.
- Discussion paper on Income Tax services: The Government has published a discussion paper setting out its plans to modernize Income Tax services and has called for responses. The paper focuses on PAYE and the Income Tax Self-Assessment tax regimes, and particularly ways to encourage taxpayers and HMRC to interact digitally. The discussion paper is open for comment until 7 June 2023. The paper can be found here: Discussion document: Simplifying and modernizing HMRC’s Income Tax services through the tax administration framework - GOV.UK (www.gov.uk)
- Closure of Office of Tax Simplification: Former Chancellor Kwasi Kwarteng's decision to close the Office of Tax Simplification in September 2022 has not been overturned. The Office will close with effect from Royal Assent of the 2023 Spring Finance Bill.
The Spring Finance Bill is due to be published on Thursday, 23 March.
The Government will also be making a further set of tax administration and maintenance announcements at a Tax Administration and Maintenance day expected to be held in late Spring.
To access the 2023 Spring Budget and supporting documents please use this link: Spring Budget 2023 - GOV.UK (www.gov.uk)