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Back to Robinson Reed Layton Website. Contents Income tax |
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Childcare | Construction Industry Scheme (CIS) |
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All employee share scheme The all employee share scheme was originally announced in the March 1999 Budget. It will allow employers to offer shares in the employer company to employees in different ways: employers can give up to £3,000 of shares per annum to each employee; employees can use up to £1,500 per annum of pre-tax salary to buy shares (‘partnership’ shares); employers can match partnership shares by giving up to two free shares for each share purchased. Under the proposals, all shares held in the plan for five years will be completely free of income tax and national insurance contributions (NICs). In this case the only possible liability for the employee would be capital gains tax on a subsequent sale of the shares but only based on any increase in value after the shares leave the plan. Employees who keep their shares in the plan for three years will only pay income tax and NICs on the initial value of the shares. Shares held in a qualifying employee share ownership trust (QUEST) on 21 March 2000 can be transferred to a new plan trust without any loss of earlier corporation tax relief. Comment The age old issues of valuation and marketability of shares will still create problems for unquoted companies under the new scheme. The rules for SAYE and the Company Share Option plan remain as they are. The Approved Profit Sharing (APS) scheme on the other hand is to stay only until 2002. Then employers will have to move their APS schemes into new plans, if they have not already done so, for tax breaks to continue. |
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Enterprise Management Incentives (EMI) A new EMI scheme was first proposed in the March 1999 Budget with further detail provided in November 1999. The scheme, which is expected to take effect in July 2000, will allow small higher-risk trading companies to grant tax-advantaged share options to up to 15 key employees. Under the proposals: companies (listed and unlisted) with gross assets up to £15 million can participate; each employee can be granted options over shares worth up to £100,000 at the time of the grant; the options will normally be free of income tax and national insurance; on a subsequent sale of the shares, any capital gain arising will qualify for business assets taper relief starting from the date the options are granted. |
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NICs and unapproved share option gains NICs are charged on gains arising when share options are exercised outside an Inland Revenue approved scheme and the shares are readily convertible into cash. The Government is considering suggestions to give employers more certainty about their exposure to NICs liability. Comment This problem has arisen as a result of options being given by e-commerce and high tech companies where the share price is volatile. Consequently, employers’ exposure to NICs in such situations is unpredictable which could be very damaging for such companies. |
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Stakeholder pensions Stakeholder pensions are expected to be introduced in April 2001. From the same date, a new single tax regime will apply to stakeholder and personal pension schemes. The main features of the new regime will be as follows: possible contributions of up to £3,600 each tax year irrespective of earnings; higher level contributions under the existing personal pension age and earnings related limits - these can continue for up to five years after earnings have ceased; all contributions from individuals will be paid net of basic rate tax; it will no longer be possible to carry forward unused relief; it will still be possible to make carry back claims; employers’ money purchase schemes may opt into this new tax regime. Comment The Inland Revenue’s comment that under the new regime “there will be no carry forward of unused reliefs since this is no longer needed for the majority of people” is unlikely to ring true for many. Individuals who have not paid the maximum possible personal pension contributions over the last six years and therefore have unused relief carried forward will need to consider paying additional contributions to use this relief or lose it altogether. |
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Company cars and fuel As announced in the 1999 Budget, the existing system of taxation of company cars, based on 35% of the car’s price, subject to business mileage and age-related discounts, will be abolished from 6 April 2002. The starting point for the new system remains the car’s list price. The charge will be based on a percentage of the list price graduated according to the car’s carbon dioxide (CO2) emissions measured in grams per kilometre. It will build up from 15% for low emission cars to a maximum charge of 35%. The benefit in kind charges relating to provision of free fuel for private use have increased substantially. Comment The changes announced provide additional details on measures which were announced in the last Budget. The next two years will see businesses considering the provision of cars and fuel in some detail to establish the most tax efficient structure for their existing company car fleet. |
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Authorised mileage rates As announced in December 1999, the authorised mileage rates for employees who use their own cars for business travel will remain at their present level for 2000/01. The authorised rate for bicycles, announced in the March 1999 Budget, will also remain unchanged at 12p per mile. From 6 April 2000 a new rate of 24p per mile will be introduced for employees who use their own motorcycles for business travel. The Inland Revenue is considering how these rates might be amended to send better environmental signals. |
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National insurance contributions (NICs) As previously announced, important changes will be made to the system from 6 April 2000. Employers’ NICs (Class 1A) will be extended to most taxable benefits in kind - not just cars and car fuel as at present. The Government has announced relief from NICs on employer provided childcare - see below. However, as now, employees will not have to pay NICs on benefits in kind. The starting point for employees’ NICs is increased to £76 per week for 2000/01. However on weekly earnings between £67.01 and £76 per week, although no NICs are due, entitlement to certain state benefits is preserved. The rate of employers’ NIC will be reduced to 11.9% in April 2001. |
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Childcare Childcare provision by employers, including contracting for places in commercial nurseries and provision of workplace nurseries or childcare vouchers, is to remain free of NICs. This will also extend to the arrangement of childminding on behalf of the employee. However, if employers help by providing cash to meet or reimburse childcare expenses incurred by the employees this remains subject both to employers’ and employees’ NICs. Most of these forms of provision of childcare as a benefit in kind remain a taxable benefit on the employee concerned. |
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Construction Industry Scheme (CIS) Changes are proposed with the aim of simplifying and streamlining the operation of the CIS, and consultation will continue to identify further improvements which might be necessary. Top of page / contents |