Budget 2016: How does this affect Employers?
While employment issues didn’t take the headlines in this Budget, there were some changes that employers they will need to be aware of. One of the biggest changes was in relation to the Employee Shareholder Status scheme, as the CGT exemption for employees with shares is now capped at £100,000. Another change to come in 2018 is the taxation of termination payments, as employer’s National Insurance will become due where it previously was not. Employers will need to bear this in mind as it will make redundancies more expensive.
Below is a list of some of the main changes we think employers should be aware of:
- Employee Shareholder Status
Until now employees have been allowed to acquire shares in their employing company in exchange for giving up certain statutory employment rights. In return for giving up such rights, employees have been entitled to benefit from “employee shareholder shares”. Under this scheme employees could acquire shares with an initial value of between £2,000 and £50,000 and no capital gains tax would arise when the shares are ultimately sold.
The Government has now introduced an individual lifetime limit of £100,000 on gains eligible for CGT exemption through the Employee Shareholder Status. This limit will apply for arrangements entered into on or after 17 March 2016.
- Termination payments and National Insurance
The government has announced that the anticipated changes to the employment tax termination payment regime will be introduced with effect from April 2018. From this date employers will need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due, whereas previously most termination payments have been exempt from National Insurance regardless of the amount paid. The Government is considering how to reform the termination payment regime so expect further changes in this area over the next few months.
- Disguised remuneration schemes
The Finance Bill 2016 will make a number of amendments to the disguised remuneration legislation introduced in 2011. This includes extending the anti-avoidance measures directed at disguised remuneration schemes which are used to avoid income tax and NICs. If in doubt about your position speak to your accountant.
- Interest deductions to be capped to 30% of earnings
A cap will be introduced on the tax deductibility of interest for large companies. Broadly, this will be restricted to 30% of net earnings, with special rules for groups. It is intended that this cap will be brought in from 1 April 2017.
If you need any help on these or any other issues please contact Michael Scutt or Nicola Shepherd in the Employment & Dispute Resolution department.