Tax - Incentives and Personal

Some businesses will now pay employer's National Insurance Contributions (NICs) on a larger section of their workforce than before. One of the stand-out announcements in the Chancellor's Autumn Budget was the increase in employer's NICs to 15% from 6 April. Although this was not a huge surprise, more unexpected was the cut to the threshold at which employers start to pay NICs per employee from £9,100 to £5,000 for the next tax year. To mitigate the effect of these changes, the Chancellor also announced an increase to the Employment Allowance (which eligible employers can use to reduce their NICs bill) from £5,000 to £10,500 and removal of the eligibility requirement of a NICs bill of below £100,000 in the previous tax year. Companies can use incentive structures to reduce their exposure to the employer's NICs rise including through salary sacrifice arrangements, providing tax-advantaged share incentives and transferring the employer's NICs on option gains to employees.

From 30 October 2024, Capital Gains Tax (CGT) rates were increased to 18% and 24% (from 10% and 20%) for basic and higher rate taxpayers respectively. This, together with last year's reduction in the annual gains a person can make before paying CGT to £3,000, is unwelcome news for participants in share plans that benefit from CGT treatment. However, it is worth bearing in mind that CGT rates are still lower than the top rates for income tax (40% and 45% for higher and additional rate taxpayers), CGT treatment does not usually trigger associated NICs charges or Apprenticeship Levy and there are exemptions and cash-flow advantages applicable to it.

From 6 April, the official rate of interest (ORI) rose from 2.25% to 3.75%. Employees with interest-free employment-related loans will see an increase in the amount subject to income tax while their employers will have an increased NICs liability at the new higher rate of 15%. The ORI is used to calculate the tax liability on employment-related loans, living accommodation and partly paid shares. At the Autumn 2024 Budget, HMRC announced that its recent practice of not increasing the rate in-year would end and, instead, it will now carry out quarterly reviews. The purpose of this change is so that benefits calculated by reference to the ORI are "correctly valued".

There is no further news on the Government's review of SAYE and Share Incentive Plans (SIP) that we mentioned in the last edition of Insights. However, the bonus rates for SAYE plans have changed three times in the last 12 months and currently stand at 0.8 times monthly savings for a 3-year contract, 2.3 times for a 5-year contract and an early leaver interest rate of 1%. HMRC has revised its guidance for SAYE plans where exercise gives rise to an income tax charge (such as on certain changes of control). To relieve the burden of option holders having to file a self-assessment tax return, HMRC allows companies to apply for authorisation to collect the tax through PAYE provided a full schedule of those choosing to have income tax deducted through PAYE is sent to them. In a welcome move, HMRC has now removed the requirement to seek their authorisation and to provide them with a schedule (although collecting the tax through PAYE must be voluntary on the part of the option holder).

If you operate a SIP where participants acquire partnership shares through salary deductions, the statutory notice to explain the impact of those deductions on certain benefits must, for partnership share agreements issued from 6 April 2025, include a reference to the new statutory neonatal care pay.

As we approach the AGM season, it has been interesting to note a change in tone in some of the guidelines on remuneration published by institutional investor protection committees and proxy voting services. The Investment Association produced a comprehensively re-written set of remuneration guidelines last October, which, although fundamentally unchanged, marked a noticeable emphasis on the fact that they are guidelines rather than rules and the need for shareholder engagement and to do what best fits with the company's strategy. Another important change is the removal of the long-standing dilution limit requiring no more than 5% of a company's share capital to be issued under executive (discretionary) share plans in any ten-year period. The 10% in ten-year dilution limit for all a company's employee plans remains although the guidance recognises that in high-growth, newly listed companies there may be a case to seek shareholder approval for higher dilution limits.

For more information, read our Incentives and Remuneration: Winter Update | Travers Smith.