UK Tax: The Chancellor Delivers UK Budget

On 11 March 2020, the Chancellor of the Exchequer (the UK Finance Minister) delivered his budget (financial statement) to the UK parliament.

There was little in the budget of direct relevance to share plans and the main topic today was, inevitably, the potential impact of the coronavirus on the economy and the introduction of measures to address this in the short term. 

Key measures:

Some of the announcements affecting employees and employers are set out below:

  • Enterprise Management Incentive (EMI) schemes: A consultation has been launched to consider whether these tax-advantaged employee option schemes (currently only available to smaller businesses, and subject to certain criteria) should be made more widely available.
  • Entrepreneurs’ Relief: This relief (which confers a 10% rate of capital gains tax for disposals by shareholders holding more than 5% of a company) was retained, but the lifetime limit was reduced from £10 million to £1 million.
  • Social security: The earnings threshold for NICs (social security contributions) increased from £8,632 to £9,500.  These contributions are normally payable alongside income tax by employers and employees when share awards vest or are exercised.
  • Corporation tax: The rate of corporation tax remains unchanged at 19% (and will not drop to 17% as had been previously stated).

Tapestry comment
It will be interesting to see whether any significant changes are proposed to the EMI scheme following this consultation.  Depending on any restrictions imposed by the UK’s state aid rules after Brexit, it might be that this scheme, and its generous tax benefits, could be made available to larger businesses. 

Entrepreneurs’ Relief has not been abolished as some commentators had predicted, however the reduction in the lifetime allowance makes it less attractive, particularly when considered alongside the changes introduced in 2018 which made it more difficult for shareholders to qualify for the relief.

If you have any questions on how these changes may impact your share plans, please do contact us and we would be happy to help. 

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