3 March 2021
On 3 March, the Chancellor of the Exchequer (the UK Finance Minister) delivered his latest 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, safeguarding jobs and managing the hoped for economic recovery, post COVID-19.
Despite an acknowledged need to start to rebuild public finances after the enormous cost of dealing with the pandemic, there were few headline grabbing tax rises. The main item will be an increase in UK corporation tax rates from 19% to 25% over the next two years. Smaller companies will be protected and tapering will apply such that only the most profitable businesses will pay the full rate. The remaining tax news is that allowances rates and thresholds are, for now at least, being frozen.
The Chancellor was clear that take home pay will not change as result of the budget. Income tax and national insurance (social security) rates are unchanged. Personal allowances and bands on which income tax and NICs (UK social security contributions) are charged are being frozen until 2026. Similarly, the capital gains tax (CGT) and inheritance tax (IHT) allowances and bands are also remaining unchanged.
The main incentives news is that another consultation has been announced, looking into whether the scope of the tax advantaged Enterprise Management Incentives (EMI) arrangement should be extended.
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 plans (currently only available to smaller businesses, and subject to certain criteria) should be made more widely available.
- Income tax: The personal allowance is being frozen and the thresholds at which higher and additional rate tax are charged are remaining unchanged, until 2026. Rates are also unchanged.
- Capital gains tax: The personal allowance of £12,300 is also not changing for the current tax year.
- Social security: The earnings threshold for NICs (social security contributions) will remain at £9,500 for the tax year 2021/22. These contributions are normally payable alongside income tax by employers and employees when share awards vest or are exercised.
- Corporation tax: The top rate of corporation tax for larger companies will be increased to 25% by 2023 with a new small company rate of 19% running alongside that. Super deductions will be available for certain types of growth generating investments.
It will be interesting to see whether any significant changes are proposed to the EMI scheme following this consultation. We will join with industry bodies, clients and friends to see how this plan, and its generous tax benefits, could be made available to larger businesses.
The Chancellor gave some carefully worded assurances - take home pay will stay the same, the lifetime pension allowance will remain unchanged and the capital gains tax personal allowance is also not being changed. He was explicit about income tax, NICs and VAT rates and thresholds for some taxes, but not all - he did not mention CGT or IHT rates, or the yearly contribution limit applicable to personal pensions, for example. So take home pay won’t decrease, but thanks to inflation and our old friend fiscal drag, it might start to feel that way. We have yet to see the outcome of last year’s CGT review from the UK's Office of Tax Simplification, but we are keeping an eye out for this.
We know that the Chancellor will be making more announcements on the forthcoming “Tax Day” on 23 March. There is clearly therefore more “tax” news to come. We will keep you fully informed of any key new measures, consultations and developments.
If you have any questions on how these changes may impact your share and incentive plans, please do contact us and we would be happy to help.
Sarah Bruce, Chris Fallon & Tom Parker